Commons Sitting of 15 December 2003

Preamble
The House met at half-past Two o'clock
PRAYERS
[MR. SPEAKER in the Chair]
Oral Answers to Questions
  DEFENCE
  The Secretary of State was asked—
  DEFENCE

    Future Strategic Tanker Aircraft
    Mr. David Amess: When he expects to make an announcement on the awarding of the contract for the future strategic tanker. [143767]
    The Minister of State, Ministry of Defence (Mr. Adam Ingram): The Department is currently considering bids from two consortiums for the future strategic tanker aircraft project. We plan to make a decision on that complex and important private finance initiative competition as soon as possible in the new year.
    Mr. Amess: Following reports in The Independent on Sunday yesterday that the RAF may be forced to share its aircraft for the future strategic tanker requirements with air forces from other nations, may I ask the Minister what effects that will have on the RAF's requirements? Will he now admit that his own Department's defence is in a terrible crisis as a result of the mismanagement of the British economy, and that the RAF is suffering as a result?
    Mr. Ingram: I am sometimes surprised at the tone of questions based on press speculation. A major procurement process is under way for the RAF, involving not just the FSTA but Typhoon and the joint strike fighter. The FSTA could be the MOD's largest and most complex PFI contract, and I should have thought that he would have welcomed that, as it is not only undoubtedly good news for the RAF but potentially good news for British industry as well.
    Mr. Lindsay Hoyle: It is welcome news to hear that we expect the announcement in the new year, but can we ensure that it is made very early in the new year, as so many jobs in the north-west depend on it, whichever way the contract goes? I hope that the Treasury will not become involved. Let us get on with deciding who will get the job, and let us get the jobs to the north-west.
    Mr. Ingram: People across the Government have to be involved in such major procurement programmes, as I
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    am sure my hon. Friend will understand. Indeed, he has probably precipitated some engagement from other Departments by the type of lobbying in which he so assiduously involves himself—usually campaigning for one side of a project. It is right that the Government consider this across the board. We have to ensure that the policy is right—not just financially but in terms of quality jobs—and, ultimately, in this case, that it is right for the RAF as well.

    Iraq
    Mr.David Heath: If he will make a statement on the security situation in southern Iraq. [143770]
    The Secretary of State for Defence (Mr. Geoffrey Hoon): I hold regular discussions on a range of issues related to operations in Iraq with military commanders and Government officials from the United Kingdom and, indeed, other countries. The protection of Iraqi and international military and security forces and, indeed, civilians is of paramount importance. Although in recent weeks there has been a decline in the number of security incidents in Iraq, following a peak of incidents in November, the security situation remains challenging. The vast majority of attacks occur in a certain area to the north and west of Baghdad. We obviously hope that particular events there over the weekend will lead to a reduction in the number of those attacks.
    A crucial component of our efforts in Iraq is the training of Iraqi security forces. That has been given added impetus by the acceleration of the political timetable agreed by the Iraqi governing council on 15 November. To accelerate the rate of training, there is a requirement for an additional infantry battalion and a contingent of Royal Military Police. The House will recall that I have previously announced the earmarking of a ready battalion for deployment on surge operations for that reason. I have decided that that battalion, the 1st Battalion the Argyll and Sutherland Highlanders, and two platoons of Royal Military Police, drawn from 101 and 156 provost companies, should deploy in January for six months.
    Mr. Heath: We must all hope that the arrest of Saddam Hussein improves the security situation and does not make matters worse. May I return the Secretary of State to the National Audit Office report on equipment, because he rather glossed over it on Thursday? Yes, our troops are doing a superb job and a massive logistics exercise took place to equip our troops, but the fact remains that essential kit to keep our troops safe was not, and perhaps is not, available to them when they need it. Can he assure me that troops stationed in Iraq have all the kit that they need to be safe and that he is learning lessons and bringing forward plans to improve the situation?
    Mr. Hoon: That is precisely what I have told the House. It is precisely what I told the Defence Committee. It is precisely what the Government reported to the House last Thursday, when we published our own lessons learned paper and it is precisely what the NAO report also says.
    David Cairns: My right hon. Friend referred in his initial answer to the

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    political timetable. I appreciate that, in such a fast-moving situation, it is difficult to predict a week in advance, let alone six months in advance, but if we are to see a transition to democracy as quickly as possible in Iraq, which we all desire, a great deal of preparation will have to be done in advance of any election in compiling the equivalent of electoral registers and so on. Has my right hon. Friend given any specific consideration to the kind of protection that can be afforded to observers and those people who will be the agents of democracy who will go out now and in the six months ahead to make all the preparation necessary for a smooth—and I hope peaceful—transition to democracy?
    Mr. Hoon: I am grateful to my hon. Friend for his observations. He is right that the reason why we judge it necessary to continue our security presence is to ensure that the transition can be as smooth as possible. I made it clear that we do not want British or other coalition forces to remain in Iraq for a day longer than necessary but, equally, we will not abandon the Iraqi people. We have obligations to ensure that they can take responsibility for their affairs, and the sooner they are able to do that safely and securely, the better.
    Mr. Nicholas Soames: Will the right hon. Gentleman join me in congratulating the fourth infantry division on its brilliant coup in the capture of Saddam Hussein? Will he confirm to the House Saddam Hussein's exact status? As Saddam Hussein has been categorised as a prisoner of war, is the right hon. Gentleman satisfied that, under the terms of the Geneva convention, he can be properly interrogated?
    Mr. Hoon: I certainly add my congratulations on what was a brilliant coalition effort by both military and intelligence forces on the ground in Iraq. As far as Saddam Hussein's present status is concerned, he is held under terms that are consistent with the Geneva conventions and international law.
    Mr. Soames: May I press the right hon. Gentleman further on the NAO report? He gave robust and confident assurances on the Floor of the House and to the Defence Committee on the adequacy of combat supplies, which turned out in some cases not to be correct. In the light of the NAO report, which praises the brilliant triumph of British forces in Iraq, yet highlights several wholly unacceptable and grievous failings in the supply of vital equipment—including the supply of insufficient quantities of body armour—does he think that he might inadvertently have misled the House on those matters? If so, should he not reflect on his position?
    Mr. Hoon: No, and no, and I have just given the answer to a previous question about the NAO report. Everything that I said was absolutely consistent with its conclusions. I am disappointed that right hon. and hon. Members have simply dealt with the detail rather than the overwhelming success.[Interruption.] Well, I think this is an important point. The NAO reports to the House and it reported a balanced conclusion. I made it clear to the House and the Select Committee that there were difficulties. However, it is important to look at the report's conclusions, not least on the logistic point. One of its key conclusions is:
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    "The logistic effort for the Operation was huge and key to success."
    I have never pretended to the House or the Select Committee that there were not particular difficulties, but dwelling on those difficulties and making out that they were somehow a cause of failure is utterly wrong. There are certain hon. Members in the House who frankly should know better.
    Mr. Bill Olner: Given the outstanding success of the capture of Saddam Hussein at the weekend, will my right hon. Friend tell me whether that will make the security situation in southern Iraq better or worse?
    Mr. Hoon: All that I can say is what I said earlier. Obviously we hope that those who have supported Saddam so far will end their support and recognise that we are all engaged in a determined effort to rebuild Iraq. The scenes of celebration by Iraqi people once they had learned the news of Saddam Hussein's capture is testament to that, but we must recognise that there will still be elements— not only those in Iraq but others who enter the country—who will continue the campaign against coalition forces. They have to be defeated.
    Mr. Paul Keetch: Is the Secretary of State saying to the House that it is a matter of detail that although part of the Government's premise for sending British forces into the war was that this country was at threat from nuclear, chemical or biological attack, troops were sent into theatre without protection from that?
    Mr. Hoon: That is precisely the kind of detail that I was complaining about a few moments ago. If the hon. Gentleman had taken the trouble to find the answer to his questions before raising them in such a spurious way, he would know that British forces were properly protected and that every British soldier had a chemical protection suit available to him. If the hon. Gentleman checked his facts rather than issuing press releases, it might be better for him and, indeed, the party that he tries to represent.
    David Winnick: Whatever happens now, is not the capture of such a notorious mass murderer, Saddam, a victory for humanity? Is it not the case that had he been captured by some Iraqis rather than the Americans, his life might well have been ended immediately, which is what happened to Mussolini in 1945?
    Mr. Hoon: I am sure that the Iraqis would also have respected the principles of international law.
    Mr. Crispin Blunt: Perhaps I can ask a general question. As the Secretary of State has just announced that he is sending another battalion—the Argyll and Sutherland Highlanders—and two platoons of police to train Iraqi security forces, does he accept that it was a mistake to disband the Iraqi army when the coalition forces took power in Iraq, as evidenced not only by this additional deployment of troops, but by the

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    fact that the troops already there have to deal with demonstrations by those very soldiers about their pensions and the administration of them?
    Mr. Hoon: I do not accept that. Not disbanding the army might have produced a very short-term benefit, but the reality is that no one had confidence in the army, especially in relation to the extent to which it was still loyal to Saddam Hussein. Beginning again, with accelerated retraining—the purpose of deploying the additional forces—will give us a set of security forces across Iraq in which everyone has confidence. When the hon. Gentleman thinks about it, I am sure he will agree with that.

    RAF Support Units
    Mr. David Kidney: What progress he has made in his review of the RAF active combat service support units. [143771]
    The Minister of State, Ministry of Defence (Mr. Adam Ingram): The review is progressing well and is expected to conclude in the new year.
    Mr. Kidney: Does my right hon. Friend accept that an early conclusion of the review might be that the value of the communications and logistics units under review has not been appreciated as fully as it should have been by those at the highest levels of the RAF? Will he accept from me that the emerging conclusion is that instead of shuffling units around from camp to camp, we might do better to invest in their training, their equipment and—as I have suggested in other questions over the past two years—their living accommodation? Does he understand how strongly people in Stafford feel about the future of RAF Stafford? Would it be possible for me to bring a delegation from all parties in Stafford borough to see the Minister to discuss the matter while the review is taking place?
    Mr. Ingram: The answer to the latter question is yes. My hon. Friend knows that I am only too willing to meet people to discuss those key important matters, but clearly the same invitation would have to be extended to all other bases covered by the review. My understanding is that all MPs who have an immediate interest have been fully consulted either in writing or by being given access to station commanders so that they are brought up to speed on the evolving review as it develops. It is important to do that. There are big issues involved. My hon. Friend touched on the importance of support units, which are vital to what the RAF does. That is why we need to consider the basing strategy to ensure that we are utilising what is undoubtedly a key resource to the best effect.
    On accommodation, my hon. Friend was advised at one stage that the single living accommodation was up to scratch. A subsequent review showed that the RAF was not happy with the standard of the accommodation. That shows the concerns on that subject. All of that is tied up in the ongoing review. We must ensure that we get it right, primarily for the reasons that he gave: for the good of the RAF and the way in which the particular units support it overall.
    Mr. Gerald Howarth: Does the Minister agree that bases such as Royal Air Force
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    Stafford not only contribute to the local economy, but provide an important contribution to the national military footprint? On the wider issue of logistics—if I may trouble him with a matter of detail—is he not embarrassed by the NAO report's findings that
    "Existing operational stock levels were, in many instances, not sufficient for readiness and sustainability"?
    Will he accept that just-in-time industrial practices suitable for Rover motor cars were not appropriate for our servicemen and women who put their lives on the line for our country?
    Mr. Ingram—
    Mr. John Bercow: Hand it over.
    Mr. Ingram: I was going to hand it over. It is clear that the hon. Member for Aldershot (Mr. Howarth) has not read some very specific comments, both detailed and overall. The report said that, overall, UK equipment performed impressively. It said that
    "the Department's major equipments … contributed significantly to overall military capability and the success of the Operation",
    and that they were also supported effectively. That is the overall general assessment of an extremely detailed examination of a huge logistical effort. I sometimes wonder what is in hon. Members' minds when they raise these questions. Are they trying to talk success into failure? [Interruption.] That is good to know. The National Audit Office report also says:
    "For any required level of readiness, a balance has to be struck between having people and equipment ready to go immediately and make good shortfalls in the time available."
    The balance has to be struck at all times. My first quote is one that pays genuine plaudits to all the work that was done.
    Of course we recognise the importance of RAF Stafford to the local economy. That is why these issues are taken into account when we undertake basing reviews. The hon. Gentleman has probably forgotten, but his party was once in Government. That Government conducted a massive cutback in the UK's defence footprint. I am sure that the people of this country will welcome the way in which we go about our business, because we take account of the local economy.

    Suez Medal
    Huw Irranca-Davies: How he will ensure that all Suez veterans are awarded their medals. [143772]
    The Parliamentary Under-Secretary of State for Defence (Mr. Ivor Caplin): I said to the House on 8 September that I expected some Suez medals to be with veterans for Remembrance Sunday. Nine hundred such medals were sent to veterans directly—as are all medals following their application and approval. I can now further update the House. As at 12 December, the medal offices had received 27,192 applications, and 2,011 Suez medals have so far been dispatched to veterans or their next of kin.
    Huw Irranca-Davies: I thank my hon. Friend for that full answer. The steady uptake in the collection of the

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    awards is testimony to the fact that no longer can Suez veterans be referred to as the forgotten army. Has he any estimate of how many people may be entitled to claim a medal for their work and for the ultimate sacrifice that many made in the campaign?
    Mr. Caplin: I thank my hon. Friend for his comments. The estimate of the possible number of veterans who can qualify is about 200,000 consisting of 25,000 from the Royal Navy and Royal Marines, 55,000 from the RAF and 120,000 from the Army. In reality, it is unlikely that anywhere near that number of applications will be made, and certainly not in the short term. However, to cope with the applications that are expected, we have set up a special medal office at the Army medal office at Droitwich to deal with the applications.

    Defence Fire Service
    Mr. John Grogan: If he will make a statement on the future of the defence fire service. [143773]
    The Minister of State, Ministry of Defence (Mr. Adam Ingram): Options for the modernisation of the defence fire services were examined in "Fire Study 2000". The results of that study informed the airfield support services project, which will identify the most cost-effective way of providing a range of services, including fire cover. Bids are being evaluated against the public sector comparator and I intend to decide the way forward in the first half of next year.
    Mr. Grogan: Does my hon. Friend agree with those senior officers in our armed forces who argue to me and others that they regard the defence fire service as part of a core military function that should not be privatised but kept in the public sector, particularly given that its members are currently risking their lives serving in Iraq?
    Mr. Ingram: My hon. Friend has raised these points before. It has been explained to him that the in-house option has been given much support and much encouragement because we want to ensure that there is a level playing field. The importance of the points that he raises about the capabilities of the defence fire service and other matters that could be affected by the review must be taken into account. We must then consider whether we use sponsored reserves or the current process. That is why the process has taken so long. We want to make sure that we get things right because of the critical nature of the services that are supplied both through the defence fire service and all the supply services on airfields.
    Angus Robertson: Does the Minister agree with the Transport and General Workers Union that cost savings sought by privatisation could be achieved while keeping the defence fire service as a truly accountable public body in the public sector? He mentioned "Fire Study 2000", so will he confirm that it identified room for 20 per cent. efficiencies? How much taxpayers' money would have been saved to date if "Fire Study 2000" had been implemented?
    Mr. Ingram: I hesitate to disagree with the Transport and General Workers Union, as I have been a member
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    for the past 28 years or so, and proudly remain one. However, that does not mean that its analysis is always correct. The TGWU, along with other unions, was fully consulted on that project and review and is helping to develop the public sector comparator. As I mentioned earlier, it has been given full support to achieve that. It would be wrong not to express the thought that always goes through my head when the hon. Gentleman asks questions. Would we have an air force under an independent Scotland? Indeed, would we have a defence fire service under an independent Scotland? He wants to rip out and destroy the success, quality and strength of the British armed forces and go into an unknown future.

    Far East Prisoners
    Mr. Andrew Dismore: If he will make a statement on compensation for civilian prisoners of the Japanese in the second world war. [143774]
    The Parliamentary Under-Secretary of State for Defence (Mr. Ivor Caplin): In November 2000, the Government instituted a scheme to make ex gratia payments of £10,000 each to members of certain groups held captive by the Japanese during the second world war. Among those covered by the scheme are British civilian internees who had a close connection with the United Kingdom at the time of their captivity. So far, 1,876 payments have been made to former civilian internees, and a considerable number to the surviving spouses of those who died before 7 November 2000.
    Mr. Dismore: While I acknowledge the generous scheme that my hon. Friend outlined, a small number of people have been excluded because their grandparents or parents were not born in the UK. They were British enough to be interned by the Japanese, but it seems that they are not British enough to receive the compensation to which they are morally, if not legally, entitled. Two of my constituents, Mr. Abraham and Mrs. Sopher, are among the 324 such people resident in the UK. Will my hon. Friend meet Mr. Ron Bridge of ABCIFER—the Association of British Civilian Internees Far East Region—which lobbies on behalf of those people to discuss a way forward and see if anything can be done to help those who have been left out of that generous scheme?
    Mr. Caplin: May I congratulate my hon. Friend on his campaigning on this issue? He, like me, knows that the legal process undertaken by ABCIFER has come to an end. I have seen his letter to my right hon. Friend the Secretary of State of 3 December, and I can assure him that a detailed reply will be on its way very shortly.
    Mr. Roger Gale: Sadly, Members on both sides of the House have to write to the widows of that dwindling number of the old and bold or attend their funerals. Those widows feel after many years that they have been let down, in all honesty by Governments of all political persuasions. Would the Minister consider at the very least meeting his hon. Friend the Member for Hendon (Mr. Dismore), me and

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    others who are seeking to represent the interests of that small band of people so that we can discuss a proper way forward?
    Mr. Caplin: I have told my hon. Friend the Member for Hendon (Mr. Dismore) that I would be happy to meet him if there are outstanding issues or new matters that he or other Members want to discuss. That offer still stands.

    Iraq
    Mr Dave Watts: What discussions he has had with NATO partners on allied support for the future security of Iraq. [143775]
    The Secretary of State for Defence (Mr. Geoffrey Hoon): NATO support for Iraq's future security was raised at the NATO defence ministerial meeting on 1 December. The alliance continues to support Poland in its leadership of a multi-national division in Iraq and will review NATO's contribution to the stabilisation efforts on a regular basis.
    In addition, the NATO Foreign Ministers meeting on 4 December confirmed the alliance's commitment to the full implementation of UN Security Council resolution 1511 to restore conditions of stability and security in the country and return governing responsibilities and authorities to the people of Iraq.
    Mr. Watts: Many Labour Members were very reluctant to support military action without the full support of the United Nations. That was not possible, but will my right hon. Friend assure me now that he will do all he can to secure maximum support for the peacekeeping process from the UN and from NATO members?
    Mr. Hoon: As I have said, UN Security Council resolution 1511, adopted unanimously on 16 October, gives UN authorisation to a multinational force and a unified command. Some 30 countries are already contributing military forces, and it is entirely right for the coalition to explore all the options for broadening the overall force. As was stated in the United States-United Kingdom declaration of 20 November, we hope that international partners will participate increasingly in the multinational force, regardless of earlier differences.
    Dr. Julian Lewis: When the Secretary of State briefs his opposite numbers among our NATO allies, will he explain to them something of the contradiction between the supplies of equipment furnished to British troops in Iraq and the assurances he has given to the House and the Select Committee on Defence? In particular, will he explain why the NAO found that 200,000 sets of body armour had gone missing, having been issued during the years since 1999? Will he also explain why it is not enough to say—
    Mr. Speaker: Order. The hon. Gentleman is well out of order.

    Type 45 Destroyer
    John Robertson: If he will make a statement on the Type 45 destroyer orders. [143777]
    The Minister of State, Ministry of Defence (Mr. Adam Ingram): Type 45 will be the biggest and most capable class of air defence destroyers ever built for the Royal Navy, and will be equipped to carry out a range of other tasks. Six ships are on order with the prime contractor BAE Systems, providing stability for the shipbuilding work force on the Clyde and at the new Vosper Thornycroft facility at Portsmouth for the remainder of the decade. The programme is in full production against a mature design—a first for a United Kingdom warship project at this stage of its development.
    John Robertson: I thank my right hon. Friend, but that is not quite the full answer that I wanted. Another six type 45 destroyers will be coming along following a second order, but rumours abound on the Clyde—especially in my local yard, Scotstoun—that there is to be a cut of a further six, down to only two. Could my right hon. Friend comment on that? The ships that are, we hope, to be built will mean an awful lot to people on the Clyde.
    Mr. Ingram: My hon. Friend should encourage the Clyde work force. I am prepared to meet the trade unions if necessary, to dissuade them from listening to rumours and urge them to concentrate on what the project holds for them.
    This is a major shipbuilding programme for the Clyde, involving not just the Type 45 but the aircraft carrier and, perhaps, other ships at a later stage. The workers should look to what they must do now, and not listen to those who are trying to destabilise things. I repeat that the programme is in full production against a mature design, and that this is a first for a UK warship project at such a stage of its development. That is due to the good quality of the workmanship on the Clyde. The workers should keep their eye on the ball and go on building the ships, for that is where their future lies.
    Mr. Peter Viggers: One problem with a defence White Paper that is virtually a fact-free zone is that speculation can flourish. There is speculation that the number of Type 45 orders will be well below the original concept of 12, and that the Government are actively considering phasing out several surface ships in the near future. Can the Minister quell that speculation now?
    Mr. Ingram: There are two speculations there. The decommissioning of ships is always part of the ongoing process of any re-examination of future needs; the hon. Gentleman, and the House, will have to wait for our conclusions.
    As the White Paper points out, and as my right hon. Friend the Secretary of State pointed out last Thursday, all this is happening against a background of change. The ocean war-fighting capability of the Royal Navy is being replaced by a different role. It is necessary to budget for that. We are looking at long-term horizons, as it were, although some are more immediate than

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    others. All plans must take into account new issues and threats, and how they can best be dealt with. We cannot hold on to the old for ever while we are building the new. I hope that, given his background, the hon. Gentleman understands that.
    Mr. Speaker: I call Bob Russell. He is not here. I call Chris Grayling.

    Army Strength
    Chris Grayling: What targets he has set for personnel levels in the Army in each of the next five years. [143779]
    The Minister of State, Ministry of Defence (Mr. Adam Ingram): The current requirement for the Army is 106,730 personnel. The Department's target is to achieve manning balance by the end of 2005 and to maintain it thereafter.
    Chris Grayling: I am grateful for that response. Can the Minister tell us whether any recruitment freezes are operating in the armed forces?
    Mr. Ingram: Yes, I can. There are none.
    Mr. Andrew Miller: Does my right hon. Friend agree that the targets will be easier to achieve if we avoid the sort of false rumour that spread in the run-up to the White Paper's publication? Does he agree that such rumours about the future of the Army, especially our regiments, damage recruitment and morale?
    Mr. Ingram: I could not agree more. Recruitment is proving difficult in some areas of the country. That is not because of lack of determination by Army recruiters or the recruitment teams in other parts of the armed forces. We are keen to build our strength in all areas. That is why I answered the earlier question about recruitment by saying that there was no freeze.
    We are determined to build our strengths because we have to maintain our manning balance and the required strength that I outlined. My hon. Friend is right—every time someone mentions that a regiment is under threat, that could affect its recruitment. I ask hon. Members who wish to participate in the debate to bear that in mind. We are trying to maintain regiments' strengths, not undermine them.
    Mr. Desmond Swayne: Does the Minister agree that the public would not understand how one could possibly afford to have fewer regular soldiers while regularly having to call up reservists?
    Mr. Ingram: Is the hon. Gentleman looking for a compliment? I thought that he would have prefaced his question with "Sir" because I am used to being called that by members of our armed forces. It is a mark of respect, but I acknowledge that that is not forthcoming from him today.
    As someone who recently returned from the Gulf, the hon. Gentleman is well aware of the quality of the work and effort that the Territorial Army and the reserves put
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    in. I have probably met more reserves than any hon. Member, perhaps with the exception of my right hon. Friend the Secretary of State. I have spoken to them and seen them in theatre. I have been impressed by their integration into the overall effort and the way in which they play their specific role. We need the reserves and the TA, and we therefore want to encourage them and to ensure that recruitment continues. They are part of the same effort as the Regular Army. Its scale means that we have to call upon the reserves to a greater extent. They have been called up not only in Iraq but in previous conflicts, when they performed magnificently.
    Mr. John Smith: In the light of the Minister's reply and the statement by my right hon. Friend the Secretary of State for Defence, does the Minister anticipate a further broadening of the military footprint, especially as regards the Army? That would almost certainly help with recruitment and maintaining personnel targets. In the light of the highly successful relocation of the 1st Battalion the Welsh Guards to RAF St. Athan, will he shortly make an announcement on further units coming to that site?
    Mr. Ingram: If my hon. Friend is not fighting for the future of the Defence Aviation Repair Agency, he is fighting for more of the British Army to be based at St. Athan.
    If we consider the future of Northern Ireland and we reach a position whereby the numbers that are deployed there have to decline sharply, what will happen? Clearly, we have to develop an approach to the basing of troops, and the relevant issues are being considered. I cannot give the answer that my hon. Friend seeks today, but I am sure that he will continue to campaign fiercely for the basing of additional troops not only at St. Athan, but elsewhere in south Wales—perhaps even in north Wales, too.
    Mr. Keith Simpson: The whole House will wish to commiserate with the 3rd Battalion the Liberal Democrats, commanded by the hon. Member for Colchester (Bob Russell), who arrived just too late to ask his question. In military matters, that can be disastrous.
    Last Thursday, in his statement to this House on the defence White Paper, the Secretary of State emphasised the need for change and the opportunities that are offered to increase capability through technology. Several hon. Members—and, in another place, Lords Inge, Guthrie and Boyce—mentioned the importance of our forces personnel both in the war against terrorism and in peace support operations, graphically described by Lord Inge as "boots on the ground". As hon. Members know, the reality is that the Army is short of 4,700 personnel. No amount of spin, fiddled figures or warm words will alter that fact. How will the Minister man today's commitments, let alone those of the defence White Paper? Will he cut regiments and the overall size of the Army to fit the available manpower?
    Mr. Speaker: Order.
    Mr. Ingram: I was expecting the hon. Gentleman to go on a bit, so that he would be ruled out of order, as the hon. Member for New Forest, East (Dr. Lewis) was.

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    The question of "boots on the ground", as the hon. Gentleman and Lord Inge put it, is mentioned in the White Paper and is clearly understood. As I said, we plan to continue to grow to meet the figure of 106,730 personnel: that is what we are seeking to achieve. I am sure that the hon. Gentleman heard my comments about people who are speculating, thereby perhaps creating unrest and affecting morale unnecessarily. The armed forces will not be used as a political football by Labour Members, because that diminishes those who do it.

    Iraq
    Mr. Kevan Jones: What measures his Department has introduced to promote security in the UK area of operations in Iraq. [143780]
    The Secretary of State for Defence (Mr. Geoffrey Hoon): United Kingdom forces continue to provide an effective security capability in Iraq. Recent operations against smuggling, for example, have been a considerable success and were widely welcomed by the Iraqi people. Our forces are also closely engaged in developing Iraq's own security capabilities, so that Iraqis can increasingly take responsibility for their own security. Already, more than 10,500 Iraqi police are on patrol in the multinational division, south-east, and more are being trained. Other Iraqi security personnel are guarding vital infrastructure, key facilities and the coastline.
    Mr. Jones: Although yesterday's announcement of the capture of Saddam Hussein was widely welcomed, it is recognised that attacks on coalition forces will continue. Many of those attacks will be organised by groups and individuals from outside Iraq. Can my right hon. Friend assure us that the utmost is being done to prevent those individuals from entering Iraq, and that British personnel in southern Iraq have the equipment that they need to protect themselves against such attacks?
    Mr. Hoon: I am grateful to my hon. Friend for his observations. Certainly, a vital part of the training for Iraqi security forces is the development of a dedicated border police force—some 5,500 are now trained for that purpose. Their job is vital, as my right hon. Friend the Minister said. It is also important that we receive effective co-operation from the countries that neighbour Iraq—indeed, we are continuing to press them for assistance.
    As far as equipment is concerned, I assure my hon. Friend that our forces are given the right equipment.
    Hugh Bayley: What impact has the withdrawal from Iraq of UN agencies and other humanitarian organisations had on the post-war reconstruction and development of the country? What conversations has my right hon. Friend had with the UN and other organisations about the security situation and when it will allow them to return?
    Mr. Hoon: Not all non-governmental organisations have completely withdrawn from Iraq. Indeed, we continue to have conversations with the organisations and their representatives on the ground to try to ensure
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    their safety and security sufficiently to allow them to return to Iraq to do the valuable work necessary for the rebuilding of the country. We have always regarded this as a partnership involving, first and foremost, the Iraqi people, the coalition forces who provide security, and, crucially, the non-governmental organisations, which play a vital role in reconstruction in any peacekeeping operation. Therefore, we want to see them back in Iraq and working flat out to create the conditions in which the Iraqis can assume responsibility for their own affairs.
    Mr. Dai Havard: What impact operations in Iraq have had on the future requirement for equipment. [143781]
    The Minister of State, Ministry of Defence (Mr. Adam Ingram): Operation Telic reinforced the requirement to be able to deploy and to sustain armed forces equipped and trained for both war fighting and peace support operations. Operations in Iraq have also demonstrated the importance of integrated joint capability. Those trends are reflected in the White Paper published last week.
    Mr. Havard: I would like to ask my right hon. Friend two questions about future technology and proven technology. First, stand-off weapons, particularly precision guided munitions, seem to have been successful in Operation Telic. What is being done to build them into future programmes for development? Secondly, in relation to force protection, I was surprised to learn that there were no dedicated medical evacuation helicopters at work in Iraq. I would like such proven technologies to be available to protect troops, particularly in the golden hour following any injuries, and to be built into any future requirements.
    Mr. Ingram: My hon. Friend raises two important points. While we look to the future, however, we must remember the impact of the present. We have recognised the importance of precision guided munitions for some time, and the planning and assessment relating to them were reflected in last week's White Paper. He rightly pointed to the successful use of weapons such as Paveway and Storm Shadow in the Iraq campaign, and we shall continue to make the acquisition of weapons of that capability a priority in our equipment programme.
    In terms of force protection, we have consistently said—not just during the present conflict but in a number of recent ones—that we are increasingly working in coalition with our allies. The issue applies across a range of equipment capability. Some countries have a specialist ability to put into areas of conflict, as well as into peacekeeping operations, a range of capabilities, including field hospitals, nuclear, biological and chemical regiments, and explosive ordnance disposal regiments. Increasingly, our relationship is developing in that way. Doing things on our own is unlikely to be the way of the future. We shall always do things on a combined basis, probably with the Americans but with other nations as well. Iraq shows just how closely we are working with nations other than the United States.
    Patrick Mercer: I am grateful to the Minister for outlining the future equipment requirement.

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    Anyone who has been in a war understands that the logistics will always have hiccups and that the details will not always be right, but will he assure us that there will not be a repeat of the experience of my constituent who told me the other day that he went into battle without ammunition for his rifle? Will the Minister assure me that that will never happen again?
    Mr. Ingram: I am grateful to the hon. Gentleman for his general point. He correctly recognises that the logistics even of small-scale conflicts can sometimes go wrong, for a variety of reasons. We have to put in place a comprehensive and intensive analysis of the lessons learned, so that we can avoid those difficulties recurring. I would be grateful if he wrote to me on the specific issue that he raised, and I shall try to get him a more specific answer on it. I am concerned, as he is, about the nature of that matter, but I need to know more about it before I can answer his question.

    Afghanistan
    Joan Ruddock: What progress has been made on increasing security in Afghanistan. [143782]
    The Minister of State, Ministry of Defence (Mr. Adam Ingram): We have been working with the international community to extend the international security assistance force beyond Kabul and to widen the provincial reconstruction team programme. Our own team in Mazar-e-Sharif has been actively supporting United Nations and Afghan transitional authority initiatives to improve security, such as negotiating ceasefires between rival militia forces and placing their heavy weaponry under the control of the Afghan national army. Our contribution to ISAF continues to promote a safe and secure environment in Kabul. Finally, we remain active in our support for security sector reform.
    Joan Ruddock: I congratulate my right hon. Friend on the activities of the British, especially in connection with the programme that he has just outlined. However, does he accept that, overall, there is a deteriorating security situation in Afghanistan, with the targeted killings of 15 aid workers and attacks on the United Nations, which have rendered one third of that country out of bounds to both? In that context, what assistance in security is being given to the electoral registration office of the United Nations, which has to accomplish in just eight months an electoral registration process that took it eight years to achieve in Cambodia?
    Mr. Ingram: I do not pretend that the security situation in Afghanistan is ideal, but we are making progress. That is why we have put in place the provincial reconstruction teams, why the UK has been so heavily engaged, and why we have encouraged the maturation of that process and encouraged other countries to take such initiatives. We must move beyond Kabul and try to extend the areas of relative calm, recognising at all times that there are clear threats out there. My hon. Friend asked about protection for a specific programme. I do not have that information to hand, but I will obtain it and write to her. If it is an area where we have direct
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    responsibility, I am sure that we are doing all we can. It is crucial to the democratic process, and it is where the future of Afghanistan lies, as is clear to anyone who has listened to President Karzai in the past few days talking about the future of his country. We must make sure that that programme and that process move forward unfettered, as far as that can be achieved. I will get more details about that for my hon. Friend and write to her.

    Service Personnel (Education)
    Mr. David Cameron: What discussions he has had with the Secretary of State for Education and Skills on the provision of good schools for forces families; and if he will make a statement. [143783]
    The Parliamentary Under-Secretary of State for Defence (Mr. Ivor Caplin): There is frequent contact between officials from the Department for Education and Skills and the Ministry of Defence in order to discuss the issues faced by schools with children from the service population, and to ensure that the provision meets their educational requirements. I draw the hon. Gentleman's attention to the supporting essay on people published in support of the White Paper last Thursday, which includes further comment on the ongoing discussions between the Departments at all levels of Government.
    Mr. Cameron: Does the Minister agree that schools with a high proportion of children from forces families face particular pressures? Is he aware that, at the Gateway school in Carterton in my constituency, next to RAF Brize Norton, where about 80 per cent. of the children are from forces families, about 45 per cent. of those turned over to different schools last year? As the number of missions has increased and the number of personnel remains static, the position is likely to get worse. Will the Minister speak to the Department for Education and Skills about special funding for those schools? Surely that is the least our armed forces deserve.
    Mr. Caplin: The Ministry of Defence has established a schools liaison policy in the area to which the hon. Gentleman refers. That is to ensure regular contact between the services, schools, parents and the local education authority. I expect that that would be the most appropriate forum for those discussions. I am, of course, aware of the changes coming to Brize Norton. They were the subject of an Adjournment debate initiated by the hon. Member for North Wiltshire (Mr. Gray) on 15 July, when we laid out the Government's policy on the matter.
    Bob Russell: I agree with the hon. Member for Witney (Mr. Cameron). Is the Minister aware that discussions are one thing, and delivery is another? Earlier this year, the Secretary of State for Education and Skills visited Colchester and promised the head teachers of schools with a large component of children from military families that more money would be forthcoming. When will that be delivered?
    Mr. Caplin: I was tempted to say, "Better late than never" to the hon. Gentleman. Following the visit of my right hon. Friend the Secretary of State for Education and Skills, there have been more discussions about the matter in relation to the Colchester garrison.

    Veterans' Affairs
    Dr. Rudi Vis: If he will make a statement on joint working with the US Administration on veterans' affairs. [143784]
    The Parliamentary Under-Secretary of State for Defence (Mr. Ivor Caplin): I visited the United States last month where I met the Secretary of Veterans' Affairs in the American Administration, Secretary Principi. We agreed that there should be greater co-operation between Governments on the issues.
    Dr. Vis: I congratulate my hon. Friend on the initiative. Will he go into more detail about the discussions and tell us whether further meetings are planned?
    Mr. Caplin: The discussions between the US and the UK centre on increasing co-operation to involve Veterans Affairs Ministers of Australia, New Zealand and Canada in a ministerial-level meeting. That will be an important opportunity to develop veterans' affairs with the United States and across the Commonwealth.

    Main Battle Tanks
    Hugh Robertson: if he will make a statement on the number of operational main battle tanks. [143787]
    The Minister of State, Ministry of Defence (Mr. Adam Ingram): Challenger 2 performed excellently in operations in Iraq earlier this year and continues to play a valuable role there. Sufficient Challenger 2 tanks are available to meet our operational and high-readiness requirements. Force recuperation continues according to plan.
    Hugh Robertson: Given that the National Audit Office report praised the speed with which the MOD and British forces deployed Challenger 2 tanks to the Gulf and that many commanders have praised the tank as a battle-winning asset in Iraq and Afghanistan, is not the change to light scales the wrong decision, taken at the wrong time?
    Mr. Ingram: Challenger 2 is not disappearing, and it is not a question of converting all heavy tanks to medium and light; there will be a mixture. The hon. Gentleman is right about the NAO's analysis of how the tanks performed, how they were maintained in the field and how the tank commanders and all who worked alongside them delivered such a key element in that military campaign. There will still be a need for the heavy component, so I do not accept the premise of his question—that the decision we are envisaging, as set out in the White Paper, is wrong. I believe it to be fundamentally correct and a view that is held within the tank regiments and elsewhere. They recognise that the threat is changing and that we must have a better balance and provision to be able to meet emerging threats as well as existing ones.

    Eurofighter Typhoon
    Miss Anne McIntosh: What the implications of the Defence White Paper are for the Eurofighter. [143788]
    The Secretary of State for Defence (Mr. Geoffrey Hoon): The defence White Paper sets out our intention to deploy capabilities right across the range of air operations. Typhoon can be employed in multiple roles and will have the built-in flexibility to adapt its role in an environment where the threat is developing and changing.
    Miss McIntosh: I invite the Secretary of State to answer the question that I put to him on Thursday. How many Typhoons can we expect at RAF Leeming? Will they come in on the date that he announced and in the same numbers as originally ordered?
    Mr. Hoon: As I made clear in the White Paper, we are considering the numbers of combat aircraft, such as Typhoon and the joint strike fighter, to meet anticipated future capability requirements. The UK is party to international arrangements, under which we are set to order 232 Typhoons. Fifty-five aircraft are already on order and we are working towards an order for the second trariche of 89. The third and final order is not due to be placed before 2007 and we will keep our requirements under continual review during that time. On current planning, RAF Leeming will be the second base for Typhoon, after RAF Coningsby and before RAF Leuchars. On current plans, I anticipate the aircraft arriving at the station around 2007.

    Western European Union
    Mr. George Foulkes: If he will make a statement on the future of the Western European Union. [143791]
    The Secretary of State for Defence (Mr. Geoffrey Hoon): In November 2000, the Council of the Western European Union at Marseilles agreed a number of measures designed to address the consequences for the WEU of the changes under way, particularly the evolution of European security and defence policy.
    Mr. Foulkes: Is the Secretary of State aware that I used to wonder about the role of the Western European Union? Now that I am a member of the Parliamentary Assembly of the WEU, I do see that it has a potential role, but the matter does need more debate and discussion. Will he or one of his Ministers agree to meet the British delegation to the WEU to discuss further a greater and expanding role for that important institution?
    Mr. Hoon: I emphasise that the Government share my right hon. Friend's determination to travel widely and extensively throughout Europe, so we entirely accept the need to consider further how to improve the arrangements for collective oversight of areas of EU activity, including ESDP. We are very grateful for his contribution, on behalf of the European taxpayer.

European Council
3.31 pm
The Prime Minister (Mr. Tony Blair): Mr. Speaker, with permission, before I make a statement on the details of the intergovernmental conference, I should say that the European Council also discussed Iraq. The presidency conclusions reaffirm the importance of the reconstruction of Iraq and condemn the recent terrorist attacks. These conclusions have been placed in the Library of the House. Perhaps this gives me the opportunity to update the House briefly on the events of the past 24 hours.
The celebrations on the streets of Baghdad, Basra and all over Iraq show once and for all how delighted the Iraqi people are that Saddam's rule is now history. The Iraqi people want their freedom, and support the principles of justice, democracy and the rule of law, just as people do everywhere, given half the chance to do so. I would like to pay tribute to the American coalition forces and the intelligence services, who brought about Saddam's capture. They have proved their professionalism, bravery and commitment. But let us also pay tribute to the Iraqi people themselves, who helped to capture Saddam. Thousands of Iraqis are now working in the new Iraq police and defence forces, and they are working to build a new Iraq. We will work with them to do so.
There is still a massive amount to do, but we have achieved a great deal in a short time. A political timetable is taking us through to a democratic, elected Government in Iraq—an Iraq where the public enjoy freedom of speech and religion for the first time in decades. Over 17,000 reconstruction projects have been launched. Oil production has risen by 320,000 barrels per day, with the proceeds used for the benefit of the Iraqi people, rather than stolen or squandered, as they were under Saddam's rule. Iraqis now have a new currency to spend in the increasingly well-stocked markets. Electricity has surpassed pre-conflict levels, and clean water supplies are improving daily.
But as we have seen yet again today, the terrorists and Saddam's sympathisers will continue, and although small in number and in support, their terrorist tactics will still require vigilance, dedication and determination. But the hope of a new Iraq is now clear and evident to all, and the final victory will be the Iraqi people's.
I now turn to the details of the European Council and the intergovernmental conference, which took place in Brussels on 12 and 13 December. The negotiations, which have been going on over the past 22 months, have been about the effective management of the European Union after its enlargement to 25 countries next year. That enlargement is a hugely important event, not just for the countries concerned, but for the whole of Europe. The stability and prosperity of our continent stand to gain enormously from enlargement. That is why we negotiated the Nice treaty three years ago to make enlargement possible. It is why we have been negotiating in the Convention, and now the IGC, on a draft constitutional treaty.
A negotiation among 25 sovereign countries was bound to be complicated, particularly on the issue on which the Nice negotiation itself almost foundered: the
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relative weight in voting terms that each country would have after enlargement. In the end, it was on that issue that agreement at the weekend proved impossible.
However, a great deal of progress has been made, and I pay an unqualified tribute to the Italian presidency whose skill and tenacity made that progress possible. Prime Minister Berlusconi was able to sum up at the end of the meeting that while, of course—[Interruption.]
Mr. Speaker: Order. Let the Prime Minister make his statement.
The Prime Minister: Prime Minister Berlusconi was able to sum up that, while, of course, in formal terms, nothing is agreed until everything is agreed, there were some 82 points where consensus was close. Those included key changes on very important issues for the United Kingdom—[Interruption.] The truth is that the Opposition do not believe these things to be important at all.
If it proceeds on the basis outlined by Prime Minister Berlusconi, tax, EU finance, social security and criminal law will all remain the province of the nation-state—namely, subject to decision-making by unanimity—and any further treaty change will be subject to the approval of national parliaments.
I should also highlight the fact that the European Council welcomed the proposals put forward by the United Kingdom, France and Germany on the future of European defence, which is limited of course to peacekeeping and humanitarian issues. Those will strengthen the European Union's collective planning capacity while in no way duplicating, or conflicting with NATO, which remains the basis of Europe's territorial defence.
The draft constitutional treaty is also close to an agreement in other ways that are important for this country. It contains a clear statement that the European Union has only the powers that the nations give it. The Union acts only when objectives cannot be achieved by individual countries acting alone. There will be new powers for national parliaments to be involved in EU legislation. It will be for the Union's national leaders in the European Council to set the strategy of the European Union and there will be a full-time chairman of the European Council to drive forward that work. The European Commission will have all its necessary independent authority within that system.
As I said earlier, Mr. Speaker, the outstanding point of difference was over the relative weight of the votes that member states have within the EU. The Government made it clear in our White Paper published in September that we were content with the Nice system, but were equally prepared to move to a new one, if there were a consensus for that. However, it has been a particularly difficult question for Spain and Poland and I believe that it was right to take time to find a workable solution, rather than to plough on in the hope of an unsatisfactory compromise. That is particularly so since the voting provisions of the Nice treaty take effect only in a year's time and—something often not fully understood—under the Convention proposal those Nice voting arrangements would anyway last until 2009. So we have time to resolve the issue.
Above all, the negotiation was living proof that the European Union is and will remain an organisation of sovereign member states. We could not agree at the

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weekend precisely because agreement required unanimity. In time an agreement will, however, be necessary to allow enlargement to work effectively, but we now have a chance to reflect and consider before proceeding.
In the meantime, the business of the European Union will continue under the existing treaty framework. We are in contact with the incoming Irish presidency to take forward the Lisbon economic reform agenda at the spring summit next March. Eight central European countries, and Malta and Cyprus, will accede to the European Union on 1 May.
We shall turn our minds to the next financing framework for the European Union, to cover the period from 2007. I have today, with the President of France, the Chancellors of Germany and Austria, and the Prime Ministers of the Netherlands and Sweden, written to the President of the Commission to emphasise the need for budgetary discipline over the coming financing period.
Ultimately, these negotiations are about the stability, security and prosperity of a Europe of nearly 500 million people, living in countries that are our principal allies and our major trading partners. It would be a serious mistake for any British Government to absent themselves from those negotiations and to allow decisions vital to our security and prosperity to be made by others. We should therefore continue to shape the future of Europe in ways that reflect our national interest. We can either be on the touchline shouting our criticism, or on the field as an active and successful player. I have no doubt—and Government Members have no doubt—that we should remain fully engaged. That is why I commend these outcomes to the House.
Mr. Michael Howard: We join the Prime Minister in welcoming the capture of Saddam Hussein. I congratulate fourth infantry division and others involved in that achievement. Those in the House who have always believed that the war was right in principle recognise that this momentous event is likely to hasten the day when we see a free and democratic Iraq.
Secretary Rumsfeld said this weekend that Saddam is being held by the Americans as a prisoner of war. Can the Prime Minister confirm that that is the case, and what restrictions does that place on such issues as the questioning of Saddam Hussein and his exposure to the media. Will the Prime Minister assure us that Saddam's trial will be fair, open and transparent? Will he take this opportunity to explain exactly how he expects that to be achieved? Will he also give assurances regarding the independence of any judicial process? Will he confirm that any trial is likely to take place in Iraq? Does he envisage its coming before or after the handover of sovereignty to the Iraqi people? What is the Government's view on the possibility that Saddam Hussein might, if convicted, face the death penalty?
The Prime Minister also reported on the weekend's other developments. He was said this morning to have looked far from grief-stricken at the way in which the European Union summit turned out. We are not grief-stricken either. However, this lack of grief owes nothing to the Prime Minister: it was the courage of the Polish Prime Minister, alongside Spain, in standing up for their principles that stopped the Prime Minister returning with an EU constitution.
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From the beginning of this debate, the Government's position has been characterised by dissembling. Just three years ago, the Prime Minister informed us, in his Warsaw speech, that the British way for Europe was not for a
"single, legally binding document called a Constitution".
When did he change his mind about that? Then he said that a constitution was essential for enlargement; now it has collapsed, and he says that it is not. When did he change his mind about that? The Leader of the House said the process was all "a tidying-up exercise", but the Prime Minister told a Cabinet Committee that the outcome of the convention would be absolutely fundamental and would last for generations. Despite the Foreign Secretary's boasting to the Today programme on Friday that the phrase "ever-closer union" had been dropped from the draft constitution, has it not been replaced by the phrase "united ever more closely"? Can the Prime Minister tell the House precisely what the difference is between those two phrases?
In 1999, the then Foreign Secretary told the House:
"For the record, we are not proposing a constitution of Europe."—[Official Report, 25 May 1999; Vol. 332, c. 184.]
When did the Prime Minister change his mind about that? Three years ago, he said that there was
"no proposal, no desire or decision for a separate European military planning capability".
Now, there will be. When did he change his mind?
Three years ago, the Prime Minister told the House:
"Our case is that"
the charter of fundamental human rights
"should not have legal status, and we do not intend it to. We will have to fight that case."—[Official Report, 11 December 2000; Vol. 359, c. 354.]
When did he change his mind about that? When did he stop fighting that case?
In the convention, Government representatives proposed 200 amendments, of which just 11 were accepted. Will the Prime Minister tell us what happened to the rest? Did he fight and lose, or did he just give up? His representative, the Leader of the House, tried to delete seven sub-clauses on asylum and immigration that would enable policy on those matters to be decided by a majority of other states. His amendment failed; did he fight and lose, or did he just give up? He tried to remove the title "Foreign Minister", saying that the proposal was unacceptable as it stood. He failed. Did he fight and lose, or did he just give up? He tried to remove the EU Foreign Minister's right to take our seat on the Security Council. He failed. Did he fight and lose, or did he just give up? So much for his claim three years ago that the intergovernmental conference would deal primarily with issues of subsidiarity. Indeed, the Belgian Prime Minister describes the constitution as the "capstone" of a "federal state."
Why has the Prime Minister not listened to his own representative on the EU Convention, who said:
"Not once in the 16 months I spent on the convention did representatives question whether deeper integration is what the people of Europe want. whether it serves their best interests or whether it provides the best basis for a sustainable structure for an expanding Union."

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Will the Prime Minister take advantage of this weekend's failure to look again at the whole question of a constitution for the European Union? Will he admit that a constitution takes Europe in the wrong direction? Will he now use this opportunity to put the case for a modern Europe, for a flexible Europe, for a Europe whose nation states have room to breathe? If some wish to integrate more closely, why should we stop them? Why cannot we say to our partners in Europe, "We do not want to stop you doing what you want to do, so long as you do not make us do what we do not want to do."? Is there not a precedent for a flexible Europe in the single currency and the Schengen agreement and, indeed, in the social chapter, before he abandoned our opt-out?
Above all else, if he refuses to listen and the constitution is agreed, will he at least listen to the views of the people and call a referendum? Even the former Minister for Europe has now called for a referendum. After all, it is not as though the Government are hostile to the principle of referendums: we have already had 34 of them. Why is the Prime Minister so determined to stop the people of our country having a say on this vital issue? Is it not time for a Government who are willing to listen to people's views, who will stand up for what is right for Britain and for Europe, and who will end the years of dissembling and trust people enough to tell them the truth?
The Prime Minister: We all remember exactly what happened the last time that the right hon. and learned Gentleman was in charge of European matters. He put through the Maastricht treaty without a referendum, and he voted for it. I shall come back to that in a moment.
On Iraq, the US Secretary of State is correct: Saddam Hussein will be treated with all the rights of a prisoner of war. The trial process should be determined by the Iraqi Government and the Iraqi people. It should be left to them. Of course we must ensure that the process is proper, independent and fair, but I am sure that the Iraqis have the capability to achieve that. We and other countries will work with them to ensure that that is correct.
As for what the right hon. and learned Gentleman said about Europe, the extraordinary thing is that he thought that it was a terrible humiliation to go there and get an agreement. Now there is no agreement, he thinks that; it is a terrible humiliation not to have got one. Does he not understand that there is something increasingly absurd about his opportunism and opposition for opposition's sake? He is the person who said that there should not be an agreement. We come back without an agreement, and he attacks us for it.
Let us deal with some of the facts, not the myths. In respect of tax, social security, defence and foreign policy, we have made it clear—and there is now a consensus for this in Europe—that all those issues should remain by unanimity the province of the nation state. I shall quote to the right hon. and learned Gentleman from a member of his shadow Cabinet—[Interruption.] I think that that is fair enough. The right hon. Member for Skipton and Ripon (Mr. Curry), who is in his place, said a few months ago:
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"The danger for us is not from a closer relationship from our neighbours but from those who would isolate us from Britain's largest market."
That is exactly the Leader of the Opposition's policy. Or, as the right hon. and learned Gentleman has appointed as one of his key advisers the right hon. and learned Member for Rushcliffe (Mr. Clarke), here is what he said just a few weeks ago:
"What is being proposed will not herald the 'end of a thousand years of history', nor does it justify any other of the hyperbolic claims that are currently being made".
That is an answer to the question from the Opposition's own side.
As for the charter of rights, we have made it clear that that should not have binding legal authority and that is precisely what we shall achieve in the course of the negotiation. National Parliaments are to be involved for the first time. That is subsidiarity in action.
As for Poland, the latest myth of the Eurosceptics is that somehow Poland is against the whole European constitution. It is not.
Mr. Howard: No.
The Prime Minister: The right hon. and learned Gentleman says no. Poland is against one aspect—on voting weights. That does not touch significantly—as between Nice and what is proposed in the Convention—the interests of this country. But Poland, were it not for that point, would be voting in favour of the constitution. That is why the absurdity of his position is this: he has said recently in interviews that he would seek to renegotiate the whole of the constitution even if it was ratified. Right. Let me put to him the point that I put to his predecessor and to the predecessor before that: name me one other country in favour of renegotiating the very principle of a European constitution. There is none—[Interruption.]
Mr. Speaker: Order. Mr. MacShane should calm down.
The Prime Minister: The truth is that there is none, so what would be the policy of the Leader of the Opposition? Supposing that we can, as no doubt in time we will, overcome the difference between Poland and Spain on one hand and France and Germany on the other and that we actually have a European constitution, the right hon. and learned Gentleman says that he would renegotiate the whole of it—not one other country supports that position. What would that leave us with? He quoted to me what my representative on the Convention said. Let me quote to him what his representative on the Convention said, which is that in those circumstances, we should renegotiate our membership and retire to an "associate membership" of the European Union.
That is the worst that would happen, but what is the best? The Leader of the Opposition mentioned Maastricht and the European social chapter. Does he still think that it was of great benefit to Britain to have an opt-out from the social chapter? Well, now that we have signed up to the social chapter, what has it meant? For the first time, British workers had the right to paid holidays. That is what he is against. He is the person

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who told us that if we signed up to the social chapter—how many jobs would leave the country?—500,000 to 1 million jobs would leave the country. We signed the social chapter and we got 1.5 million extra jobs in the British economy.
The truth is that Britain should carry on playing a leading role in Europe in areas such as defence. It is important that Britain is part of European defence. Britain is blessed with two great alliances: one is our transatlantic alliance with America; the other, as a result of our membership of the European Union, is a European alliance—part of the most powerful union in the world. I say that we should give up neither; we should carry on working, as we have in the last year, for the transatlantic alliance, and we should continue to be a leading constructive, engaged member of the EU. To return to the margins, which is where we were six years ago when the right hon. and learned Gentleman was in charge, would not be to the satisfaction of our national interest; it would be a betrayal of that national interest.
Mr. Charles Kennedy: I thank the Prime Minister for his statement.
On Iraq, I begin by expressing unqualified congratulations on the skill, professionalism and bravery of those forces who apprehended Saddam Hussein. That is a most welcome development. Does the Prime Minister agree that it could send an important signal, both inside Iraq and globally, to those misguided enough to be adherents to Saddam's particular form of brutalised fanaticism that their time is over and that the emphasis must now be on the internationalisation of the position in Iraq and hastening that country towards stability and democracy?
Does the Prime Minister agree, given that Saddam's captivity has been achieved, that he must be tried according to internationally reputable standards of justice and in public, and that the process itself must be rooted in legitimacy in the eyes of those who will be judging, not least in Iraq and the rest of the middle east? Does he agree therefore that a significant international presence in the shape of the United Nations is required for a tribunal, or whatever method of legal procedure is arrived at, to have sufficient legitimacy?
If we want to internationalise the situation, does the Prime Minister agree that the best way to establish credibility for any war crimes trial would be for the Iraqi governing council to suggest setting up an international tribunal, perhaps along the lines of the one that was pursued in the context of Sierra Leone? If that IGC requested the setting up of such a tribunal, would the British Government give their support?
Yesterday, Sir Jeremy Greenstock ruled out British participation in any process that results in administering the death penalty. The statute of the existing special tribunal that was agreed last week, of course, includes the death penalty, so if the special tribunal that has been established for Iraq by the coalition forces tries Saddam Hussein as presently proposed, will the UK participate?
I shall now turn to the extremely disappointing events of the weekend in respect of the intergovernmental conference—it was disappointing for all of us across the political spectrum with a broadly pro-European mindset in the national discussions that are taking place.
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May I at least welcome the progress that was achieved on defence matters and draw attention to the fact—the Prime Minister has referred to this—that that has involved a compromise with the American Government and that that understanding between our country, the rest of the European Union and the Americans is to be broadly welcomed and built upon?
May I stress to the Prime Minister that the Liberal Democrats remain firmly of the view that there remains the need for a constitution—a codification of European operating procedures—not least because of the welcome enlargement that is now in front of us and that those who seek some comfort from the difficulties of the weekend overlook the much bigger picture? Those of us who were Members of Parliament at the time remember the Monday after the weekend when the Berlin wall came down and all those countries of central and eastern Europe that had been under the tyranny of the communist regime in the Soviet Union suddenly began to experience liberation. That was the big picture and the big prize for Europe, and we must not lose sight of the fact that, despite the political difficulties that were encountered at the weekend, the constitution will give effect to an enlarged Europe. That is a pivotal point, which those of us who are of a pro-European slant are correct to emphasise.
Does the Prime Minister agree that the spectre that has been raised during the weekend of a two-speed Europe—a two-tier Europe—is not in Europe—sinterests and is certainly not in British interests? That being the case, will the Prime Minister tell us how that sense of two-tierism will prejudice his ambitions on behalf of the Government for our country to remain at the heart of Europe? Finally, will he confirm that it remains the Government's intention to secure a decent and deliberative outcome to the Convention process, arriving at a workable constitution for an enlarged EU? That is in British interests, and it is profoundly in European interests as well.
The Prime Minister: On Iraq, I can do no more than repeat what I have said. I think that any trial of Saddam should be for the Iraqi Government and people and that it is for them to determine the penalties that might arise from that. It is important to recognise that it is only in circumstances where a country is incapable of mounting a proper tribunal that we have recourse to international tribunals. if Iraq has that capability, it would be wrong to mount such a tribunal. The governing council has already indicated that it wants a special tribunal to try those who are guilty of serious war crimes, so it is important to allow it to do that because it is part of Iraq's prerogative as a country. Of course, that would be done on the basis that such a special tribunal could be constituted.
On Europe, the truth is that we need to make changes if we are to have an effective Europe of 25. There is no way in which it will work as effectively as it should unless we make changes, which is why it is perfectly sensible to have the debate on the constitution and to try to resolve it. I do not believe that anyone wants a two-tier Europe, although there will no doubt be issues on which people will move ahead and enhance co-operation—that is already provided for by what was agreed at Nice. For example, we would want to be part of any movement forward on defence, but perhaps we would not on other

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matters, so we can deal with that case by case. I remain absolutely of the view that it is important to conclude the negotiations successfully, but there is obviously an impasse at the moment because of differences over the Nice voting system. I return to the point that I made: on the vast bulk of the stuff in the constitution, there is now agreement among the 25.
Mr. Doug Henderson: I totally support the stance that my right hon. Friend has taken at the European Council, which is realistic in difficult circumstances and will carry the full support of the British people. Does he agree that although the capture of Saddam Hussein is welcome, it will not necessarily lead to stability in Iraq. and that the crucial factor in establishing stability is building bridges with the whole of the Iraqi community to prevent degeneration into three separate countries? In that context, does he agree that it would be desirable to broaden the basis of the Iraqi governing council?
The Prime Minister: I agree with both points made by my hon. Friend. I thank him for his support on the European negotiations. On Iraq, he is absolutely right; the capture of Saddam is a momentous and important event, but it will still be necessary to defeat Saddam's supporters and the assorted foreign terrorists who are trying to prevent the progress that is being made. It is important that we give every power and strength to the Iraqi governing council and keep to the political timetable set out. In the end, the situation must be seen for what it is: the coalition forces and the Iraqi people against those who want to hold back the process.
Mr. David Heathcoat-Amory: It was a great day for Europe when the Poles did what the British Government should have done—block the wretched document. Since this may be only a reprieve rather than the end of the constitution, will the Prime Minister elaborate on his claim that he secured all his objectives, even though most were not fully discussed? Will he assure us that if the text is retabled next year, it will not include any of the red line objections that the Government have announced so far? Will he therefore assure us that any future constitution will not contain any of the matters to which the British Government object?
The Prime Minister: Of course, because we have made it clear that those things that are red lines for us cannot be breached, which is precisely why we negotiated on that basis. Negotiations on such issues as tax, social security, foreign affairs and defence have been going on for many weeks. The truth of the matter is that there is nearly a consensus on those issues in favour of the British position, although we obviously must await the final negotiations.
Let me point out the complete irrationality of the position of the right hon. Gentleman and Conservative Members. He says that Poland did what Britain failed to do, but Britain would have refused to sign a treaty that said, for example, that there should be no unanimity on tax matters. The Polish objection was to one part of the treaty, but the whole negotiating position of the
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Conservative party is the belief that lots of countries are saying that they want nothing to do with the constitution. If the right hon. Gentleman took his position and negotiated on behalf of this country, he would be alone in arguing that point. What is more, he would end up doing precisely what the Conservatives did at Maastricht, when everyone else determined how the single currency would work, the date it would take place and all the machinations that went towards it. All that the Leader of the Opposition got was his opt-out on the social chapter, which simply meant that British workers did not get the same rights as European workers.
I do not know when Conservative Members will learn from their experience. The last time they were in power, they did not stand up for this country's interests. Britain became a laughing stock in the European Union—[Interruption.] I am afraid it did. When we got to the table in 1997, we had no influence. Why? Because as a result of divisions in the Conservative party, we took the same positions as the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) wants to take today. The idea that Poland or anywhere else will block the whole of the treaty over the years to come is a complete myth. That is why there are two alternatives: we either get on the pitch and play or shout from the stands: I know which I prefer.
Ms Gisela Stuart: I do not regard this weekend as a failure. We have an opportunity to address some of the imperfections of the Convention process in which, despite extremely hard work by the Government's representatives, we did not fully achieve what we wanted to achieve. Subsequent achievements, especially in relation to the passerelle clause, have not only removed the major reason for Conservative party opposition but introduced changes to give individual Parliaments the power of opposition that I could not have dreamt of achieving before. On that basis, I would have thought that the Conservatives would sign up to what is on the table. When the Prime Minister goes into the process of reconsideration and reflection over the next few months, he has a valuable opportunity to consider whether the mechanisms to enforce subsidiarity are strong enough or whether they should be improved.
The Prime Minister: My hon. Friend is right. It was necessary to improve the original Convention text, on which we have been negotiating for the past few months. She rightly referred to the passerelle clause, for which the shadow Foreign Secretary laid down the test of whether we were we going to rid of it. He said just a few weeks ago:
"Are they going to get rid of the so-called escalator clause?"
Well, we have got rid of it. What do the Conservatives then do? They move on to the next thing. Let us be clear why: it does not matter what we get out of the negotiations, they will say no.
Peter Bottomley: There was obvious pleasure in Iraq and elsewhere when Paul Bremer announced the apprehending of Saddam Hussein. Will the Prime Minister take a bit of advice? It is better to refer to those who are suspected or accused

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of war crimes rather than to those who are guilty of war crimes. That would make a trial seem fairer and, probably, be fairer.
On the referendum on Europe, if people want a referendum, why can they not have one? Will the Prime Minister kindly arrange for a written statement to be made to answer the questions asked by my right hon. and learned Friend the Leader of the Opposition? There were specific questions, but there were not specific answers.
The Prime Minister: The problem is that Conservative Members do not like the answers—[Interruption.] Yes, that is absolutely correct. As for a referendum, as I have said repeatedly, if the draft constitution altered the fundamental nature of the relationship between the member state and the European Union, there would be a case for a referendum, but it does not and it will not. If we meet all the positions that we have set out, and I am confident we will, there will be even less of an argument for a referendum. I refer the hon. Gentleman to the House of Lords Select Committee, a cross-party Committee, that reported a few weeks ago and then reaffirmed its position, which is that, if anything, the draft treaty tilts the power towards member states. It makes it clear that the European Union, from then on, will have only the competencies that are conferred on it by the member state. The truth of the matter is that the Conservatives want a referendum not in order to have a "debate" on the European Union, but in order to say no, to get a no vote and to bring Europe to a halt so that they can pursue their real agenda, which is out not in.
Mr. George Foulkes: May I, as a long-standing pro-European, tell the Prime Minister that I do not share the Liberal leader's disappointment in the outcome? We can move forward in Europe only by agreement, not by bullying. Will my right hon. Friend explain to the Leader of the Opposition that discussions in Europe proceed by negotiation—by give and take? Is it not far better that we are in there, with a Prime Minister and a Foreign Secretary arguing our case, rather than standing on the sidelines like Switzerland or Norway, complaining about decisions over which we have no control?
The Prime Minister: That is precisely why this country has always been at its best when playing its full part in Europe, which we must continue to do. Pretence patriotism says that the best way to defend this country's national interest is to retreat to the margins of Europe. It is not. It is perfectly obvious that we must be on the pitch playing. The classic example is European defence. Of course we could opt out of European defence, but it would not mean that European defence did not happen; it would simply mean that it happened without us. That would not be in the interests of Britain, Europe or NATO.
Mr. Roger Gale: The Prime Minister referred fleetingly in his statement to the accession of the island of Cyprus. Does he agree that the elections held in the occupied northern part of the island over the weekend demonstrated extremely clearly that the puppet regime has no mandate whatsoever? If he
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does, what steps will the United Kingdom take as a guarantor power to ensure that Turkish Cypriots have a proper say in the accession of Cyprus as a united island to the European Union next spring?
The Prime Minister: It is important that we try to use the elections to move forward on the terms set out by the United Nations Secretary-General. I think that those form the proper basis on which we can find a solution for a united Cyprus, and they make the entire process much easier. That is what we will be working for. If we can achieve that, it is in no sense a barrier to accession, but undoubtedly it makes life much easier if we can have that unity. I hope very much, on the basis of the elections that took place at the weekend, that we are able to make progress.
Mr. Gerald Kaufman: As a member of the Labour party who, with Neil Kinnock, formulated the Labour policy that supported the removal of Saddam Hussein from Kuwait, who opposed Saddam Hussein long before he seized Kuwait, who has opposed Saddam Hussein since he was removed from Kuwait and who supported the means whereby he was captured over the weekend rather than opposing the means but snivellingly praising the end, may I ask my right hon. Friend, with that background, whether he will accept from me, and people like me, our utter opposition to the use of capital punishment against Saddam? I hope that he will be able to state the position of our Government on that.
The Prime Minister: I thank my right hon. Friend for his long and principled opposition to what Saddam Hussein stood for and did in Iraq. Of course this country remains opposed to the death penalty, but its use must be decided by the Iraqi Government and the Iraqi people. Whatever our own tradition and position here and the position that we lobbied for at an international level, there is an important point of principle, which is that the special tribunal, correctly constituted, should be in the hands of the Iraqi people.
Sir Teddy Taylor: Is the Prime Minister aware of the growing view among all the parties in Britain that the basic reason he is opposed to holding a referendum on the new constitution is simply because he would be hammered? Is it not right and proper in a democracy that, before imposing a written constitution, he should seek the opinion of the people? Would it not help to remove much of the anxiety and depression about the whole affair if he said that we will have a referendum and let the people decide whether they want a written constitution?
The Prime Minister: As a result of what happened at the weekend, we do not have an agreement. Surely it is better to see whether I am right in saying, when the agreement is finally promulgated, that it does not alter the basic constitutional relationship between member states of the European Union, or whether the hon. Gentleman is right in saying that it does. It is surely on the basis of the agreement that we should make the judgment.
Ann Clwyd: Will my right hon. Friend confirm that Saddam Hussein will at last face the

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justice that he denied tens of thousands of Iraqi people and of many other nationalities as well, including British hostages taken in Kuwait? I remind anyone in this House or anywhere else who has any lingering sympathy for Saddam Hussein or his regime of just one witness statement taken by Indict:
One of the President's bodyguards brought 30 prisoners out. They were Kurds. The President himself shot them one after another with a Browning pistol. Another 30 prisoners were brought and the process was repeated. Saddam Hussein was laughing and obviously enjoying himself. There was blood everywhere—it was like an abattoir.
That is the regime that we have brought to an end.
The Prime Minister: I entirely agree with my hon. Friend, and thank her again for her brave and courageous stand for many years against Saddam Hussein and all that he stood for.
Mr. William Cash: The Prime Minister will know that the Germans and the French said that they would go ahead with the constitution only on their own terms. The Prime Minister said, and he repeated it today, that he agrees with the constitution in principle. Together, that would betray not only Poland's democratic sovereignty but the United Kingdom. Delaying a decision on the voting system until 2009 does nothing for the situation and is mere camouflage. By failing to veto the constitution, the Prime Minister, far from being a peacemaker, will have to meet his own Munich.
The Prime Minister: I am afraid that that sums up the sentiment in today's Conservative party. Let me repeat the position, and the hon. Gentleman can go and look at what the Poles said. The President and Prime Minister of Poland oppose not the constitution but one aspect of it that affects their country's interests.
Mr. Cash: In a referendum.
The Prime Minister: No, they are not having a referendum on the constitution in Poland.
Mr. Cash: They had a referendum.
The Prime Minister: They had a referendum on whether Poland should become part of the European Union. We, too, had a referendum, and it was offered by Labour, not the Conservatives. I point out to the hon. Gentleman once again that there is no way in which Britain will gain from the process of what is happening in Europe if it absents itself from those negotiations. Yes, France and Germany will argue their corner, and we should argue our corner. For goodness' sake, we do not have to worry about being beaten by the French and the Germans every time. We have shown in many negotiations in the past few years that when we fight to get our own way we can get our own way. We can do so without the Eurosceptic nonsense that too often emanates from the Opposition.
Mr. Frank Field: Will the Prime Minister speculate on why fewer Members turned up to
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hear this European statement? Does he think that that may be because views in the House reflect views in the country and that an increasing number of people feel that the agenda set in the immediate post-war years to deal with the situation then has now largely run its course? May I make a plea to him not to apply the usual European technique when issues have been rejected of grinding down opposition? Will he pick up the ball and run with it, take the issues that people in this country believe are crucial to our well-being and that of Europe—trade and the environment—and make sure that we are at the centre of Europe in dealing with those two key areas?
The Prime Minister: I agree with the last part of what my right hon. Friend said and think that it is important. An issue such as trade is a classic example of where we should be driving through the single market and so on, but obviously we can do so only as part of the European Union. In many areas of trade and commerce, we need qualified majority voting to make sure that, in a Union of 25, small states do not block change. When one looks back at the history—I know that my right hon. Friend was not doing this—one can see that part of the Eurosceptic myth is that these things are never going to happen and that somehow it is never going to arrive, so we do not lose by staying at the side. However, that is not the way in which it has ever worked.
Maastricht was a classic example of that. When the Leader of the Opposition and his colleagues were in power they went to Maastricht and let everyone else determine the terms, then got their opt-out from the social chapter and the single currency. Sweden never had an opt-out from the single currency, but had a referendum on it. We, of course, have said that we would have such a referendum here if we recommended joining. The truth of the matter is that what happened at Maastricht is a classic example of everything that was wrong with the Conservative party and its former leadership in Europe. We were utterly marginalised. We got an opt-out from the social chapter—a fat lot of good that did anyone, frankly—and the rest of Europe went ahead, and we should have been there determining how it was shaped right from the beginning.
If we did what the Leader of the Opposition wants us to do, we would make exactly the same mistake on European defence. If Britain does not play its full part in European defence and shape it in a way that is consistent with NATO, it will be taken forward by others, perhaps in a way that is inconsistent with NATO. That is why we must remain at the centre of Europe, not on the sidelines.
Mr. Edward Leigh: Up to now, many of the attacks on coalition troops in Iraq have been blamed on former regime loyalists. Is there not now a danger to the coalition case in Iraq? What will happen if the terrorist attacks continue, perhaps unabated? Will that not lend credence to those who argue that despite the undoubted merits of getting rid of a gangster regime, when it comes to the big issue—the issue of dealing with international terrorism—an attack on a sovereign Arab nation has made the threat from international terrorism worse, not better?
The Prime Minister: I am afraid I do not accept that at all. Let us consider some of the terrorist acts that are

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happening around the world today. Attacks by extremists are happening in countries of which some supported the action in Iraq and many opposed it. These people will carry on fighting their war until we defeat them—and Iraq is merely the latest battleground.
Why do they want to stop us making progress in Iraq? It is because if we make progress in Iraq, their entire argument—their lie that somehow this was about oppressing Muslims or defeating the Arab world—is exposed for what it is. If Iraq gets on its feet as a stable, independent, sovereign state, democratic and prosperous, that will be the best political argument against the extremists. That is why they are in there trying to bomb and kill innocent people—most of whom, incidentally, are Iraqis—and to stop us.
I must tell the hon. Gentleman that the only way in which we will defeat this menace is, wherever it may be in the world, to go after it, and to take the security and political measures that will allow us to defeat it at every single level—in terms of intelligence, in terms of military capability, in terms of security, but also in terms of the political vision for the world.
Mr. Dennis Skinner: It has not been a bad weekend really, has it? First they drag Saddam out of his rabbit hole, then they knock this European constitution into the long grass—longer than Saddam's beard. Do not send a search party to look for it. We have had two Christmas presents; should we not take them and be thankful?
The Prime Minister: I wish my hon. Friend a happy Christmas as well.
Mr. Eric Forth: Will the Prime Minister please convey our best wishes and congratulations to the Polish Prime Minister? Will he please tell him that we all wish our Prime Minister had the courage that he showed last weekend?
The Prime Minister: It is amazing—I make a point to the Conservatives, and they simply do not listen or take it on board. Let me repeat this again. If the right hon. Gentleman wishes, he can go and look at what the Polish Prime Minister said. The Polish Prime Minister said that he supports the constitution for Europe and disagrees with this one aspect—just as there are points with which we disagree. The idea that somehow the Poles were saying no to the whole constitution is a myth, and I am afraid that if we based our foreign policy on that myth it would be a foreign policy based on sand.
Mrs. Alice Mahon: The Prime Minister will be aware that the senior Shi'a cleric Ayatollah Sistani is calling for early elections instead of an appointed Government in Iraq. Many supporters of early elections believe that the World Food Programme could be used to organise such elections. The Prime Minister said this afternoon that he thought the best thing for the Iraqi people was democracy and freedom. Will he therefore give them the right to those early elections?
The Prime Minister: It is important for us to make progress as quickly as possible. I think people understand that after years of Saddam there is a process
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that must be gone through—but yes, of course we want democratic elections as swiftly as possible: I echo my hon. Friend's call for them. I cannot forbear to point out, though, that if Saddam were still in power there would be no question of any elections.
Mr. John Redwood: Will the Prime Minister explain why he is prepared to give away more powers over foreign affairs, economic policy, asylum and immigration and many other important issues when it is crystal clear that none of those things is needed for enlargement, contrary to his original opinion?
The Prime Minister: For enlargement to work effectively, it will be necessary to make changes. For example, I believe that qualified majority voting would be in the interests of the country for a series of subjects. However, we are not giving up the power to set our asylum laws—that is simply not true. As a result of our negotiations at the time of the Amsterdam treaty, we are not giving up the right to independent foreign and defence policies. Of course we shall not give up any such rights.
It is right to work with others in the European Union because a Europe of 25 needs a different way of working. Let me give one example. We currently have rotating six-monthly presidencies, which make it difficult to achieve continuity in the agenda that the member states adopt in the European Councils. If we do not have a full time chairmanship, a series of states—possibly small states, one after another—will preside and it will not be possible to make the European Union work effectively. That is why it is ultimately important to make changes. However, we have said before, and I say again, that we shall not yield any of Britain's essential attributes as a nation state.
Tom Levitt: My right hon. Friend is right to draw attention to the commitment to Europe of not only the Polish Government but the Polish people. Poland does not regard itself as the heart of Europe for nothing.
However, is my right hon. Friend aware that since the largest accession country fought a referendum campaign in May based on a specific voting strength, it is dismayed to find that it has to accept a lesser voting strength the following May? How does he believe that that could be resolved?
Will my right hon. Friend also take the opportunity to pay tribute to Polish troops who played such an important part in the coalition in recent months?
The Prime Minister: Let me pay several tributes. First, I pay tribute to the Polish troops for their magnificent work in Iraq, where we work closely with Poland's immensely fine soldiers. Secondly, I pay tribute to the courage of the Polish Prime Minister for attending the summit after a serious accident. He showed enormous stoicism.
Thirdly, my hon. Friend is right. Poland's difficulty was not with the vast bulk of the constitution, with which the Polish Prime Minister agreed, but with the specific element that Poland had secured as an agreement at Nice. What was on offer for Poland in the

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Convention appeared less good to the Prime Minister and that was obviously difficult for him to accept. We must therefore pause and reflect on a possible way forward. As was implicit in my hon. Friend's remarks, if we base British negotiating strategy on blanket opposition to the constitution by other countries, we base it on a serious misapprehension.
Angus Robertson: There is genuine relief in our coastal communities that we will not have a constitution that entrenches the conservation of marine biological resources under the common fisheries policy as an exclusive European Union competence. The Prime Minister spoke repeatedly of national interest, but he and the leaders of the Conservative and Liberal Democrat parties did not mention the fishing industry once. Is that because it is not a matter of national interest for the UK or the UK parties?
The Prime Minister: It is important to ensure that we secure the right fisheries deal for all parts of the UK. Important negotiations are taking place this week. However, as I have said to the hon. Member for Banff and Buchan (Mr. Salmond), the hon. Gentleman's party leader at Westminster, it would not be wise for us to withdraw from the common fisheries policy because that would mean a free-for-all.
Mr. Stuart Bell: The Prime Minister consistently referred to the defence issues that were discussed at the conference, and the transatlantic and European alliances. Will he confirm that the military planning centre that has been set up for a limited goal of humanitarian and peacekeeping aims does not need to be covered by the treaty, will be up and running and will form an appropriate bridge between the two alliances?
The Prime Minister: Yes. Moreover, as my hon. Friend rightly implies, there is no standing operational capability. That was one of our agreements. However, it is important that, in circumstances in which America does not want to be engaged and NATO assets are not
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used, Europe has the capability to act. We have only to consider events in Macedonia to realise how sensible it is for Europe to have such capability in limited circumstances and when NATO is not engaged. European defence is therefore sensible, provided that it proceeds only when it is strictly complementary and does not duplicate NATO's actions.
Mr. John Wilkinson: Why did the British Government not oppose the proposal by the French and German Governments that the EU should lift its embargo on arms sales to the People's Republic of China? That proposal was encouraged by Mr. Prodi, who welcomed such a review. What military threat do the Chinese face that could be seen off with weapons from Europe? Is it perhaps the possibility of a referendum on Taiwanese independence?
The Prime Minister: I think that it is perfectly sensible to review the embargo. The situation in China today is different and changing: the suggestion that we should reconsider it is sensible, and was not put forward for the reasons that the hon. Gentleman states.
Jane Griffiths: The capture of Saddam Hussein is welcome for Iraq, for the middle east and for the whole world, but is the Prime Minister in a position clearly to tell the House whether he believes that Saddam Hussein should be indicted for war crimes or on other charges?
The Prime Minister: The precise nature of the indictment that is made against him should, as I say, be left to the Iraqis. I emphasise that Iraq has a governing council, whose members said just a few days ago, before the capture of Saddam, that they wanted to set up a special tribunal to try people who were accused of various crimes against the Iraqi people: they should be allowed to get on with that process. We should give whatever support we can in ensuring, for example, that the judiciary is properly independent and properly staffed. The terms of the indictment and the way in which any charges are framed are for the Iraqis themselves that is part of the whole process of saying that Iraq is run by the Iraqis.

Orders of the Day

  CONSOLIDATED FUND BILL
  Order for Second Reading read.
  Question, That the Bill be now read a Second time, put forthwith, pursuant to Standing Order No. 56 (Consolidated Fund Bills), and agreed to.
  Bill accordingly read a Second time.
  Question, That the Bill be now read the Third time, put forthwith, and agreed to.
  Bill accordingly read the Third time, and passed.

  Child Trust Funds Bill
  [Relevant document: The Second Report from the Treasury Committee, Session 2003–04, on Child Trust Funds, (House of Commons Paper No. 86).]
  Order for Second Reading read.
  4.31 pm
  The Financial Secretary to the Treasury (Ruth Kelly): I beg to move, That the Bill be now read a Second Time.
  I am delighted to bring this Bill before the House. In doing so, the Government are fulfilling a manifesto commitment. The child trust fund represents a new and imaginative way of encouraging children and their parents to save for the future. We will ensure that, in future, all children will have the opportunities that are currently taken for granted by only a few.
  There are four key objectives for the child trust fund: to help people to understand the benefits of saving and investing; to encourage parents and children to develop the savings habit and to engage with financial institutions; to ensure that in future all children have a financial asset at the start of adult life; and to build on financial education. This is an ambitious and long-term project. Nothing on this scale has been tried anywhere else in the world. Britain is leading the way in asset-based welfare, and we are convinced that that is the right thing to do.
  The Government have already taken important steps towards ending child poverty. Only last week, the Chancellor announced an additional £1 billion a year of investment in Britain's children to advance our goal that not some, but all of them should have the best possible start in life, and that no child is left behind.
  Welfare policy cannot however be seen merely as the meeting of immediate needs. It is time to take a longer-term view and to consider the wider factors that make a difference to young people's future opportunities. Evidence from the national child development survey suggests that the backing of a financial asset can have a significant impact on changing people's attitudes and broadening their horizons.
  We want all families to have the opportunity to save for their children. Surveys show that only one third of the population saves regularly. Moreover, there is no tradition of people saving money for their children over the long term. We hope that the child trust fund will kick-start saving among families, and we believe, for two reasons, that that will be achieved—first, as a
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  response to the initial Government payments and later age-related payments; and secondly, as a result of financial education.
  We are particularly concerned about families on low incomes. The American experience with individual development accounts shows that incentives encourage people on lower incomes to save money, and our own pilots of the savings gateway—the interim report on which was published last week—show that people on very low incomes can make regular savings. That, too, was the conclusion of the financial services industry and of consumer groups. Recent research conducted by the Association of British Insurers found that 75 per cent. of parents who do not normally save for their children said that they intended to contribute to their child's trust fund. The National Consumer Council's research into the attitudes to saving of people on modest incomes in the 21-to-35 age group suggested that spontaneous references were made to the new fund by the participants.
  We recognise, however, that it will be harder for families on low incomes to make contributions, and that is why the Government have decided to make an additional contribution to the accounts of those children whose parents are in receipt of the full child tax credit and whose income is below £13,230. The child trust fund is a good example of progressive universalism. It is a universal policy reaching out to all children, no matter what their financial circumstances, but it will target more resources on those children who need it most.
  I welcome the conclusion of the Treasury Committee report published today, which says:
  The Child Trust Fund is an ambitious, pioneering programme which seeks, through a significant long term investment by the Government, to provide a financial asset to all children when they reach the age of 18, and to change people's behaviour towards saving. Whilst those with higher income may make most use of the opportunity, we feel that this gives less well off families an unprecedented chance to build up a tax-free sum for their children.
  Dr. Jenny Tonge: I thank the hon. Lady for giving way, and I apologise for missing the beginning of her speech. As a mother and grandmother, I am very interested in this issue. Can the Minister tell us the amount of money that will have accumulated by the time a child is 18? At the minimum level, having received £250 at birth and a few additions along the way, it will not amount to very much. Also, is she not worried that an 18-year-old might spend the money incorrectly?
  Ruth Kelly: I shall answer the first part of the hon. Lady's question first. Table 3.1 of the proposals document that we published recently illustrates the impact of endowments at the age of 18, given growth in the fund. For example, if there were no additional savings, a child with an initial sum of £250 would, on a very cautious assumption, have accumulated £456 by the age of 18. However, a child from a poorer background who had received the full £500 endowment would, assuming that they had had no further

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  Government top-ups or additional contributions, have accumulated £911 at the age of 18. I suggest that such a sum could have a significant impact.
  Dr. Tonge: What exactly does the Minister think that £900 is going to fund in 18 years' time?
  Ruth Kelly: I suggest that the hon. Lady look at the research based on the national child development survey, which suggests that a sum as low as £300 could have a significant impact on someone's future behaviour. At the moment, the average young person between the age of 18 and 25 has zero financial assets, and that is something that we intend to change.
  David Hamilton: As a grandparent of five grandchildren, I believe that this will be a very good way for grandparents to contribute to their grandchildren's future.
  Ruth Kelly: I congratulate my hon. Friend on his good fortune, and I certainly suggest that he make contributions on behalf of his grandchildren. He is right to say that contributions can be made by a wider group of people, and not just by the child and the child's immediate family. Grandparents are perhaps the key people to the development of this policy.
  Mr. Andrew Robathan: I congratulate the Minister on having four children under the age of six. No doubt she will be hoping to help them to save, and we should all encourage our children to do so. Regarding the amounts involved, however, what does she think average university fees will be in 18 years' time?
  Ruth Kelly: The hon. Gentleman's question ties in with the point made by the hon. Member for Richmond Park (Dr. Tonge), who asked whether we would restrict a young person's use of the money at the age of 18. It is my judgment and that of the Government that the person best placed to make that decision is the child at the age of 18. It is right that the child should have the full chance to use that money in whichever way they think is in their own best interest. That may be to pay for further education. It may be to put down a deposit on a tenancy or a home. They may want to buy a van, for example, to start up a small business. It is not right for us to try and restrict people's opportunities, and at present they are restricted.
  Several hon. Members rose—
  Ruth Kelly: I give way to the hon. Member for Buckingham (Mr. Bercow), whom I have come across several times in previous capacities.
  Mr. John Bercow: As a proud father of nine days, 14 hours and 32 minutes, I have a close personal interest in the matter, as the hon. Lady will understand. Given that on the most cursory examination of the Bill, it appears that no fewer than 16 of the 31 clauses allow for secondary legislation and order-making powers, will the hon. Lady, first,
  1340
  guarantee that we will have a draft of all those regulations before Report stage? Secondly, can she advise me whether the procedure in respect of those regulations will be the negative procedure of the House, or its affirmative counterpart?
  Ruth Kelly: I can advise the hon. Gentleman that the regulations will be laid in draft for full consideration during the passage of the Bill. I cannot advise him on the detail of every regulation, as I have not considered the regulations in draft. I refer him to the comments made by the Association of British Insurers in its memorandum to the Treasury Committee, which stated:
  The manner in which HM Treasury has developed the framework for the child trust fund has been exemplary. Consultation has been held at each stage of the policy's development and the industry has been pleased that its comments have been taken on board".
  We are determined to get that right, and we have made significant progress.
  Several hon. Members rose—
  Ruth Kelly: I give way to my hon. Friend the Member for Hastings and Rye (Mr. Foster), but this must be the last time before I make more progress.
  Mr. Michael Jabez Foster: Every hon. Member will probably claim parenthood or grandparenthood. In my case, my grandchildren, Billy, Thomas, Ashleigh and Ellie, are all aged five or under, but are too old to gain the benefit of the trust fund. There must be a starting point, but can my hon. Friend assure me that they will be able to benefit from the trust fund in terms of tax relief, if not in terms of bounty?
  Ruth Kelly: We have considered the matter closely. It could well be that parents of children with siblings older than the child who benefits from the endowment will wish to take out a policy that mirrors that of the child trust fund. I suspect that if the demand exists, the industry will react to that and develop products that are almost identical. Under the current legislation, it is possible for children to benefit substantially from tax relief, and I imagine that any new accounts would use the existing reliefs in the system.
  I turn to financial education. There is a real challenge for us as a Government to improve people's financial awareness. For some people, the child trust fund will be their first exposure to saving and investment. We have commissioned research to find out the best way to help such people make these quite complex decisions, and we will work closely with the Department for Education and Skills, the Financial Services Authority and other organisations that can help us design and deliver the financial support and information that people will need to manage their accounts.
  I welcome the evidence from the National Consumer Council, which stated:
  This product actually presents an excellent opportunity to communicate risk issues to a whole generation of parents, in a very tangible way."
  Mr. James Plaskitt: My hon. Friend mentions the importance of financial education, and the child trust fund will be the first time that many people encounter risk. Will she take on board the Select Committee's recommendation that there should be an easily understandable risk evaluation attached to all the wrap-around products that may head up the child trust fund once it is up and running?
  Ruth Kelly: My hon. Friend will be pleased to hear that I have been studying the conclusions of the Treasury Committee report in great detail this morning. We want to communicate the issues to the best effect. That is why we will commission research, and of course that research will take account of the conclusions of the Select Committee report.
  The Bill places a duty on the Government to make child trust fund payments to eligible children. It sets out the framework for operating the child trust fund and includes powers to make regulations covering some of the more detailed issues. In developing the child trust fund, our aim has been to keep the processes as simple as possible for all concerned; families, providers and the children themselves.
  All children born since 1 September 2002 who live in the UK and for whom child benefit is claimed will be eligible for the child trust fund. Entitlement to a child trust fund will be linked to an award of child benefit, which nearly every parent in the country claims. That removes the need for a separate claim form and process for the child trust fund.
  Child benefit cannot be claimed for children in local authority care, but the Bill ensures that these children will not miss out. Children in care include some of the most disadvantaged children in our society and the Inland Revenue is working with representatives of local authorities and central Government to ensure that appropriate arrangements are put in place for those children.
  Bob Spink: I am grateful for what the Financial Secretary has said about children in care, on which the Government are making progress. However, these children—unlike others—will not benefit from additional contributions and will be disadvantaged. Is there anything we can do to correct that problem?
  Ruth Kelly: The hon. Gentleman makes an important point. We are working closely with children's charities and local authorities to think about the way in which the role of local authorities might develop in future. Certain local authorities are enthusiastic about the potential the policy offers them, for example, to make contributions on behalf of the children in their care. That will evolve after the policy has been put in place.
  When the award for child benefit is made, the parent or guardian will be sent a child trust fund voucher and an information pack. The pack will include details of all providers, a step-by-step guide to the opening of an account and a clear and objective explanation of the stakeholder child trust fund account, which all providers are required to offer. Parents, or someone else with parental responsibility, can take the voucher to the provider of their choice to open an account.
  Mr. Michael Weir: I came across recent cases involving the Child Support Agency where
  1342
  the parents were splitting the child benefit entitlement. Would both be entitled to a voucher? Might that lead to two small funds, rather than one large one, which might be disadvantageous to the child? How would that be dealt with?
  Ruth Kelly: It is not the intention of the policy to have two separate child trust funds running concurrently for the same child. In fact, that will be prohibited; there will be a unique reference number for each child. The parent with responsibility will be provided with a voucher and can take that voucher to the provider of their choice.
  The financial institutions that want to offer child trust fund accounts will need to be approved by the Inland Revenue. The details will be set out in regulations, but this is a straightforward process and one with which providers are familiar, as it will be based on the approval process for individual savings accounts. I am pleased to say that many providers have expressed enthusiastic support for the child trust fund and a number of organisations have expressed themselves delighted with the proposals.
  Providers will be able to offer a variety of different accounts to suit the different preferences of parents. Their child's trust fund will be a wrapper, in the same way as an ISA can be wrapped around a variety of products such as cash, unit trusts or life insurance products. That will give parents choice and allow providers to offer a full range of accounts to suit the market.
  The child trust fund is a long-term savings and investment policy. Historically, investments in equities have been shown to provide a better return than cash deposits. Over the last 18 years, for instance, £100 invested in the stock market would have yielded £321, whereas the same £100 deposited in a building society account would have produced £171. We want all children to have the opportunity to benefit from the generally higher returns on equities over the longer term. That is why offering the stakeholder child trust fund account will be a prerequisite for all financial providers that want to offer accounts.
  The stakeholder account will follow the principles outlined by Ron Sandler in his July 2002 report, "Medium and long-term retail savings in the UK." He proposed that stakeholder investment products should be simple, low cost, accessible and risk-controlled. Stakeholder accounts will be equity based. To balance risk and return, providers who offer stakeholder accounts will be required to diversify investments so that investors are not unduly exposed to a narrow range of equities. Providers will be required also to apply lifestyling to the accounts, moving investments to less risky assets as the account nears maturity. Further details will be set out in the regulations.
  Once the account has been opened, the financial provider will claim the amount and the initial Government payment—£250—from the Inland Revenue. Children in families on new tax credits whose income is below the income threshold will have a second payment of £250 paid directly into their account as soon as the tax credit claim for the year in question has been finalised. A further payment will be made when the child reaches seven. Again, a second payment will be made to families on low incomes. By making a payment when the

  1343
  child is seven, we can demonstrate the benefit of saving, as children and parents will be able to see accounts growing more quickly after receiving this Government contribution.
  Mr. David Cameron: In effect, the Financial Secretary is saying that if a family are earning £13,230, they will get £500 for a child, but if they are earning £13,231, they will get only £250 for a child. Does that not send the message that saving is bad for people?
  Ruth Kelly: I do not follow the logic of the hon. Gentleman's position. The fact is that there has to be a cut-off point if payment is to be split into two elements. We have chosen full entitlement to the child trust fund and the income threshold of £13,230 to ensure that up to 40 per cent. of children will be in receipt of the £500 entitlement, and of the means-tested top-up at the age of seven.
  Inevitably, some people will not get round to opening accounts for their children. There could be a number of reasons why, but we do not want those children to miss out, so if an account has not been opened 12 months after the voucher has been issued, the Inland Revenue will open one on their behalf and tell the parent or guardian that that has been done, and that they can now take over managing it. These accounts will always be risk-controlled, child trust fund stakeholder accounts, as those are likely to give the best return; and of course, they will be with an approved provider. The Inland Revenue will not be responsible for managing such accounts once they are opened. Parents will be told that they are free to move the account to a different provider, or to move to a different type of account, if they wish. We hope that the Inland Revenue will need to open only a small number of accounts, and that the number will diminish over time. We will monitor the situation carefully.
  The Inland Revenue will also open stakeholder accounts for children in care. As such children will be in care when the account is opened, they will not be able to qualify for the additional Government payment by virtue of living in a family in receipt of full child tax credit. Nevertheless, they will automatically receive an amount equal to the initial and additional Government payments.
  The child trust fund is not, however, just about Government payments. We hope that such payments will kick-start a savings habit, and that parents and other family members will also make their own savings. We want to see a change in attitude to saving for the long term, and we have decided that child trust fund accounts should have certain advantages to encourage this.
  Mr. David Laws: Can the Financial Secretary tell us what research the Treasury has done into how much additional saving the child trust fund will generate? What is her latest estimate?
  Ruth Kelly: As I said at the beginning of my speech, the child trust fund has a number of objectives, one of which is encouraging the saving habit. Increasing the long-term level of savings in the economy through this
  1344
  vehicle is not one of those objectives. In fact, small additional contributions, from time to time, from a family member on a lower income could be a remarkably good result. On the other hand, if, on receiving the information in the child trust fund package, someone decides—because they have greater financial understanding and awareness—that they would be better off paying off a credit card debt with that money, that would also be a result. But the hon. Gentleman will see that in such scenarios, it is not possible to set meaningful targets for increasing the level of savings through this vehicle.
  We would like to see a change in attitude to saving for the long term, so we have awarded certain tax advantages to these accounts. Parents, grandparents, friends and other relatives will be able to add up to £1,200 to the accounts each year, and all the proceeds will be free of tax. As a further incentive, income tax settlements legislation will not apply to child trust fund accounts. Given that such an account will run for 18 years, the settlements legislation could have caught large numbers of people in the later years of the account. Furthermore, the Government acknowledge that people on low and moderate incomes may be concerned that any saving may affect their entitlement to benefits.
  The Government will keep under review the treatment of capital in income-related benefits, so that a sensible balance is struck between providing targeted state support and not unfairly penalising those who have acted responsibly by saving. I can announce to the House that from 6 April 2006, as a first step, we will increase the £3,000 threshold above which savings reduces eligibility to income support, jobseeker's allowance, housing benefit and council tax benefit to £6,000, in line with pension credit.
  Before closing, I would like to say something about the charge account, which interests many Members. The Government want to ensure that charges are set at levels that are good value for savers, while also allowing efficient providers to make adequate returns. The independent research that we commissioned Deloitte to undertake, and the evidence that we received from the industry and consumer groups, will enable us to take a final decision on the charge cap early next year. Further details will be set out in regulations.
  In conclusion, the child trust fund is a bold and ambitious policy. We hope that it will fundamentally change attitudes to savings, improve financial capability and extend opportunities across income groups by providing all children with an asset when they reach the age of 18. We all have an interest in creating a society that understands the benefits of saving. The child trust fund will help us to achieve that, so I commend the Bill to the House.
  4.56 pm
  Mr. George Osborne: I suppose I should begin by taking part in this Dutch auction of interests. In common with the Financial Secretary, I have a daughter who will qualify for the child trust fund. I hope that I am not betraying any confidences in saying that my hon. Friend the Member for Wycombe (Mr. Goodman), who will be winding up for the Opposition, is hoping to receive a voucher next year, as is my hon. Friend the Member for Witney (Mr. Cameron). Indeed.

  1345
  it is a strange quirk of fate that the Minister who is introducing the Bill, the two Opposition spokesmen shadowing it, the Chancellor who dreamt it up, and apparently half the hon. Members in their places today, will benefit from it. The Parliamentary Commissioner for Standards would probably have a fit if he knew.
  Mr. Robathan: May I say, for the benefit of the whole House, that the fact that my children are too old to qualify—albeit by only two years—is not the reason why I oppose the measure?
  Mr. Osborne: Later in my speech, I shall come on to what can be done for children who, because they were not born after 1 September last year, do not qualify.
  Let me make it clear from the outset that we greatly support the principle that the Bill is designed to promote. Conservative Members believe in the virtue of savings. We think that having savings, like owning one's home, gives people a stake in society, gives them independence, encourages self-reliance and bolsters the freedom of the individual against the overbearing state. In that sense, it is the most practical manifestation of liberty. That, of course, is why, when the Conservatives were in government, they encouraged wider share ownership and gave council tenants the right to buy. It is also why, when in opposition, we have been alarmed at the halving of the savings ratio and the spread of the means test.
  Conservative Members did not stumble across a belief in savings through some focus group or seminar. It is rooted in a Tory tradition that stretches from John Locke and Edmund Burke to the present day. Any policy that has the prospect of increasing savings and the freedom that they bring is something to which we should give a fair wind.
  Whether the child trust fund works in practice is another matter. For a start, we do not know many of the key details. Indeed, we are none the wiser after the Financial Secretary's speech on aspects such as the level of the charge cap or the form of the sales regime. Given that the Treasury started talking about child trust funds almost three years ago, it is astonishing that so much is still so unclear at so late a stage. It is particularly astonishing that the Financial Secretary admitted in her speech that she had not yet considered some of the regulations, even in draft. I welcome at least her promise that they will be available during the passage of the Bill. I hope that she meant the passage of the Bill through this House and not through the other place.
  From what we know, it is clear that, despite their good intentions, the Government have fallen prey to their characteristic habits of over-complexity and means-testing—ironically, the very factors that have caused such a mess in the welfare system to date, and have contributed to the savings crisis that the Bill seeks to address. We have serious concerns about the detail, but it would be churlish to oppose the principle behind the Bill. As I said, Conservatives believe in the virtue of savings.
  The Financial Secretary comes to the subject by a different route—the Institute for Public Policy Research. When the Government were desperately scratching around for something new to say before the last election, the IPPR did what it is supposed to do by
  1346
  helpfully supplying the child trust funds, dressing them up in a new-fangled theory called asset-based welfare. The IPPR is, of course, the king of the Blairite think tanks—not for it obscure meetings in shabby offices on the fringes of Westminster; when it held a seminar last year on the child trust fund proposals, it took place at No. 10 Downing street, no less.
  What was said at that seminar? That may give us a clue about the thinking behind the Bill. The Financial Secretary knows, because she was there and said much of what was said. I know, too, because I have got hold of a copy of the minutes. [Interruption.] I can hear that my hon. Friends are excited about that. They will be interested to know that child trust funds are known in new Labour circles as a
  third way within the Third Way".
  I did not even know what the third way was, let alone that there were three different versions of it. By my calculation, if each way has three separate ways, there may be as many as nine ways in total: the House can see why I am on the Treasury team.
  It is good to discover that someone is still talking about the third way. It is a bit like discovering a group of Esperanto speakers, or a Rubik's cube convention. The phrase "the third way" certainly has not passed the Prime Minister's lips for at least two years, and the Financial Secretary reminds me of one of those Japanese soldiers discovered on remote Pacific islands long after the war was over: she is still fighting a cause that her political masters gave up on long ago.
  The minutes are full of other fascinating insights into the thinking behind the Bill. For example, a Mr. Kevin Rudd, apparently a leading light in the Australian Labour party, told the seminar:
  The left has begun to realise that assets and wealth are important to people who want to 'get on'. It taps into deeply felt aspirations and should be harnessed to progressive ends rather than left to the clutches of the right".
  I suppose that we are the clutches of the right".
  The minutes go on:
  Kevin finished his presentation with a potential problem. The long-term nature of the Child Trust Fund could mean that it does not fit well with the electoral cycle."
  Oh dear! Thankfully, the Government have been able to solve Kevin's problem. They announced their child trust funds just two months before the last general election, and they plan to send child trust fund vouchers out to the parents of 1.8 million children just a month before the likely date of the next one. Gosh! There I was naively thinking that this was all about helping other people.
  Ignoring the third way clap-trap and setting aside the cynical electioneering, I still, despite provocation, believe that the Chancellor has produced a policy whose ambition is not ignoble. We all want the savings habit to be encouraged in all parts of our society. However, I must raise four questions, here and in Committee: first, will they work and encourage saving; secondly, will they reach the right people; thirdly, will they be ready on time; and fourthly, will they help develop a lifelong savings habit?

  1347
  The honest answer to the first question—whether they will work and get people saving—is that the Government simply do not know. As the Financial Secretary said before the Treasury Committee, the child trust fund approach is
  "not one that has been tried … anywhere else in the world".
  She quoted Association of British Insurers surveys and examples from the United States about individual development accounts, but those are no substitute for proper research into whether the policy will achieve the objectives hoped for. All she could say was that she hoped that it would kick-start a savings habit.
  Hope rather than research is a dangerous thing when expensive new legislation is being introduced. In the words of the Chairman of the Treasury Committee's Sub-Committee on the matter, it is a "leap in the dark". I take this opportunity to thank the Chairman of the Treasury Committee, the hon. Member for Dumbarton (Mr. McFall), who is here, and my hon. Friend the Member for Sevenoaks (Mr. Fallon) and his Sub-Committee for producing an excellent report to inform the Second Reading debate.
  From my reading of the evidence in the report, and from having attended a session myself, I note that the Financial Secretary was strangely reluctant, when questioned by my hon. Friend the Member for Bury St. Edmunds (Mr. Ruffley)—I thought that they struck up some rapport at the time—to set any kind of target for how many people she wants to see saving under the child trust funds scheme, or even to hazard a guess. It is hardly a sign of confidence in her own policy that she refuses to predict how successful it will be.
  The Financial Secretary must acknowledge that the policy will be regarded as a success only if most parents, other relatives and children themselves top up the funds with additional savings, however modest those top-ups might be. The policy will have failed on the Government's terms if it soon becomes clear that many trust funds become dormant, with the only content the Government's initial deposit and the money earned on it. Each dormant account will signal a failure of the policy to encourage the savings habit, but only time will tell how many such failures there will be.
  If the Government cannot answer the first question about child trust funds—whether they will work—perhaps they can answer the second, which is whether they will reach the right people: lower-income families who do not use other vehicles to save for their children? The Financial Secretary was strangely reluctant to be drawn on that issue when she appeared before the Select Committee and was questioned on that point by the hon. Member for North Norfolk (Norman Lamb). Encouraging low-income families to save is clearly the principal purpose of the whole policy, but the Financial Secretary seems to have a grander purpose. She told the famous IPPR summit that one of her concerns was the current unequal distribution of wealth. She continued:
  "What is more, there are signs that wealth inequality is increasing."
  She added that child trust funds are
  "part of the response to that situation."
  I do not want to disappoint her, but I fear that the Bill may have an effect exactly opposite to that which she intends. The unequal distribution of wealth—as she
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  puts it—could be exacerbated by the policy. Middle-class parents who put in the maximum amount of£1,200 a year will give their child a nest egg that could be worth £34,000 by the time they reach 18, but children from lower-income families whose parents make no contribution will have only one thirty-fourth of that—around£1,000—in their trust fund.
  Mr. Cameron: Will my hon. Friend consider the specific case of children in care? The Financial Secretary has confirmed that they will receive child trust funds, but they will not have anyone to put in contributions on their behalf. Given that the state is effectively in loco parentis and that those children do not receive child benefit, is not there a case for at least a portion of the child benefit that they do not receive going into their trust fund, so that they will benefit from the policy like everyone else?
  Mr. Osborne: My hon. Friend has anticipated how I intended to spend a couple of hours in Committee. That possibility is worth exploring. In response to the good point made by my hon. Friend the Member for Castle Point (Bob Spink), the Financial Secretary said that local authorities might contribute, but no one receives child benefit on behalf of children in care, and we should at least consider whether some of the money saved in that respect by the Treasury could be paid into the child trust funds of children in care.
  Mr. Weir: I am interested in the hon. Gentleman's argument and the figures that he has cited. However, the position is worse than he suggests. His figures assume that only one child in a family obtains a trust fund. A low-income family with three or four children will find it much more difficult to put extra funds in and the situation will be much worse in such circumstances.
  Mr. Osborne: The hon. Gentleman makes a good point. I do not suggest that the objective of the policy should be to reduce the current unequal distribution of wealth, but that is the Financial Secretary's objective. It is difficult to see how the policy will do that. I understand that she will wind up the debate, so she can address some of those points then.
  The great disparity in the potential value of the trust funds is one of the great concerns of the Child Poverty Action Group, and I am sure that it has made its points forcefully to the Financial Secretary. To address those fears—at least in part—will require a big effort from the Government and from the financial providers themselves to encourage low-income families to save. It will not be enough for the Government simply to open a child trust fund account for every baby, give them a voucher and hope that a thousand savers will bloom. People will have to be marketed to, targeted, coaxed and enticed by the financial institutions, and that will cost money. Putting it bluntly, those institutions will spend that money only if there is something in it for them.
  That brings me to the charge cap, which is the single most important unresolved issue in the Bill. In other words, how much will the financial provider be allowed to take out of a trust fund? Clause 3, which deals with that point, could not be more vague. Like so much of the rest of the Bill, it will be left to regulations to determine.

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  Given the amount of time that the Treasury has had to prepare the policy, it is extraordinary that we still have not been told what the charge will be.
  In the Government's consultation paper, published two months ago, they said that there
  "is a high threshold of persuasion for any move from a 1 per cent. charge cap".
  For many accounts, that will mean a return of only £2.50 or £5 a year for a financial provider in the early stages, and I am sure that the Financial Secretary is aware that financial providers claim that it is not economic to provide child trust funds at that rate of return. Those that do so will inevitably focus their marketing on middle-class families, who are likely to top up their children's funds, and not bother with the more expensive and less lucrative marketing to lower-income families.
  That is not just my judgment; it is also that of the Association of British Insurers, the Association of Friendly Societies, the PEP and ISA Managers Association, the Building Societies Association and the British Bankers Association—I have been busily engaged in the Pugin Room during the past couple of weeks giving tea to all those people. It is also the judgment of Norwich Union, the biggest long-term savings provider in the country and one of the biggest in the stakeholder pension market. The company said that if the charge cap is set at 1 per cent. it will not offer child trust funds. It is also the judgment of David White, chief executive of the Children's Mutual—someone whom the Financial Secretary knows well, as he has been intimately involved with the Treasury from the start in helping to draw up the policy. He told the Select Committee:
  "If the charge cap on the Child Trust Funds were reduced as low as 1 per cent. … I am not sure, in our view, that there would be any providers in the market at all. I think the danger would be, at best, that you would force people to cherry pick at the rich end of the market … and the lower income groups would be left out."
  The level of the charge cap is important.
  The consultation paper stated that
  "the Government will issue a report detailing the charge cap for the CTF … later this year."
  We could hardly be much later in the year; there are only two weeks left, so I should be interested to hear—perhaps in the winding-up speech—what has happened to the report that we were promised only two months ago.
  Dr. Tonge: I was interested to hear how many teas the hon. Gentleman had had to give for the providers of trust funds. Does he agree that if the Government had not allowed most of our post offices to close, they could have undertaken functions under the Bill, which would have been much more convenient for people who wanted to invest?
  Mr. Osborne: The hon. Lady makes a good point: many of the people to be targeted by the policy have no experience of dealing with companies such as Norwich Union or the Children's Mutual, or indeed with high street banks. Probably, their only contact with a financial institution—if we can call it that—is the post office counter.
  1350
  On the charge cap, I suggest that it is time for the Financial Secretary to swallow her pride and back off the 1 per cent. charge that the Government announced at the time of the Sandler report. Alternatively, she should radically simplify the way in which child trust funds are operated and sold, so that financial providers can make a return and it is worth their entering the market and trying to sell those products to low-income households.
  That brings me to my third question, whether the child trust funds will be ready on time. Everyone in the industry agrees that the timetable is getting very tight indeed. The Government hope to start sending out the initial letters to parents later this year, and the first 1.8 million vouchers and information packs will go out in 12 months' time. Furthermore, the Inland Revenue must have ready a system for redeeming the vouchers, opening the accounts where parents fail to do so and policing the annual limits. That is a major administrative task. We all remember the hash that the Inland Revenue made earlier this year when the new tax credits were launched. The task is made much greater by the news that the Revenue has just sacked its IT provider, EDS. We must all hope that lessons have been learned from that fiasco earlier this year and that the Inland Revenue can cope, but that is not a hope born of experience.
  The timetable is an even greater challenge for the financial industry. It is no good sending parents a voucher if there is no company around for them to open a child trust fund with. The financial institutions have only 12 months to design their products, set up their administrative systems, prepare their marketing strategy, train their work force and check that the whole thing works, yet they cannot even start that process until the Government decide what the charge cap will be and what the sales regime will look like, which may not be until early spring.
  Again, every financial organisation and company that I have spoken to says that the Government are leaving it dangerously late. The Financial Secretary could make things a lot easier for the companies at a stroke: she could set the charge cap now, set out the simple sales regime now and abandon the ludicrously bureaucratic and outdated voucher system, which is set out in clause 5.
  By all means, send parents—such as the Financial Secretary and myself—a nice certificate telling them that they can open a child trust fund, but why not let them do so by telephone or the internet? Why require parents physically to take or send the voucher to their chosen provider and then require that provider to store the voucher in its vaults for ever? This is not the 19th century; many financial transactions take place over the phone or online these days. The Government refer to fraud, but we are dealing with low-risk products, as their own money-laundering regulations make clear. No one in the industry understands why the Financial Secretary insists on this costly, complicated, bureaucratic and prehistoric paper trail that will make it even more difficult to get the systems ready on time—so much for e-Government.
  By the way, while we are on the subject—I address the point made by my hon. Friend the Member for Blaby (Mr. Robathan)—why not let parents open child trust funds for children born before 1 September 2002,

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  without the initial Treasury voucher, of course? Treasury officials have already confirmed to the Select Committee that the cost, in terms of extra tax relief, would be negligible. and it would help encourage savings for all children, not just newborn babies. Like the Financial Secretary, I have a child who will qualify and a child who will not, and explaining why one will get a huge lump sum at 18 and the other will not is going to be tricky.
  The fourth and final question was whether child trust funds will help develop a lifelong savings habit. That is what we all want to happen, but we would have a far greater chance of developing that savings habit if child trust funds sat alongside other policies that encouraged lifetime savings. Sadly, they do not. What might 18year-olds do when they have been given the keys to their trust fund? Of course some, perhaps many—we will not know for 18 years—will blow the whole lot on a trip to Ibiza or a new hi-fi.
  As the Financial Secretary said, and as the Select Committee accepts, it would be impossible to legislate to try to stop that happening, but the Government could make it a lot less likely by removing the positive disincentives to keep the savings—disincentives that have caused the savings ratio to halve in the past six years. Of course those disincentives have been created by the spread of the Chancellor's means test. The political debate in the House has tended to focus on the way that the pension credit discourages people from saving for their retirement, but the means test ensnares younger people too.
  What is the Financial Secretary's advice to young people who qualify for income support or jobseeker's allowance? What are they to do with their child trust fund? If they keep it and it is above the modest £3,000 disregard allowed, their fund will quickly vanish as their benefits are reduced. The best thing those young people could do in those circumstances is to spend the trust fund immediately. What sort of message does that send about saving? Treasury officials told the Select Committee:
  "We are aware of the implication and we cannot say at the moment what exactly we plan to do about it".
  That hardly inspires confidence that they have thought through the whole policy. The Select Committee is right when it says that the Government need to clarify how those different bits of the Chancellor's—
  Ruth Kelly: The hon. Gentleman misses the fact that I reported to the House that we have increased the £3,000 threshold above which savings reduce eligibility for means-tested benefits.
  Mr. Osborne: To what?
  Ruth Kelly: To £6,000, in line with pension credit.
  Mr. Osborne: Of course, simply increasing the disregard does not solve the problems. The Government hope that people will put more than that sum into trust funds, so that they can use the money when they turn 18, but the problems will remain, and I have quoted what the Treasury officials said.
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  What about a young student thinking about going to university? The Government's top-up fees will be means-tested, as far as we are aware, so hanging on to a child trust fund might involve paying the full whack of top-up fees the moment that students leave college. We will not know about that until the top-up fees Bill is published, whenever that may be, but we could find that the smartest thing that young students could do is spend the trust fund on drinks in the college bar. What sort of message would that send about saving?
  My hon. Friend the Member for Witney highlighted the ultimate irony that although child trust funds are supposed to encourage saving, they are themselves an extension of the means test. All children will be means-tested at birth to determine whether they qualify for the£500 voucher, so the Chancellor will achieve his ambition of a cradle to grave means-tested welfare system.
  We have many questions about the Bill. We want to know about means-testing and the scheme's key details, which remain a mystery. We have questions about whether trust funds will encourage people to save and how they will reach low-income families. We have questions about the tight timetable that the Government have imposed on themselves and the industry, and above all, questions about how the scheme fits in with an overall approach from the Chancellor that discourages saving. It is a shame that the scheme is over-complex and that it will extend means-testing because it is precisely those vices that have caused the current crisis in savings, which the Bill cannot address by itself. A far more radical lifetime approach to savings is required to deal with that crisis, but that will have to wait until the next Conservative Government are in power—owing to recent developments, that might be just around the corner.
  The Bill demonstrates the Labour party?s recognition—at last—that promoting savings is important. It is long overdue, and although it might be a third way within the third way, it is none the less welcome. On the basis of the Government's important change of heart, and despite our many reservations about the specifics of the scheme, we shall not oppose the principle underlying child trust funds or vote against the Bill tonight.
  5.21 pm
  Mr. John McFall: I am grateful for the opportunity to speak to the Child Trust Funds Bill. I am delighted to note that there is already one enthusiastic supporter of child trust funds in the form of the hon. Member for Tatton (Mr. Osborne). He said that one of his two children will receive a trust fund while the other will not. It will be his job to explain to them why one will receive a huge amount and the other will not, so the fact that he is signed up to, and enthusiastic about, child trust funds must warm the cockles of the Minister's heart. The hon. Gentleman came to a sitting of the Treasury Committee for a tutorial. I was going to give him a bare pass, but given the way in which his speech went on and descended into ideology and partisanship, I shall have to reappraise that. However, at least he came along to listen.
  The Treasury Committee has undertaken an examination of this important Bill and I commend the work of my colleague, the hon. Member for Sevenoaks

  1353
  (Mr. Fallon), and other Committee members to ensure that we got the report out in time for Second Reading. That is an example of Parliament working at its best.
  I am pleased to note that under the proposals, all children born from 1 September 2002 will be eligible for a child trust fund. The Government will provide children with an endowment of £250 and the children of families who receive full child tax credit will receive a further £250. It is good to note that the Government will make further payments when children are aged seven, and that they will encourage families to provide £1,200 every year with a tax break. The objectives of the trust funds are those to which the Treasury Committee has signed up: first, to help people to understand the benefits of saving and investment; secondly, to encourage parents and children to develop the savings habit and engage with financial institutions; thirdly, to ensure that in future all children will have a financial asset at the start of their adult lives to invest in the future; and fourthly, to build on financial education to help people to make better financial choices throughout their lives.
  Hon. Members have asked whether the Bill will promote a savings culture. The Treasury Committee asked for submissions from many potential providers and took evidence from them. The Association of British Insurers viewed the Bill
  "as offering the possibility of creating a savings culture among the next generation and, in so doing, building a mass market for financial services."
  The Association of Investment Trust Companies said that it
  "wholeheartedly supports the creation of the Child Trust Fund",
  which
  "offers the prospect of a new 'asset-based' approach to welfare that could be extremely beneficial to many young people who might otherwise start adult life without any assets and consequently suffer from poorer life chances."
  The Building Societies Association said that it is
  "a strong supporter of the Child Trust Fund",
  as is the Association of Friendly Societies. The National Consumer Council also welcomed the Government's proposal, noting:
  "it is an excellent far-sighted policy, of particular benefit to low-income families
  that
  "will eventually extend access to an accumulated asset to all young adults
  and
  "may trigger additional individual private savings by parents."
  The Minister must be reassured by the fact that those potential providers give the proposal a fair wind.
  The point was made in the evidence sessions that a small amount of assets can have a big impact. Research by Mintel has shown that 35 per cent. of parents with children under 15 are not saving anything for their children's future, and that 26 per cent. of parents save only rarely or occasionally—so more than 50 per cent. of parents in this country do not save at all or save only a small amount intermittently. We need to ensure that young people develop a savings culture. Given the problems that the Treasury Committee has considered with pensions, long-term savings, split capital investments and endowment mortgages, good consumer education and a savings culture has emerged as the
  1354
  important theme if we are to expand financial education. There is no better opportunity than the Bill to ensure that young people have that education.
  Mr. Robathan: We all agree about the savings culture, but what does the Bill do to encourage the more than 50 per cent. of parents who do not save substantial amounts for their children to do that? Nothing in the Bill will achieve that
  Mr. McFall: I have a quote on that subject, which I shall come to later.
  The Financial Secretary told the Treasury Committee:
  "if you look at figures on savings of young people under the age of 25 which is the best proxy we have for 18-year-olds, the British Household Panel survey suggests that the average young person has zero financial assets. Now that is across income groups."
  Only when we get to the 75th centile—the person three quarters of the way up the income distribution—are their financial assets a mere £400. The policy could make quite a difference to income distribution and a significant difference to the vast majority of young people's lives.
  Research based on the national child development survey 2001 suggested that holding assets has a positive impact on health, the labour market and educational attainment. The amount of assets needed to achieve those outcomes was low, in the region of £300 to £600. The experience of individual development accounts in the United States, where about 20,000 people have the opportunity to benefit from matching schemes, is that assets accumulate over a certain period. The evidence is that incentives are beneficial in encouraging even poor people to put money away. That research makes it clear that even a small amount can induce a savings culture.
  The middle-class subsidy has been mentioned. What amazes me is that such criticism largely comes from the official Opposition, who on this subject argue against the middle class.
  Mr. George Osborne: Perhaps I did not make myself clear. If the objective is to reduce wealth inequality in our society, which is what the Minister claims, I cannot understand how the policy will achieve that. I am not against the policy or against the middle class, or any other class, receiving savings tax breaks, but the child trust fund will not achieve what the Minister sets out to achieve.
  Mr. McFall: So I can take it from the hon. Gentleman that he is in favour of middle-class people getting child trust funds, and he is also in favour of low-income families getting them. What is the problem? There is no problem. He agrees that everybody should enjoy the provisions of the Bill. If there is evidence to show that even small sums generate and inculcate a savings habit, that can only augur well for the future.
  We took evidence in our inquiry from Caroline Rookes, the business director of the pension and share schemes at the Treasury. She referred to the research that was being undertaken at the savings gateway. It was only at an early stage, but it was found that two thirds of those involved claimed that they would continue saving. Those are people on low incomes. Surely everyone on

  1355
  both sides of the Chamber should encourage those on low incomes to participate in such schemes to ensure that they develop a savings habit. That can only be good.
  Mr. Hilton Dawson: In welcoming the Bill, which I think my hon. Friend has deduced is supported by right hon. and hon. Members on both sides of the House, does he agree that the most disadvantaged group of children and young people in the United Kingdom are those in local authority care? While the White Paper makes some positive references and expresses good intentions towards those children and young people, we need to see something that is more positive in the Bill about the Government's intention to include this group in the overall group of people who benefit from child trust funds.
  Mr. McFall: I agree entirely with my hon. Friend, but not everyone in the House agrees with child trust funds. It is a centrepiece of the Liberal Democrat programme that they do not agree with them. There was not room, given the 2,556 commitments that the Liberal Democrats made, to include child trust funds. Given their flexibility in response to Queen's Speeches, perhaps they will include something about the trusts next year. Then, we will welcome everyone on board.
  Dr. Tonge: I shall ignore that rather idiotic approach to debate.
  The hon. Gentleman was talking earlier about child development and the evidence that he is producing that the idea set out in the Bill is a good one. Does he agree that in terms of child development, whether children are lower class, middle class, upper class, or whatever, all the evidence shows that early intervention in a child's life in the form of child care and good nursery education is what matters? It outweighs any other consideration. Therefore, should we not he spending the money that the Government intend to expend on baby bonds on expanding much more rapidly the early years centres and children's centres?
  Mr. McFall: I do not follow the hon. Lady's logic. She talks about early intervention, and this is the earliest intervention that we can make. The Government are saying that they are expanding provision for health and education. I would not like—
  Dr. Tonge rose—
  Mr. McFall: I shall examine the hon. Lady's logic.
  I would not like to recommend a child trust fund if the Government were cutting expenditure on health and education, and intervention in those areas. That is the key. I have personal professional experience as a teacher. I taught in areas that were very much middle class, and in other areas that have been described as ones of urban development. I know from that experience that if we inculcate a habit in children in poorer areas, it lives on. I taught in the south side of Glasgow, an area which is extremely poor. A gifted music teacher ensured that an orchestra was developed at the school. It was a joy to
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  travel to the school each day and see the kids going to the school with their drums, guitars or whatever. Why did they do that? The answer is that it was inculcated in them at an early stage. I am at one with that philosophy.
  The Children's Mutual is one of the possible providers. The result of its survey in 2003 was that 79 per cent. of parents with children eligible for child trust funds are likely to top-up Government moneys. It says that if there is a small amount they will top it up and they will save. I suggest that 79 per cent. is a good start.
  Mr. Weir: I am interested in what the hon. Gentleman is saying, but how realistic is that prospect? The research in the Treasury White Paper that he cited also reports that a large number of parents, when asked why they do not save for their children's future, simply said that they could not afford to do so. That will not change. The fund relies on a top-up to be effective, so I wonder how many families on low incomes or benefits will be able to give any amount of money to bring the fund up to a realistic level.
  Mr. McFall: When the Government introduced their proposals, the Financial Secretary said that it was an ambitious programme. The hon. Member for Tatton said that it had not been tried elsewhere. I agree that it is an ambitious programme, and it is difficult to ask parents to save. However, the Children's Mutual, a possible provider, says that 79 per cent. of parents surveyed said that they would top up the fund, which suggests that there is an opportunity to make a good start. It is extremely important to introduce a savings culture.
  The Financial Secretary answered a number of questions on financial education when she appeared before the Select Committee. Caroline Rookes of the Treasury said:
  "We are going to work with and have started talking to voluntary and community organisations. We are going to be looking at resources in schools. There is a whole effort going into creating a financial education initiative to run alongside the account so that, at the end, it is probably true that children from poorer families will have less money but we hope that they will be provided with financial education and a better understanding of how to interact with financial services".
  A savings culture is therefore being developed, and I commend the Government on ensuring that financial education starts in schools. One theme that has emerged in the Treasury Committee in the past is that there is not enough consumer education in adult life, never mind for young people. It is therefore important to ensure that financial education is available in schools, which is why the Treasury Committee concluded:
  "The child trust fund is an ambitious, pioneering programme which seeks, through a significant long term investment … to provide a financial asset … and to change people's behaviour towards saving."
  The Treasury Committee therefore gave the recommendation a fair hearing.
  I mentioned that I had five points to make, the second of which concerns the extension of the scheme, not with Government endowments, but by making tax breaks available. I should like the Minister to look at that again, because in our evidence sessions I put it to Treasury officials that it would be invidious for a parent to establish a child trust fund for one child, but not

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  another. The Government should keep open the opportunity to open a child trust fund for children born before 1 September 2002. They should not give endowments, but offer the same tax breaks for such funds. The Minister told the Committee that the extra tax relief afforded by the child trust fund is negligible. If that is the case, why cannot the Government consider extending the provisions of the Bill to children born before 1 September 2002? That is a relevant point, and I urge the Financial Secretary to give it consideration.
  Thirdly, advice to parents is crucial, particularly for those with no previous financial experience. The Committee strongly endorsed the hierarchy of savings that the Minister elucidated when she appeared before us. In other words, any moneys must be used first, to pay off debt, and secondly, to provide for a rainy day. Only after such provision should they be used to make contributions to the child trust fund. We agree entirely with that hierarchy, but the information and advice for parents must be clear and unambiguous. The Treasury is sending an information pack to all parents, hut that message must be loud and clear.
  My fourth point relates to what the hon. Member for Tatton said about the interaction between welfare and the Government's needs. An 18-year-old receiving jobseeker's allowance or income support will be in an invidious position if his benefit is disregarded because of the extra income provided by the allowance. The Financial Secretary has come up with one or two surprises already, and I hope that that point may be clarified today, but if that is not possible it must be clarified in Committee.
  Pension credit has been mentioned. I am delighted to hear from the Financial Secretary that the disregard has been increased from £3,000 to £6,000, but it was pointed out that there is a barrier somewhere along the line. This scheme has the potential to have profound effects, but if the wrong message is given to those who will be adding to the savings—parents, grandparents and friends—that will do it no good.
  The Financial Secretary told the Select Committee
  "I do not think it would be appropriate for me outside the ordinary PBR/Budget timetable to make any further comment."
  She needs to have a word with our right hon. Friend the Chancellor. I should be interested to know the result of that conversation.
  The fifth issue that exercised the Committee was the achieving of a balance between the costs that can be charged by the providers and the regulatory regime—in other words, the effect of regulation on the cost. I know the Government are very determined. The Financial Secretary told the Committee that
  "there is a high threshold of persuasion for any move from a 1 per cent. charge cap for stakeholder products."
  I agree.
  Like other Members, I have been lobbied on the I per cent. cap over the past year. In my capacity as Chairman of the Committee, I have taken a lot of evidence and spoken to a good many people. Moreover, as I said earlier, we have conducted inquiries about pensions misselling, split capital investment trusts and endowment mortgages. Here we have an industry that has not been doing too well in consumer terms, which is why the Treasury Committee has been considering how
  1358
  confidence in long-term savings can be restored. I think that the onus is on the industry to work with the 1 per cent. cap, and, if it cannot do so, to be entirely transparent about the reason. I have heard generalities so far, and it would take much more specific information to convince me that we should abandon the cap immediately—although I realise that some companies could experience problems.
  The Association of British Insurers saw the possibility of the creation of a savings culture among the next generation, and hence the building of a mass market for financial services. That mass market is important in the context of the 1 per cent. cap. If the Government get it right and produce a Sandler-type product—a simple product—it will not require a huge amount of selling. Each year more than 700,000 vouchers worth £230 million will be made available to parents so that they can choose a child trust fund. This is a tremendous opening for the financial services industry.
  As we stated in our evidence, given the low cost of demand generation and the certainty of high persistency rates, a cost-based price cap might be set at a lower level than for other stakeholder products. The Homeowners Friendly Society told us that it would be happy to meet the 1 per cent. price challenge, although it accepted that it could be difficult or impossible for some other providers. Some in the market are therefore already happy to accept that challenge.
  I want to consider fortnightly reporting. The British Bankers Association noted that the fortnightly reporting requirements would
  "place additional burdens and require changes to internal systems capable of accommodating both fortnightly and current quarterly returns for ISAs."
  Fortnightly reporting appears a wee bit over the top. Perhaps the Financial Secretary could explain why the Treasury persists with it. If we want simpler products and to ensure that the price cap is sufficiently low, perhaps such regular reporting adds to administration. I hope that my hon. Friend will deal with that in her summing up.
  The Treasury Committee considered the subject constructively. We applaud the Government for their ambitious initiative. We realise that by the time the young people who were born on 1 September 2002 are 18, the Government will have spent £4 billion on them. That is a great deal of public money, which has to be spent wisely and well. I am sure that the Government will do that, but they must provide the details of their scheme as the Bill progresses. Even more important, they must ensure that the implementation is right. With those cautionary words, I welcome the measure.
  5.47 pm
  Mr. David Laws: I hate to break up the emerging cross-party consensus on the Bill. However, Liberal Democrat Members believe that it is yet another of the Chancellor's well meaning but flawed initiatives. It represents more of the serial micro-meddling that he has introduced since 1997 and is not good value for money for scarce public funds. We shall therefore vote against the proposals.

  1359
  I agree with the comments of a right hon. Member after this year's Budget statement:
  "We have more overcomplicated proposals that will do little to help future long-term saving, but they will extend means-testing to even more people. There is only one thing to say about this little scheme of the Chancellor's … all the money that the Chancellor is offering to those children will have to go towards paying their tuition fees".—[Official Report, 9 April 2003; Vol. 403, c. 291.]
  Those were the words of the then Leader of the Opposition. Conservative Front-Bench Members appear to have changed their position somewhat. Their former leader described the proposals as overcomplicated and said that they would achieve little, but the hon. Member for Tatton (Mr. Osborne) said today that the Bill was welcome and long overdue. I refer him to the former Conservative Chancellor, Lord Lawson, who represented Blaby. He had a good principle for his tax policy: simplicity. It has never been high on the current Chancellor's list of priorities.
  The child trust fund is an ill-considered and under-evaluated initiative in the tradition of the film industry tax relief, which was established several years ago as a modest measure but now costs hundreds of millions of pounds. It is in the tradition of the many loopholes that the Chancellor has introduced in every Budget and pre-Budget report. All those tax loopholes seem to have only one thing in common—they cost a great deal of money and nobody, certainly not the Treasury, has the slightest idea of what they do, in practice, that is of value to the economy.
  Mr. Cameron: Conservative Members are enjoying a lecture on consistency from the Liberal Democrats—that is always worth while. Has the hon. Gentleman analysed the incentive to save in relation to introducing a local income tax? Does he think that that would have an impact on savings?
  Mr. Laws: No, I do not. I will not be detained by the hon. Gentleman, who is trying—most improperly, Mr. Deputy Speaker, as I am sure you agree—to encourage us to make a detour.
  Several hon. Members referred to the Treasury Committee's report on the child trust fund. When the hon. Member for Dumbarton (Mr. McFall) talked about what was said by people who were consulted on that report, he cited favourable comments from certain bodies that appeared to be financial institutions. As someone who has worked in a financial institution, I suggest that we must not regard advice from that quarter as necessarily wholly impartial, because those institutions have an interest in seeing this product, like other financial market products, take off.
  In order to persuade the House that our objections to the Bill are not simply party political, I refer hon. Members to one of the more independent memorandums submitted to the Treasury Committee—the memorandum from the Institute for Fiscal Studies.
  Mr. George Osborne: The hon. Gentleman tried to pick me up on what other Conservatives have said. I am right, am I not, that there is a Liberal Democrat member of the Treasury Committee, who, I am told privately, might serve on the Standing Committee with us? That
  1360
  would be interesting, given that that Committee supports the principle of the child trust fund. I wonder how he will vote tonight.
  Mr. Laws: The hon. Gentleman should not read too much into the Treasury Committee's report, given that one of its members, the hon. Member for Wallasey (Angela Eagle), said during its hearings:
  "It appears … I am the only one that is enormously enthusiastic about this"
  proposal. Instead, I refer the hon. Gentleman—I am sure that as an assiduous reader he has already looked at it—to the memorandum submitted by the Institute for Fiscal Studies. That body is almost certainly the most independent and authoritative voice in relation to much of the UK's tax and economic and social policy, and cannot be considered to be speaking from any particular self-interest, yet it concluded in its memorandum that the child trust fund policy has not been satisfactorily justified. It went on to say:
  "It is far from clear that many families would be well advised to contribute additional funds to their Child Trust Fund account."
  It continued:
  "It is difficult to find a convincing explanation for why the Government has chosen to support young people using this policy."
  I should like to cover three issues. First, this is, as my hon. Friend the Member for Richmond Park (Dr. Tonge) said, a question of priorities. At this particular time, does this measure represent the best use of what is, as the hon. Member for Dumbarton acknowledged, a very large amount of public money? Secondly, does the substance of the proposals add up, and are they likely in practice to achieve the objectives that, according to the Bill, the Government desire? That is the specific matter that was commented on by the Institute for Fiscal Studies. Thirdly, I want to look briefly at some of the Bill's details. Although we oppose it in principle, we will do our best in Committee to take part in debates constructively and to suggest amendments that may move the Government's proposals in a more sensible direction.
  We should start by considering how much the Government plan to spend on the proposals and whether that expenditure is justified. The context of today's debate was established last week by the Chancellor's pre-Budget report, in which he unveiled a public borrowing figure of £37 billion for the current fiscal year—a figure that is significantly above the 3 per cent. that the Government previously regarded as a commitment on public borrowing. In addition to that very high figure, the Chancellor unveiled future forecasts for public borrowing that indicate that he will need to borrow some £150 billion over the five years from 2003 to 2008. Against that background, it cannot be anything but obvious to every hon. Member that next year we are in for an extremely tight and difficult public sector spending review when the Chancellor sets the spending figures for the three years starting in 2005–06. It is therefore incumbent on us all to consider not only whether there may be some merit in each individual scheme brought forward by the Government, but whether the merit of a particular scheme is greater than the alternative uses to which the money could be put.
  The Financial Secretary will perhaps confirm that the cost of the scheme over the next 10 years is likely to be some £3 billion, which consists of the £235 million up-

  1361
  front costs of issuing the vouchers to each child who qualifies; the introduction in 2009 of a top-up—the cost of which is yet to be quantified, but is likely to be at least £100 million—to children who have reached the age of seven; further administrative costs that the Government have yet to detail, but which will have to be incurred each year; and set-up costs in relation to information and communications technology. The explanatory notes to the Bill tell us that implementing the child trust fund will involve significant new one-off setting-up costs, mainly because of the need for IT support. I should be grateful if the Financial Secretary clarified the order of magnitude of those costs and whether they are still in line with the figure that was given to the Treasury Committee—that is, some £90 million a year.
  At least two other costs will fall on the taxpayer: first, the tax relief on savings that will be triggered as a consequence of the measure—the Financial Secretary's evidence to the Committee suggests that she considers that that cost will be very small—and, secondly, the significant advertising campaign that will, as ever, be undertaken by the Government. Will the Financial Secretary give some idea of how much that will cost?
  All those costs and all the money that flows from them will not make an iota of difference to child poverty. The Prime Minister said when he appeared at the launch of the child trust fund policy in April 2001:
  "We are committed to extending opportunity to all. All our children—especially the most disadvantaged—should have the chance for a proper start in life".
  However, the investment that is going into the child trust fund will not make any difference to children's opportunities. It will not affect children at school or by directing additional money to their parents. It will be a barren investment that is locked away until they reach the age of 18.
  Mr. Andrew Love: The hon. Gentleman will be aware that, in his pre-Budget statement, the Chancellor announced other measures that will have a direct and immediate effect on child poverty. Is it not sensible that he should plan for the future, so that we can deal with child poverty in several different ways?
  Mr. Laws: I am grateful to the hon. Gentleman for his sensible intervention—he makes a fair point. In some respects, the Government are seeking to push ahead with reforms that we very much welcome: for example, the children's centres that were announced—or perhaps re-announced—in the pre-Budget report. However, the point at issue for Liberal Democrat Members, and the reason why we do not believe that the expenditure on the child trust fund is justified in comparison with potential alternatives, is the slowness of the roll-out of some of the other measures that the Chancellor and the Government are promoting—specifically, children's centres. One of the best things that the Government have done over the past few years is to establish the Sure Start scheme, because intervention in the very earliest years is the only way in which we will really be able to challenge the enormous inequalities of opportunity in society.
  My criticism of the Government is that, although they rightly start by targeting the areas of greatest deprivation, all too often, they make the mistake of
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  thinking that the type of deprivation that they are seeking to tackle through the children's centres and the Sure Start schemes is restricted to the most deprived wards in the country. I represent a constituency whose deprivation levels would be considered average. None of its wards appears among the 20 per cent. most deprived in the country. However, there is a crying need in the most deprived wards in towns such as Yeovil and Chard for initiatives such as children's centres and Sure Start schemes, which are being rolled out in some parts of the country but not in others.
  Dr. Tonge: I am glad that my hon. Friend is addressing this issue, and that he has congratulated the Government on what they have done on Sure Start, on nurseries and on early years education. That work is admirable and it is to be supported. He is right, however, in what he says about the children's centres. By 2006, they are expected to be serving about 650,000 children, which represents only 20 per cent. of the children in the most deprived wards. Would it not be much better to spend the money that the Government expect to spend on baby bonds on expanding those children's centres much more quickly, thus benefiting children here and now, rather than in 18 years' time?
  Mr. Laws: My hon. Friend is right. I seem to recall that the Minister's own Parliamentary Private Secretary made a similar point in an article in the Financial Times only a few months ago, implicitly criticising the Government for their slowness in rolling out children's centres and Sure Start schemes to all the population. I was in a primary school in Yeovil on Friday, and the crying need for early years intervention was only too apparent. We need to tackle problems that arise when young people start at infant and primary schools without adequate educational support and other problems in society in terms of child poverty and poor parenting.
  It was notable in that school that, in a cohort of sevenyear-olds, about 60 per cent. came from single parent families or from families in which one of the two adults was not the original parent. That shows the extent of the problems of inequality that need to be challenged in society today. I give great credit to the Government for taking on the challenge of addressing inequality, but it is far more important to finish that job before rolling out a large amount of expenditure into a project whose social and economic returns are extremely dubious, as I shall go on to demonstrate.
  Mr. Dawson: The hon. Gentleman is dramatically understating the significance of the Government's approach to children's centres, and he would benefit from looking again at the Green Paper on children. Crucially, he is missing the fact that young adults, including those from socially deprived backgrounds, have enormous energy, vitality and purpose, which would be greatly assisted if they had their own assets behind them. Is this not an exciting opportunity that entirely complements the rest of the Government's programme?
  Mr. Laws: I agree with the hon. Gentleman's first point, but not with his second. The issue that we are trying to address is that there is a widespread need for

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  children's centres and Sure Start schemes throughout the country, and that they are probably the single most important thing that the Government are doing to challenge inequality of opportunity and to give children a real chance in life. That is far more important than giving money to people when they are born and locking it away in an account, creating a barren investment that can do nothing to tackle the sources of inequality.
  Mr. McFall Mr. McFall rose—
  Mr. Laws: I shall give way to my previous boss on the Select Committee, then I must make some progress.
  Mr. McFall: I am grateful to the hon. Gentleman for giving way. I would like to examine the Liberal Democrats' policy on this issue. Is he against the principle of the child trust fund, or against the fact that the Government are spending money on it now, when he thinks that they should spend it where it can have an immediate effect, such as in children's centres?
  Mr. Laws: We believe that the overwhelming priority should be children's centres and Sure Start programmes, not child trust funds. I want to go on to explain our serious concerns about the detail of the child trust fund proposals. We share the view of the Institute for Fiscal Studies, which does not believe that the evidence behind the proposals so far supports the amount of money that the Government are going to put into the scheme. We do not believe that the amount of money going in will create an adequate return.
  I want to consider briefly the four points that the Government have made in justifying the rolling out of the child trust fund. They state that the fund should
  "ensure that in future all children have a financial asset at the start of adult life".
  However, it is not clear from the background documents why it is so important to give people a financial asset at the age of 18—as the hon. Member for Tatton pointed out, the Government are about to persuade about 50 per cent. of our young people that, at that time, they should not only have a financial asset but take on a very large financial liability. The Government seem to be sending out a muddled message, saying that it is tremendously important for young people to have a significant financial asset while telling them that they should be extremely relaxed about getting into serious amounts of debt that they can pay back from their income in later life. That raises a fundamental question about whether savings at particular points in people's lives or careers make any economic sense, and whether the Government have any business interfering with the decisions that people make about their own priorities.
  What will the students do with this financial asset when they get it at the age of 18? It will be obvious to many of them that they should use it to help to fund their university careers and to offset the debts that the Government are happy to encourage them to incur. Some students will no doubt use the money to fund leisure activities—a party, perhaps, on their 18th birthday, or a holiday—which seems to be of dubious value in terms of public policy rationale. The Minister
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  said that some young people may choose to use the money to establish a small business, but, as the Institute for Fiscal Studies has pointed out, if that is the primary policy aim, we should consider what alternatives are available. Most assuredly, a tiny minority of young people will use the money for that purpose.
  I shall fold the next two points together to make sure that I do not eat up too much of other hon. Members' time. They are the first two points that the Government make in justifying their policy. Their objectives are
  "to build on financial education to help people make better financial choices throughout their lives"
  and, linked to that,
  "to help people understand the benefits of saving and investing".
  The Institute for Fiscal Studies has made the point not only in the initial consultation but in its paper to the Treasury Committee that it is not at all obvious that the best way to educate young people on financial literacy is to set up an account and pay Government money into it—indeed, it is not obvious why the young people who do not operate their account would achieve greater financial literacy.
  That takes us back to the point about priorities that my hon. Friends and I have made. It is far more important to ensure that every individual in society has the basic numeracy and literacy skills to manage their own career and to make their way in the world, than to establish accounts such as these and to deliver financial education in a dubious way—it could be delivered far more effectively through the education system.
  It is also unclear what kind of signal the Government are trying to send on what they call the benefits of saving and investing. One of the issues that the Select Committee dealt with was the fact that, for many families, particularly those in lower income groups, it will not make any sense to put money in a child trust fund and to lock it up for 18 years. Many of those people end up having to borrow large sums, often for short-term purposes, at extortionate rates of interest. It is not at all obvious why it would be sensible for those people to pick up the savings habit through the child trust fund, rather than through one of the other vehicles for savings.
  That brings us to the most serious argument that the Government have advanced in relation to the child trust fund—that it should encourage parents and children to develop the savings habit and engage with financial institutions. The key question, which the Government seem unable to answer, is whether, as a consequence of being encouraged to develop the savings habit, parents and children will save more.
  That was a point that several members of the Select Committee explored robustly with the Minister, perhaps wrongly, on the issue of targets, which the Financial Secretary shied away from. Perhaps I can direct her instead towards estimates, as I tried to do in my intervention, and encourage her to let us know whether there is any assessment of the effect that the measures could have on total saving. It is possible that all we will succeed in doing is make the Government save for people, rather than people themselves saving. That will hardly encourage people into the savings habit.

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  In addition—the point was made effectively by the Institute for Fiscal Studies—it is unclear why many people, particularly those in lower income groups, should save in a child trust fund, when they can enjoy the same tax breaks through an individual savings account, with all the flexibility that that implies.
  Norman Lamb: Is my hon. Friend aware that the Treasury official's evidence to the Select Committee was that, unless habits change, it is likely that middle income families, rather than low income families, would take advantage of the tax-free savings vehicle? The advice to low income families is, first, to pay off debt and, secondly, if they have money to spare, to save it in such a way that it would be available for a rainy day, and only after that to put money into a vehicle such as the child trust fund. Every indication is that low income families will not use it.
  Mr. Laws: My hon. Friend is right. He has clearly read the submission from the Institute for Fiscal Studies, in particular paragraph 12, which states that the issue in relation to the child trust fund
  "becomes even more fraught since it is quite possible that the immediate beneficiaries of the child trust fund will be richer families who can substitute the endowment payment for saving that they would have made for their children, and so increase their current consumption."
  Mr. Weir: Will the hon. Gentleman give way?
  Mr. Laws: I must make a little progress. I shall give way later.
  In her evidence to the Select Committee on 3 December, the Financial Secretary shed some interesting light on the question whether individuals are likely to save more. She said:
  "It is a fact that each child has a tax free allowance each year of, I think, £4,600 that very few people currently take advantage of, and they could in children's savings accounts, so quite why, if they do not take advantage of it at the moment, they would choose to take advantage of it through the Child Trust Fund, I do not know."
  That makes the point effectively. It suggests that even the Financial Secretary is sceptical about whether many people, especially those in low income groups, who are currently not saving and not taking up opportunities, will do so.
  On the specific question whether there should be additional Government contributions while the child is aged between 0 and 18, the Financial Secretary went on to comment that
  "when you ask parents, the largest group of parents who come back with an answer say that they like the idea of there being additional top-ups rather than there being a one-off lump sum at the beginning, and that the account may not be reactivated, as it were, by the Government for 18 years."
  In other words, many of the people making representations on the matter to the Government fear that, if the Government do not reactivate the account by paying money into it, nobody else will.
  The general conclusion that we will end up with little additional saving is underpinned by the Financial Secretary's estimate to the Select Committee that the extra tax relief on the child trust fund would have a
  1366
  negligible cost. The IFS pointed out, as my hon. Friend the Member for North Norfolk (Norman Lamb) made clear, that
  "Families looking for tax efficient savings vehicles would be well advised to exhaust their ISA contribution limits before using Child Trust Fund Contributions … ISA funds can be accessed at a time of unforeseen need."
  There is serious concern that the Government's proposal, however well intentioned, will advantage some higher income groups, not the groups that many Labour Members have in mind. Those upper income groups will be the only people who gain anything in terms of tax advantage from the child trust fund. Nobody else in society—none of the low income groups—will get a bean from the Government in terms of tax advantage to encourage them to save. The Government are relying not only on the savings that people will make in the child trust fund, but on the fact that, once people open such an account, they will be inclined to save—even though they will have no more financial incentive to do so than they had before.
  Mr. Love: The House will understand the importance of inculcating the savings habit and the need to make up the £27 billion lacking in savings for our retirement, as well as the importance of financial education. All the studies show that that would do most to inculcate the savings habit. If the hon. Gentleman does not accept the Government's proposal as a way forward, does not he consider the matter important enough to propose some alternative?
  Mr. Laws: I shall deal in a moment with the Government's role in encouraging saving. I hope that the hon. Gentleman will have picked up from my comments that encouraging savings is not always a good thing for low income groups, who could end up having to borrow at high interest rates and save at low interest rates. For all those reasons, we share the scepticism of the Institute for Fiscal Studies about whether a great deal of Government expenditure in this area will result in a tangible return, when an expenditure of £3 billion in other areas could result in a real return. That may be why the IFS stated, in relation to the Government's consultation:
  "Prior to considering design issues, it would have been useful to have had a stage of the consultation process that invited comments on whether the new policy direction that is asset-based welfare is a good one to take."
  The Government have many questions to answer with regard to these proposals. They must decide to what extent they should be nannying citizens in relation to savings. On the subject of how the money should be spent at the end of the period of 18 years, the Chairman of the Treasury Sub-Committee asked the Financial Secretary whether children should be free at the age of 18 to spend the proceeds of the fund in any way they wished. The hon. Lady answered robustly:
  "I think the question for the Government is who is best placed to make those choices. Is it really up to us to decide what is in the best interests of a young adult at the age of 18? … Far be it … from me to tell a young person that they should not use this asset to buy, for example, a computer … or perhaps to invest in a van".
  In that respect, the Financial Secretary is making herself the enemy of the nanny state, but I ask her to consider other aspects of the child trust fund, such as the

  1367
  limitation on the way in which the money can be used. Perhaps it could be far better used by parents making decisions for their own families, rather than the money being locked up by the Government. Is that nanny state attitude justified? I ask the hon. Lady to consider whether it makes sense to encourage some families to have very small financial assets to invest in equities—assets that are essentially risky. I understand the arguments for that, but that is not the behaviour that lower income groups would normally demonstrate with their own money. I ask her to consider also whether it makes sense that some parents aged 17 in England, Wales and Northern Ireland will not be able to take many decisions themselves—they will be able to do so in Scotland—because the Government will insist on managing their fund and that of their child.
  Those are some of the fundamental objections to the scheme. It is clear that a series of amendments will need to be tabled in Committee, not least on whether there should be an allowance for draw-down either before 16 or, at least, for 16-year-olds who are going into the labour market. There seems no obvious reason why they should have to wait two more years before getting their hands on a financial asset that might help them in their job.
  Another issue is whether the Government's insistence on the managed accounts being invested in equities, at least in part, makes sense. Some hon. Members have alluded to the interaction between the child trust fund and the benefits system, not only in relation to jobseeker's allowance but in relation to the issue, raised by the Select Committee, of the deprivation of capital for family members, a question that was not fully answered by the Financial Secretary at the time.
  There are many reasons to object to the Bill and there are many better uses for the money that the Government will spend. There is inadequate justification that this expenditure of money will lead to the results that the Government claim it will. Even at this late stage, I hope that the Government will think again about using the money for a purpose that is so unclear.
  6.21 pm
  Mr. Michael Jabez Foster: It is unusual for the Liberal Democrats to be against some kind of public spending; their usual position is to demand a doubling of the contribution. More important than that is the mean-spiritedness shown by the hon. Member for Yeovil (Mr. Laws)—who represents a town that is not one of the poorest in Britain—to my constituents in Hastings and Rye, the 27th poorest town in Britain. We have the highest levels of child poverty in the country, although we have benefited from children's centres and other measures introduced by the Government. I find it difficult to understand the idea that it is not beneficial for an individual to be a stakeholder from the very beginning. I suspect that the
  1368
  length of the hon. Gentleman's speech was indicative of the difficulty of his task of opposing something that is so obviously sensible and right for people on low incomes.
  Mr. Laws: If the hon. Gentleman had the choice in his constituency, as I might have in mine, between having a children's centre or the expenditure on the trust fund, which would be choose?
  Mr. Foster: That is an unreal choice, because the Government are investing in children's services at a level way beyond anything for which the Liberal Democrats have ever asked. It is not a real choice to say that a children's centre—important as it is—should be "instead" of this once-in-a-lifetime opportunity for young people from modest backgrounds or poverty to receive something that is theirs and to which they can look forward for the future.
  Middle-class families will provide for their children anyway, and I do not begrudge them the opportunity of doing so in a tax-efficient way. That is the proper thing to do, but the scheme will give poorer children an opportunity that the Liberal Democrats would deny them.
  Bob Spink: Although I can, on balance, support the measure, it will increase the gap between rich and poor. The poorest people will end up with around £911 at the age of 18, whereas those from families with disposable incomes who can invest £100 a month will end up with a fund of between £35,000 and £40,000 at 18, thereby increasing relative poverty.
  Mr. Foster: The hon. Gentleman is wrong, for this reason. The poorest will receive a higher contribution from the Government, which will push them above where they would have been otherwise. The middle classes will always look after their own and would make those contributions in any event. We are giving the poorest groups an opportunity to have something, whereas the better off will always act to achieve their own objectives. The gap will not grow and the scheme will enable everyone to save more towards whatever is needed at 18. This innovative scheme, making everyone a stakeholder, is to be welcomed.
  I have three other points to make. First, I encourage my hon. Friend the Financial Secretary to hold firm to the 1 per cent. cost. The scheme is very cheap to operate. It is cheaper than the average stakeholder pension scheme as there is no possibility of withdrawal for at least 18 years; it is only a matter of collecting contributions. If the Portcullis pension scheme can offer 0.4 per cent.—I agree that it has a captive audience—it ought to be entirely possible for providers to offer 1 per cent. or thereabouts.
  Secondly, although the scheme will be good in itself—its purpose must be to encourage parents to contribute in a tax-efficient way to their offspring—children themselves must be encouraged to save, which has not happened for a long time. I remember that, in the dark ages of the 1950s—under a Conservative Government—I was encouraged to contribute sixpence for a Princess Anne stamp and 2/6, or half a crown, for a Prince Charles stamp. That Conservative Government gave me no interest on the investment, so I was contributing to

  1369
  the repayment of the national debt without any help at all. None the less, that was an aid to saving, and I paid my sixpence each week, saving up a total of £18 by the age of 12.
  Such a measure is required now, giving young people collectively an encouragement to save. The scheme itself will do that, because every child, in due course, will have a savings fund. I do not know if they will check in the pink pages to see how their shares are doing, but they will know that they have an asset for the future. If we could encourage youngsters to put cash aside in some form of savings scheme, it would be helpful.
  Mr. Ian Liddell-Grainger: Does the hon. Gentleman agree that the ethos of saving has changed totally? When we were younger, saving was part of our pride in this country. Does he think that we might have to re-educate an entire generation of youngsters to save for the future, as they have not been encouraged to do so?
  Mr. Foster: I entirely agree that the "me now" society, which developed some time ago and which we hope to dissuade people from continuing, changed the saving habit among ordinary people, who thought that they could borrow all the time to get what they wanted. There is a difficult cultural issue. I do not want to be over-political, but today's parents are Thatcher's children, which may be part of the problem. I agree that the objective is to try to get people into a different culture and to understand that there has to be a payment day. The scheme is a move in that direction.
  Thirdly, I want to impress upon my hon. Friend the Financial Secretary the fears of my hon. Friend the Member for Dumbarton (Mr. McFall) and his Committee about the extension of the scheme to other children. I do not want to plead a special case for my four grandchildren, but they are aged five and below and none of them will qualify. The Financial Secretary said in her opening remarks that the scheme is for all children, but it is not for all children if 80 or 90 per cent. will not be included. The cost of extending the scheme to pay the cash would be unaffordable, but that is not my plea. I hope that, in Committee, she can deal with the problem of allowing certain young people, but not others, to enjoy tax benefits.
  Extending the scheme to all would be a popular choice and an important one, for three reasons. First, it would be important for equity, as it is unfair that some young people should be treated differently from others. Secondly, it would be important for simplicity. Despite what the Financial Secretary said earlier, the existing schemes—I wonder whether she has investigated them—are rather complex. Thirdly, and perhaps most importantly, they are jolly expensive, often taking some 4 to 5 per cent. of children's funds. So it would be much more sensible to have one scheme—the child trust fund—that is clearly worked out, and to allow all children to benefit from it.
  Given the excellence of these proposals, I very much hope that, in Committee, the Financial Secretary will feel able to extend them to all children.
  6.31 pm
  Mr. Andrew Robathan: The hon. Member for Hastings and Rye (Mr. Foster) spoke about the Bill with great enthusiasm. I have to say that I share neither his enthusiasm nor his view that, although the middle classes will look after their own, we will have to look after "these poor people". I found that somewhat condescending, to put it mildly. I am afraid that his enthusiasm will not save him at the next general election, but never mind—I am sure that we will miss him.
  I was rather more in agreement with the hon. Member for Yeovil (Mr. Laws). I hasten to add that I did not agree with everything that he said, and nor did he need to take 35 minutes to say it; nevertheless, many of the issues that he discussed needed to be raised. In a debate such as this, it is difficult to come out and say that one does not want to give a boost to the 1.6 million beautiful, bouncing, bonny babies; however, this scheme looks to me like a gimmick. The Financial Secretary spoke winningly—indeed, I almost wanted to believe that she was right—but notwithstanding her comments, at the end of her speech she seemed not to believe herself what she was saying. That was rather worrying.
  The scheme will cost £4 billion over 18 years, but is it really a good way to spend our money? After all, this is a Government who are very capable of spending money rather than very good at spending it. They have raised taxes 60 times, and through the abolition of advance corporation tax they have raised £30 billion to £35 billion from people's pension fund savings. Now they want to take away money by taxing parents such as me, and to give a gift to new babies. I do not see the logic of that. How does that encourage prudence, saving and self-reliance?
  This gimmick was first announced in 2000, before the last general election. In fact, the figure of £1,000 was then gaily bandied about, but now we learn that it will be only £250. Perhaps that is one reason why the Home Secretary is disappointed with the scheme. I question the principle of a gift that is unrelated to the actions of the individual. After all, it is not intended to help those in dire straits; it has no relation to what they—or, if they are babies, their parents—do. The Financial Secretary said that the scheme will kick-start a savings habit, but why should it? Why should giving back to taxpayers' children part of their own parents' money lead to—as she described it—a change in attitude to saving? Nothing in her speech led me to believe that it will.
  My hon. Friend the Member for Tatton (Mr. Osborne) made a fine first speech in his new role. He rightly pointed out that members of the middle class—of course, most of us in this place are members of the middle class—such as himself, the Financial Secretary, the hon. Member for Yeovil and I all received a private, Oxbridge education. We understand about saving. I already have savings accounts for my two small children, who are aged seven and four, and I suspect that the Financial Secretary has such accounts for hers.
  Ruth Kelly indicated dissent.
  Mr. Robathan: Perhaps she is introducing this Bill, at the enormous cost of £4 billion, just in order to have them. But we know that most middle-class parents save for their children, which is very sensible. Furthermore,

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  people in my position will certainly take up this savings account, because it is a good deal for us. Of course, from a personal point of view I applaud the Government's assisting me and my children, but is this the best way to spend Government money?
  The hon. Member for Dumbarton (Mr. McFall) spoke of the 50 per cent. or more of parents who save nothing, or next to nothing, for their children, but nothing in the Bill will encourage them to save more. They probably do not have the money, as the hon. Member for Angus (Mr. Weir) pointed out; if so, how will they save for their children? As has been pointed out, the money will be locked up in an account to which they will have no access.
  Returning to my point about the middle classes, this is a very patronising measure. It takes the view that poor people must save, and that the nanny state will make it easier for them. Yes, of course we want it to be easy for them, but we should encourage all members of society to save. We should not patronise them; we should give them opportunities, not handouts.
  What will happen at the age of 18, long after the current Blair Government are just a distant, unhappy memory, lamented by none? The Financial Secretary was 18 more recently than I was, but I should point out that I know quite a few 18-year-olds. Many are leaving school and going on to university—of course, the Government want 50 per cent. of young people to go to university—and some are going on to work. What will these 18-year-olds do? The Financial Secretary will perhaps correct me if I am wrong, but according to some, if only the initial £250 has been invested, they will have some £400; at a growth rate of 5 per cent., they would have some £602. She said that at the age of 18, the children themselves should decide what to do with the money. They obviously will not be able to pay a year's tuition fees. With top-up fees, the figure might be anywhere between £2,000 to £10,000 a year. With a mere £400, £600 or £900 in their account, they will not be able to repay the student debt, which may be £10,000 or even £20,000.
  The Financial Secretary suggested, rather sweetly, that one could use the money to buy a van and set up a business. As it happens, I have a business, which is included in the Register of Members' Interests. I am a farmer, and last year I bought a Land Rover, which cost me a grand. Since then, I have spent about £2,000 repairing it, so it was not necessarily a good buy, but my point is that although £400, £600 or £1,000 will perhaps help, it is not much when it comes to starting a business. It is a nice idea, and perhaps some people will be able to use it for that purpose; but not many will be able to do so.
  Most of the 18-year-olds whom I know like to go to Ibiza. I do not know why—I have never been—but something goes on in the bars and on the beaches that 18-year-olds seem to like. Even those who are not rich want to go on holiday. According to today's copy of the Evening Standard, the last few seats are available for
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  flights to Madeira. A Christmas holiday there costs £499; my own taste, however, runs more to Auckland for £539 return. But this is what 18-year-olds—
  Madam Deputy Speaker (Sylvia Heal): Order. I wonder whether the hon. Gentleman might return a little more to the subject of debate.
  Mr. Robathan: Of course, Madam Deputy Speaker. I am trying to establish what young people of 18 want to do with their money, and I do not blame them for wanting to do such things. When I was 18, I wanted to travel, and I suspect that the same is true of the Financial Secretary and others. It is travelling to exotic parts with other young people that makes being young fun. We see that in the culture of gap-year students and of backpackers, and I do not blame them.
  Mr. Michael Jabez Foster: Would it not be a good idea to give young people a choice? At the moment, if they have no cash they have no choice.
  Mr. Robathan: We are all in favour of choice, but is the hon. Gentleman suggesting that young people should be able to say, "Can you give me some money, as I want to go on holiday?" If so, I doubt whether the Minister would back it. In a funny sort of way, however, that is effectively what the Bill proposes.
  I applaud the intention of giving small amounts, but I do not believe that it will work to encourage savings. I suggest that matching funds are what really encourage savings. If a young person—or their parents—puts aside £100 and the Government match it with a further £100, that is truly rewarding actions and encouraging people to take a prudent look at life. We could encourage savings by not taxing pensions in the way that the Government have taxed them. What message does that send to people who have put some money aside?
  We could also encourage savings by not having so many means-tested benefits. I am sure that I am not the only Member of Parliament whose constituents include pensioners who complain at surgeries that their savings count against them. They might say that they have a small pension or have saved £5,000—soon the threshold is to be £6,001—so they cannot get the minimum income guarantee or the benefits that they would otherwise receive. Many people rightly complain about that. The Government have discouraged people from making small savings.
  What message does the Bill send out about savings? I suggest that it will turn people against the savings culture. The Government have discouraged savings and I understand that the savings ratio has halved under the Government and is now only 4.5 per cent. compared with 9 per cent. in 1997—[Interruption.] I am advised that it was 10 per cent.
  The Bill will not address the problem of low savings, which is why it amounts to just a gimmick or stunt —albeit perhaps a not very expensive one. My hon. Friend the Member for Tatton suggested that it could have something to do with the fact that the vouchers will arrive shortly before the next general election. It seems to me to be an expensive way of giving back to some taxpayers a little of what the Government took from them in the first place.
  6.41 pm
  Mr. David Cameron: I am grateful for the opportunity to contribute to the debate and pleased to follow my hon. Friend the Member for Blaby (Mr. Robathan). I thought that he was perhaps a little tough on the Government. He is in favour of saving and I am in favour of encouraging it. He is probably looking more towards the lifetime savings product. Perhaps that could be done better than through the Bill, but if the Government come up with a simple and neat way of encouraging saving for young people, we should support it tonight.
  I draw attention to my entry in the Register of Members' Interests. As my hon. Friend the Member for Tatton (Mr. Osborne) implied, it is important to declare that my wife has a baby on the way in February, so if the vote goes the right way tonight, I shall obviously be a beneficiary. I hope, in passing, that my paternity leave will last a little longer that that of my hon. Friend the Member for Buckingham (Mr. Bercow). He was in his place earlier today, just nine days after the great event, and made one of his very good interventions. We also have a son, Ivan, who was born in April 2002, so sadly he is going to miss the cut—though I shall return to him later.
  Bob Spink: No, he will receive it.
  Mr. Cameron: No. September 2002 is, I believe, the cut-off date.
  My hon. Friend the Member for Tatton introduced our position clearly. We believe that saving is a good thing and that encouraging saving—if done simply—is a proper aim for the Government, as the Minister set out. Vitally, we believe that encouraging people to build up assets gives them independence, freedom and the ability to make choices for themselves rather than being too reliant on the state. As my hon. Friend said, the privatisations, council house sales and many other policies of the last Conservative Government did spread the ownership of assets, which is to be encouraged.
  I do not want to be churlish—indeed, I want to avoid some of the churlishness that we heard from Liberal Back Benchers—but the Government have to examine the backdrop to the Bill. As my hon. Friend the Member for Blaby said, the Government did much to discourage savings. We have had 60 tax increases and advance corporation tax changes that sucked money out of people's pension funds. We have seen an enormous increase in means-testing. If they do not own their own home, a couple now have to save £180,000 to avoid a means test on becoming a pensioner. There are still anti-saving taxes such as inheritance tax, which bites far too early on, and the capital gains tax regime, though reduced and reformed, is hideously complex. That too discourages saving.
  Instead of a broader, more sweeping approach, we have a range of small initiatives. I agreed with the hon. Member for Yeovil (Mr. Laws) that, in general, we should be promoting simplification, tax reduction and encouragement of independence. Again, in general, I fear that the Government are moving in the opposite direction. Nevertheless, it would be churlish not to welcome a relatively simple scheme that provides people with an opportunity to build up savings. As the hon.
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  Member for Dumbarton (Mr. McFall) said, the need is quite clear when 35 per cent. of parents with children under 15 save nothing and a further 26 per cent. save only occasionally.
  I have four small suggestions and one bigger one about how to improve the Bill. The first, as I mentioned in an intervention, is about children in care. They do not receive child benefit, but they will get child trust funds. As the Bill stands, however, no one is going to contribute on their behalf. Such children have the toughest start in life, with 18 years in care. The state acts in loco parentis, so it could contribute by using the child benefit that would otherwise be paid. The money could be put into the child trust fund so that when the children came out of care at 18, they would have some money to give them a decent start. If not, these children will be greatly disadvantaged by comparison with others. I hope that the Minister will reflect seriously on that point, which my hon. Friend the Member for Tatton promised to debate further in Committee.
  Mr. Dawson: I commend the hon. Gentleman for that first-class suggestion. Does he agree that we often denigrate and overlook the potential and abilities of young people on leaving care? In fact, there could be no more important group to encourage into an entrepreneurial future.
  Mr. Cameron: Absolutely. It is good that we have secured agreement on both sides of the House. The more hon. Members we can encourage to agree, the more pressure we can exert on the Minister to carry out this reform, which would not be too expensive and would give some of the most disadvantaged people in our society a better start in life.
  My second point is means-testing. I know that it is a simple idea, but it is worth saying again that means-testing discourages saving. The Minister should have that stencilled on her desk. In my earlier intervention, I pointed out that a family on £13,230 would get the £500 voucher for their child while one on £13, 231 would get only £250. The Minister said that she could see the logic behind my argument that that might discourage saving. The logic is simple: someone who puts money aside and has some income from savings could well be placed beyond the threshold. The Chancellor now goes over more thresholds than Zsa-Zsa Gabor: there are thresholds all over the place. If people save a bit to have a little more money, they could be denied a benefit. That does put people off saving.
  Means-testing applies to the child trust fund in two ways. The first is, as I have already mentioned, on the way in, where either £250 or £500 is to be provided. What do we say to families who are just above the threshold? What message does it send to them? There is also a concern, which was expressed to the Treasury Committee by the National Consumer Council, that companies selling these products might use the means-tested additional endowment as a signal and decide that it is better to market to the family with the £250 rather than the £500 vouchers.
  Ruth Kelly indicated dissent.
  Mr. Cameron: The Minister shakes her head, but the National Consumer Council, which is a serious

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  organisation, was concerned about that point, which provides another reason why means-testing is unwelcome.
  Norman Lamb: Will the hon. Gentleman say what he views as the solution to the means-testing problem that he identifies?
  Mr. Cameron: We have to deal with the Bill as it is. If it were my Bill and my idea, I would opt for a flat rate. It is simpler to say that all children will receive the same sort of account and start with the same sum of money. As soon as means-testing is introduced, it creates unfairness and sends out a signal that saving is bad.
  The second type of means-testing—on the way out rather than in—is perhaps the more serious. The Government's proposals are not wholly clear. When asked in the Treasury Committee about the problem of losing jobseeker's allowance because of the savings in an 18-year-old's account, Mr. Holgate said:
  "We are aware of the implication and we cannot say at the moment what exactly we plan to do about it".
  I know that, theoretically, they have 17 years in which to make up their minds, and the Minister said that she would keep the point under review, but it would be better to say now what the intention is. If we want to encourage people to save, we have to send clear signals.
  I am not entirely certain about my third point; perhaps the Minister will put me right if I am wrong. I understand that subscriptions to the funds can be only monetary, and that equities or gilts can then be bought or the money kept in cash. Donations cannot be made in shares, for example. The Minister could look at that point. In some cases, godparents, parents or relations might want to transfer some shares to a child, and if we want a share-owning democracy, which the Conservatives definitely do, we should encourage the movement of shares into the new funds.
  Fourthly, I agree with my hon. Friend the Member for Tatton and the hon. Member for Hastings and Rye (Mr. Foster) that parents of children born before September 2002 should be able to open these accounts. By all means, do not give them the £250 or the £500, but let them open the accounts and save for their children. It will be difficult, as many hon. Members have said, to explain to one child why they have this nice little baby bond building up and to another why they do not. The Minister should be generous about that.
  Those are my small suggestions. I have one big one. must, again, admit an interest, in that Ivan, my son, who is 20 months old, was born severely disabled. I have learned a lot from looking after him and coping with having a disabled child. I have learned as much again from parents of other disabled children coming to my surgeries to explain all the difficulties that they have in accessing funding, getting services and getting equipment. The Minister probably knows that in this country we do not support families who have disabled children very well. More children are surviving and living longer. The national health service has made huge advances in helping those children to survive birth, often with complex and difficult disabilities. But social services have not kept up. If the Minister has not read
  1376
  the Audit Commission report on services for families with disabled children, I recommend it to her. It is a superb piece of work, discussing patchy services and the lottery of provision depending on whom one knows, where one lives and how hard one pushes. It talks about equipment provision, saying how incredibly uneven it is and how often, for example—as I know from my own child—a wheelchair takes so long to arrive that by the time it does, the child has grown out of it.
  Having disabled children means massive extra costs. As I said in an Adjournment debate, one problem is that many things are done outside the national health service by social services, and those families who do the most to try to help look after their child at home often receive the least. If a family packs it in all together, the state has to look after the child. If a family struggles to try to cope, there is not a lot of help.
  Why do we not do something for those families—I say this selfishly, but I know that it will benefit others—through child trust funds? Disabled children with complex needs are living a lot longer now. Children, like my own child, who have cerebral palsy and epilepsy are living into their teens and twenties, and I hope that my son will. At 18 there is a real question about what to do and who is to look after those adults. Who is going to pay? My big idea is, therefore, to ask why we do not delimit the amount of money that can be put into the baby bond for families with disabled children. Let the contributions go as high as we like. Anyone who knows someone with a disabled child will know that everyone wants to help—families, charities and friends. If we could allow extra money to go in, many families would have an ability to help their child to live a much more independent life in adulthood after the age of 18.
  The other change that the Government could make for those families would be to allow some dipping into the fund before the child reached 18. Families with disabled children have to make major purchases—equipment such as prams, chairs, stair lifts and bath hoists. There are huge costs, and some sort of trust fund that could be dipped into—topped up without the £1,200 limit that the Minister mentioned for the general trust funds—could work very well.
  I think that there is something in those ideas, and I hope that the Minister will take them away. They go with the grain of both the Government and the Conservative policy of giving people more independence in their lives. They go with the Government approach of saying that with disabled children there should be more freedom about spending benefits, often in a lump sum—the individual payment concept under which the money is given and the person decides what support or equipment to purchase. They would help some of the most vulnerable people in society, people who are disadvantaged through no fault of their own. I do not think that all that would be complicated to do: we know a lot about who looks after disabled children because of disability living allowance, and it could be done in conjunction with that.
  I hope that the Government will look at my ideas; I hope that my Front-Bench colleagues will. too. I offer the idea freely to all. The Government have been accused of promoting child trust funds as a gimmick. I think that that is a bit unfair, but if they want to make them more real, my ideas would be worth pursuing.
  6.55 pm
  Mr. Michael Weir: I am probably one of the few speakers in the debate who is not claiming some benefit from it since both my children are far too old and I am, I hope, many years yet from being a grandfather.
  The proposal has been a long time coming, since it was first announced back in 2001. The funds themselves will not be available until 2005. In principle, the idea of providing a capital sum for a young person reaching 18 has merit, but I am not convinced by the Prime Minister's argument that it is a way to tackle child poverty. The sad fact is that, despite the Government's claims, very many children in Scotland still grow up in poverty. Since 1999, there has been a 2 per cent. increase in child poverty, and since 1968, the rate of child poverty in Scotland has trebled, with the proportion of children living in poor households rising from one in 10 to one in three. Those figures come from the latest report of the Joseph Rowntree Foundation.
  Against that background, I must ask how the measure will help those who grow up in poverty. The plain fact is, as many hon. Members have said, that the proposal will be of great benefit to those who are already well off. The chances are that their parents, rather than those of children who live in poverty, are already making some contributions for their future. The scheme allows families and friends to contribute up to £1,200 a year— £100 a month—to the fund. Few families who exist on low wages or benefits will be able to contribute that or anything like it, particularly if they have more than one child.
  The hon. Member for Dumbarton (Mr. McFall) quoted from his Select Committee on the Treasury report the number of parents who are interested in the funds. The report, however, went on to note research on why parents do not currently save for their children's future, which came up with the completely unsurprising observation:
  "The survey shows that one of the main reasons for not putting aside money for their children is that some parents just cannot afford to."
  The report also noted the views of the Child Poverty Action Group:
  "Despite higher initial payments for children from low income families, the reality is that many families are too poor to contribute. The tax relief provisions will be of greater benefit to the better off, since they are most likely to be able to top up the fund."
  The hon. Member for Dumbarton and the Minister mentioned that 75 per cent. of parents surveyed were interested in the funds and would seek to contribute to them. I must ask how realistic that figure is. Many families simply do not have the funds. The way in which the funds are being structured will dissuade many families from attempting to contribute, because it seems that they are to be equity-based investments. I do not pretend to be an expert in equity funds—in any funds for that matter—but my experience is that such funds seek fairly substantial regular payments, not small weekly or monthly payments. Excluding many smaller building societies from being able to offer the funds—the Building Societies Association called that a -perverse" decision—will mean that many poorer families are excluded from the chance of taking out a traditional building society account into which small sums can be
  1378
  regularly paid in. It might not provide the returns that an equity-based investment would—in theory, at least, although many have not in the recent past—but it would give poorer families the opportunity to contribute to the trust funds. Almost every hon. Member who has spoken has noted that, if the funds are to be a success, families will need to contribute to them. Even a small contribution would make a big difference, but that would require allowing the use of traditional investment vehicles through building societies.
  It all comes down to child psychology. I have two children, who are not so small any more, but I remember that seeing the money in their piggy banks or building society accounts grow meant something to them. The hon. Member for Hastings and Rye (Mr. Foster) mentioned reading the pink pages, but I cannot see many youngsters running out to buy the Financial Times. If they can see the amount in a building society book, it makes a difference.
  The proposed structure of the funds will mean that many poorer families will not be able to contribute. I ask the Government to look again at that aspect of the trust funds, because broadening the base of the investment would be a good way to bring more poorer families into the scheme. As the trust funds are structured in the Bill, it would be the middle classes who will benefit most. That is not necessarily a bad thing—especially for the middle classes—but it is wrong to claim that the proposals will tackle poverty.
  When I spoke to representatives of the National Union of Students last week, I was given a postcard that is part of its latest campaign against tuition fees. It is addressed to the Minister's ultimate boss, the Prime Minister, and it states:
  "Students already facing decades of loan repayments in this post-grant era will, according to you, graduate with a total of up to £21,000 of debt."
  I did a quick, back-of-the-envelope calculation; to end up with a trust fund containing that sum at age 18, a family would have to put the best part of £100 into the fund every month for each child. The trust fund would be swallowed up by tuition fees and student debt for those who go on to university. I can see how the fund would be very attractive for parents and grandparents who wish to ensure that youngsters from relatively prosperous backgrounds have the money to go into higher education, but again it will not do much for those from less well-off backgrounds.
  I fully accept that it is impossible to guess what a person will need at 18 when they are born. It would therefore be difficult, if not impossible, to design a fund that set out exactly how it was to be used. However, I was interested to note that the Select Committee Report said:
  "People feel strongly that proceeds of the fund should be spent on a worthwhile purpose. Education is by far the most mentioned use for the fund, whether this be higher education or of a more vocational nature."
  When asked by the Committee whether the Government had considered an incentive for using the funds for educational purposes, the Minister said that they had not ruled out some sort of benign encouragement. That is an interesting phrase and perhaps the Minister could tell us when she winds up what is meant by it and what is being considered.

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  I was very interested in the point made by the hon. Member for Witney (Mr. Cameron) about disabled children. I, too, have a disabled child and fully understand the points that he was making. Unfortunately, a trust fund set up on the basis he suggests would face exactly the same problems as those proposed by the Government—it would disproportionately benefit those who can put more money in, not those in the greatest need, who find it difficult to obtain the extra help that they need.
  Mr. Cameron: The point that I was trying to make is that a trust fund would make it easier for other people to help a family with a disabled child. Often, friends, families and charities want to help, and a trust for the child, which could go on to be their trust after age 18, would provide an easy and neat way for people to contribute. Of course it would not help everyone straight away, but it would help many people and that must be a good thing.
  Mr. Weir: I do not dispute that point, but I repeat that it is those with the family and friends who have the money to contribute who would benefit most. I have been involved with a trust in a professional capacity which was set up to help people with disabilities, and we were able to help the poorest, who needed that help, not those who were able to set up their own trust funds. The idea has merit and I do not write it off, but it faces the same problem as all trust funds. How do we ensure that those most in need are the ones who are helped most? There is no easy answer.
  The interaction of the child trust fund with the welfare system could also cause a problem. If no further funds are contributed other than the initial payments, that will not be a great problem when the person reaches 18. Similarly if the person goes on to full time education after 18, there will not be a great problem. However, a problem will arise—as the Minister admitted—if someone has had money paid into their fund but unfortunately has to claim benefits when they reach 18. The Treasury anticipates that a payment of £10 a month could build up a fund just short of £4,000. That is more than the disregard figure for benefits at present, although I appreciate that the Minister has said that the disregard will rise to £6,000. That is welcome, but I do not know what it will mean over an 18-year period. Will it be up rated with inflation every year to ensure that the full value of the up rating still applies when a child with a trust fund begun in 2005 receives the benefit of it 18 years later? Otherwise, payments made to the fund could reduce or wipe out any benefit entitlement. It may be impossible to get round that problem entirely, because the trust funds are bound to create some unfairness in the benefit system and the Government will have to address that fact.
  Many of the other points that I would have made have been covered by other hon. Members. I may have given the impression of being completely negative about the Bill, but that was not my intention. The idea has merit but it needs to be tweaked. More thought needs to be given to how we can help the poorer sections of society more. The fight against poverty should be the principle
  1380
  behind this. In their present form, the trust funds will not help, but there may be a way to start making progress.
  7.7pm
  Bob Spink: The hon. Member for Angus (Mr. Weir) spoke well and made some good points. It is always a pleasure to follow him, but I wish to refer in particular to the speech made by my hon. Friend the Member for Witney (Mr. Cameron), who made an interesting and original contribution to the debate. I am sure that his cry from the heart for disabled children will have been heard by the House and will be considered carefully.
  I approach the Bill with four key points in mind. The first is the principle; the second is the objectives; the third is the detail, including how the fund will work throughout its life and how we can help those born before the start date of 1 September 2002; and the fourth is the outcome, if the measure passes into law. The principle is good, but only in part. The objectives are sound and I congratulate the Government on them. The details are well thought out, as far as they go, but it will still take a lot of effort to make the system work and to ensure that the objectives are secured and the money not wasted. The outcome, of course, remains to be seen. I hope for the best, but I fear the worst, given the Government's track record on delivery. At this stage of the Bill's life, therefore, I would award the Government two out of four on those key considerations. Fortunately, that enables me to support the Bill, but I want to improve it, to ensure that the objectives are secured and that the outcomes are positive.
  The child trust fund may help to encourage people to adopt a savings habit. As the savings ratio has fallen to disastrous levels we certainly need to do something to encourage people to rediscover Britain's savings culture and to make provision for a rainy day. Indeed, the Government's disastrous performance on the savings ratio is storing up a major problem for our future. The proportion of household resources in savings has fallen from 10 per cent. in the second quarter of 1997, when Labour formed their Government, to less than 5 per cent. in the second quarter of this year. As the Government claim that everyone is now much better off, how could they have got savings so badly wrong? They are driving down the savings of ordinary households to less than half what they were when the Conservatives handed over to Labour in 1997.
  The principle behind the Bill is questionable, at least in part. It is a typical nanny-state, patronising, Government-knows-best measure, as the Liberal Democrats have rightly pointed out. It takes some people's hard-earned money and gives it to others, with no control over how that money will eventually be spent. The Government may of course have their eye on the election, another point on which we might question the principle. That may also be one of the reasons why they want to rush the Bill through.
  The objectives of the Bill are not ignoble, however, so I shall make some positive points. The measure will help people to understand the benefits of saving and investing and building up funds for their future. Starting from the cradle, it gives encouragement to children and

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  a mechanism to parents and grandparents to invest in their children's future. That is entirely helpful and laudable. In essence, the Bill is designed to change people's saving behaviour—it is social engineering, and I accept it. It will also help to engage more families and younger people with our great financial institutions. We hope that those institutions will not go the same way as blue-chip organisations such as Equitable Life; nevertheless, encouraging such engagement is probably a good thing.
  The measure will ensure that all children have a financial asset at the start of their adult life. I cannot fault that, although I hope that, as there will be no control whatever over how the money is spent, it will be spent wisely. That will not always be the case of course, but the objectives are praiseworthy and I welcome them.
  The Bill will help to develop financial awareness so that people make better financial choices throughout their lives. It will create habits and understanding that will be helpful for the long-term stability of society, and I welcome that, too. However, will the detailed scheme actually deliver those objectives? As always, the devil is in the detail.
  The proposals are extremely complicated and extend the socialist principle of means-testing. Those factors may act as a major disincentive to save, thereby frustrating the Bill's objectives. I seriously question whether we need more means-testing, especially bearing it in mind that, as a result of Government policy, it will be extended to about 75 per cent. of retired people.
  Labour's 1997 manifesto promised tax reform to promote savings—very laudable; yet the Chancellor, in his first Budget, levied a £5 billion a year stealth tax on pensions by abolishing the dividend tax credit payable to pension funds. At a stroke, the Government made a major tax reform, not to promote saving but to discourage it, hence the disastrous fall in the savings ratio.
  Much work will need to be undertaken to ensure that CTF accounts will be available on time, in 2005. The Government need to ensure that the various products are safe and that the money will be underwritten so that people are not robbed of their assets, which is exactly what has happened to many of my constituents—and probably to many of yours, Madam Deputy Speaker—who took Government advice and put their savings into pension funds. They have been deserted by the Government.
  Hon. Members may call me cynical, but I remain deeply sceptical about the fact that £250 per child is to be paid out only two months before the likely date of the next general election. As borrowing is rising to £37 billion, way above the 3 per cent. good governance rate that the Government told us about, and as the overall cost of the CTF will be about £4 billion, and there will be a significant advertising campaign, one must be cynical about the Government's motives, especially as they are rushing the measure through.
  We do not yet have clear details about how the child trust funds can be held. Much work needs to be done on administrative matters. We have insufficient information about the impact of those resources on people's entitlement to means-tested benefits. Will 18year-olds be encouraged to blow their windfall? I realize
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  that the disregard will be increased to £6,000, but I agree with the hon. Member for Angus that the figure must be watched carefully and indexed.
  The scheme adds to the complications relating to various savings products. If the Government really want to promote a savings culture and improve the savings ratio—as they should—they should simplify the range of savings products available, rather than making the system more complicated. A simple system with a single tax relief on an indexed amount invested each year would be far better than the multi-level ISA and other systems that currently exist—but I digress.
  I am deeply concerned about the flexibility of the scheme. What will happen to funds if, tragically, a child does not live until the age of 18? Such points need careful consideration.
  I agree with the line taken by the Liberal Democrats: they say that the scheme is painfully thin on details and that its benefits to children are unclear. They make a lot of sense when they say that the Government should be using any available cash to help children get the best start in life. It is undeniable that getting a child's early development right is the best way to use the money that is available. They make a sound point, but we should implement both that early years investment and the Bill, to encourage a savings culture. The Liberal Democrat view does not address the difficulty of encouraging a savings culture and restoring the savings ratio to what it was in 1997 when the Conservatives handed over the economy to Labour. I hope that the Liberals will continue to push for more spending on early years, as that is certainly the more important of the two factors, but I believe that we can have both.
  The outcomes of the Bill remain to be seen, and although I hope for the best, I fear for the worst. As the Government cannot even organise a simple system to distribute passports on time, and given their record on tax credits earlier this year, I am deeply concerned about their ability to deliver the long-running and complicated CTF system, especially as there is such a tight time scale.
  In any event, young men and women of the future will need the endowment to pay for their education, if the Government get their way on tuition fees—although I hope that they do not. The bottom line is that the Government will give those young people someone else's hard-earned money and then take it back again through tuition fees.
  Given that the pot of cash will be available to youngsters at 18, and given the scare stories that we will undoubtedly read about in years to come, with some youngsters blowing their money on holidays, fast cars or even drugs and booze, I can envisage the Government seeking in future to control the way in which the money is spent, perhaps indirectly by forcing up education fees or some other mechanism, so that the choice over the use of funds will be removed or constrained by this control-freakish Labour Government.
  Like the majority of people in this country, I simply do not trust the Government. I remain deeply sceptical about the two-level payments. The initial endowment will be £250 for most children, but children from low-income families who also qualify for the full child tax credit will receive the higher payment of £500. The Treasury states that around a third of children will be entitled to the higher sum, although, again, I do not

  1383
  trust the Treasury forecast on that. Family fortunes can go up and down year to year, decade to decade—so youngsters who receive the higher level of public money, when they are born or when they are seven, may end up being better off than those who receive the lower amount of public money. That will not be perceived as fair or appropriate by anyone.
  Of course, many issues need to be ironed out in Committee. For example, can we ensure that children born before 1 September 2002 will be able to benefit from the tax exemptions in a parallel fund, even though they will miss out on the lump sum payments? Other issues include children in care, and I am very grateful to the Financial Secretary for her earlier comments, so I will not pursue that issue. Of course, children who live overseas will need to be dealt with. We must consider the charging levels for administration—the charge cap—and the fact that marketing strategies may well be focused on the middle classes and higher income groups, rather than lower income groups. We will have to ensure that that is tightly controlled. We must also consider the scheme's impact on the take-up of child tax credit, since any household on an income below CTC threshold—currently, £13,230—will need to claim CTC before becoming eligible for the additional £250 CTF. The operation of the age-related endowments—the further payments into the CTF on the seventh birthday—also needs to be carefully designed.
  Again, additional payments will be made to children in families with lower incomes, presumably at or before the seventh birthday. I should very much like the Treasury to provide evidence about how many children whose households fall into certain wealth categories when they are born or when they are seven years old will still fall into those wealth categories, rather than moving into a higher wealth category, by the time they are 18—and, of course, vice versa. There will be a very weak correlation between household wealth category at birth and the wealth category at 18—that is certainly my experience in my family and in my community—so the benefit received at 18 may be unrelated to financial circumstances when the benefit is paid. That would be seen as an inequitable use of public funds.
  There is also an additional election bribe—I am sorry, rather than election bribe, I intended to say problem. Although accounts will not be available until 2005, children born from 1 September 2002 will be eligible for CTF accounts. Since CTC was not available before 6 April 2003, it cannot be used to identify entitlement to the additional endowment. Clearly, some fancy footwork will be needed during the Bill's detailed consideration in Committee.
  Moving on to the accounts themselves, there are many questions. Providers will need to make a profit on the accounts, and the 1 per cent. charge cap should be very carefully considered. I am not convinced that that is the right level. Various types of account will be available, and some will be more successful than others. The CTF will be a wrapper in a similar way to ISAs, but we all know that the complication of the multi-layered ISA—with cash, equities and insurance—has led to a fall in the savings ratio.
  1384
  Some of my constituents are not familiar with the financial wrapper philosophies. Of course the Treasury Committee has reviewed that matter, and it was told that a low-income family investing £500 in a safe account but making no extra contributions might see their bond increase to only £911 in 18 years. A more financially aware family could invest only £250 in a more sophisticated way, contribute £40 a month and see their investment increase to £14,000 in 18 years. However, a family with sufficient disposable income and financial nous could invest the maximum of £100 a month in the stock market and in bonds and build up a fund worth about £35,000 to £40,000 in 18 years. That will not narrow but widen the unequal distribution of wealth in the country. Of course, many of the investment funds will involve displacement, rather than additional investment—as the hon. Member for Hastings and Rye (Mr. Foster) confirmed in his reply to my earlier intervention—so the savings ratio will not be improved.
  Moreover, some of my constituents do not trust financial products, following the Equitable Life debacle and many of the problems in pension schemes whereby people could lose much of their life savings, especially given the Government's refusal to address those problems and rescue those people who have already suffered from the collapse of some private pension schemes. Clearly, as with any financial product invested over a long time, there will be an exposure to risk. We all thought that risk was very low in the major blue-chip companies, such as Equitable Life—the House has probably got my drift.
  My bottom line is that the Bill has some merit but needs detailed work to make it sound. In any case, the principle of taking someone's hard-earned money, giving it to someone else in a lump sum when they reach 18 years of age to spend as they wish, with the Government adjusting education fees to ensure that they take back the money where they possibly can, represents yet another nanny-state, patronising, socialist intervention that may end in tears, so very careful work needs to be done in Committee.
  We have had three such consultation exercises in the past two years. We have had announcements and re-announcements, and I suspect that the Government are proceeding with the scheme because it is superficially attractive, and they hope that it will help to secure the middle England socialist vote that they have destroyed by introducing tuition fees. The proposals are overcomplicated and therefore may be a net disincentive, rather than an incentive, to saving.
  Mr. Love: I rise only because, for the third time, it has been suggested that the Bill is an electoral ploy. May I remind the hon. Gentleman that the young people concerned need to reach the age of 18 before they get access to their accounts?
  Bob Spink: The hon. Gentleman is absolutely right, but the Bill is designed to influence parents and grandparents. That may be a good thing, because parents and grandparents will be able to invest in their children's future, and there can be no greater or better investment. That is one of the reasons why I shall support the Bill tonight. On balance, it is a good Bill, but I hope that we can find ways to improve it, and in

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  particular to widen its provisions so that those people who were born before 1 September 2002 can contribute to parallel funds.
  One of the ways in which the Bill is not good is that it extends means-testing, which is quite wrong. I am also disappointed that the Chancellor has not sought to focus on other more appropriate areas of welfare reform. At the very least, if he wishes genuinely to promote a savings culture and improve the savings ratio, he should simplify savings products rather than complicating them further.
  I have made several negative points, but I acknowledge that if we can get the initiative right it may be worthy and something that we can all support. I shall try my best to make the scheme work for my constituents and their children, and on balance I shall support the Bill.
  7.29 pm
  Mr. Ian Liddell-Grainger: Just for the record, I should mention for the fourth time that the Bill is an election ploy.
  Unlike my hon. Friend the Member for Castle Point (Bob Spink), I do not think that I can praise the Liberal Democrats, because it would not be in my nature to do so. However, the hon. Member for Yeovil (Mr. Laws) gave us a pretty balanced view, on the face of it.
  Norman Lamb: The hon. Gentleman agreed with him?
  Mr. Liddell-Grainger: I would not go as far as that.
  The Bill is interesting because it addresses the whole ethos of saving, which I suspect changed in this country during the late 1950s and the early 1960s. There used to be an idea that saving for the future represented pride in one's family and oneself. One of the Bill's biggest problems is that, regardless of the amount given to children, the extent to which it will be topped up, and the amount with which they end up at 18, the ethos of saving no longer exists among families. I am not suggesting that the Government can do anything about that, because they cannot, but they could help people to save in the longer term. I remember Post Office savings accounts from when I was a boy, but sadly, they will disappear in the near future, although again that is not the Government's fault. Surely it must be up to the Government to require people to save for the future. An enormous amount goes out for health and education from central Government. Surely the Bill could, and should, push down to peoplenormal people like us, with parents, children, grandchildren and great grandchildren—the principle of saving for their future.
  All Members of Parliament hold surgeries several times a month at which many people come to see us. We have all met families who we know will be unable to cope with the money that their children will receive when they turn 18. Such people might be on benefits or have enormous problems such as being single parents or having a disabled child. We know that children in such families will not be able to cope with their £900—perhaps more if money has been put aside—when they turn 18, and that they will face the biggest problems.
  1386
  The Financial Secretary should consider carefully the Inland Revenue's role in the scheme. Perhaps the most powerful organisation in the country will be responsible for setting up accounts for people who cannot, or perhaps will not, cope with the money. The Inland Revenue will administer the scheme, because although the Government say that that will not happen, it will administer it indirectly. Additionally, it will know the background to children's upbringing and development when they turn 18. Surely it could encourage a situation in which the Government could get a child to invest the money rather than blowing it on fast women and booze, as many hon. Members ably put it. The success of the scheme will boil down to the fact that an 18-year-old who is given money will have the inclination to spend it.
  Why should children save? Let us consider the problems that will be faced by people who will turn 18 in 10 years. They will face problems with pensions, the stock exchange, individual savings accounts, long-term investments and interest rates. Interest rates are not rising, so although there is less inflation, which is good, they are investment is not worth while. What possible reason would children have to invest rather than spending the money that they received when they turned 18? That will be true of people from all parts of society. Will 18-year-olds who receive £35,000 because their parents have put money aside for them invest that money in the stock exchange or a long-term scheme? The answer is probably not.
  That takes me on to capping. Any person with financial savings knows that it is important to watch charges on savings carefully. The Government are right to want to cap charges, but that creates a problem because people in financial institutions must be persuaded to come up with policies and a reason to save money on behalf of their clients—the children. It is interesting to note that there has been an enormous amount of feedback from people who are worried about the suggested level of capping. One of the people who gave such feedback was, rather pithily, a representative of Virgin Money—that is probably the one thing that people will not get. He said:
  "How much will providers be allowed to charge? If the industry is allowed to raise charges substantially above the current I per cent. stakeholder level, the £250 the government is offering could soon be eaten up in charges."
  Surely that is the crux of the matter. Will the Government consider using the Inland Revenue not only to cap charges but to pay part of them? Given that the money will go round in a circle, surely it would be beneficial to the country for the Government to pick up the charges. Alternatively, a fund could be set up to pay for the charges that could use the same principle as the terrorism fund into which everyone pays to look after buildings in case of an incident.
  The long-term ethos behind the Bill is to give children a start at the age of 18. Many hon.Members—some are in the Chamber but others are not—talked about children in care. As children in care do not receive child benefit, they will not be able to look forward to having more than £900 when they turn 18, but that represents a missed opportunity. Surely it would be better to pay

  1387
  child benefit for children in care into the child trust fund to build up an amount that they could use when they turned 18. Such children face the problem of leaving care with virtually nothing behind them. Although we hope that they will have a good education and be able to stand on their own two feet, they do not, as was said early, have the seed capital to buy a Land Rover for the farm.
  The Bill could have addressed that problem, because the most vulnerable in society are those who could be most affected by such a measure—children in care are the most obvious category. Given the number of parents who have still not taken up tax credits—I am told that the figure is between 650,000 and 700,000 people—how do we know that people will take up the fund that they are given by the Inland Revenue? If children are not financially astute and aware and have not taken note of 18 years of statements about the investment, how will they know what to do in the future?
  I shall move on to my final point, because I promised the Whip that I would not detain the House for too long. Let us consider how we could develop the scheme to secure people's futures. If children want to continue with their investment, who will advise them about the best route to take—the stock exchange, long-term investment, a bond or whatever? Children who want to continue to save and those whose parents continue to give them money will require advice. Given the Inland Revenue's unique ability to look into people's lives—I am not suggesting that there is a Big Brother syndrome—surely it could help people to invest in their long-term future and that of their families, which is important, because many people have children and indeed grandchildren. We have discovered today that the same is true of hon. Members.
  The Bill has a lot going for it, such as encouraging long-term saving. However, it falls down because the Government have not thought through the ramifications of putting money in the pockets of people who will probably not have the financial ability to look after it themselves. What is the point of giving children money if they end up blowing it when they reach 18? The scheme should encourage people to save for the future so that they have a secure future.
  7.38 pm
  Mr. Paul Goodman: It is usual for any Member of the House with an interest in a Bill to declare that at the start of his or her speech. Although I have an interest in the Bill, I have difficulty declaring it at the start of my speech because it has already been declared for me. My hon. Friend the Member for Tatton (Mr. Osborne) made it clear that he, I, the Financial Secretary and the Chancellor—and, indeed, my hon. Friend the Member for Witney (Mr. Cameron) —have, or are expecting to have, children who will qualify for a child trust fund. [Interruption.] I hear rumblings from the far corner of the Chamber, so hon. Members might think that a cosy little club that favours the Bill outright is gathered around the Dispatch Box. My hon. Friend the Member for Tatton made it clear that we support the aim behind child trust funds to encourage a savings culture and the freedom, independence and dignity that go with that. That is why we will not divide the House and will try to improve the Bill in Committee.
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  Although we are discussing one of the Government's flagship Bills and main measures, Opposition Members have made more speeches, with four Back Benchers, than Labour Members, of whom only two have spoken.
  Bob Spink: My hon. Friend makes a good point. Is he aware that only one Labour Back Bencher is in his seat?
  Mr. Goodman: I have not cast my eyes that widely. Rather than explore this avenue further, however, I urge all those who read the debate—I say this as the Financial Secretary's Parliamentary Private Secretary, the hon. Member for Stalybridge and Hyde (James Purnell), scurries back to his seat—to take note of my hon. Friends' contributions.
  Many hon. Members followed the lead of my hon. Friend the Member for Tatton in suggesting that child trust funds should be open to all. The hon. Members for Dumbarton (Mr. McFall) and for Hastings and Rye (Mr. Foster) did so, as did my hon. Friend the Member for Witney. He made an extraordinarily creative contribution, in which he gave four small suggestions and one large one. In fact, he made so many small suggestions that I am not sure that I can remember them all. His large suggestion, which he also raised in an Adjournment debate a while ago, is something that we will want to consider in Committee, and I urge the Minister to do the same. Indeed, I hope that she refers to it when she winds up. In that Adjournment debate, my hon. Friend showed an accomplished understanding of the needs of parents who have to buy equipment and make difficult decisions when they are not always sure how to negotiate their way through the maze that confronts them. However, support for an aim and support for a Bill are not one and the same thing, which brings me to my main points.
  I am sure that the Chancellor and Financial Secretary want us all to view the Bill as a Christmas present to a suitably grateful nation. The right hon. Gentleman, with the recent assistance of the Financial Secretary, has been preparing, packaging and gift-wrapping child trust funds for more than three years. First, there were the press reports; then there was a consultation document, followed by a second consultation document proclaiming the success of the first; then there was an announcement from the Chancellor proclaiming the success of the second consultation document; and finally, we have the Bill. It has taken three years for the Chancellor to get ready to give us the detail.
  How many answers do we find when the gift-wrapping, the glitter and the tinsel are torn aside? The blunt truth is, not enough. Without clear answers, we cannot be sure whether the Bill is a Christmas present for anyone. It has four main flaws as it stands. My hon. Friend the Member for Castle Point (Bob Spink) was right to say that the devil is in the detail. The first flaw is that the Government have offered no convincing evidence that it will help the less well off to develop a savings habit, a concern that was widely raised. After all, the Bill does not tell us whether payments into child trust fund accounts will reduce a child's benefit entitlement when he or she becomes an adult. Imagine the reaction of a single mum on a low income, as mentioned by the hon. Member for Dumbarton, who finds that by topping up the fund she could reduce her child's eventual benefit entitlement or that if her child is

  1389
  in need before he or she is 18, as the hon. Member for Yeovil (Mr. Laws) mentioned in detail, she will not be able to draw on the fund to help that child. That is not much of an incentive to save. The Government have offered us no convincing evidence that they will be able to help the less well off to develop a savings habit.
  The second flaw is that the Government have no convincing evidence that the Bill will help anyone to develop a savings habit except those who will probably save anyway. Labour Members need to understand that we have no problem with the middle classes saving. Indeed, we have no problem whatsoever with any income group saving. The problem is not ours but Labour's. The express purpose of the Bill is to help poorer people to pick up a savings habit. As we heard, a single mum on a low income who is worried that her child may one day need benefits or that she will not be able to tap into the fund on her child's behalf if in real need may not add a penny to the Chancellor's original £500. A middle-class dad on a higher income, however, who is unlikely to be in similar need —I pause in case any of my hon. Friends wish to suggest an example—may add the maximum amount of £1,200 each year, leaving that child with a nest egg worth £34,000 when the child reaches 18. As the Government have published no research, set no targets and drawn up no estimates, we have no reason to think that the Bill will help people to save unless they are likely to save in the first place.
  The third flaw is that if the Bill is to help those on lower incomes, it must offer some certainty to the financial institutions that the Chancellor hopes will market child trust funds. We have no reason to think that it will make that happen because of the ambiguity and uncertainty that surrounds the charge cap, details of which are not in the Bill despite the White Paper saying two months ago:
  "The Government will issue a report detailing the charge cap … later this year."
  If the Financial Secretary does not come clean about the charge cap, which we urge her to do, that leaves the Chancellor only three more days on which the House is sitting to make an announcement, unless he plans to slip out an announcement when the House is not sitting—but he would not do that, would he?
  Norman Lamb: I am slightly confused about the Conservative party's position. Does the hon. Gentleman support or oppose the measure? He presents a good case against it. Will the Conservatives join the Liberal Democrats in opposing it?
  Mr. Goodman: If the hon. Gentleman had been in the Chamber for the opening speech of my hon. Friend the Member for Tatton, he would have heard him make it clear, as I have, that we support the Bill in principle, but that we wish to examine the detail. I understand that the Select Committee report that the hon. Gentleman signed, although critical in detail, supports the Bill in principle. How will he vote?
  If the charge cap is to be 1 per cent. and the institutions are permitted to make only £2.50 from each £250 fund, they will surely market their products not to those who do not save, but to those who do. Child trust funds will go the same way as stakeholder pensions.
  The fourth flaw is that the Government have offered no convincing evidence that the Bill will deliver trust funds on time. The financial institutions have just 12
  1390
  months to haul their products, marketing, work force and systems to the starting line. They do not know what the charge cap will be, which worries them. They do know that the delivery mechanism will be the voucher system, which worries them no less. The initial letters to parents are due to go out later this year, which does not leave much time. The first vouchers and information packs are due to go out in just a year's time.
  Mr. Love: I want to press the hon. Gentleman on the charge cap. A brief provided by the Nationwide building society, one of the major providers of such accounts, states:
  "Nationwide believe that providing CTF within a tight price cap will be challenging but not impossible for efficient providers."
  Does that not undermine what he says about the charge cap?
  Mr. Goodman: I do not think so. If the hon. Gentleman had been in the Chamber for the opening speeches, he would have heard my hon. Friend the Member for Tatton refer to the large number of teas that he has recently had in the Pugin Room with people from financial institutions who are dubious about the charge cap. I am not sure that the hon. Gentleman's example is representative.
  Mr. Love: Will the hon. Gentleman give way?
  Mr. Goodman: No. I have let the hon. Gentleman intervene once and I want to make some progress.
  The financial institutions, parents and, ultimately, children will all depend on the Inland Revenue to get the child trust funds off the ground on time. The Revenue is still groaning beneath the burden heaped on it by the Chancellor of running not just the tax system but, increasingly, the social security system through tax credits. The Revenue is expected simultaneously to deliver child trust funds and, according to the Paymaster General,
  "a major review of our organisations dealing with tax policy and administration."—[Official Report, 2 July 2003; Vol. 408, c. 270W.]
  The Chancellor could ease the pressures on the institutions, the Inland Revenue and, not least, parents simply by delaying the launch. A few months' delay would make no real difference to anyone.
  That brings us to one of the few things about the Bill that we do know. We do not know whether it will help the less well off to save, or offer certainty to financial institutions, or be ready on time. However, we do know that even if the funds are not delivered on time, the timetable must be delivered on time. The timetable dictates that 1.8 million vouchers must go through the letterboxes of the houses of a suitably grateful nation in the autumn of 2005.
  What could be happening around about then, I wonder? I do not believe that this is a timetable for parents who are planning to save. Instead, it is a timetable for a Government who are gearing up for an election. There are two years until the autumn of 2005, yet the Chancellor of the Exchequer has had three years to get ready to give us details and answers about child trust funds in the Bill that is before us. The Bill was preceded by lots of third-way glitter and glitz, but

  1391
  though right in principle it gives the House few details and few answers. We shall try to help the Minister to find those answers in Committee. As they are not in the Bill, we cannot support the measure tonight.
  7.51 pm
  Ruth Kelly: With the leave of the House, I shall reply to the debate.
  I shall start with an apology. I should have welcomed the h on. Members for Wycombe (Mr. Goodman) and for Tatton (Mr. Osborne) to the Opposition Dispatch Box. I look forward to working with them during the passage of the Bill. I am sure that they will both make great contributions to our future proceedings. I was delighted that at the start of the debate they said that they would welcome it. I am slightly confused because the tune seems to have changed between the opening remarks of the hon. Member for Tatton and the closing remarks of the hon. Member for Wycombe.
  David Taylor: Does my hon. Friend find it surprising, as I do, that the speeches I have heard in the Chamber and on the monitors from Conservative Members—[Interruption.] The monitors were invented in about 1932. Their speeches have consisted of carping and criticism, which seems inconsistent with their planned intention of studied indifference if there is a Division. Is not that surprising?
  Ruth Kelly: I agree with my hon. Friend. I find it totally surprising. The only message that I gleaned from the winding-up speech of the hon. Member for Wycombe was that the Opposition are confused. Perhaps I can clarify a few points for them during my reply. Before doing so, perhaps I should say to the hon. Member for Yeovil (Mr. Laws) that I am delighted that the Liberal Democrats have forcefully started to welcome the idea of intervention in the early years to promote opportunity in later life. I am delighted also that they think that money should be earmarked for that purpose. Given their conversion to investment in the early years, perhaps that might be signalling also their conversion to top-up fees. I find it extraordinary that they say that the priority for taxpayers' money should be in the early years and yet they propose to raise taxes to fund higher education for those in their later years.
  Mr. Laws: We find it extraordinary that the Financial Secretary is saying that it is vital that 18-year-olds should have an asset at that period in their lives when the Government are bringing in a huge liability in the form of top-up fees. How does that add up?
  Ruth Kelly: I shall examine the objectives of the Bill as I progress.
  There have been some excellent contributions to the debate from both sides of the Chamber. My hon. Friend the Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Committee, made a powerful speech, as did my hon. Friend the Member for Hastings and Rye (Mr. Foster). I enjoyed several other
  1392
  contributions, and particularly that of the hon. Member for Witney (Mr. Cameron), who made a most thoughtful intervention.
  I shall turn to the specific points that have been raised. The hon. Member for Tatton asked whether this policy will work. He continues to test just one of the policy's objectives, which is increasing the level of savings. The policy has four objectives: increasing the savings habit of parents as well as that of children; building assets so that every child at the age of 18 has the opportunities that only a few children now take for granted; encouraging the making of responsible choices; and increasing financial understanding and awareness, which applies to parents as well as children. The hon. Gentleman seems to recognise only the first point.
  As my hon. Friend the Member for Dumbarton has said, evidence from the national child development survey suggests that an asset in the range of merely £300 to £600 could have a significant impact on future outcomes. Perhaps the policy could be justified merely by reference to only one of the objectives. If someone adds just £10 a month, he or she could accumulate, without any further Government endowments, £4,500. That is a significant asset at the age of 18.
  There is the objective of promoting responsibility. Again, that is a difficult objective to judge. I would argue that if children, at the age of 18, have to deal with a sum of money that they, their parents and their grandparents have contributed to, it is much less likely that they would abuse that money than if they had not contributed to it. Research by Children's Mutual gathered over 2001–02 on its savings products suggests that most young adults have responsible plans for their savings. Indeed, 47 per cent. of young adults said that they would spend the money on education. Another 27 per cent. said that they would roll over the money into another savings account.
  There must be a huge opportunity with this policy to increase understanding of the financial system, to build on financial education and to promote financial awareness. I was recently made a member of the Financial Services Authority steering group that examines financial capability. One of the issues raised several times at the group's first meeting was the opportunities afforded by child trust funds, a once-in-ageneration opportunity to increase financial education and awareness among children and, indeed, their parents. I cite evidence from the National Consumer Council that child trust funds provide an excellent opportunity to communicate risk issues to a whole generation of parents.
  I return to the issue of savings. Let us consider the evidence that low income families will contribute to the fund. We have some direct evidence in the UK. Last week, the Treasury published an interim evaluation of the savings gateway, which afforded a Government match of £1 for every pound that was invested by a low income family. The earnings cap was set at £11,000. That would not be a wealthy person by any standards. The report's author, an independent researcher from Bristol university, concludes:
  "One of the key aims of the savings gateway is to encourage more people on low incomes to save money. From the evidence to date it is certainly achieving this aim."

  1393
  She also points to further evidence from in-depth interviews, which showed that two thirds of people with incomes below £11,000 intended to continue saving regularly after the end of the Government match scheme now that they had developed the habit.
  Mr. Laws: Does the Financial Secretary agree that there is a significant difference between the savings gateway, which she has just cited, and the child trust fund in terms of savings incentives? First, in the savings gateway there are matched savings for making savings. Secondly, it is possible to take the money out when someone wants to do so. Surely the child trust fund does not have those advantages.
  Ruth Kelly: I shall come on to those points.
  Survey evidence in the UK—for example, by the Homeowners Friendly Society—found that 62 per cent. of parents in the D and E socio-economic groups intended to make further contributions to the child trust fund. I shall cite again the National Consumer Council, which states:
  "It appears that the prospect of a voucher with the child's name on it, provided by the Government, helps people feel they are being given a helping hand in meeting their personal financial needs. The child trust fund is regarded as providing a framework for giving their family a financial start in a way that they can see as beneficial to them."
  I shall cite further evidence about the development of a savings habit. Research carried out by McKay and Kempson on the impact of a windfall receipt among young teachers found evidence that such a receipt could kick-start savings behaviour. A finding directly relevant to the child trust fund showed that young windfall recipients, especially in their teens, were much more likely to be saving than peers who had not received such a windfall. Indeed, McKay and Kempson found that even very small windfalls were sufficient to cause them to start saving, with the median amount being only £57.
  Mr. Weir: I am interested in what the Minister is saying, but does she accept that there is vast difference between the intention to put money into a fund and the reality? Will she address the point that I made earlier about the structure of the funds, and whether that will deter poorer sections of the community from investing in them?
  Ruth Kelly: I intend to move on to the charge cap, as it has been raised by several hon. Members. We have yet to make an announcement on the level of the charge cap. The hon. Member for Wycombe rightly pointed to the fact that in recent proposals we said that there was a high threshold of persuasion for moving from 1 per cent. for stakeholder products. However, the fact of the matter is that we will base our decision on evidence. It would not be right for me, following anecdote, lobbying and numerous cups of tea in the Pugin Room, as I know the hon. Gentleman has been enjoying, to make an announcement now about the level of the charge cap. It is important that we should set it on the basis of independent evidence, which is why we commissioned Deloitte and Touche to produce research.
  Mr. George Osborne: The Minister said that it would be inappropriate to set a cap now. However, the White
  1394
  Paper to which she has referred said that the Government would issue a report detailing the charge cap for the child trust fund later this year. It is mid-December and there are two weeks to go before the year ends, so when will the Minister make the announcement?
  Ruth Kelly: The hon. Gentleman may be aware that we commissioned a range of research on stakeholder products and the level at which the charge cap should be set. When we made those comments, the Financial Services Authority told us that it would be ready to make an announcement about the appropriate sales regime in December, although it now appears that that date has slipped to the new year. However, to benefit the Bill's parliamentary passage and ensure that Parliament is kept fully informed, I intend to make the announcement on the charge cap for the child trust fund during the passage of the Bill. It is important that Parliament is kept fully informed.
  Mr. Osborne: Will the announcement be made to the House?
  Ruth Kelly: Absolutely.
  The hon. Member for Tatton and other Members raised the way in which older siblings are treated. and whether they could be given the same child trust fund vehicle as children who will benefit from Government endowments. We have looked at that extremely carefully, and I am disappointed to tell the House that the administrative burden on providers of allowing all children from previous cohorts to benefit from an identical tax-free vehicle is disproportionate to the benefits that would be offered. Providers would have to monitor and track the accounts of all children. We would require returns on all accounts, and the Inland Revenue would need much larger IT systems. There could be 10 million extra accounts, and it would certainly not be possible to deliver such a change in time for the launch of the child trust fund.
  Mr. Michael Jabez Foster: Is that not a problem anyway? As time goes on, greater numbers will apply, so in 18 years' time people would have to deal with that volume of applications in any event.
  Ruth Kelly: My hon. Friend is right—a greater number of children will have such accounts over time, but providers have made it quite clear that the scheme needs to be phased in. That does not preclude reexamination of the issue in future. but we would not be able to deliver the policy according to the present time scale if accounts were open to all previous cohorts.
  I shall deal in more detail with the issue of fortnightly returns raised by my hon. Friend the Member for Dumbarton. We judged that a fortnightly turnaround was necessary to ensure that money is paid into the accounts as quickly as possible once they are open. We were particularly mindful of the fact that growth and interest should be maximised for all account holders. I did not want people to miss out because financial services providers were not making a return quickly enough to the Inland Revenue.
  In conclusion, the Government are committed to an active welfare strategy founded on the principles of security, opportunity and responsibility. That

  1395
  framework underpins the proposals of the child trust fund. In future, all children will have the security of the backing of a financial asset at the start of their adult life. Having a financial asset will encourage a positive outlook on life and enable more young people to take advantage of opportunities. As for responsibility, developing the savings habit early in life will promote greater independence and self-reliance in adulthood. The child trust fund is a foundation on which we can build. There is a genuine challenge to meet in delivering financial education that will achieve greater understanding about saving and investment, what it involves and how to go about it. In future years, I am sure that the policy will evolve, not just so that local authority providers can use it to look after looked-after children to a greater extent, but, to take on board the point made by the hon. Member for Witney, so that we can assist in more creative ways the most vulnerable people in our society.
  The child trust fund is the key to achieving a genuine change in people's ability and willingness to save for the future so that they can make the most of opportunities as they arise. It will go further and help to equip children to make better financial choices, not just about savings and investment but throughout their lives. The child trust fund is a leading example of progressive universalism, creating a policy that will benefit all children, while also making sure that greater resources go to those who need most help. I am proud that the Government are introducing this radical and far-sighted policy, and I commend the Bill to the House.
  Question put, That the Bill be now read a Second time:—
  The House divided: Ayes 297, Noes 39.

  Division No. 8]

  [8:06 pm

  AYES

  Ainger, Nick

  Browne, Desmond

  Ainsworth, Bob (Cov'try NE)

  Bryant, Chris

  Allen, Graham

  Burden, Richard

  Anderson, Janet (Rossendale &

  Burgon, Colin

  Darwen)

  Burnham, Andy

  Atherton, Ms Candy

  Byers, rh Stephen

  Atkins, Charlotte

  Caborn, rh Richard

  Austin, John

  Cairns, David

  Bailey, Adrian

  Campbell, Alan (Tynemouth)

  Baird, Vera

  Campbell, Mrs Anne (C'bridge)

  Banks, Tony

  Campbell, Ronnie (Blyth V)

  Barnes, Harry

  Caplin, Ivor

  Barron, rh Kevin

  Casale, Roger

  Battle, John

  Caton, Martin

  Bayley, Hugh

  Cawsey, Ian (Brigg)

  Beckett, rh Margaret

  Challen, Colin

  Beggs, Roy (E Antrim)

  Chapman, Ben (Wirral S)

  Bell, Stuart

  Clapham, Michael

  Benn, rh Hilary

  Clark, Mrs Helen (Peterborough)

  Bennett, Andrew

  Clark, Dr. Lynda (Edinburgh

  Berry, Roger

  Pentlands)

  Belts, Clive

  Clark, Paul (Gillingham)

  Blackman, Liz

  Clarke, rh Charles (Norwich S)

  Blears, Ms Hazel

  Clarke, rh Tom (Coatbridge &amp;

  Blizzard, Bob

  Chryston)

  Blunkett, rh David

  Clarke, Tony (Northampton S)

  Bradley, rh Keith (Withington)

  Clelland, David

  Brennan, Kevin

  Clwyd, Ann (Cynon V)

  Brown, rh Nicholas (Newcastle E

  Coffey, Ms Ann

  Wallsend)

  Cohen, Harry

  1396

  Coleman, Iain

  Hopkins, Kelvin

  Colman, Tony

  Howarth, George (Knowsley N &

  Connarty, Michael

  Sefton E)

  Cook, Frank (Stockton N)

  Howells, Dr. Kim

  Cooper, Yvette

  Hoyle, Lindsay

  Cousins, Jim

  Hughes, Beverley (Stretford &

  Crausby, David

  Urmston)

  Cruddas, Jon

  Humble, Mrs Joan

  Cummings, John

  Hurst, Alan (Braintree)

  Cunningham, Jim (Coventry S)

  Iddon, Dr. Brian

  Cunningham, Tony (Workington)

  Illsley, Eric

  Darling, rh Alistair

  Irranca-Davies, Huw

  Davey, Valerie (Bristol W)

  Jackson, Helen (Hillsborough)

  David, Wayne

  Jenkins, Brian

  Davidson, Ian

  Johnson, Alan (Hull W)

  Davies, rh Denzil (Llanelli)

  Johnson, Miss Melanie (Welwyn

  Davies, Geraint (Croydon C)

  Hatfield)

  Davis, rh Terry (B'ham Hodge H)

  Jones, Helen (Warrington N)

  Dawson, Hilton

  Jones, Jon Owen (Cardiff C)

  Dean, Mrs Janet

  Jones, Kevan (N Durham)

  Denham, rh John

  Jones, Lynne (Selly Oak)

  Dhanda, Parmjit

  Jones, Martyn (Clwyd S)

  Dobbin, Jim (Heywood)

  Joyce, Eric (Falkirk W)

  Dobson, rh Frank

  Keeble, Ms Sally

  Donohoe, Brian H.

  Keen, Alan (Feltham)

  Doran, Frank

  Keen, Ann (Brentford)

  Dowd, Jim (Lewisham W)

  Kelly, Ruth (Bolton W)

  Drew, David (Stroud)

  Kemp, Fraser

  Dunwoody, Mrs Gwyneth

  Khabra, Piara S.

  Eagle, Angela (Wallasey)

  Kidney, David

  Eagle, Maria (L'pool Garston)

  Kilfoyle, Peter

  Edwards, Huw

  King, Andy (Rugby)

  Ellman, Mrs Louise

  Knight, Jim (S Dorset)

  Ennis, Jeff (Barnsley E)

  Kumar, Dr. Ashok

  Etherington, Bill

  Ladyman, Dr. Stephen

  Farrelly, Paul

  Lawrence, Mrs Jackie

  Field, rh Frank (Birkenhead)

  Laxton, Bob (Derby N)

  Fitzpatrick, Jim

  Lazarowicz, Mark

  Fitzsimons, Mrs Lorna

  Lepper, David

  Flint, Caroline

  Leslie, Christopher

  Flynn, Paul (Newport W)

  Levitt, Tom (High Peak)

  Follett, Barbara

  Lewis, Terry (Wors/ey)

  Foster, Michael (Worcester)

  Liddell, rh Mrs Helen

  Foster, Michael Jabez (Hastings

  Linton, Martin

  &Rye)

  Llwyd, Elfyn

  Foulkes, rh George

  Love, Andrew

  Gapes, Mike (Ilford S)

  Lucas, Ian (Wrexham)

  Gardiner, Barry

  Luke, Iain (Dundee E)

  George, rh Bruce (WalsallS)

  Lyons, John (Strathkelvin)

  Gerrard, Neil

  McAvoy, Thomas

  Gilroy, Linda

  McCabe, Stephen

  Goggins, Paul

  McCafferty, Chris

  Griffiths, Jane (Heading E)

  MacDonald, Calum

  Griffiths, Win (Bridgend)

  McDonnell, John

  Grogan, John

  MacDougall, John

  Main, rh Peter

  McFall, John

  Hall, Patrick (Bedford)

  McGuire, Mrs Anne

  Hamilton, David (Midlothian)

  McIsaac, Shona

  Hamilton, Fabian (Leeds NE)

  McKechin, Ann

  Hanson, David

  McNamara, Kevin

  Harris, Tom (Glasgow Cathcart)

  McNulty, Tony

  Havard, Dai (Merthyr Tydfil &

  McWilliam, John

  Rhymney)

  Mahmood, Khalid

  Healey, John

  Mahon, Mrs Alice

  Henderson, Doug (Newcastle N)

  Mallaber, Judy

  Henderson, Ivan (Harwich)

  Mann, John (Basset/aw)

  Hendrick, Mark

  Marris, Rob (Wolverh'ton SW)

  Hepburn, Stephen

  Marshall, David (Glasgow

  Heppell, John

  Shettleston)

  Hermon, Lady

  Meale, Alan (Mansfield)

  Hesford, Stephen

  Michael, rh Alun

  Heyes, David

  Milburn, rh Alan

  Hill, Keith (Streatham)

  Miliband, David

  Hinchliffe, David

  Miller, Andrew

  Hood, Jimmy (Clydesdale)

  Mitchell, Austin (Gt Grimsby)

  Hope, Phil (Corby)

  Mole, Chris

  1397

  Moonie, Dr. Lewis

  Smith, rh Chris (Islington S &

  Moran, Margaret

  Finsbury)

  Morley, Elliot

  Smith, Geraldine (Morecambe &

  Mountford, Kali

  Lunesdale)

  Mudie, George

  Smith, John (Glamorgan)

  Mullin, Chris

  Southworth, Helen

  Munn, Ms Meg

  Spellar, rh John

  Murphy, Denis (Wansbeck)

  Spink, Bob (Castle Point)

  Murphy, Jim (Eastwood)

  Starkey, Dr. Phyllis

  Naysmith, Dr. Doug

  Steinberg, Gerry

  O'Brien, Mike (N Warks)

  Stewart, David (Inverness E &

  O'Hara, Edward

  lochaber)

  Olner, Bill

  Stinchcombe, Paul

  Organ, Diana

  Stoate, Dr. Howard

  Osborne, Sandra (Ayr)

  Stringer, Graham

  Owen, Albert

  Stuart, Ms Gisela

  Pearson, Ian

  Sutcliffe, Gerry

  Perham, Linda

  Tami, Mark (Alyn)

  Picking, Anne

  Taylor, rh Ann (Dewsbury)

  Pickthall, Colin

  Taylor, Dari (Stockton S)

  Plaskitt, James

  Taylor, David (NW Leics)

  Pond, Chris (Gravesham)

  Thomas, Gareth (Clwyd W)

  Pound, Stephen

  Thomas, Simon (Ceredigion)

  Prentice, Ms Bridget (Lewisham

  Timms, Stephen

  E)

  Tipping, Paddy

  Prentice, Gordon (Pendle)

  Todd, Mark (S Derbyshire)

  Primarolo, rh Dawn

  Touhig, Don (Islwyn)

  Prosser, Gwyn

  Trickett, Jon

  Purchase, Ken

  Turner, Dennis (Wolverh'ton SE)

  Purnell, James

  Turner, Dr. Desmond (Brighton

  Quin, rh Joyce

  Kemptown)

  Quinn, Lawrie

  Turner, Neil (Wigan)

  Rapson, Syd (Portsmouth N)

  Twigg, Derek (Halton)

  Robertson, Angus (Moray)

  Vis, Dr. Rudi

  Robertson, John (Glasgow

  Wareing, Robert N.

  Anniesland)

  Watts, David

  Robinson, Geoffrey (Coventry

  Weir, Michael

  NW)

  White, Brian

  Roche, Mrs Barbara

  Whitehead, Dr. Alan

  Rooney, Terry

  Wicks, Malcolm

  Ruane, Chris

  Williams, rh Alan (Swansea W)

  Ruddock, Joan

  Wills, Michael

  Russell, Ms Christine (City of

  Winnick, David

  Chester)

  Winterton, Ms Rosie (Doncaster

  Salter, Martin

  C)

  Sarwar, Mohammad

  Woodward, Shaun

  Savidge, Malcolm

  Woolas, Phil

  Sawford, Phil

  Worthington, Tony

  Sedgemore, Brian

  Wright, Anthony D. (Gt

  Sheridan, Jim

  Yarmouth)

  Simpson, Alan (Nottingham S)

  Wright, David (Telford)

  Singh, Marsha

  Wright, Tony (Cannock)

  Skinner, Dennis

  Tellers for the Ayes:

  Gillian Merron and

  Vernon Coaker

  NOES

  Allan, Richard

  Holmes, Paul

  Berth, rh A. J.

  Hughes, Simon (Southwark N)

  Bottomley, Peter (Worthing W)

  Jones, Nigel (Cheltenham)

  Brake, Tom (Carshalton)

  Keetch, Paul

  Breed, Colin

  Kirkwood, Sir Archy

  Brooke, Mrs Annette L.

  Lamb, Norman

  Bruce, Malcolm

  Laws, David (Yeovil)

  Burnett, John

  Moore, Michael

  Burstow, Paul

  Oaten, Mark (Winchester)

  Cable, Dr. Vincent

  Öpik, Lembit

  Calton, Mrs Patsy

  Sanders, Adrian

  Campbell, rh Menzies (NE Fife)

  Smith, Sir Robert (W Ab'd'ns &

  Carmichael, Alistair

  Kincardine)

  Chidgey, David

  Stunell, Andrew

  Davey, Edward (Kingston)

  Taylor, Matthew (Truro)

  Foster, Don (Bath)

  Thurso, John

  Harris, Dr. Evan (Oxford W &

  Tonge, Dr. Jenny

  Abingdon)

  Tyler, Paul (N Cornwall)

  Heath, David

  Webb, Steve (Northavon)

  1398

  Wilkinson, John

  Tellers for the Noes:

  Williams, Roger (Brecon)

  Bob Russel and

  Willis, Phil

  Richard Younger-Ross

  Question accordingly agreed to.
  Bill read a Second time.

  Child Trust Funds Bill

    CHILD TRUST FUNDS BILL (PROGRAMME)
    Motion made, and Question put, pursuant to Orders [28 June and 6 November],
    That the following provisions shall apply to the Child Trust Funds Bill:

    CHILD TRUST FUNDS BILL (PROGRAMME)
      Committal
      1. The Bill shall be committed to a Standing Committee.

      Standing Committee
      2. Proceedings in the Standing Committee shall (so far as not previously concluded) be brought to a conclusion on 15th January 2004.
      3. The Standing Committee shall have leave to sit twice on the first day on which it meets.

      Consideration and Third Reading
      4. Proceedings on consideration shall (so far as not previously concluded) be brought to a conclusion one hour before the moment of interruption on the day on which those proceedings are commenced.
      5. Proceedings on Third Reading shall (so far as not previously concluded) be brought to a conclusion at the moment of interruption on the day on which proceedings on consideration are commenced.
      6. Sessional Order B (programming committees) made by the House on 28th June 2001 shall not apply to proceedings on consideration and Third Reading.

      Other proceedings
      7. Any other proceedings on the Bill (including any proceedings on consideration of Lords Amendments or on any further message from the Lords) may be programmed.—[Mr. Jim Murphy.]
      Question agreed to.

    CHILD TRUST FUNDS BILL [MONEY]
    Queen's recommendation having been signified—
    Motion made, and Question put forthwith, pursuant to Standing Order No. 52(1) (a) (Money resolutions and ways and means resolutions in connection with bills),
    That, for the purposes of any Act resulting from the Child Trust Funds Bill, it is expedient to authorise the payment out of money provided by Parliament of any expenditure incurred by the Commissioners of Inland Revenue under or by virtue of the Act[W. Jim Murphy.]
    Question agreed to.

    CHILD TRUST FUNDS BILL [WAYS AND MEANS]
    Motion made, and Question put forthwith, pursuant to Standing Order No. 52(1) (a) (Money resolutions and ways and means resolutions in connection with bills),
    That, for the purposes of any Act resulting from the Child Trust Funds Bill, it is expedient to authorize—
    (1) the making of provision for securing that losses accruing on the disposal of investments under child trust funds are to be disregarded for the purposes of capital gains tax, and
    (2) the making of payments into the Consolidated Fund.—[Mr. Jim Murphy.]
    Question agreed to.

    DELEGATED LEGISLATION
    Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation) and Order [27 November],
    DELEGATED LEGISLATION

      SECTION 5 OF THE EUROPEAN COMMUNITIES (AMENDMENT) ACT 1993
      That this House takes note with approval of the Government's assessment as set out in the Pre-Budget Report 2003 for the purposes of section 5 of the European Communities (Amendment) Act 1993.—[Mr. Jim Murphy.]
      The House divided: Ayes 279, Noes 43.

      Division No. 9]

      [8:19 pm

      AYES

      Ainger, Nick

      Clarke, rh Charles (Norwich S)

      Ainsworth, Bob (Cov'try NE)

      Clarke, rh Tom (Coatbridge &

      Allen, Graham

      Chryston)

      Anderson, Janet (Rossendale &

      Clarke, Tony (Northampton S)

      Darwen)

      Clelland, David

      Atherton, Ms Candy

      Coffey, Ms Ann

      Atkins, Charlotte

      Cohen, Harry

      Austin, John

      Colman, Tony

      Bailey, Adrian

      Connarty, Michael

      Baird, Vera

      Cook, Frank (Stockton N)

      Banks, Tony

      Cooper, Yvette

      Barnes, Harry

      Cousins, Jim

      Barron, rh Kevin

      Crausby, David

      Battle, John

      Cruddas, Jon

      Bayley, Hugh

      Cummings, John

      Beckett, rh Margaret

      Cunningham, Jim (Coventry S)

      Begg, Miss Anne

      Darling, rh Alistair

      Bell, Stuart

      Davey, Valerie (Bristol W)

      Benn, rh Hilary

      David, Wayne

      Bennett, Andrew

      Davidson, Ian

      Berry, Roger

      Davies, rh Denzil (Llanelli)

      Betts, Clive

      Davies, Geraint (Croydon C)

      Blackman, Liz

      Davis, rh Terry (B hamHodge H)

      Blears, Ms Hazel

      Dawson, Hilton

      Blizzard, Bob

      Dean, Mrs Janet

      Bradley, rh Keith (Withington)

      Denham, rh John

      Brennan, Kevin

      Dhanda, Parmjit

      Brown, rh Nicholas (Newcastle E

      Dobbin, Jim (Heywood)

      Wallsend)

      Dobson, rh Frank

      Browne. Desmond

      Donohoe, Brian H.

      Bryant, Chris

      Doran, Frank

      Burden, Richard

      Dowd, Jim (Lewisham W)

      Burgon, Colin

      Drew, David (Stroud)

      Byers, rh Stephen

      Eagle, Angela (Wallasey)

      Cairns, David

      Eagle, Maria (L'pool Garston)

      Campbell, Alan (Tynemouth)

      Ellman, Mrs Louise

      Campbell, Mrs Anne (C'bridge)

      Ennis, Jeff (Barnsley E)

      Campbell, Ronnie (Blyth V)

      Etherington, Bill

      Caplin, Ivor

      Farrelly, Paul

      Casale, Roger

      Fitzpatrick, Jim

      Caton, Martin

      Fitzsimons, Mrs Lorna

      Cawsey, Ian (Brigg)

      Flint, Caroline

      Challen, Colin

      Flynn, Paul (Newport W)

      Chapman, Ben (Wirral S)

      Foster, Michael (Worcester)

      Clapham, Michael

      Foster, Michael Jabez (Hastings

      Clark, Mrs Helen (Peterborough)

      & Rye)

      Clark, Dr. Lynda (Edinburgh

      Foulkes, rh George

      Pentlands)

      Gapes, Mike (Ilford S)

      Clark, Paul (Gillingham)

      Gardiner, Barry

      1400

      George, rh Bruce (Walsall S)

      McCafferty, Chris

      Gerrard, Neil

      MacDonald, Calum

      Gilroy, Linda

      McDonnell, John

      Goggins, Paul

      MacDougall, John

      Griffiths, Jane (Reading E)

      McFall, John

      Griffiths, Win (Bridgend)

      McGuire, Mrs Anne

      Grogan, John

      McIsaac, Shona

      Hain, rh Peter

      McKechin, Ann

      Hall, Patrick (Bedford)

      McNamara, Kevin

      Hamilton, David (Midlothian)

      McNulty, Tony

      Hamilton, Fabian (Leeds NE)

      McWilliam, John

      Hanson, David

      Mahmood, Khalid

      Harris, Tom (Glasgow Cathcart)

      Mahon, Mrs Alice

      Havard, Dai (Merthyr Tydfil &

      Mallaber, Judy

      Rhymney)

      Mann, John (Bassetlaw)

      Healey, John

      Marris, Rob (Wolverh'ton SW)

      Henderson, Doug (Newcastle N)

      Marshall, David (Glasgow

      Henderson, Ivan (Harwich)

      Shettleston)

      Hendrick, Mark

      Meale, Alan (Mansfield)

      Hepburn, Stephen

      Michael, rh Alun

      Heppell, John

      Milburn, rh Alan

      Hermon, Lady

      Miliband, David

      Hesford, Stephen

      Miller, Andrew

      Heyes, David

      Mitchell, Austin (Gt Grimsby)

      Hill, Keith (Streatham)

      Mole, Chris

      Hinchliffe, David

      Moonie, Dr. Lewis

      Hood, Jimmy (Clydesdale)

      Moran, Margaret

      Hope, Phil (Corby)

      Hopkins, Kelvin

      Morley, Elliot

      Howells, Dr. Kim

      Mountford, Kali

      Hoyle, Lindsay

      Mudie, George

      Hughes, Beverley (Stretford &

      Mullin, Chris

      Urnston)

      Munn, Ms Meg

      Humble, Mrs Joan

      Murphy, Denis (Wansbeck)

      Hurst, Alan (Braintree)

      Murphy, Jim (Eastwood)

      lddon, Dr. Dr Brian

      Naysmith, Dr. Doug

      Illsley, Eric

      O'Brien, Mike (N Warks)

      Irranca-Davies, Huw

      O'Hara, Edward

      Jackson, Helen (Hillsborough)

      Olner, Bill

      Jenkins, Brian

      Organ, Diana

      Johnson, Alan (Hull W)

      Osborne, Sandra (Ayr)

      Johnson, Miss Melanie (Welwyn

      Owen, Albert

      Hatfield)

      Pearson, Ian

      Jones, Helen (Warrington N)

      Perham, Linda

      Jones, Jon Owen (Cardiff C)

      Picking, Anne

      Jones, Kevan (N Durham)

      Pickthall, Colin

      Jones, Lynne (Selly Oak)

      Plaskitt, James

      Jones, Martyn (Clwyd S)

      Pond, Chris (Gravesham)

      Joyce, Eric (Falkirk W)

      Prentice, Ms Bridget (Lewisham

      Keeble, Ms Sally

      E)

      Keen, Alan (Feltham)

      Prentice, Gordon (Pendle)

      Keen, Ann (Brentford)

      Primarolo, rh Dawn

      Kelly, Ruth (Bolton W)

      Prosser, Gwyn

      Kemp, Fraser

      Purchase, Ken

      Khabra, Piara S.

      Purnell, James

      Kidney, David

      Quin, rh Joyce

      Kilfoyle, Peter

      Quinn, Lawrie

      King, Andy (Rugby)

      Rapson, Syd (Portsmouth N)

      Knight, Jim (S Dorset)

      Robertson, John (Glasgow

      Kumar, Dr. Ashok

      Anniesland)

      Ladyman, Dr. Stephen

      Robinson, Geoffrey (Coventry

      Lawrence, Mrs Jackie

      NW)

      Laxton, Bob (Derby N)

      Roche, Mrs Barbara

      Lazarowicz, Mark

      Rooney, Terry

      Lepper, David

      Ruane, Chris

      Leslie, Christopher

      Ruddock, Joan

      Levitt, Tom (High Peak)

      Russell, Ms Christine (City of

      Lewis, Terry (Worsley)

      Chester)

      Liddell, rh Mrs Helen

      Sarwar, Mohammad

      Linton, Martin

      Savidge, Malcolm

      Love, Andrew

      Sawford, Phil

      Lucas, Ian (Wrexham)

      Sedgemore, Brian

      Luke, Iain (Dundee E)

      Sheridan, Jim

      Lyons, John (Strathkelvin)

      Simpson, Alan (Nottingham S)

      McAvoy, Thomas

      Singh, Marsha

      McCabe, Stephen

      Skinner, Dennis

      1401

      Smith, rh Chris (Islington S &

      Turner, Dennis (Wolverh'ton SE)

      Finsbury)

      Turner, Dr. Desmond (Brighton

      Smith, Geraldine (Morecambe &

      Kemptown)

      Lunesdale)

      Turner, Neil (Wigan)

      Smith, John (Glamorgan)

      Twigg, Derek (Halton)

      Southworth, Helen

      Vis, Dr. Rudi

      Spellar, rh John

      Wareing, Robert N.

      Starkey, Dr. Phyllis

      Watts, David

      Steinberg, Gerry

      White, Brian

      Stewart, David (Inverness E &

      Whitehead, Dr. Alan

      Lochaber)

      Wicks, Malcolm

      Stinchcombe, Paul

      Williams, Betty (Conwy)

      Stoate, Dr. Howard

      Wills, Michael

      Stringer, Graham

      Winnick, David

      Stuart, Ms Gisela

      Winterton, Ms Rosie (Doncaster

      Sutcliffe, Gerry

      C)

      Tami, Mark (Alyn)

      Woodward, Shaun

      Taylor, rh Ann (Dewsbury)

      Woolas, Phil

      Taylor, Dari (Stockton S)

      Worthington, Tony

      Taylor, David (NW Leics)

      Wright, Anthony D. (Gt

      Thomas, Gareth (Clwyd W)

      Yarmouth)

      Timms, Stephen

      Wright, David (Telford)

      Tipping, Paddy

      Wright, Tony (Cannock)

      Todd, Mark (S Derbyshire)

      Tellers for the Ayes:

      Touhig, Don (IsIwyn)

      Gillian Merron and

      Trickett, Jon

      Vernon Coaker

      NOES

      Allan, Richard

      Laws, David (Yeovil)

      Beith, rh A. J.

      Llwyd, Elfyn

      Bottomley, Peter (Worthing W)

      Moore, Michael

      Brake, Tom (Carshafton)

      Oaten, Mark (Winchester)

      Breed, Colin

      öpik, Lembit

      Brooke, Mrs Annette L.

      Pugh, Dr. John

      Bruce, Malcolm

      Robertson, Angus (Moray)

      Burnett, John

      Sanders, Adrian

      Burstow, Paul

      Smith, Sir Robert (W Ab'd'ns &

      Cable, Dr. Vincent

      Kincardine)

      Calton, Mrs Patsy

      Stunell, Andrew

      Campbell, rh Menzies (NE Fife)

      Taylor, Matthew (Truro)

      Carmichael, Alistair

      Thomas, Simon (Ceredigion)

      Chidgey, David

      Thurso, John

      Cotter, Brian

      Tonge, Dr. Jenny

      Davey, Edward (Kingston)

      Tyler, Paul (N Cornwall)

      Foster, Don (Bath)

      Webb, Steve (Northavon)

      Heath, David

      Weir, Michael

      Holmes, Paul

      Williams, Roger (Brecon)

      Hughes, Simon (Southwark N)

      Willis, Phil

      Jones, Nigel (Cheltenham)

      Keetch, Paul

      Tellers for the Noes:

      Kirkwood, Sir Archy

      Richard Younger-Ross and

      Lamb, Norman

      Bob Russell

      Question accordingly agreed to.
      Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),

      BROADCASTING
      That the draft Media Ownership (Local Radio and Appointed News Provider) Order 2003, which was laid before this House on 13th November, in the last Session of Parliament, be approved.—[Mr. Jim Murphy.]
      Question agreed to
      Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),

      EUROPEAN COMMUNITIES
      That an humble Address be presented to Her Majesty, praying that the European Communities (Definition of Treaties) (Euro-Mediterranean Agreement Establishing an Association between
      1402
      the European Communities and their Member States and the People's Democratic Republic of Algeria) Order 2003 be made in the form of the draft laid before this House on 4th November, in the last Session of Parliament.—[Mr. Jim Murphy.]
      Question agreed to.
      Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),
      That an humble Address be presented to Her Majesty, praying that the European Communities (Definition of Treaties) (Euro-Mediterranean Agreement Establishing an Association between the European Communities and their Member States and the Republic of Lebanon) Order 2003 be made in the form of the draft laid before this House on 4th November, in the last Session of Parliament.—[Mr. Jim Murphy.]
      Question agreed to.
      Motion made, and Question put forthwith, pursuant to Standing Order No. 118(6) (Standing Committees on Delegated Legislation),

      NORTHERN IRELAND
      That the Northern Ireland Act 1998 (Modification) Order 2003 (S.I., 2003, No. 3039), dated 27th November 2003, a copy of which was laid before this House on 27th November, be approved.—[Mr. Jim Murphy.]
      Question agreed to.

    EUROPEAN COMMUNITY DOCUMENTS
    Motion made, and Question put forthwith, pursuant to Standing Order No. 119(9) (European Standing Committees),
    EUROPEAN COMMUNITY DOCUMENTS

      SECURITY AT EUROPEAN COUNCIL MEETINGS AND OTHER COMPARABLE EVENTS
      That this House takes note of European Union document 10965/3/03, draft Council Resolution on security at European Council meetings and other comparable events; shares the Government's view that the general aim of the measure will encourage police services across the European Union to cooperate to prevent the violence at international events and to facilitate peaceful protest; acknowledges that personal rights and freedoms are protected as far as possible; and supports the Government's position on this measure.—[Mr. Jim Murphy.]
      Question agreed to.

    COMMITTEES

      SCIENCE AND TECHNOLOGY
      Ordered,
      That Mr Parmjit Dhanda be discharged from the Science and Technology Committee and Paul Farrelly be added.—[Mr. McWilliam, on behalf of the Committee of Selection.]

      ENVIRONMENT, FOOD AND RURAL AFFAIRS
      Ordered,
      That Mr. David Curry be discharged from the Environment, Food and Rural Affairs Committee and Mr. Ian Liddell-Grainger be added—[Mr. McWilliam, on behalf of the Committee of Selection.]

      TRANSPORT
      Ordered,
      That Mr. George Osborne be discharged from the Transport Committee and Miss Anne McIntosh be added.—[Mr. John McWilliam, on behalf of the Committee of Selection.]

  Flooding (Somerset)
  Motion made, and Question proposed, That this House do now adjourn.—[Mr. Jim Murphy.]
  8.32 pm
  Mr. Ian Liddell-Grainger: Seven thousand years ago, half my constituents were fish. The Somerset levels were part of the seabed, Bridgwater was a bustling port, and if one wanted to go anywhere outside that area, one had to go by boat. Six thousand years ago, the tide turned; I was not there myself, but perhaps one or two hon. Members were. The peat bogs began to develop and the landscape started to look a little like what we see today. There has always been a lot of water and a high risk that high tides and high rainfall will bring flood. They still do, but why on earth does it have to be that way?
  I asked for this debate because political memories are often far too short, in this place and others. We have had a long, hot summer and a lack of rain ever since, and the reservoirs are still half empty. It is easy to forget what happened at the start of the year, or during the previous year or the year before that, but unfortunately my constituents, as well as those of my hon. Friend the Member for Taunton (Mr. Flook) and of most Somerset MPs, cannot forget—and, as the Minister knows, many do not forgive. The rivers broke their banks and the sea surged inland: people were driven from their homes and farmers watched valuable fields sink beneath the torrent. Millions of pounds worth of damage was caused in a very short space of time.
  I am sure that the Minister knows the figures, but I want to give him some idea of the frightening price of flooding in this country. The national cost of the last floods was £800 million. I obtained that figure from Britain's biggest insurance company, Norwich Union. Unfortunately, it will probably not surprise the Minister to learn that I also got from the company a rather strong taste of how it feels about flood defences. This year, it issued a helpful pack to all its policyholders—including me—entitled, "How to lobby your MP". Some hon. Members might have received it; if any have not, because they are not policyholders, I will let them have a copy. The insurance industry is far from satisfied that enough is being done to protect us from flooding, and I fear that it might be right.
  This year, the Government have said that they will spend roughly £564 million on flood protection in the financial year that ends in 2006. The insurance industry is far from satisfied with that. It might sound like a great deal of money, but let me put it into perspective. Two years hence, the Government intend to shell out £250 million less than it cost to clean up the last big floods that we had two or three years ago. They simply are not aware of the risks involved in that. If I may be so presumptuous, I should like to quote the Prime Minister's own website, which states:
  "Did you know that flooding has the potential to affect 5 million people and inflict damage on assets valued at over £200 billions?"
  Far be it from me to criticise the Prime Minister's sums, but, set against a £200 billion risk, an annual expenditure of £564 million is obviously not enough.
  I should like to give the House a couple of homegrown examples. The experts—the very people whom the Government employ to protect us from flooding—
  1404
  tell me that the water levels in the parts of Somerset represented by my hon. Friend the Member for Taunton, my right hon. Friend the Member for Wells (Mr. Heathcoat-Amory), the hon. Member for Somerton and Frome (Mr. Heath) and me could rise by up to 3 ft in the next 50 years because of global warming and other effects. Let us just think about that. I know that the Minister is a fine, upstanding fellow with a good, solid girth, and he would be waist-deep in water if that were to happen in my constituency. He would certainly see birds of a different feather in those circumstances.
  There is a cure, however. Those same experts have worked out how to defend Bridgwater, Taunton and other areas of Somerset. The Bridgwater barrage—or sluice, or whatever you want to call it—is going to cost about £40 million at today's prices. Down the road, however, in the middle of the constituency of my hon. Friend the Member for Taunton, experts have calculated that the defence work needed to protect Taunton will cost about £130 million in today's money.
  Mr. Adrian Flook: No doubt my hon. Friend is aware that recent calculations by the Environment Agency show that Taunton now has a one in 30 year risk of flooding, which worries people such as me who own a house in the centre of the town. Does he have any comment to make on that?
  Mr. Liddell-Grainger: The most appropriate comment probably comes from Norwich Union, which says that incidence of flooding is becoming more and more frequent. I remember that, two years ago, Taunton came within an inch of being under water. Unless we spend the money now, the generations that follow us here and in our constituencies of Taunton, Yeovil and elsewhere are going to be affected by flooding for many years to come. I am afraid that, if we continue as we are doing, the one in 30 year risk will decrease rapidly to one in 20 or one in 10. I know that, across the levels, the risk used to be one in 75 years and is now down to one in 30, as my hon. Friend the Member for Taunton so eloquently said.
  So where is the money coming from? This year, Somerset has about £15.7 million in the bank to spend. Big bucks, you say; well, maybe. I agree that it is enough to tackle the short term problems, but it would not buy one third of the Bridgwater barrage or pay for an eighth of the work that we have to do in Taunton. I have not come here to advocate a profligate increase in public expenditure. I shall modestly leave that to the Liberal Democrats. There is, however, a powerful case for the Government to identify the intense flooding risk in Somerset and to set about finding—dare I say it—new and adventurous mechanisms for tomorrow's vital defences. It is in the national interest to do so, and the Minister has spoken eloquently about this on many occasions. I pledge tonight that the Minister can rely on my co-operation and that of other Somerset Members. We have all said that we will co-operate. My Somerset colleagues and I are prepared to talk any time about what defends our constituents against nature's worst.
  May I make an initial suggestion? The Minister is aware of the responsibility of the South West of England Regional Development Agency. Perhaps he or his

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  colleagues can encourage that body to spend a little of its money on conducting a long-term scientific study. I know that the agency, which I have visited many times, regards Bridgwater as a vital industrial area. Such a study might cost, say, a third of a million pounds, but it would protect the long-term viability of not just one part of the area, but the whole of it. It must be remembered that the agency covers an enormous part of Somerset, parts of Devon, Dorset and a little bit of Wiltshire. It could produce a very intelligent, long-term flood protection brief for the south-west—it is an ideal organisation to do so.
  I am impressed by some of the recommendations of Lord Haskins to streamline the way in which flood defences are managed. The Government will soon implement those recommendations. From next April, some long-overdue administrative common sense will begin to kick in. At last the people who know how to deal with floods and undertake the major defence work can start to get on with their job properly. I refer to the Environment Agency.
  I pay tribute to Dr. Tony Owen at the Environment Agency and his team in Bridgwater, who have done a phenomenal job, sometimes in the most difficult circumstances. They have a vested interest. If Bridgwater floods, their building goes underwater. Let me assure you that they are good at keeping their control room on the third floor. If you have not visited, Minister, I suggest you do. It is a most impressive organisation.
  Mr. Deputy Speaker (Sir Michael Lord): Order. I know that this is an Adjournment debate, but the hon. Gentleman must try to use the correct parliamentary terminology. He keeps using the word "you", which is not accurate in these circumstances.
  Mr. Liddell-Grainger: I apologise, Mr. Deputy Speaker.
  Thankfully, we are in the dying days of a muddled system that gave Somerset county council the biggest say in what we did. We will bid a tearless farewell to many of the unnecessary flood defence committees. In future, the bulk of the money—public money—will go directly to the Environment Agency, not through the coffers of county hall. That will mean less paperwork and more action. I am sure everyone will agree that that is good news.
  I hope that that is good news. I shall not dwell on the subject for long, but Somerset county council is notorious for creating a waffle shop of well-meaning worthies who waste money willy-nilly. Public enemy No. 1 is Mr. Humphrey Temperley. He used to be leader of the county council until the electors suggested he move on. Do not worry—Humph did not get the hump; he simply shuffled sideways, taking on the chairmanship of an outfit of his own creation, the Parrett catchment project. If hon. Members are puzzled, I hasten to point out that that has nothing to do with ornithology. The Parrett is the river that runs through Bridgwater. It needs a lot of looking after, and it has the double problem of tides coming down and tides coming up.
  The people who do the donkey work there are the Environment Agency. The Parrett catchment project does the diplomatic bit, talking to the interested parties,
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  and produces voluminous documents, almost enough to dam the Parrett. It is the Andrex puppy of paper, running out roll upon roll of its own reports—absorbent, soft and very long winded. It finally dawned on Lord Haskins and others that the Parrett catchment project might usefully be absorbed itself. That course of action was suggested some time ago by the Minister, who said that we would have to evolve and look ahead.
  Why not, I suggest to the Minister, include the Parrett catchment project in the new Haskins proposals, along with other stakeholders such as English Nature and many others? Humphrey has already jumped ship, not once, but twice. First, he took the chair of the Somerset flood defence committee. He has now found an even comfier chair on the Wessex flood defence committee. Surprisingly enough, this is not a gratuitous attack on Mr. Temperley. I am genuinely anxious about him and about what he has done, is doing and, I am afraid, has failed to do.
  There have been various scare stories about the quality of the Environment Agency's work. The Environment Agency must lead from the top and not allow others to set the agenda for flood defence in our area. A successful policy will result in the Environtnent Agency being allowed to do its job.
  We cannot have people such as Mr. Temperley strutting round Bridgwater like a latter-day Napoleon, telling everyone how he will persuade the Government to protect people from floods. That is not his responsibility, but that of the Environment Agency. Has the Minister heard about the barrier that the experts want, which has been mentioned many times by Mr. Temperley? It is difficult to know how to move forward if the Minister has not heard all the stories.
  Next April, things will change. The Environment Agency will get more money direct from Whitehall and there will be less involvement from county councils and—dare I say it?—the Temperley faction. County councils will still get about £800,000 a year for flood defences. Neither the county nor the Environment Agency knows what the county's responsibilities will be and how much influence they will have in the new order of things. If the Minister provides an answer, it will go not only to Somerset county council, but throughout the UK.
  I want to refer to the Steart peninsula, about which the Minister and I have had many debates. Many people worry about what is going to happen there. We are not talking about a risk of an extra 3 ft in 50 years; if things go wrong, Steart could become an island this winter. It might rain too hard or the tide might come up, and Steart needs a sluice or safety valve now. That is on the Environment Agency's shopping list; it costs about £3 million. However, a wave of worry is being created in Steart about what the future will hold.
  Under new European flood defence rules, all member states, understandably, have to follow a policy of give and take with nature. For every barrier or alignment created, one must give part of the area one is dealing with back to nature. However, I can see some problems. What happens when the Environment Agency completes its work at Steart and removes the risk to the people who live there? Which bit of Somerset or the surrounding area gets flooded as a trade-off? I am not suggesting that homes will be flooded, but land. Does it have to be Somerset?

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  The Government have set targets for flood protection in this country over the next year and aim to safeguard about 80,000 people. How on earth will we achieve that if every time a bit of Somerset is protected, another bit has to be sacrificed to the rising tide? It is not a question of people being nimbys; everyone in our area is fair-minded. But should we not be looking to the long term, rather than looking to the less populated areas of England to meet the requirements of the European rules? Should not this be a national matter? The decisions, and the interest, must be taken at national level.
  While the Minister is considering flooding, I shall mention another concern. A lot of Somerset is a flood plain; it is agricultural land that is kept clear by the drainage boards and the Environment Agency. The farmers on the levels get paid to maintain the land; it is not a great deal, but it is enough to make the task not only bearable but worth doing. The money comes via Europe through the common agricultural policy, which is currently having its mid-term review. I warn the Minister that if the grant money dries up, there will be little incentive for hard-pressed farmers to bother with the important maintenance work. If the farmers stop bothering, the land will go under water. The drainage boards, the farmers and everybody involved in the common agricultural policy must work together to create harmony in nature and not try to control nature in the wrong way. At the end of the day, there must be funding and it must be real money.
  The whole story of flooding in Somerset is rather a sad cycle: inadequate funding over the long term to tackle long-term defences, and huge bills when the water inevitably comes up. Who pays? The insurance company and thus, unfortunately, all of us, pay. Some countries handle things better than we did. America offers incredibly generous flood aid in federal grants and soft loans—far more than British compensation under the Bellwin rules. We could emulate the US method, or we could find a new way of raising money to resolve the most acute flooding before it happens.
  As the Minister is aware, 684,000 people in Somerset could be affected by flooding. Some 11,500 homes stand in the line of a rising tide, and 1 million acres of very valuable land are under threat. We have gone through this issue before, and it does not involve special pleading. It is an appeal, I suppose, for common sense. Yes, the Minister could reel off a long list of the fine things that the Government have done to improve defences, but that would be a pity. I do not begrudge the efforts made by the Minister, the Environment Agency or anybody else, but I am appealing for something more important, which politicians rarely think about. May we please have a long-term strategy—a very long-term strategy? It is not a question of what happens today, tomorrow or before the next election. We need to think about the big future, and as the Minister is well aware, it is in the interests of us all to do so.
  8.51 pm
  The Minister for the Environment (Mr. Elliot Morley): I congratulate the hon. Member for Bridgwater (Mr. Liddell-Grainger) on securing what is the second debate
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  this year on flood defences in Somerset. He has a great interest in this subject, and he has advocated his constituents' concerns powerfully. I understand and share his concerns; I also share his commitment to reducing the flood risk to the people of Somerset, and to the people of this country in general.
  A projected annual budget of £564 million is a substantial amount of money. Indeed, as I have explained before, because of the demand that that budget places on contractors, experts and consultants, it has to be wrapped up in such a way that the capacity exists to spend that money. I have spoken to the Institution of Civil Engineers about the need for more civil engineers to carry out this work. It is very concerned about the need to attract more people into the profession, and I hope that that happens. It is good to see that that level of investment is also stimulating the engineering sector.
  We should also consider the range of engineering. These days, as the hon. Gentleman knows, we have moved away from a simple concrete approach. We have become much more sophisticated: we now consider different areas and needs, how to apply flood defences and water management in a more sustainable way, and how to secure a range of benefits. Indeed, the Parrett catchment plan is one of the pilot projects—funded by the Department for Environment, Food and Rural Affairs—that have examined this new approach. As I have said before, I like the fact that it involves a partnership approach. It gets the various groups—landowners, farmers, conservationists, local people and the Environment Agency—to work together and to seek innovation. Here, I echo the hon. Gentleman's point about a long-term strategy, and Humphrey Temperley has done a good job in that regard. He should receive some credit for the role that he has played.
  I understand that there is also a need to integrate the international importance of nature conservation in the area with the equally legitimate flood defence needs of householders, farmers and other landowners. I listened to the hon. Gentleman's point about support for farmers on the levels, but I believe that the reforms we achieved through the common agricultural policy, and which we are currently implementing, will be of great benefit to them. We have broken the link between production subsidies and the farming practices that, in some cases, have proved unsustainable. Such practices will no longer be the driver for subsidies. Instead, the money will be provided through direct payments and agri-environmental payments, which are ideal for an area such as the Somerset levels, because schemes can be tailored to proper management and the skills of farmers can be utilised in the man-management.
  Mr. Liddell-Grainger: That is excellent and I thoroughly applaud it. However, could the Minister expand on how the money will reach areas such as the Somerset levels and how it will be utilised practically?
  Mr. Morley: The hon. Gentleman will be aware of how the environmentally sensitive area schemes and countryside stewardship schemes work in the levels. They are going to change into an entry-level scheme and higher-tier schemes. I envisage that most of the farmers in the levels would want to be in the higher-tier schemes,

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  which would mean extra payments for water management. There will be other changes to support payments, but they are not yet finalised and I am not in a position to spell them out. In due course, however, I will, and intense consultation is going on.
  The area has also produced a catchment management plan, which is important in assessing the various options. The catchment flood management plans are being taken forward by the agency. I was interested in the hon. Gentleman's suggestion that the proposed new land use agency, which is an amalgamation of English Nature, parts of the Countryside Agency and our own rural development service, could incorporate the work carried out by the Parrett catchment plan. I am sure that we can examine the problem as the new agency develops. It is certainly within the philosophy of having an integrated land use agency that integrated management of land use, landscape, water management, and nature conservation is possible. It also involves recognising the social needs of people in the area. The three pillars of sustainability are social, economic and environmental, so it is ideal in respect of the concept that we are debating.
  The hon. Gentleman also mentioned problems on the Steart peninsula. As he said, I have been there to examine the position and talk to the Environment Agency about the relevant issues. I have not yet seen the preferred option on which the Environment Agency is working, but the sort of ideas that we discussed involved defending the village and taking into account the need to keep the road link open. That is certainly within its thinking and planning. More sustainable defences would be required for creating additional salt marsh.
  In that sort of scenario, there would be no requirement, as I understand it, for compensatory land measures, because additional habitat is being provided. Compensatory habitat would not have to be found: it would be necessary only if some form of hard structure were proposed that meant taking some habitat away. In that scenario, under the habitats directive, compensation would certainly have to be provided. However, the way in which the agency has discussed the issue with me suggests that that is not the case with respect to the hon. Gentleman's area. I hope that that will reassure him.
  The Environment Agency is progressing with the development of the sea defence strategy for the Steart and Stolford peninsula, and options for future management are currently being explored. I understand that the agency has just appointed consultants who have also been involved in the preparation of the Parrett catchment flood management plan and the water management strategy action plan produced in spring 2002.
  The hon. Gentleman also spoke about support for the area and the need for an increasing programme of flood defence capital works in Somerset. That has been recognised and continues to be recognised in DEFRA's allocations. The allocation to the agency's Somerset local flood defence committee for grant-eligible expenditure has increased from £3.5 million in 2001–02 to £5.5 million in 2003–04.
  As the hon. Gentleman rightly stated, with the advent in 2004–05 of the grant-in-aid for the EA flood defence, we will no longer allocate the grant rates through local
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  authorities. Grants in aid will be allocated by the EA headquarters direct, taking into account DEFRA's announced priority score thresholds. I agree with the hon. Gentleman that that is a better and more open and transparent scheme. It will allow the agency and flood defence committees to move faster and have more control over decision making.
  It is none the less still important to have local links and local accountability and to have an involvement with local government. In that respect, I see a continued role for the county councils in flood defence. Following the funding review, they will be able to fund local service through the continuing levying arrangements, and they will continue to be represented on the new streamlined single-tier committees. I do not want to break that link, and I want to give them flexibility when it comes to deciding some of their own priorities. The Environment Agency's distribution for 2004–05, based on indicative DEFRA national allocations, will provide Somerset with an increase of 10 per cent. over the 2003–04 levels.
  The hon. Gentleman touched on the building of a tidal sluice on the River Parrett. I am advised that the EA has the tidal sluice proposal on its programme of works for detailed further investigation, so it is taking the idea seriously and putting it forward for consideration. The proposal is one component among the possible solutions to some of the flooding programmes suggested in the Parrett catchment project report. As he rightly said, it is a big scheme, and a great deal of consideration is needed for any such project by the EA and other agencies. A lot of engineering assessment, modelling and other work needs to be done. It is not a minor scheme, and it will not appear overnight. Like any such scheme, it will have to satisfy the normal technical, economic and environmental criteria, and the priority score arrangements for funding, including under the flood defence grant in aid.
  I have been advised that the hon. Gentleman was briefed in detail at a meeting on Friday 28 November about the time scales and hurdles that any capital scheme for a tidal sluice at Bridgwater would have to cross. I also understand that the agency provides him with regular updates, and he will be aware that no scheme has yet been put forward for formal approval. Such a scheme would have to be prepared in detail, and I stress that major engineering works of that kind, which might well be the preferred option in the end, would have to go through careful consideration.
  I reassure the hon. Gentleman that some features in Somerset, such as the high conversation status of the Somerset levels and moors and the Severn estuary, mean that it is already given special consideration. The area is well known to me, and the management of water there has a long history, as have flood defence works.
  I take the hon. Gentleman's point about the impact of global warming: it is a serious issue and of great concern to the Government. I recently attended the climate change conference in Madrid at which we made a number of detailed presentations, with our Hadley centre and Tyndale centre, about the impact of global warming and what it means for the UK and regions around the world. We also made a presentation on what the UK is doing to reduce greenhouse gases, and that was "standing room only". There is enormous

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  international interest in the commitments that we are making and the fact that we take the matter seriously. That links to the hon. Gentleman's first point, which was that we are spending a lot of money on flood defence but that it pales into insignificance when compared with the massive value of the assets that we are protecting, not least when compared with the inconvenience, misery and distress caused to people who are victims of floods.
  Mr. Liddell-Grainger: The Minister is hitting the most salient points throughout his speech, and I am grateful to him for it. He knows that if we lose it completely, we will lose the M4, the railway and the A303. The west country would be cut off by one river system. I am grateful to him for labouring the point because one of the most important problems facing this country is that our peninsula could be cut off if we get matters badly wrong.
  Mr. Morley: That is right, and the protection of infrastructure is a criterion that we use when assessing
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  whether to spend money on flood defences. Much important infrastructure, as well as many people, is at risk in the hon. Gentleman's area.
  We can never completely eliminate risk, but we can ensure that we minimise the risk that people face. The measures that the Government have taken have reduced risk. Incidentally, I must correct what I said about the climate change conference being in Madrid—it was in Milan. It is important that we develop the long-term strategy that the hon. Gentleman requested. Water management and coastal defence are long-term businesses, as is predicting the kind of climate changes that we will face in future. We are committed to those issues financially, and we want to put a long-term strategy in place, to the advantage of the hon. Gentleman's constituents and many others in this country.
  Question put and agreed to.
  Adjourned accordingly at five minutes past Nine o 'clock.