Commons Sitting of 7 September 2004

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

    Renewable Energy
    Miss Anne McIntosh: What discussions he has had with the (a) First Minister and (b) Energy Minister on the Government's policies for renewable energy. [187626]
    The Secretary of State for Scotland (Mr. Alistair Darling): I have discussed renewable energy over recent months with both the First Minister and my right hon. Friend the Secretary of State for Trade and Industry. Promotion of renewables is, of course, a devolved responsibility in Scotland.
    Miss McIntosh: I am grateful to the right hon. Gentleman for that reply. He will be aware that renewable energy is unreliable and in most instances requires back-up from other sources, so the Government have asked the oil companies to take a special lead in that regard. Against that background, how can he justify parts of Scotland, such as the west of Scotland and the Isle of Skye, being blighted?
    Mr. Darling: It is the case that it is best for energy to come from several different sources, but if we are to meet our environmental obligations, it is important to increase the amount of electricity that comes from renewable sources. There are parts of Scotland in which the development of renewable energy has been welcomed for such reasons as job creation. I accept the hon. Lady's general point that if electricity is generated and transmission lines then have to be built or upgraded, it can be controversial. However, there is no getting away from the fact that in an economy such as ours, in which every single one of us depends on electricity, we need to generate the stuff as efficiently and effectively as possible, and that means having the right mix of supply.
    Miss Anne Begg: I am sure that the Secretary of State is already aware that a week last Thursday at an anniversary celebration for 10 years of Talisman in the North sea, both the Minister for Energy, E-Commerce and Postal Services and the First Minister made announcements. The First Minister
    586
    made an announcement on the development of the Beatrice platform, which has huge wind turbines and has received investment from the Government, and the Energy Minister announced new developments for the Tweedsmuir field. Does the Secretary of State agree that that shows how Scotland and the UK working together will ensure that the energy needs of the north-east of Scotland and the rest of the country will come from a mix of oil and gas developments and renewable sources?
    Mr. Darling: That is a very good point. Both the Scottish Executive and the UK Government—as well as industry—are working together so that we may increase the amount of energy generated from renewable sources. It is also worth bearing it in mind that over the summer the Conservatives came out against a lot of renewable energy generation. Most people who want to ensure that we have supply in the future will want us to have the right mix and, especially, to increase the amount of renewable-generated electricity because that must be good for the environment. As I said earlier, all such applications can be controversial, but most people, especially those in the north-east of Scotland who listened to last week's announcement, would have been pleased that the Scottish Executive and the UK Government were working closely together.
    John Thurso: Is the Secretary of State aware of the recommended transmission charge by National Grid Company of some £22 per kilowatt for electricity generated in my constituency, which Scottish Renewables estimates will create a burden of some £75 million above that on similar producers in England? What can the Government do to ensure that that unfair burden is not levied on the nascent Scottish renewables industry?
    Mr. Darling: I am aware of the proposals. There is provision in the Energy Act 2004 to provide relief from charges, which I am sure that the hon. Gentleman will welcome. On electricity generation and the new scheme, it is important to bear it in mind that, as a result of the changes, the interconnnector charges that Scottish generators would otherwise have to pay when selling electricity to England and Wales will be removed. The hon. Gentleman is absolutely right that it is important to ensure that there is a level playing field for generators throughout the country, although account must be taken of the inevitable costs incurred when electricity is transmitted. I am aware of his point and anxious to ensure that Scottish renewable energy generation is encouraged.

    Quality of Life
    Jim Sheridan: What factors are taken into account when assessing the quality of life in Scotland's communities. [187627]
    The Parliamentary Under-Secretary of State for Scotland (Mrs. Anne McGuire): There is no single indicator that can be used to measure quality of life. Indicators covering economic, social and environmental issues taken together can, however, reflect important factors affecting quality of life.
    Jim Sheridan: I thank my hon. Friend for her response, but does she agree that good quality, accessible health services are equally important to the quality of life of all our constituents? Will she use her good offices to remind local health boards such as Argyll and Clyde, which is reducing health services in Inverclyde, that the money that the Government are investing in health services is meant to serve all our communities?
    Mrs. McGuire: My hon. Friend is right that the Government regard health as a priority for investment. I am aware that Argyll and Clyde health board is undertaking a major consultation on proposals on the future configuration of health services in the area, and I am sure that he will welcome its decision to extend the consultation period to 15 October, although, as he will understand, the provision of NHS services in Scotland is a devolved issue for the Scottish Executive.
    Sir Archy Kirkwood: Does the Minister accept that the indices of deprivation recently produced by Oxford university are being increasingly used to assess the quality of life in Scottish communities? Those indices are an improvement on what was used before, but from her constituency experience she will know that rural districts include areas of bad deprivation and severe poverty, with fragile economies and low wages. While I acknowledge the difficulties on the west coast of Scotland, can she give the House an assurance that rural areas will not suffer from the mindless application of indices of deprivation in future?
    Mrs. McGuire: The new indices are an improvement on what was used before and take into account current income, employment, health, education, housing and access to services. The geographical areas studied each cover 500 to 1,000 people, and that approach is helpful to rural communities. The hon. Gentleman and I have met to discuss the subject, and if he would find it helpful I should be delighted to meet him again to see whether more refinement is needed to reflect the issues affecting rural communities.
    David Cairns: While health policy is devolved, many drivers for change in the health services in Scotland apply across the United Kingdom, and include the European working time directive, the reduction in junior doctors' hours, the operation of the royal colleges, GPs' and consultants' contracts, and so on. Does she therefore agree first, that the House has a locus in the debate on the future of the health service in Scotland, and secondly, that we cannot solve the problems in the Scottish health service one hospital at a time? These are national problems affecting the national health service in Scotland and they need a national solution.
    Mrs. McGuire: The reconfiguration of health services, particularly the acute services review in Scotland, has attracted a great deal of energetic and robust debate. However, it is a matter for the Scottish Executive, and it would be utterly inappropriate for me to comment on the way in which health boards carry out their functions.

    Industrial Policies
    Mr. Tam Dalyell: What conclusions he has drawn in relation to Government policies for industry from his visit to Sun Microsystems at Linlithgow on Tuesday 31 August. [187628]
    The Secretary of State for Scotland (Mr. Alistair Darling): I was very pleased that my hon. Friend was able to join me to visit Sun Microsystems last week. Sun's investment in the Linlithgow plant demonstrates that the Government's policies and our management of the economy, allied to the Scottish Executive's enterprise strategy, are making Scotland the right place for such companies to do business.
    Mr. Dalyell: How about expeditious freight links?
    Mr. Darling: My hon. Friend makes a very good—and very short—point. He is right, and that is why the development at Edinburgh airport, which is now a major freight airport in the UK, is important. Companies such as Sun are anxious, however, to have further freight connections, perhaps at Prestwick or in other countries, where heavier goods could be transported to different parts of the world. However, we want to do everything that we possibly can to encourage companies such as Sun, which makes goods that are exported throughout the world, to thrive in Scotland, and we shall continue to do so.

    Manufacturing Industry
    Sir Nicholas Winterton: If he will make a statement on manufacturing industry in Scotland. [187629]
    The Parliamentary Under-Secretary of State for Scotland (Mrs. Anne McGuire): The Government fully recognise the substantial role that manufacturing continues to play in Scotland's economy. We will continue to work with the Scottish Executive to ensure that Scotland's manufacturing industry benefits from the macro-economic stability delivered by the Government.
    Sir Nicholas Winterton: I am grateful to the Minister for her reply. I am sure that she will admit that manufacturing growth in Scotland is lower than in England, but that is not the purpose of my question. Does she not agree that manufacturing industry is one of the few sources of non-inflationary sustainable economic growth, and if so will she ensure that the Government and the Scottish Executive do not impose further additional costs on manufacturing industry that will undermine its competitive position?
    Mrs. McGuire: I know from the hon. Gentleman's continued attendance at Scottish questions that he takes a great interest in matters Scottish, and I hope that he will also recognise that the Government have done a great deal for manufacturing industry. Working with the Scottish Executive, we are determined to recognise that Scotland has world-class companies and a world-class reputation. Yes, we have very good traditional industries such as shipbuilding and aerospace, but we

    589
    are determined to build on the new industries—chemicals, biotechnology and pharmaceuticals. A great deal of work is being done to support the Scottish Executive in macro-economic developments to ensure that Scotland's manufacturing base continues to deliver in the years to come.
    Mr. Mark Lazarowicz: My hon. Friend is aware of the threatened closure of the VA Tech engineering plant in my constituency, a state-of-the-art modern plant, with the possible loss of 250 jobs. Now that that company, which was owned by an Austrian multinational, has itself been taken over by a larger multinational, will she urge the new owners to back the work of the task group set up by local management, trade unions and the local enterprise company to try to keep this important manufacturing facility in Edinburgh and in Scotland, and will she ask her office to do what it can to back the work of the task group?
    Mrs. McGuire: I know that my hon. Friend has been active in the campaign to save the VA Tech transformers plant in Leith, and I am also aware that there is a great deal of involvement on the part of local agencies, including Scottish Enterprise Edinburgh and Lothian, in that. We will continue to keep an eye on the situation as it develops and work with colleagues as appropriate.
    Mr. Peter Duncan:Is the Minister aware that the success or failure of Government policy in the manufacturing sector will be judged over the longer term by its failure to improve competitiveness levels in Scotland? With our international competitiveness ranking slipping to 36th out of 60, some nine places behind the UK as a whole and behind China, Colombia, India and Slovakia, what is she doing to arrest that decline?
    Mrs. McGuire: Sometimes I think that the hon. Gentleman and his party suffer from political amnesia when it comes to manufacturing industry in Scotland. I remember a time through the 1980s and 1990s when there was decimation of manufacturing industry in Scotland. Some of my colleagues on the Government Back Benches have very bitter personal memories of what happened to manufacturing industry. Let me be clear: the Government, with the Scottish Executive, are determined to develop our manufacturing base. To ensure that we are not competing with low-wage economies, our manufacturing base will be developed on the basis of high productivity, high skills, high quality, innovation and high technology—something to which the Conservative party in government never even aspired.
    Mr. Duncan: If existing manufacturing businesses are becoming less competitive on her Government's watch, would the hon. Lady agree that it is particularly vital that we see a growing number of new businesses in that sector? If so, is she content to see the report this week from the Committee of Scottish Clearing Bankers, showing new business start-ups falling by 10 per cent.? When will that trend by reversed?
    Mrs. McGuire: The hon. Gentleman forgets that we are introducing research and development credits, we have cut corporation tax and we have introduced measures to support the commercialisation of academic research. He is very selective in his use of statistics. He is using one aspect of the report, which was published yesterday, but he has failed to advise the House that the number of business start-ups has increased by 15 per cent. since last year. Let us be clear about the summaries of business surveys in Scotland. The Conservatives look at a glass and see it half empty. We look at a glass and see the reality. [Laughter.] If hon. Gentlemen would stop laughing, they would find out what the reality is.
    "Manufacturing remains positive as order growth rate slows".
    That is from the Scottish Engineering quarterly review in September 2004. That is the reality of the situation, not the pessimistic interpretation of one aspect of a statistical review.
    Mr. Duncan: The Minister clearly needs a longer summer recess. Scotland's manufacturing exports have decreased by more than 12 per cent. during the past year, and Scotland's manufacturing and business sector continues to suffer from more talk, more tax, more tape and more complacency from both the Scotland Office and the Scottish Executive. When will the Minister and her colleagues take their eyes off the ministerial reshuffle and focus on delivering an economy that works?
    Mrs. McGuire: The hon. Gentleman fails to recognise that the Scottish manufacturing sector is more optimistic than it has been for some time and that we have cut some of the burdens. [Interruption.] To be frank, I will not take what the Member for Mid Scotland and Fife in the Scottish Parliament, Brian Monteith, says as gospel—he has interpreted a set of statistics.
    The Scottish manufacturing sector is optimistic. The Scottish chambers of commerce business survey points to continued growth in the Scottish economy, and, according to the Lloyds TSB report, Scottish business has the highest expectations, which is the reality of Scottish manufacturing and the Scottish economy. It is a great pity that the hon. Gentleman colludes with hon. Members from other parties who continue to talk down Scotland.
    Mr. Eric Joyce:My hon. Friend may know that Alexander and Dennis, which builds buses in my constituency, has announced £40 million of orders today. Will she visit the plant in my constituency, which is an excellent example of a successful Scottish manufacturing venture?
    Mrs. McGuire: As the Member of Parliament for Stirling, I am always delighted to visit Falkirk. I cannot promise that I will visit in my ministerial capacity, but I understand that my right hon. Friend the Secretary of State may visit in the near future, in which case my hon. Friend can personally apprise him of the situation with regard to Alexander and Dennis.

    Scottish Enterprise
    Mr. Alex Salmond:When he last met the head of Scottish Enterprise; and what issues were discussed. [187630]
    The Secretary of State for Scotland (Mr. Alistair Darling): First, I congratulate the hon. Gentleman on his good fortune in being elected leader of his party for the second time. It is good to see him leading from London, and we look forward to his doing that for many months.
    Secondly, the hon. Gentleman knows that the funding, direction and oversight of the enterprise networks is a matter for the Scottish Executive, although I have, of course, met the chief executive of Scottish Enterprise on a number of occasions.
    Mr. Salmond: I thank the Secretary of State for his good wishes—I am full-time and elected as opposed to part-time and appointed, like him. I also thank Labour Back Benchers for their enthusiastic support—although it is also worrying.
    Returning to the substantial issue, which was raised earlier, of renewable energy and, in particular, Talisman, the Secretary of State will have noticed that Talisman has cited transmission charges of £20 per kilowatt as the greatest single threat to the viability of the Beatrice offshore wind farm. Will he explain why generators in the north of Scotland must pay £20 or more per kilowatt while generators in the south of England are subsidised at a rate of £9 per kilowatt? How will the Secretary of State address that threat to thousands of Scottish jobs, billions of pounds of investment and Scotland's potential as the renewables capital of Europe?
    Mr. Darling: Labour Members are enthusiastic about the hon. Gentleman's election because he did not win a single general election as leader last time. On the matter of substance, I said to the hon. Member for Caithness, Sutherland and Easter Ross (John Thurso), who speaks for the Liberals, that it is important to make sure that the transmission charge regime is fair in order to encourage the development of renewable energy. One of the new scheme's advantages is that the Scottish interconnector charges will go, but the hon. Member for Banff and Buchan (Mr. Salmond) is right that we must ensure that the regime is fair, so that we can generate renewable energy and other types of energy for sale in England, which is important for the industry's future.
    Mr. Brian H. Donohoe: When my right hon. Friend met Scottish Enterprise, did he raise the Lyons review, in which, as it stands, Ayrshire is not included? What can be done about that and when will a report on the implications of the dispersal of public service jobs be produced?
    Mr. Darling: My hon. Friend has met me to make the case for development in Ayr. As I told him, the object of the Lyons review is to encourage more dispersal of jobs away from Whitehall to other parts of the country. In relation to Scotland, while there are obviously advantages in putting jobs where centres already exist, it is also important that we consider other sites around the country, particularly those where jobs and development are needed. I am very much aware of my hon. Friend's point about Ayrshire, and I shall certainly bear it in mind.

    Railways
    Mr. George Foulkes:What recent discussions he has had with the Secretary of State for Transport about transferring further responsibility for railways in Scotland to the Scottish Executive. [187631]
    The Secretary of State for Scotland (Mr. Alistair Darling): In July, I published my proposals in relation to railways in the White Paper "The Future of Rail". It sets out proposals for transferring further responsibility for rail in Scotland to the Scottish Executive.
    Mr. Foulkes: I am grateful to my right hon. Friend. I am sure that his advocacy skills help in all his discussions. However, now that more power has been transferred to the Scottish Executive, I hope that he will ask them not to be too convinced by the right hon. Member for Edinburgh, Central (Mr. Darling) arguing for more money to be put into Waverley station, especially if that is at the expense of a more frequent and reliable rail service to Prestwick, which is Scotland's fastest-growing airport.
    Mr. Darling: I found my discussions with the Secretary of State for Transport to be the most fruitful that I had during the entire consultation process; certainly, we were both absolutely agreed on the outcome.
    In relation to Edinburgh Waverley, it is well known that that station needs substantial investment. Railtrack made a complete botch of it. The Scottish Executive, Network Rail, the Strategic Rail Authority and Edinburgh city council have had useful meetings about improving the station. Under the proposals that I made in July, in future it will be for the Scottish Executive to specify what they want in terms of track, stations and services. My right hon. Friend is right, however, that the rail link to Prestwick is equally important. Part of the reason for the success of the airport and development there is that that railway line provides a very good service for people travelling on it.

  ADVOCATE-GENERAL FOR SCOTLAND
  The Advocate-General was asked—
  ADVOCATE-GENERAL FOR SCOTLAND

    Devolution
    Miss Anne McIntosh:What devolution issues she has considered since 29 June. [187623]
    Mr. Alistair Carmichael: What human rights issues she has considered since 29 June. [187624]
    Mr. Alan Reid:What devolution issues she has considered since 29 June. [187625]
    The Advocate-General for Scotland (Dr. Lynda Clark): Since 29 June, 83 devolution issues have been intimated to me, with all but six relating to human rights. Forty-nine devolution issues related to criminal matters, including pre-trial delay, self-incrimination, the use of temporary judges and regulatory fisheries offences. In the civil sphere, 34 issues were intimated, almost all of which concerned personal injury actions in respect of prison conditions.
    Miss McIntosh: Having had such a busy summer, can the hon. and learned Lady share with the House her advice on the legality of the situation raised by the hon. Member for Banff and Buchan (Mr. Salmond) on the variations with regard to subsidies and grants for renewable forms of energy in Scotland, as opposed to England and Wales?
    The Advocate-General for Scotland: Nobody has intimated to me—formally—any illegality. If anyone thinks that any illegality connects to my ministerial office by way of a devolution issue, there is a simple procedure to deal with that. However, it seems to me that this is not a devolution issue.
    Mr. Carmichael: Has the Advocate-General had the opportunity to consider the provisions in the Civil Partnership Bill relating to survivor pension provision? Is she aware that the survivor in a civil partnership will receive a pension based on a calculation taken from the date of enactment, whereas the survivor in a marriage will receive a pension based on their entire length of service? Does she agree that that is an inequitable situation that will leave the Bill vulnerable to a human rights challenge? Will she consider that point and offer the appropriate advice to her colleagues in the Department of Trade and Industry?
    The Advocate-General for Scotland: I am aware of the policy intentions that have been publicised, but any advice that I give will not be public.
    Mr. Reid: As a signatory to the European charter for regional and minority languages, the Government are obliged to provide a Gaelic language TV channel. Broadcasting is a reserved power, but in 1999 secondary legislation transferred the funding of Gaelic language programmes to Scottish Ministers. There appear to be endless discussions between UK Ministers and Scottish Ministers on the subject, with no progress being made. Will the Advocate-General inform the House where responsibility lies for ensuring that the UK meets its treaty obligations to provide a Gaelic language TV channel?
    The Advocate-General for Scotland: The obligations will always technically be on the state, which is, of course, the United Kingdom, but implementation can be tackled in various ways, as has been done through orders. In the case of any challenge, and if the matter were raised formally in court, for example, the European Court of Justice, the state would have to answer it.
    Mr. George Foulkes:Will my hon. and learned Friend use her considerable legal skills to look into the especially difficult problem of leading a Scottish-based party from London and consider whether a Sewel motion might help?
    Mr. Speaker: Order. I do not think that the Advocate-General needs to answer that.

  DEPARTMENT FOR CONSTITUTIONAL AFFAIRS
  The Parliamentary Under-Secretary of State was asked—
  DEPARTMENT FOR CONSTITUTIONAL AFFAIRS

    Legal Aid (Criminal Offences)
    Jane Griffiths:What assessment the Department has made of the operation of means-testing for criminal legal aid. [187656]
    The Parliamentary Under-Secretary of State for Constitutional Affairs (Mr. David Lammy): On 17 May, the Department published the draft Criminal Defence Service Bill, which will permit means-testing for those charged with criminal offences. It has been a longstanding policy of this Government and previous Governments that those who can afford to pay their legal costs and are found guilty should do that.
    Jane Griffiths: Clearly, when those proposals come into effect, overall access to legal aid for criminal cases will be reduced. What assurance can my hon. Friend give that the access that is provided is targeted where it is needed most?
    Mr. Lammy: The community legal service is helping 925,000 people every year in a range of cases, from problems with debt to housing problems, domestic violence and contact with children. That work must continue. However, it is right to give ever greater scrutiny to our criminal legal aid spend when we have experienced a rising budget. Against that backdrop, we spend more on legal aid than any other developed nation in the world.
    Sir Sydney Chapman:Apropos of what the Under-Secretary has just said, will he confirm that the current legal aid budget is £2 billion a year? That represents an increase of at least one third in the past seven years. Two years ago, the budget was overspent by more than —250,0000. Given those facts, does he agree that there will be an economic madhouse unless a Government, of whatever hue, restrict the scope, range and amount of legal aid? If he presents sensible programmes, I for one will support a further restriction.
    Mr. Lammy: We are all proud of the great Attlee invention of legal aid. At the same time, there has been an increase throughout the developed world in legal aid

    595
    spend. Like previous Ministers, I have presented proposals to deal with that. We have asked for a fundamental legal aid review to examine the issues, root and branch. I hope that we can put forward proposals in due course. I remind the hon. Gentleman that, under the previous Conservative Administration, costs increased by 131 per cent. between 1989 and 1993. The issue of legal aid spend is not unique to this Government.
    Keith Vaz:How will the Government's new proposals square with any expansion of the salaried defender system?
    Mr. Lammy: We have been keen to examine where a public defender system can add value. Indeed, the fundamental legal aid review will want to consider that and bear it in mind. It is extremely unlikely that the Government will move to a wholesale public defender system but there is a role to play where shortages exist. I am keen to observe the way in which the new public defender system will work in the context of asylum and immigration legal aid as it is set up in Birmingham.
    Peter Bottomley:Can the Minister remind the House about how few years ago it was that the present Government abolished the means-testing of criminal legal aid? Does he accept that this cut may lead to more cases going to the Criminal Cases Review Commission? Can he assure us that there will be no cut in the budget for that commission?
    Mr. Lammy: The hon. Gentleman will know that at about the time that we changed from means-testing, the concern on both sides of the House was about the lack of speed with which cases went through the system because of the bureaucracy previously attached to means-testing. That is why we have come forward, in the draft Criminal Defence Service Bill, with a range of options. However, it cannot be right that all of us in the House would be entitled to legal aid should we be charged with a criminal offence. That is why we are looking at the issue and are coming forward with a range of models. Of course, I cannot predetermine the outcome of the consultation.

    Evidence in Court
    Tony Cunningham:What measures are being taken to encourage witnesses and victims to come forward to give evidence in court. [187657]
    The Parliamentary Under-Secretary of State for Constitutional Affairs (Mr. Christopher Leslie): Removing obstacles and anxiety for victims and witnesses, who can sometimes be reluctant to give evidence in court, is a priority for my Department. Measures include the creation of separate waiting facilities at court, so that defendants and witnesses are not forced to wait together. The new witness care units, which provide tailored assistance to guide witnesses through the criminal justice process from beginning to end, are now being piloted in five areas to be rolled out everywhere from the end of next year.
    Tony Cunningham: I thank my hon. Friend for that very encouraging reply. My concern is that if witnesses have a bad experience when they go to court, not only are they less likely to come forward again but, particularly in small communities, word spreads and others are discouraged from coming forward and becoming witnesses. How widespread is the provision of the witness waiting areas and what more can be done to make sure that when witnesses go to court, they are looked after properly?
    Mr. Leslie: A great deal of improvement is still needed to the magistrates and Crown court estate, but about 90 per cent. of magistrates courts now have separate waiting facilities for victims and witnesses. That is good, but we have still got a lot further to go. That is necessary not just to make the experience for witnesses more comfortable, but to minimise the risks of intimidation if witnesses are sitting with defendants.
    Mr. David Heath: Would it not be a great disincentive to victims and witnesses if they believed that their evidence was going to be televised and used as entertainment? The Lord Chancellor's recent announcement applies only to the Appeal Court, but can the Minister tell me by what means and on what basis section 41 of the Criminal Justice Act 1925 has been set aside? Will he assure me that, at least in the criminal court and the family court, there will never be a circumstance in which witnesses, victims, defendants or members of the jury will have their interests overridden by importunate demands by the media or, indeed, a prurient interest by the general public?
    Mr. Leslie: I understand much of the hon. Gentleman's concern. A debate has been going on about the pros and cons of televised court proceedings and the Lord Chancellor and I have been looking at the issue and are considering the consultation on it. I shall certainly examine whether we can share the details of the legal advice on the current pilot for the Court of Appeal with the hon. Gentleman. The issue merits wider public debate.
    Mrs. Claire Curtis-Thomas: What measures have been taken to ensure that victims of sexual abuse are protected and encouraged to come to court to give their evidence?
    Mr. Leslie: The Domestic Violence, Crime and Victims Bill, which has been progressing through Parliament recently, contains a number of measures, including those for a new commissioner for victims and for a statutory victims advisory panel, which I hope to attend again this month and at which we discuss in detail with those who represent, for example, the witness service and Victim Support the experience of people who have fallen victim to the sort of crimes that my hon. Friend describes. Funding for Victim Support has doubled since we took office, but I think that we can do more for victims, particularly those in vulnerable and sensitive circumstances. We are always interested in continuing a dialogue with them to see how we can improve services.

    Postal Ballots
    Bob Spink: What recent representations the Department has received on the report of the Electoral Commission on all-postal ballots. [187658]
    The Parliamentary Under-Secretary of State for Constitutional Affairs (Mr. Christopher Leslie): The Electoral Commission's report on the June all-postal voting pilots was published on 27 August, since when there has been some media comment but no formal representations made to my Department.
    Bob Spink: Given that the report found all-postal voting to be hopelessly flawed, unsafe and lacking in public confidence and support, will the Minister encourage the House to reconsider its decision for all-postal voting in the north-east and to go back to the tried and tested ballot box, which would be much more secure? He might find that the Electoral Commission would support such a decision.
    Mr. Leslie: I do not see the hon. Gentleman quoting verbatim from the Electoral Commission report, and that is not quite the understanding of that report as I read it. In fact, some interesting aspects of the report have not been aired, reported or commented on. For example, turnout was significantly higher, the majority of the public were satisfied, the majority—69 per cent.—found all-postal voting more convenient and there was no evidence of increased fraud perpetrated in postal ballots.
    John Cryer: Does my hon. Friend accept that millions of people want to continue to use the polling station, not to vote by post? Leaving aside for a moment the potential for abuse—which has been highlighted by the Electoral Commission not just recently, but in a succession of reports and comments from that body—can he guarantee that polling stations will be available in all elections, and if not, why not?
    Mr. Leslie: I certainly think that there are lessons to be learned from the all-postal pilots, one of which is that the public prefer to have convenience, but they also like a variety of options for how they cast their ballot. That is the direction in which the Government will be developing policy for the future.
    Mr. Peter Atkinson: Does the Minister realise that many of us in the north-east feel that we are being treated like second-class citizens? If an all-postal ballot is wrong for the north-west and wrong for Yorkshire and the Humber, why is it right for the north-east? May I give him a piece of advice? He should take the advice of his colleague, the hon. Member for Hornchurch (John Cryer), and make ballot boxes available in polling stations.
    Mr. Leslie: Of course, there will be assistance and delivery points—effectively the ballot box scenario—in that particular referendum. The Electoral Commission
    598
    considered that very question and concluded that there should continue to be an all-postal ballot in that referendum. That is the judgment of the Electoral Commission and I commend its report to the hon. Gentleman.
    Mr. Alan Duncan: Over the past few months, Ministers have been utterly complacent about their policy on all-postal ballots and they have derided us whenever we expressed well-founded concerns about the scope that exists for malpractice. My hon. Friends have been proved right: elections through the ballot box are trusted; elections through the post box are not. The Electoral Commission has totally disowned the all-postal ballot that the Government are foisting on the north-east in its regional referendum, and it is deeply perverse of the Government to insist on proceeding under a system that is both loathed and discredited.
    If the Minister is to act as the guardian of our electoral system and protect the integrity of our democratic processes, will he now confirm, as my hon. Friends have already asked him to do, that the north-east referendum will be either conducted under the tried and trusted system of ballot boxes at polling stations or, failing that, abandoned altogether?
    Mr. Leslie: I answered the question about the north-east referendum a few moments ago, in response to the hon. Member for Hexham (Mr. Atkinson). In respect of the other spin that the hon. Member for Rutland and Melton (Mr. Duncan) is engaging in trying—to denigrate the all-postal pilot, which was, after all, worth a try, as the Electoral Commission said in its report—the commission concluded in its ICM survey of public opinion in those pilot regions that the majority of the public were satisfied and found it more convenient, and even that the majority of the public wanted all-postal voting for future elections. We must consider that when looking at the report. My feeling is that the public like to have a variety of different options when they cast their ballot. That will be the direction of policy development for the Government.

    Magistrates Courts
    Mr. Henry Bellingham: What plans the Department has to support small magistrates courts in rural areas. [187659]
    The Parliamentary Under-Secretary of State for Constitutional Affairs (Mr. Christopher Leslie): Section 30 of the Courts Act 2003 places a duty on the Lord Chancellor to have regard to the need for accessible courthouses for all people in each local justice area, whether rural or urban. As such, my Department has supported local magistrates courts committees as they enhance their facilities, with funding of almost £400 million in this financial year.
    Mr. Bellingham: I am pleased to hear that, but is the Minister aware that until recently, every small Norfolk town, and a number of villages, had their own magistrates courts? Many of those have now closed—under both Governments, to be fair—and justice has been removed from the local communities. Is he aware that morale among magistrates has now fallen substantially, and what will he do to try to reverse the situation?
    Mr. Leslie: Since 1997, the Government have opened 18 new magistrates courts. We have given to the hon. Gentleman's magistrates courts committee in Norfolk an extra £1 million to support local magistrates courts services. There is a balance to be struck in making sure that there is good, strong, efficient administration of justice and that everybody has the opportunity to have good access. We will continue to strike that balance.
    David Taylor: I declare an interest as a member of the Magistrates Association. Is the Minister happy that in counties such as Leicestershire, where the magistrates courts committee has just held its last ever meeting, the interests of rural courthouses will be protected, because decisions about their future will now be taken by civil servants and others with much less local input? Are we to be confident that the future of courthouses such as that in Coalville in north-west Leicestershire is assured for the medium term?
    Mr. Leslie: The new courts boards, which will open as a unified administration, comes on stream in April and will, for the first time, help to ensure that there is a strong local voice, as local representatives go on those boards to scrutinise and investigate area directors' plans for magistrates, county and Crown courts facilities in an area, and not just to consider magistrates' facilities. That is the best way forward.
    Mr. Tim Boswell: Will the Minister also consider in particular the implications of the Disability Discrimination Act 1995 in relation to the supply of court services? I am pleased to see him nodding. I have a constituent who has a severe latex allergy and who is unable to attend court in normal circumstances because of her inability to go anywhere near rubber substances. That is a difficulty, whether in a rural or urban setting. Equally, I hope that the Minister will acknowledge that there are obligations on the Court Service under the Act that comes into force in respect of premises next month. Will he confirm to the House that he will take that issue seriously in general?
    Mr. Leslie: As the hon. Gentleman has pointed out, the Government take seriously the disability discrimination obligations on us. We have quite an old stock of court estates, some of which are fine listed buildings, which we would like to continue to use. We must also recognise, however, that a modern Court Service, focusing on justice for all the community, must make sure that everyone can get in and out of the building and use the facilities. Certainly, I will consider any individual cases that he draws to my attention.

    Compensation Culture
    Mr. Andrew Dismore: If he will make a statement on the conclusions of the Better Regulation Task Force concerning compensation culture. [187660]
    The Parliamentary Under-Secretary of State for Constitutional Affairs (Mr. David Lammy): Careful consideration is being given to the recommendations made by the Better Regulation Task Force, and the Government will respond shortly. We oppose strongly anything that contributes to a culture in which people believe that if there is an injury, there must be someone else to blame, and to pay.
    Mr. Dismore: Does my hon. Friend agree that the conclusion of the Better Regulation Task Force was that there was no compensation culture, which was confirmed by the statistics from the compensation recovery unit last year, which showed a fall of 9 per cent. in the total number of claims? Is it not appropriate that the Government should promote knowledge of the law in this area rather than talk about compensation culture, and perhaps also promote safety culture rather than compensation culture?
    Mr. Lammy: My hon. Friend is right that it is important that people with genuine claims are able to enforce their rights. The Better Regulation Task Force made a number of recommendations and was keen to encourage the media and others not to talk up a compensation culture, because it did not believe that we had one. It is also right that we consider in detail its report and come forward with our recommendations and proposals shortly.
    Mr. Jonathan Djanogly: The compensation culture seems to mean that whenever something goes wrong, someone else must take the blame. I wanted to quantify that, so I wrote to the Secretary of State asking for a list of the total damages awarded for clinical negligence claims in each year since 1997. On 23 August, I received this response from the Under-Secretary of State for Constitutional Affairs:
    "Owing to a fault on its computer system the Legal Services Commission is unable to provide information on the total value of damages awarded each year as requested."
    Do the Government intend to rectify the fault themselves, or to blame someone else?
    Mr. Lammy: I wish that the hon. Gentleman had bothered to read the recommendation of the Better Regulation Task Force, which suggests that those of us in positions of responsibility should not talk up a compensation culture. It is right for those who are genuinely injured to be able to seek recompense in the courts, but of course none of us wants a have-a-go culture or a blame culture. That is why we are looking at the recommendations carefully and will produce our response shortly.

  The Leader of the House was asked—
  LEADER OF THE HOUSE

    School Visits
    Sir Nicholas Winterton: To ask the Leader of the House what plans he has to make proposals to help schools outside London and the south-east of England with costs of visits to Parliament. [187671]
    The Deputy Leader of the House of Commons (Mr. Phil Woolas): I thank the hon. Gentleman for his question and for his interest in the subject.
    In its recent report on connecting Parliament with the public, the Modernisation Committee recommended an extension to educational facilities at Westminster—but it felt that as the vast majority of young people would not have an opportunity to participate in a school visit, the priority should continue to be to improve the parliamentary website and the outreach work.
    Sir Nicholas Winterton: I am grateful to the Minister for his reply. Has he seen an article in The House magazine, headed "Parliament's past for pupils"? It says:
    "Every schoolboy and girl is supposed to know that Parliament has been a central institution of the English, then British state for over 700 years."
    Does the Minister accept that not only should information be available on the website and from the excellent education unit in the House of Commons, but school pupils should be able to come and see Parliament here in London? It is easy enough, physically and financially, for pupils from schools in London and the south-east to be brought here, but it is very difficult in constituencies in the north and others many miles from London. What action will the Minister take to enable funds to be available to schools so that pupils can be brought to the House of Commons?
    Mr. Woolas: My right hon. Friend the Leader of the House will take firm action. I thank the hon. Gentleman for bringing the matter to the House's attention. Unfortunately, that magazine is still in the in-tray, not yet in the out-tray, but I will certainly read the article.
    This is not a case of either/or. There is virtue in improving and encouraging access for school visits, and the Government agrees with the hon. Gentleman that that is very important. However, there is also virtue in the outreach work and the website. The Modernisation Committee has reported on the matter and made suggestions and the House of Commons Commission is considering the recommendation for an increase in the education unit's budget. I am sure that we would all welcome that.
    Perhaps we will read in the Modernisation Committee's report of the excellent measures that have been taken in Wales. The budget has been increased by half a million pounds, and increasing our youngsters' knowledge of the work of Parliament is of course paramount.
    Mr. David Kidney: Given that Parliament has legislated for school pupils to learn about citizenship, is it not important for our wonderful education unit to work with the curriculum coordinators in schools to deliver a citizenship curriculum? Should not we in Parliament ensure that such assistance is given?
    Mr. Woolas: That is an excellent suggestion, and I acknowledge the role that my hon. Friend has played in the road show by encouraging greater interest among, and the education of, our young people. The Modernisation Committee report examined how we can ensure that the work of the Department for Education and Skills—which recommended that we re-examine the balance of a citizenship curriculum—of the education unit and of Parliament is co-ordinated to ensure that such information is passed on to our young people.
    Mr. Paul Tyler: I very much welcome the Deputy Leader of the House's balanced response—as he says, this is not an either/or situation—but does he accept that in terms of cost benefit, easy access through the internet to this House and what happens here is surely our prime priority? Does he also accept that it is preferable, if we can, to take Parliament to the people, rather than expecting them to come to us?
    I illustrate the point by drawing the hon. Gentleman's attention to the approach of the Swedish Parliament—I visited it last week—which has a Parliament week and Parliament places in local libraries in different parts of the country. Would that not be a very suitable way for us to take Parliament to the people—perhaps in the week leading up to Guy Fawkes day?
    Mr. Woolas: My geography is not perfect, but my guess is that the hon. Gentleman's constituency is even further away from here than mine, so he speaks with some authority. [Laughter.] I am certain that it is further away—I was being polite, as hon. Members know. The website is being examined—it is a very good one, but it is now acknowledged that it needs improving—and, of course, the webcasting of Parliament's proceedings, which also improves access, is up and running. This issue is a priority—and as the hon. Gentleman has acknowledged it is not an either/or situation. Taking Parliament to the people, encouraging greater awareness of it and encouraging young people to vote are very much a part of my right hon. Friend the Leader of the House's strategy for reconnecting Parliament with the public.
    Mr. Andrew Miller: My hon. Friend is absolutely right: online services are mission critical to the development of modern educational methods and they should be welcomed. They have radically improved services and the ability of people in remote areas to access this place. However, in considering this important question, will my hon. Friend examine the impact that the changed sitting hours have had on the ability of young people who have to travel long distances to access this House—for example, those who have to travel from the constituency of the hon. Member for North Cornwall (Mr. Tyler)?
    Mr. Woolas: I thank my hon. Friend for that question. I am pleased to note that the House is debating how we can improve such education and access, rather than whether we should do so—an argument that we had 10 years ago. I can reassure my hon. Friend that my right hon. Friend the Leader of the House has had meetings with the visitors' manager, and that the central tours office has made changes to improve access for people from remote areas and for those who live in constituencies far away from the south-east. This is a gradual process, but things are moving in the direction that my hon. Friend wants.
    Mr. Oliver Heald: Websites are obviously an excellent thing and some of the other associated ideas are important, but there is something special about visiting this place, particularly for school students. I invite the Deputy Leader of the House to do a little work, to look at the scheme used in Australia and to provide the House, through the Modernisation and Procedure Committees, with a range of options and costings, so that we know what it would cost to give young people a little extra help and let them see what a living democracy is.
    Mr. Woolas: That is a very good suggestion, particularly the idea that I should study the Australian method; perhaps that could be arranged. But seriously, the shadow Leader of the House's suggestion is very good and my right hon. Friend will want to look at it.

    September Sittings
    Mr. Andrew Dismore: To ask the Leader of the House what plans he has to assess the September sittings of the House. [187673]
    The Secretary of State for Wales (Mr. Peter Hain): The Modernisation Committee is considering September sittings as part of its inquiry into the sitting hours of the House.
    Mr. Dismore: Does my right hon. Friend agree that we really must consider whether it is a good idea for us to sit in September? Here we are—during good weather, when we could be doing work in our constituencies—in the middle of a building site because the building work
    604
    has not been finished. The work that we will be doing in the next couple of weeks is just a sop to the press and not really part of the parliamentary process. We could be doing far more useful work in our constituencies during this fine September weather, compared with the rain of August. Is it not time that we looked at this issue again and went back to the old pattern of sitting weeks?
    Mr. Hain: I understand my hon. Friend's point. Many representations have been made to me, as Chairman of the Modernisation Committee, by right hon. and hon. Members objecting to September sittings, for which the House voted almost two years ago. It is a matter that the Modernisation Committee is looking into and I am aware of the difficulties that the House authorities face in not being able to take advantage of this time. On the other hand, Parliament has been recalled during September at the request of Members in three of the last five years. The fact that we are back at this time is probably the reason why there was no demand for a recall during this summer.
    Equally, the House will have to face the certain prospect of reports from "that quarter" saying that we are attempting to return to a 12 or 13-week break. We all know that Members do much work during that period—when they are not on holiday they do constituency work—but there has to be a balanced argument and I am listening to both sides of it. I can assure the House that there will be a vote early in the new year on the general question of sitting hours and the question of September sittings will come into that.
    Mr. Andrew Mackay: Does the Leader of the House accept that many of us believe that the September return is a good idea? It is absolutely essential for the Government to be held to account, but if the recess is too long that becomes impractical. Notwithstanding the building chaos around us, it is right that we are here for these two weeks.
    Mr. Hain: The right hon. Gentleman makes a persuasive point against the arguments that my hon. Friend the Member for Hendon (Mr. Dismore) quite properly made. We have to balance that argument, and that is precisely what we will be doing in the Modernisation Committee inquiry, which is due to be concluded within a few months. The House will then have an opportunity to vote and the different arguments will be balanced.

Iraq
3.31 pm
Mr. Tam Dalyell: To ask Defence Ministers to make a statement on the military situation of the coalition in Iraq.
In candour, I should say that, had we not been sitting now anyway, my hon. Friends and I would have been among those asking for a recall on Iraq.
The Minister of State, Ministry of Defence (Mr. Adam Ingram): Mr. Speaker, I would like to bring the House up to date in relation to the current military situation of the multinational force in Iraq. Before I do so, I am sure that the House would wish to record its wholehearted condemnation of the atrocious act of terrorism in Beslan. My right hon. Friend the Foreign Secretary will no doubt return to it later, but I am sure that the House will wish to join me in offering our deepest sympathies to the families and community of Beslan.
Hon. Members will be aware that more than two months have passed since the sovereign Iraqi Interim Government assumed power in Iraq under the leadership of Prime Minister Allawi. Since then, UK forces have operated as part of the multinational force whose mandate was unanimously endorsed by the United Nations Security Council in resolution 1546. That terrorists did not disrupt the transfer of power is due, in no small part, to the skill, professionalism and dedication of the multinational force operating alongside the Iraqi security forces.
The role of the multinational force as outlined in UNSCR 1546 is to contribute to the maintenance of security and stability in Iraq in support of the Iraqi Interim Government. To that end, the multinational force has developed a security partnership with the Iraqi Interim Government and the Iraqi security forces, which enables close co-ordination between the two.
We recognise however that the Iraqi security forces must increasingly take responsibility for the security of their country, and so another important task for the multinational force is assisting in building the capability of the Iraqi security forces and institutions through a programme of recruitment, training, equipping, mentoring and monitoring. That programme is well advanced and there are already close to 90,000 Iraqi police officers. The Iraqi national guard—(formerly known as the Iraq civil defence corps)—is now some 35,000 strong and is being trained and expanded to take over guard and patrol duties. The facilities protection service, which is responsible for protecting Iraq's major strategic infrastructure, Government buildings and other nationally important sites, consists of almost 74,000 personnel. Two brigades of the new Iraqi army are now fully trained and operational. The remaining seven brigades are expected to be operational by January of next year.
Of course, it will take time for those organisations to develop the capability to operate independently, and the multinational force is helping to achieve that aim. For example, in the UK area of operations, UK military police and Iraqi police have been conducting joint patrols since April 2003. We are also mentoring the higher ranks so that a truly capable force can be developed.
606
The past two months have shown that there are those who wish to thwart the aims of the Iraqi Interim Government and the multinational force. Terrorists have continued to launch a series of vicious suicide attacks, a number of leading Iraqis have been assassinated, and foreign workers and journalists have been kidnapped and brutally murdered. Yesterday, a joint patrol of US marines and Iraqi security forces came under attack, with the loss of many lives. I am sure that hon. Members will join me in utterly condemning those dreadful acts.
Prime Minister Allawi and the Iraqi Interim Government have made it clear that they will not allow terrorists and insurgents to derail progress in Iraq. Prime Minister Allawi has also outlined robust plans to create special police units trained and equipped in counter-terrorism and insurgency. He has emphasised his commitment to creating capable security forces that will include members of the military, the police, the national guard and the border guard. Tightening border security is also a high priority, and we welcome the commitment from Iraq's neighbors to work with the Iraqi Government to achieve this.
Moqtada al-Sadr's rebellion in Najaf has posed an early test for the capability of the Iraqi security forces and the authority of the Interim Government. Prime Minister Allawi"s sensitivity towards the sanctity of the Imam Ali shrine for the Shi'a community, and his restraint in using force to quell the rebels, have been instrumental in bringing an end to the fighting. The Interim Government and Ayatollah Sistani and other senior religious leaders have shown that they do not accept violence, and that Iraq's future will be secured only through peaceful means. Ayatollah Sistani's successful peaceful intervention in, and resolution of, matters in Najaf deserve our praise.
Moqtada al Sadr's militia has also been responsible for attacks in the UK's area of operation, specifically in al-Amarah, in Maysan province. It is important to note that these people comprise an assortment of thugs and criminals. In no way do they enjoy the support of the majority of the local Iraqi people.
UK forces have been responding to these challenges in joint operations with the Iraqi security forces. As part of this operation, leaflets have been distributed across the city highlighting the fact that militia violence is preventing peace and that political dialogue is the way to bring change. British forces will continue to act robustly in responding to threats to legitimate authorities in Iraq.
It is vital that the Interim Government restore order so that the people of Iraq can live in peace and rebuild their lives. I am sure that hon. Members will agree that positive progress is being made, despite challenges from those who oppose the Interim Government. They know that their views are not the majority's, and that we will not let them prevail in the political process.
Mr. Dalyell: Has not the time come for a firm and early date for withdrawal? The alternative is chilling. Although the Minister has outlined the good efforts that our forces are making, those forces increasingly are seen as an army of occupation. The risks involved in

607
withdrawal may be less than those involved in staying longer. A balance has to be struck, but should we not consider giving a firm date for withdrawal?
Mr. Ingram: I know where my hon. Friend is coming from with that question, but he must also take what is happening into consideration. We have an Iraqi Interim Government, and we are moving towards establishing a democratic electoral process in the country. If Iraq's people and legitimately elected Government feel that a withdrawal date is required, surely it is up to them to make that request? It is important that we work alongside the Iraqi authorities to establish the peace and stability that most of the people in Iraq want. I do not know whether my hon. Friend is saying that he wants our forces to withdraw tomorrow, but I am sure that more mayhem would follow any such withdrawal.
Mr. Nicholas Soames: In praising the highly effective and determined gallantry of British servicemen and women at all ranks in the rebuilding of Iraq during the past few difficult weeks, will the Minister of State clarify for the House whether the rules of engagement in the multinational division south-east have been changed at all over the past two months? Secondly, what progress has been made by the NATO training implementation mission in Iraq? Where and when will training of Iraqi personnel start?
Mr. Ingram: The issue raised by the hon. Gentleman is important because of some of the controversy during the past few months. The rules of engagement have not changed, and the same rules will continue to apply. The hon. Gentleman knows only too well the difficulties associated with the type of environment in which our troops are deployed: they are trying to peacekeep as well as peacemake, and they sometimes find themselves in difficult firefighting engagements.
The NATO team was deployed to Iraq last month, and it is scoping the training requirement for the Iraqi security forces. A full report setting out the team's recommendation is due in the middle of this month. Clearly, the recommendations will be acted on quickly thereafter.
Mr. Stephen McCabe: What can be the logic of people who have previously argued that our troops should operate under a United Nations mandate but who now argue that the troops should withdraw now that their actions are governed by a UN mandate and are there at the request of Iraqi Government?
Mr. Ingram: I have already answered a question from my hon. Friend the Member for Linlithgow (Mr. Dalyell), but my hon. Friend the Member for Birmingham, Hall Green (Mr. McCabe) has perhaps just posed his question in the way in which I should have answered it.
Mr. Paul Keetch: May I associate my right hon. and hon. Friends with the condemnation of the attack in Russia and the continuing attacks on
608
civilians and kidnapping in Iraq? The Minister is right to say that the people who do those things are nothing more than thugs and criminals.
May I ask two sets of specific questions? What other nations have offered troops to join the multinational force during the past few weeks? Have there been any additional contributions from other countries, and are negotiations in place with other countries to provide such troops?
Secondly, does the Minister consider that the existing force structure of the number of British troops in the British sector is sufficient? Are there any plans to send any additional troops from the UK to Iraq if necessary?
Mr. Ingram: On the latter questions, our current strength stands at just over 9,000 and our future deployment, come the roulement in November, will reduce that to about 8,500. There are no plans to increase the number. Clearly, however, in all theatres such as this one we must constantly consider the current situation. The deployments announced in June indicated our willingness to increase our presence on the ground in a very specific way. The situation is always fluid.
In terms of other countries' commitments, a sizeable multinational commitment exists, and there are constant discussions with other nations to encourage them to maintain their presence and to put a new presence into the country.
John McDonnell: Based on the professional advice that the Minister has been given by the military and by his own diplomatic service, can he advise us on the best estimate of the length of time for which British troops will remain in Iraq, and on what target date we should be aiming at for their withdrawal?
Mr. Ingram: I am sure that when Moqtada al-Sadr and the other insurgent forces in Iraq were involved in fighting with us, they would have loved to know the answer to that question. Although it should certainly be examined at all times, it is the type of question that really should not be asked—
Mrs. Alice Mahon: Why not?
Mr. Ingram: For the very reason that the minute we set down a time scale, we give a set of objectives to those who are still carrying out terrible acts of terrorism and aggression, not just against our troops and the multinational force but against the Iraqi people. We are about trying to establish peace and stability in Iraq, not about giving the country over to the thugs and criminals who are carrying out those terrible acts.
Mr. Robert Key: Does the Minister share my observation that any bad news in this country is reported as front-page news and is top of the news, while the objective work of British forces and British charities and voluntary organisations is simply not mentioned? For example, can he recall a single occasion in the past six months when he heard a British

609
Broadcasting Corporation report that objectively described what was happening in that country instead of always reporting the worst possible events?
Mr. Ingram: I know from my regular contact with our forces that they take a similar view. They think that there are many acts of commitment to bring about peace and stability in Iraq, and that what they are doing to create that new country and to help the people find a new future is often overlooked. The very many acts of individual and collective gallantry, which have just been recognised in the honours and awards announced today, should be a salutary lesson to those who report on the bad news, bad news, bad news, which they exploit to the detriment of those who are putting their lives at risk.
Mrs. Anne Campbell: Does the Minister agree that it is imperative that one of the British policy objectives must be to remove our troops from Iraqi soil as long as it is feasible and practical to do so?
Mr. Ingram: Yes.
Sir Teddy Taylor: Does the Minister agree that it is not simply about those who opposed intervention, but about the growing view that despite the loss of more than 1,200 British and American troops and massive intervention, we have simply established an area of chaos, where we meet ever-increasing hostility from the people of Iraq? Is not that a fact? If the situation continues to get worse, what will the Government do? Would it not help to resolve things if they gave an indication of when they think it would be appropriate for foreign troops to be removed from Iraq?
Mr. Ingram: I sought to set out the background to that. We are trying to establish the new Iraq, alongside the Iraqi people and their leadership. That is not an easy process. Many people fail to recognise how brave those local politicians are. Day on day they are met with a threat not only to their lives, but to the lives of their families. We really should recognise the commitment that they are giving. It is right that we should stand alongside them in achieving that new future, for which they are prepared—sometimes all too tragically—to make sacrifices. Clearly, we have to plan, alongside them, future points of withdrawal and removal of troops from Iraq. All of those things are part of the fluid process and those discussions will continue with the legitimate elected authorities in Iraq.
Mrs. Mahon: I put it to the Minister that the only people in charge of the military coalition are the Americans, not the United Nations. I repeat the request of my hon. Friend the Member for Hayes and Harlington (John McDonnell) that we get a date for the withdrawal of troops. The Australian Labour party has said that when it wins the election it will bring its troops home. The Spanish Socialist party has already brought its troops home. The idea is gaining support world wide and we would not be isolated if we said that we were going to bring our troops home. We are now seen more as the problem than the solution.
Mr. Ingram: I remind my hon. Friend that the House voted for the deployment in Iraq and has continued to monitor the situation. I recognise that there are those who think that the withdrawal of troops will make the situation better in Iraq, but they are living in a dream world. They have to consider that Iraq would descend into chaos. They are effectively saying, "Withdraw the troops now", but they do not have an alternative proposition. It is a knee-jerk reaction and does not add up to a substantial policy, and this Government will not accede to it.
Adam Price: Figures released by the coalition over the weekend show that August saw the highest number of attacks on coalition forces since the conflict began, averaging 87 a day. We know that we were misled into this war and we are now being misled about the aftermath, which is turning into a long, bloody conflict, with no end in sight.
Mr. Ingram: I think that the only person who is misleading the hon. Gentleman is himself. I constantly give detailed information, which is then twisted and turned, over-interpreted and misinterpreted. I explained that the situation has been bad during the past two months. That has to be dealt with. When I was asked whether that would require additional troops, I indicated that we are planning a reduction in troops. We are planning for a different scenario, but we have to manage the difficult situation. I do not know whether the hon. Gentleman is one of those who says that we should withdraw the troops, but what does he think would happen to Iraq if we did so?
Mr. Jon Owen Jones: In April, during a Westminster Hall debate, I queried the description by the Under-Secretary of State for Foreign and Commonwealth Affairs, my hon. Friend the Member for Harlow (Mr. Rammell), of al-Sadr as an insignificant rabble rouser. Was the Foreign Office so ill informed at the time, or was it an attempt to mislead the House?
Mr. Ingram: I am sure that it was not an attempt to mislead the House. I would have to read the Official Report of the debate to see the context in which those words were said. Moqtada al-Sadr has been carrying out terrible acts and, clearly, he has the support of a percentage of the people in the area he represents. However, the weight of opinion within his community is against him, and that side of the argument will prevail. The minority—that rabble rouser and dangerous man—will not prevail. The people of common sense and decency who want a new Iraq will prevail.
Mr. Douglas Hogg: Does the Minister agree that it is difficult for Members of Parliament to determine whether the violence is decreasing or increasing? Will he agree to put into the Library a monthly written report identifying the degree of violence in the preceding month? The report could, for example, state the number of incidents, as best it is known, the number of casualties on all sides, and the degree of ordnance used. That would enable us to begin to form a view on whether the violence is increasing or

611
subsiding. If that cannot be done generally, in respect of the coalition as a whole, surely it should be done in respect of British servicemen.
Mr. Ingram: I am not wholly unsympathetic to that idea. My concern is about the exploitation of the information by people who are not of good will and who are not trying to establish a balanced approach to an undoubtedly difficult situation. Such information can be misused and misapplied—the hon. Member for Salisbury (Mr. Key) spoke about the way in which the media report these matters. We can take a snapshot, but the situation could improve in the month following the report. We hold regular debates in the House and Ministers are held accountable, but I shall consider how best we might communicate the overall environment in the area and give better information.
David Winnick: Is there really much of a difference between those who are carrying out murderous attacks in Iraq, including the killing of children, and those who are responsible for the atrocities that have occurred in Russia in the past few days? Is there not a common theme between terrorists of various sorts?
Mr. Ingram: Terrorism of all types when it involves indiscriminate—or, in many cases, discriminate—acts against women, children and defenceless civilians has to be condemned in its totality. However, no two sets of circumstances are the same. Although we can sympathise with the Russian Government and people and give them our best advice, ultimately, they have to find their own resolution to their own problems.
There are increasing indications of international connections in terrorism. We have to get on top of that. Nations are showing increasing willingness to share intelligence and to take action to stop the movement across the globe of international terrorists and the materials they use.
Hugh Robertson: Events of recent weeks suggest that al-Sadr's army and other insurgents are extremely well organised and resourced. Is there any evidence that they are being helped by countries neighbouring Iraq, or does it remain likely that they are financed by money taken corruptly from the UN oil-for-food programme?
Mr. Ingram: I have no direct evidence of the terms in which the hon. Gentleman put his question. Clearly those people are getting funds, and part of the process of sharing intelligence is establishing where they are coming from. It is important to stop not only funds for the acquisition of weapons that come from individuals and organisations across the border and those collected in the country, but the movement of weapons. Sadly, there are many weapons in Iraq that the people may use, so funding may not be used for purchase if they already have access to all the equipment that they need.
Paul Flynn: Two of my constituents, Helen and Kevin Williams, have been doing humanitarian work in Baghdad for the past two
612
years. They report a recent deterioration of the situation, and in fact two of their fellow workers in the charity were killed last week. They say that there is increased violence and there are more no-go areas partly because of the actions taken by the Iraqi authorities. Is the Minister convinced that the actions of the Iraqis on policing and running prisons meet acceptable standards of international human rights?
Mr. Ingram: In my answer to the urgent question I indicated that we recognise that it will take time to make the Iraqi security forces fully capable. We should remember that it takes tremendous bravery for them to take action against the determined people whom they are up against, and many lives have been lost through their willingness to do so. Non-governmental organisations and those who work in such organisations on the ground can give us a better understanding of situations; so if my hon. Friend can get his constituents to write a detailed background of their experiences, I ask him to pass it on to me and the Foreign Office.
Dr. Vincent Cable: Given the evidence that the rebels are pursuing an increasingly successful campaign of sabotage against oil installations in the south of Iraq, what are the precise responsibilities of the British forces as regards the protection of production and distribution facilities?
Mr. Ingram: Our relationship with the forces has been set up precisely to protect the infrastructure, primarily the oil pipeline, processing plants and electricity plants. We work to try to apprehend people who do such things—if we can get there at the time they are doing so—and to take action against them. We have an important role to play on that because we have helped to rebuild the country not only through the money that we have put in, but through the many projects that we have commissioned using either our direct funding or international funds. We have a clear role that we shall continue to carry out to the best of our ability.
Jeremy Corbyn: What representations were made to the Government of Iraq following their banning of al-Jazeera from the country, thus preventing it from reporting to the Arab world what it believes to be going on in Iraq at present? Is the Minister worried about the attitude towards freedom of speech shown by the Iraqi Interim Government?
Mr. Ingram: Not that I am aware of, but I shall draw my hon. Friend's question to the attention of my colleagues in the Foreign Office, who might have better information on the matter.
Mr. John Redwood: How does the level of violence against Iraqi personnel compare with that against coalition personnel, and are the Government pledged to making sufficient resources available for training and helping the Iraqi security forces so that an early and orderly transfer of authority is possible?
Mr. Ingram: That is exactly what we are doing. We are training up many people not only in Iraq, but in neighbouring countries. We are bringing together the best experience from countries with a good knowledge of the Arab community and of how best to interface with it, as well as imparting our forces considerable experience gained from Northern Ireland, the Balkans and elsewhere throughout the globe. Of course, the terrorists will always go for the softest targets because that is the very nature of their planning and approach. As the security forces build their capabilities, they will become less soft and more able to look after themselves. I guess that the attacks will decrease over time because the response to them will be much more effective.
Alan Simpson: The Minister will know from his experience in other circumstances that one important distinction between a peace process and a terrorist movement or tyranny is a willingness to be held strictly accountable to international law. Does he have any intention of ensuring that British troops' activities will be answerable in the International Criminal Court? When does he expect to be able to tell the House that all those held by coalition forces will have access to legal representation, a trial in a court of law and unrestricted rights of access by the International Red Cross?
Mr. Ingram: There are a lot of implications to my hon. Friend's question that do not quite stack up. The International Red Cross has free access to our facilities, and has produced a number of reports. It continues to monitor the situation, and we continue to respond, if necessary, to its comments. There is no doubt in my mind that the Government have consistently applied a high standard of international law for years and even decades. We set an example to the rest of the world in the conduct of operations in the many countries in which we find ourselves, which is why many countries want to work alongside us when we deliver peacekeeping initiatives. I wish that my hon. Friend would reflect on
614
that for a moment and pay tribute to the 55,000 British personnel who have served in Iraq, instead of blackening their name every time he asks a question.
Mr. George Osborne: One of those personnel is my brother-in-law, who was on leave in August and told me about the good work that the British armed forces are doing in Iraq. Will the Minister join me in paying tribute to my local regiment, the Cheshire regiment, for their work? I agree that we must stay the course, but is he satisfied that the British Army is in a position to deal with a sudden upsurge in violence in, for example, Basra, similar to that with which the Americans have had to deal in Najaf?
Mr. Ingram: I pay tribute to the Cheshires and all the other regiments that have served in Iraq, as well as those that will serve there in future, as I have done time after time. Whether we are capable of meeting any upsurge in violence depends on its scale, but alongside that we must consider the international community's willingness to deal with the problem. There are a considerable number of international troops—admittedly, they are predominantly from the US and the UK—but in the past British troops and forces have shown the capability to deal with violence if it flares up. Yes, I think that we would be able to deal with any known increase in violence.
Mr. Andrew Miller: A young TA member, Sergeant Jones, told me on Friday of the unpleasant task that he had to perform with colleagues: uncovering a mass grave. Will my right hon. Friend consider, however unpleasant it is to do so, collating all that information in a single document, as there appear to be some people, particularly in the media, who do not understand the nature of the regime that has been toppled?
Mr. Ingram: There were many acts of barbarism, and we have probably only discovered the tip of the iceberg. My hon. Friend makes a useful and interesting point, and I should like to reflect on it to see whether we can collate information to help us achieve a better understanding of the problem.

Sudan
4.3 pm
The Secretary of State for Foreign and Commonwealth Affairs (Mr. Jack Straw): With permission, Mr. Speaker, I should like to make a statement on the situation in Sudan. Before I do so, however, I should like to say something about Beslan.
This morning, on behalf of Her Majesty's Government, I signed the book of condolences at the Russian embassy to express our horror at the barbarity that befell the innocent children, women and men of Beslan, our profound sorrow at the grief of all those who lost loved ones, and sympathy for the injured. No cause justifies such bestiality in any circumstances. What happened was simply evil beyond reason or excuse, and we stand with the Government and the people of Russia at this terrible time of suffering.
I return to the issue of Sudan. After the House rose for the summer recess on 30 July, the United Nations Security Council adopted resolution 1556, which demanded that the Government of Sudan disarm the Janjaweed militias and apprehend and bring to justice their leaders and associates. The resolution further called on the Sudanese Government to facilitate international relief; to establish credible security conditions for the protection of the civilian population and humanitarian aid workers; and to resume political talks with dissident groups from Darfur. The Security Council imposed an arms embargo on the militias, including the Janjaweed, and endorsed the deployment of international monitors to Darfur, under the leadership of the African Union. The resolution was backed by the threat of sanctions in the event of the Sudanese Government failing to comply with its provisions. The Secretary-General of the United Nations was mandated to report back within 30 days on that compliance.
I visited Sudan one week before that deadline, on 23 and 24 August, to assess the situation for myself and to urge the Sudanese Government to comply fully with the terms of resolution 1556. In Khartoum, I met the Sudanese President, General al-Bashir, the Foreign Minister, Dr. Mustafa Osman Ismail, and other Ministers and political figures, along with the UN Secretary-General's special envoy, Jan Pronk, and representatives of non-governmental organisations. In the talks, I stressed to the President and to the Foreign Minister the international community's grave concern at the situation in Darfur, and the importance that we attached to compliance with the resolution and with the plan of action that the Sudanese Government had subsequently agreed. While there, I obtained undertakings from the Sudanese Government that visas would be issued to staff from Amnesty International and Human Rights Watch.
On my visit to el-Fasher in northern Darfur, I went to the Abu Shouk refugee camp, where I was given a tragically familiar account of atrocities and of attacks by armed militias that had forced people to flee their homes. The refugees spoke to me of their continuing fear of returning home until, and unless, their security was guaranteed. Abu Shouk is one of the better-run camps in the region, but many thousands more displaced
616
people across Darfur and in neighbouring Chad still receive insufficient assistance, or in some cases none at all.
I also visited the headquarters of the African Union ceasefire monitoring mission in Darfur. AU observers told me that they judged that the ceasefire between the rebels and the Government of Sudan is largely holding, and they also said that there had been no aerial bombardment of civilians by the Sudanese Government since the end of June, but they also judged that there were still repeated attacks on civilians and credible reports of continued atrocities.
The UN Secretary-General, Kofi Annan, reported last week to the Security Council on the extent of Sudan's compliance with resolution 1556. His report found that the Sudanese Government had taken some steps to comply with the resolution and with the action plan. Security has improved for refugees in some limited areas, additional police have been deployed and disarmament has begun. Talks between the Government and the rebels opened on 23 August in the Nigerian capital, Abuja, facilitated by President Obasanjo of Nigeria. Mr. Annan said that access restrictions for humanitarian relief had been lifted, and that the humanitarian situation was improving, although conditions in many of the camps remained poor. The Sudanese Government had committed themselves to a policy of no forced returns of refugees, and human rights monitoring and investigations by the Office of the UN High Commissioner for Human Rights had begun.
However, Mr. Annan's report also found that
"after 18 months of conflict, and 30 days after the adoption of resolution 1556, the Government of Sudan has not been able to resolve the crisis in Darfur, and has not met some of the core commitments it has made"—
most critically, on the question of security.
The House will wish to know that an atrocities documentation team led by the US State Department has recently returned from Chad, where it interviewed 1,200 refugees in camps concerning allegations of atrocities. In the past two days the US Government have shared some of their evidence with us. We are examining that and other evidence carefully. All this is extremely disturbing and further highlights for the international community the urgency of ensuring that all the evidence is systematically examined by an international commission of inquiry, to establish what international crimes have been committed, and by whom.
The Security Council is today discussing its response to the Secretary-General's assessment of the situation, and we hope that a decision on a new Security Council resolution will be made later this week. In the Security Council, the UK is calling for clear benchmarks detailing what steps the Sudanese Government must now take towards meeting their responsibilities and resolving the conflict, but the rebels too must abide by their commitments by ending violations of the April ceasefire.
In making our proposals for a new Security Council resolution, we shall press for an expansion of the African Union monitoring mission—we always work with the AU itself—to help stop the attacks and create a safer environment for civilians. We must get both sides to engage constructively in the political talks in Abuja, which alone offer the prospect of a sustainable solution.

617
Alongside the international effort to resolve the crisis, we are working hard with the UN, NGOs and our international partners to improve the humanitarian situation for the people of Darfur. Now that access for aid workers has improved, we need to get in as much help as possible and ensure that the UN agencies and NGOs have the capacity to deliver aid to those most in need. Some 500 international NGO staff are now in Darfur alongside 3,800 local workers. That is a significant improvement over recent months, but it is still not enough with the rains continuing to worsen the plight of refugees.
We also seek to consolidate support for the AU and its monitoring mission. The UK provided £2 million at the start of the mission in May, the first assistance from any donor, and the European Commission has provided a further €12 million. We continue to provide logistical support, including helping to fly in 155 Nigerian force protection officers over the past few weeks. The Government have made it clear that we are ready and willing to do more to support both the AU's current mission and an expanded operation, as and when it deploys.
Moreover, we must not let the pressures from the crisis in Darfur distract the Sudanese Government and the Southern Peoples' Liberation Movement from concluding the peace talks in Naivasha aimed at ending the 21-year civil war in the south. A settlement in that conflict would be an important achievement in itself, and it could provide the blueprint for a political settlement in Darfur. Much progress has been made so far in those talks and the parties have concluded a political framework agreement, but the talks must now reach a quick conclusion. Once, and only once, security and a political settlement are established across Sudan as a whole—north, south, east and west—the international community stands ready to ensure that all Sudan benefits from a long-term peace dividend. The EU has some €400 million waiting to be spent on longterm development, and the UK has already pledged £150 million, or €250 million, over the next three years for similar long-term aid.
The situation in Darfur has rightly shocked the world. For our part, we are determined to do everything we can to resolve the humanitarian disaster and help secure a political settlement across the country as a whole. We have had a special representative in Sudan, who works with our ambassador, concentrating on the peace talks for the past two and a half years. We are the largest cash donor of aid, having already provided £65 million—almost €100 million.
The Secretary of State for International Development has visited the country twice, in December last year and in June this year, and today he is in Nigeria, where he has been discussing the situation with President Obasanjo and working hard with the parties in the peace talks to try to get them to agree the next stage in any settlement. Our Departments are working closely together in a special joint Sudan unit, and the Minister with responsibility for Africa will go to Sudan next week. We continue to press our European Union and international partners to do more, as I did last weekend at a meeting of EU Foreign Ministers.
Ten years ago, the world turned away from the horrors of Rwanda and Bosnia, and we all know the appalling results. We cannot do everything in Sudan,
618
but we must do everything that we can to ensure that that vast country can at long last enjoy peace and stability, which have evaded it for so many years with such catastrophic consequences.
Mr. Michael Ancram:I thank the Foreign Secretary for his statement, and for giving me advance sight of it.
May I, too, start with a word about the outrage and tragedy of the events last Friday in Beslan in North Ossetia? None of us can have been immune to the horror, the intense grief and the justified anger arising from the inhuman and obscene violence and murder that was meted out by vicious terrorists to innocent children and their parents and teachers. We join the people of Beslan and, indeed, of all Russia in their mourning, and renew our own determination to continue to fight the scourge of terrorism wherever it occurs. While those horrifying pictures are fresh in our minds, it is right that we are discussing another area of brutality and evil inhumanity: the unspeakable atrocities and acts of genocide being carried out against the people of Darfur in Sudan.
I welcome the Foreign Secretary's recent visit to Sudan. In June, my hon. Friend the Member for Buckingham (Mr. Bercow) went deeper into Darfur and saw the horrors at first hand. He informs me that those horrors continue today. Of course, I join the Foreign Secretary in welcoming the somewhat meagre improvements in the situation that have occurred in the past month—namely, improved access for aid and the tentative start of peace talks in Abuja. However, I am sure that he agrees that they do not go very far towards dealing with the continuing atrocities on the ground.
Did not the United Nations Security Council resolution 1556, passed at the end of July, require in effect that by the end of August the infamous Janjaweed should be disarmed by the Sudanese Government? That certainly has not occurred. Surely the international priorities are now clear: to provide genuine security for the swelling refugee camps; to facilitate and target the distribution of desperately needed aid; and to police a genuine ceasefire. Should not those be the clear and determined objectives of both the United Nations and ourselves? Yet violence and murder continue unabated. Indeed, have not some 3,000 people been driven from their homes in renewed violence during the past few days? Is it not disingenuous for the Sudanese Government to continue to argue that this situation is not of their making or is beyond their control?
Kofi Annan admitted last week that
"the violations of human rights and the basic laws of war… continue in a climate of impunity."
In the face of that, how can the international community wait while further atrocities are committed in Darfur and more people die? If aid workers are to be believed, every day of prevarication will cost another thousand deaths.
Three years ago the Prime Minister talked about a "moral duty to act". The moves that the Foreign Secretary has outlined today simply do not go far enough. He should start by pressing in the United Nations for an African Union peacekeeping force of sufficient size to deliver those objectives. The African Union military seem willing to undertake that task. Our

619
involvement, along with other non-African countries, should be to provide communications and logistical support, and possibly, if necessary, the wherewithal to enforce a no-fly zone over Darfur.
We are told, however, that such a peacekeeping force can be put in place only at the highly unlikely invitation of the Sudanese Government. Is that not in practice an unacceptable recipe for inaction? Such is the scale of the atrocities that if the United Nations Security Council is to mean anything in terms of the relief of human suffering it must find a way to intervene directly. I hope that the Council in its discussions today will seek to identify such a way. The British Government should in due course lead by moving the relevant resolution.
The current situation in Darfur is a test not just of the Government of Sudan: it is a test of the credibility of the United Nations and, ultimately, of the moral duty of the British Government. The time for inaction has passed.
Mr. Straw: I am grateful for the right hon. and learned Gentleman's words about the situation in Beslan. He spoke for the House in I hose remarks.
The right hon. and learned Gentleman said that the international community's priorities should be the disarmament of the Janjaweed, the safety and proper supply of the refugee camps and policing the ceasefire. I agree with those priorities, but add to them the need for comprehensive disarmament of all the paramilitary groups: the Popular Defence Force operates directly under the orders of the Government of Sudan; a large part of the Janjaweed also operates under their orders, and there are rebel groups. It is sad but true that atrocities continue to be committed by rebels, albeit on a lesser scale than those of the Janjaweed under the control of the Government of Sudan.
In addition to those four priorities, success in the political talks is crucial. The terrible conflict in Darfur, which goes back many decades, can be resolved only through a political settlement, along similar lines to that towards which the parties are edging in Naivasha on the north-south axis. The critical point about the Naivasha accords is that the Government of Sudan have already agreed with the rebels that there should be both devolution of power within Sudan and a devolving and sharing of the wealth of the Government of Sudan. I kept making the point to President al-Bashir, Foreign Minister Mustafa and others that those principles are sound and that if they want peace throughout Sudan, they must apply them in Darfur, too.
The right hon. and learned Gentleman mentioned the climate of impunity, which is a phrase that Kofi Annan used. We want an end to that climate of impunity and we therefore support proper international investigation of all the evidence about what international crimes have been committed—it is certain that such crimes have been committed—and by whom.
The right hon. and learned Gentleman also mentioned an African Union peacekeeping force. I believe that it is a matter of agreement in all parties that it is crucial, if we are to have any success, to work with the African Union. It has shown a high degree of responsibility. It must be borne in mind that there are
620
disagreements among its members, too, and it has to resolve them. However, we stand ready to provide all the assistance that we can to the African Union and I know that that applies to most other international partners.
On drafting the Security Council resolution, we already have drafts, which we are discussing privately with our Security Council colleagues. We want the strongest possible resolution. I understand everybody's impatience—I share it. It took us longer than I had hoped to get a Security Council resolution at the end of July. The right hon. and learned Gentleman said that it took too long and he is right. However, we wanted an international consensus and the result of working and negotiating with the Security Council was ultimately getting all three African members—Algeria, Benin and Angola—to support that tough resolution. That is crucial in pressuring the Government of Sudan.
Mr. John Battle:I welcome my right hon. Friend's genuine efforts to resolve the crisis in Sudan. He began by mentioning Beslan and I note that many financial appeals have been launched in the past few days as a compassionate response and practical contribution to the communities of Beslan. However, in the short term, I ask my right hon. Friend to re-emphasise that humanitarian resources are still desperately needed in Sudan now and that Beslan appeals should not overshadow those needs. Rather, we should all do and give much more to both international appeals.
Mr. Straw: I agree with my right hon. Friend. As he said, there are sufficient riches and resources around the world to provide fully adequate material relief to the poor people of Beslan and adequate humanitarian relief in the Sudan.
Sir Menzies Campbell:May I associate my right hon. and hon. Friends with the proper expressions of sympathy that the Foreign Secretary made to the Russian people at the outset of his statement? Nothing, but nothing, justifies the calculated brutality that we saw at Beslan. On such occasions, language sometimes seems insufficient to express the depth of horror and revulsion that we all feel.
May I commend the Foreign Secretary for his efforts in relation to Sudan and, in particular, for his visit there? Do the British Government accept the estimates that 50,000 people have been killed and that more than 1 million have fled their homes? Do the British Government consider that what has happened in Darfur amounts to genocide? If what has taken place there does not justify the description of genocide, how would the British Government characterise the killing, the rape, the forced displacement and the human rights violations?
Do the British Government accept the verdict of the United Nations special representative that
"no concrete steps have been taken to bring to justice or even identify any of the militia's leaders"?
What is the assessment of the degree of complicity of the Sudanese Government in these terrible events?
While accepting that, for the moment at least, there is no political will to authorise intervention and that neither sanctions nor an arms embargo have as yet

621
sufficient support, what can be done with Rwanda and Bosnia in mind—the Foreign Secretary referred to both—if the Sudanese Government persist in failing to meet their responsibilities?
Mr. Straw: I commend the right hon. and learned Gentleman for his remarks in respect of Beslan.
The right hon. and learned Gentleman asked me whether the figure of 50,000 killed was accurate. The answer is that I cannot say, but I have seen that estimate. I can say that at least 1,200,000 have fled their homes and are currently in properly registered refugee camps. Many thousands more may be elsewhere; another 200,000 are across the border in Chad.
One of the most extraordinary experiences on my visit to the Sudan was to stand on the top of a hill to look out at the rows and rows of huts in a camp that stretched to the horizon. Some 50,000 people, the size of a medium-sized town in this country, were housed in those huts and I reflected on the fact that the refugees we know about are contained in at least 24 more such camps.
The right hon. and learned Gentleman asked whether what has happened amounts to genocide. The answer is that there is evidence that clearly suggests that international crimes against humanity have been committed. Just before making the statement, I discussed the issue with Secretary-General Kofi Annan. The acting high commissioner for human rights, Bertrand Ramcharan, reported to the Security Council in the spring of 2004 that there was no doubt that there had been gross and systematic violations of human rights and of international humanitarian law. Mr. Annan said to me that we were all agreed that the parties in Sudan needed to act to ensure that these violations did not continue. The Secretary-General is keeping the question of whether what has happened is genocide under very close review, and so are we. We are examining the evidence that has been made available so far to us in confidence by the US Government. Of course, I will keep the House informed on that.
The right hon. and learned Gentleman's final point was about sanctions. The international community has not backed away from the possible use of sanctions. Indeed, operative paragraph 6 of resolution 1556 plainly lays down that, unless there is compliance, the Security Council will actively consider whether to bring in the sanctions—they are called "measures"—that are provided for under article 41 of the charter. It is our intention to see that point repeated in the new resolution. What I cannot say is the point at which we can persuade other partners in the Security Council that such action needs to be taken, but I can say for certain that it is only as a result of the strength of feeling and the resolve of the Security Council expressed at the end of July that the Government of Sudan, having resisted some improvements previously, have now started to make changes that are acceptable in themselves but do not go nearly far enough and are unsatisfactory altogether in respect of the security situation outside the camps.
Mr. Clive Soley:Does my right hon. Friend accept that the frustration and anger felt by so many people and Governments about the ineffectiveness of the Sudanese Government in this situation reflect the much wider
622
problem of failing states? When Kofi Annan's high level panel reports, which I think it is due to do at the end of this year, will my right hon. Friend make that a major debate and matter of attention in this country and other countries around the world, through the international institutions, because the international community's failure to have a coherent policy towards failing states led to us wringing our hands and looking on in horror at Rwanda, intervening ineffectually in Somalia, intervening effectively in Kosovo and now, I fear, having only a marginal impact in Darfur? The international community really has to do better than that, and that high-level panel is vital to the future of foreign policy and defence for this country and for others for years to come.
Mr. Straw: I agree with my hon. Friend about the importance of this; it was the subject of an excellent pamphlet written by him recently with my hon. Friend the Member for Cynon Valley (Ann Clwyd). I offered some perhaps more modest thoughts about this subject in a speech to Chatham House last Thursday. It is crucial that, once we receive Kofi Annan's report, we really deal with this issue, and we should.
There are some structural organisational issues that we have got to handle for the UN, but the worst thing in the world for the future of the UN is to get drawn into organograms or rebranding the organisation and avoid the central conceptual issue, which is in what circumstances in the world we live in today—where the threats come from terrorists and failing states, and not normally from functioning states—the Security Council takes action and how it ensures the same resolve today to deal with these new threats as the international community had in 1945 when the UN was established.
Tony Baldry:The Secretary of State cited Rwanda and Bosnia, but in respect of both the UN set up a war crimes tribunal to bring to justice those most guilty of perpetrating war crimes. Can he clarify what he meant when he referred in his statement to the international commission of inquiry to see what international crimes are being committed and by whom? Will that be conducted under the auspices of the Secretary-General of the UN and is it intended that, if those responsible can be identified, there will be a UN war crimes tribunal in respect of atrocities committed in Sudan?
Mr. Straw: The hon. Gentleman is right to say that such tribunals were set up, and are still operating, in respect of both the former Yugoslavia and Rwanda. Of course, roughly speaking, that was all the international community did: although it was a necessary step to take, it was too late and completely insufficient. I do not want to be there.
Our immediate concerns are security, proper supplies and humanitarian access, and a political solution. We are also concerned, as is Secretary-General Kofi Annan, about the climate of impunity. The only way to take away that climate of impunity is to ensure that there is a proper investigation of alleged crimes and a proper process after that.
The Government of Sudan have established their own national commission. If there were wider international confidence in the effectiveness of that commission, okay,

623
but Jan Pronk has already made clear his concerns about its adequacy. For that reason, we are looking carefully at what wider international commissions or institutions should operate. I cannot give the hon. Gentleman the detail he needs, because that has not been decided. It is something that we are discussing with our international partners.
Mr. Tom Clarke:In thanking my right hon. Friend for the excellent work that he is doing in a very complex situation, may I take him back to the meeting of 23–24 August when he met the President of Sudan? Were the President of Sudan and the Sudanese regime aware of the true anger in the international community, as well as in the House? What regard did he give to resolution 1556? Is there any evidence that, if a strengthened resolution is introduced, as we all hope that it will be, he will give it any regard? Was it made clear to him that, if he does not, the international community's patience is not inexhaustible?
Mr. Straw: I did everything that I could to stress to the President of Sudan the gravity of the situation and the intense concern of the international community. That is understood. Initially, there was almost a refusal to acknowledge the strength of the terms of 1556, and there were statements by the Government of Sudan that they were unwilling to implement it. After further pressure, however, not least from fellow African countries, they have said that they will implement it, and have signed up to the action plan that they put forward. They offered undertakings about what they will do in the 30-day period, some of which they have done, but by no means all. On those, above all, we must hold the Government of Sudan to account.
Mr. Andrew Robathan:Nobody pretends that there is an easy solution to this situation, but is it not the case that the Government of Sudan have form on this? They have form throughout the south during the civil war, in the Nuba mountains and elsewhere, and they have form on getting away with it with impunity. Furthermore, they have achieved their aim in the south to destroy the infrastructure and intelligentsia and their aim in Darfur to empty the region of black African farmers. Will the Foreign Secretary make it his policy with the international community that individuals in the Government of Sudan, from Bashir downwards, should be held responsible for their complicity in war crimes, that they will not have impunity and that they will be brought before the bar of international justice, wherever that may be, and held responsible for the awful crimes that may yet lead to the deaths of as many as 1 million people?
Mr. Straw: I have commented on the need for international investigation of those crimes. I will not anticipate the outcome of those investigations, except to say that it is clear beyond doubt that international crimes against humanity have been committed. The Government of Sudan have been engaged in peace talks in respect of the south and we are tantalisingly close to
624
complete agreement, which can produce peace and stability in the south. The sense that I got when I was in Khartoum was that something was holding the Government back, which is why I have worked hard with all my international interlocutors, including Secretary-General Kofi Annan, to impress on them, as well as the Government, that if we want peace and stability in Darfur, we must make rapid progress on the peace that is available today or tomorrow, in respect of the south, through the Naivasha accords.
Mr. George Foulkes:May I commend the Foreign Secretary, and the International Development Secretary, on the tremendous work that they are doing in relation to Sudan, compared with the previous Government's abject dereliction of duty in relation to Rwanda? In relation to the Foreign Secretary's preliminary remarks about the tragic events in Russia, will the Government examine the serious implications that they may have for security in the United Kingdom, and will they consider what my hon. Friend the Member for Walsall, North (David Winnick) described earlier as the common threads between events in Russia, Iraq and, perhaps, the Sudan that threaten us all?
Mr. Straw: I am grateful to my right hon. Friend for his remarks and he is right to congratulate my right hon. Friend the Secretary of State for International Development, and all his staff, here and in the field. Our two Departments have been working together extremely closely to produce a higher level of effort by the British Government than by any comparable Government. We are proud to do that, but we also regard it as our duty.
On worldwide terrorism, it goes without saying that we are already seeking to learn the necessary lessons from the terrible atrocities that took place in Beslan last Friday.
Sir Patrick Cormack: May I endorse the remarks about giving help in both Beslan and Sudan made by the right hon. Member for Leeds, West (Mr. Battle)? In view of the Foreign Secretary's last remarks, can he assure the House that, although the Dutch hold the presidency of the European Union, the insensitive and intemperate remarks of the Dutch Foreign Minister are not endorsed by the British Government?
Mr. Straw: The Foreign Minister of the Netherlands has already explained the circumstances in which he came to make those remarks. I think that he explained that they were made ex cathedra and did not reflect the discussion that took place among European Foreign Ministers. I have set out our position this afternoon and on the radio yesterday. I believe that we must stand absolutely firmly with the Government and people of Russia, and—as I have said—not allow any excuse for what happened in Beslan.
Mr. Deputy Speaker:Order. For understandable reasons, the right hon. Gentleman referred to the situation in Russia at the beginning of his remarks, but it ought not to be taken up generally, because the statement is essentially about Sudan.
Mr. Hilton Dawson:I congratulate my right hon. Friend on a balanced and entirely sensible approach to a complicated issue. I urge him to continue setting that issue in the context of a tremendous diplomatic effort by the Government to help all parties to reach a comprehensive peace agreement across Sudan. As one who also visited Sudan recently, may I ask whether he is aware that many thousands throughout the country are now enjoying peace for the first time in 21 years? Does he agree that, in the attempt to deal with the desperate humanitarian situation in Darfur, it is essential that no encouragement whatever be given to the militias, rebel groups and special interests that would seek to undermine the comprehensive peace agreement that is now so close?
Mr. Straw: I entirely agree with my hon. Friend and commend his work as chairman of the all-party Sudan group over many years. He is absolutely right: the only future for the people of Sudan—as elsewhere throughout the world—is through politics and the putting aside of violence.
Mr. Roger Gale:This should be set in context. It is arguable that more people—men, women and children—are dying in Sudan every few days than died in one day of terror in Russia last week. That is not to belittle the terror of the latter event, but to highlight the enormity of the former. It means that every few days that the United Nations does not enforce sanctions, every few days that the African Union does not take action, every few days that the United Kingdom Government do not—as was suggested by my right hon. and learned Friend the Member for Devizes (Mr. Ancram)—provide support in terms of communications, more men, women and children will die. The United Nations is beginning to acquire a well-earned reputation for procrastination. When will the Foreign Secretary take some action?
Mr. Straw: I have just spelt out the action that we have taken. I understand the hon. Gentleman's impatience: I share it, and his frustration about our inability to do all that we would wish to, because of the atrocities and deaths that are plainly taking place. However, I do not think that much purpose is served by his thrashing around demanding action that we have already taken, or action that we have offered which requires the agreement of other people.
We have done virtually everything in our power. We are the largest cash aid donor, second only to the United States in terms of overall value. We have been hugely involved in facilitating the peace process in Naivasha, which we hope will have good results. We are also working very hard with the African Union. The hon. Gentleman mentioned communications equipment. We have provided the money for the African Union. When I was in el-Fasher two weeks ago, the problem was not our provision of money for communications equipment, but bureaucratic difficulties that we are now trying to sort out but which are quite outwith the responsibility of the United Kingdom Government.
As I have said, I understand the hon. Gentleman's frustration. If he has constructive proposals to make, I will of course—as ever—take them on board, from wherever they come. But given what we are doing, it is
626
wrong to suggest that we in the United Kingdom—the people, the Government or Parliament—are in any way evading our responsibilities, because we are not. We are fulfilling them, and we are also trying to get others to fulfil theirs; that is the crucial point. I understand some of the hon. Gentleman's frustrations with the international community, but if people want us to work through the United Nations—as I do—that is what we must do. Sometimes it takes longer than we would wish, but it is the only international organisation available to us with the legitimacy and power to enforce what we want to happen.
Mr. David Drew: My right hon. Friend is absolutely right to rule out simplistic causes of the conflict in Sudan and he is even more right to avoid considering pre-emptive intervention, which is potentially very dangerous. Indeed, we must be honest: it is simply undeliverable. Does he agree that we should consider issues such as environmental changes in that part of Africa, particularly desertification, which is one reason why the nomads have moved? Of course, that does not excuse the behaviour of the Janjaweed, and we must also consider the question of resources. One strong argument for the action taken by the Sudan Liberation Army is that it is trying to get in on the back of the north-south peace settlement to make sure that it has resources. What we need is a sustainable peace in the whole of Sudan.
Mr. Straw: I agree entirely with my hon. Friend. There are many reasons for supporting the Kyoto protocols and for the world to get a grip on climate change, which is within our power, but one of the best is the political, social and humanitarian effects of desertification in Darfur and Chad. As I have said, the key to the Naivasha accords is the devolution not only of power but of wealth in resources. That is also the key to a political settlement in Darfur.
Angus Robertson: One course of action that has not yet been pursued is the imposition of sanctions, which was discussed at the European Union meeting in the Netherlands over the weekend. EU officials have been asked to draw up a list of possible sanctions and their implications. What is the UK Government's position vis-?-vis such sanctions? Do they support them? If so, but they are being braked by other EU member states, who is slowing this process down?
Mr. Straw: We actively supported operational paragraph 6 of resolution 1556, which specifies that the Security Council will consider imposing measures—sanctions—under article 41 if there is non-compliance with the terms of the resolution. That remains very strongly our position and no one is blocking the imposition of sanctions. The judgment that has to be made is whether sufficient progress has been made to justify delaying the imposition of sanctions for a further period. As I said in my statement, in our discussions in New York, which are taking place right now, we are seeking the establishment of very clear benchmarks—clearer than those in resolution 1556—and timelines against which the progress or otherwise of the

627
Government of Sudan, and of the rebels, can be measured. The clear warning should be given that if there is a major failure to meet those benchmarks and timelines, in our judgment the Security Council would have to impose sanctions at that stage.
Mr. Andrew Mackay:Rightly and inevitably, the shadow of Rwanda and Bosnia hangs over us, and the situation in Darfur is unbelievably dire by any standards. However, if at some point military intervention is desirable and advisable, it should come from the African Union. I cannot conceive of circumstances in which it would be right and proper for our troops, who are already heavily overstretched, to be in that particular theatre.
Mr. Straw: The right hon. Gentleman offers considerable wisdom to the House, and we are indeed working with the African Union. I spoke to one of the AU's leading Foreign Ministers at the weekend, and for most—but not all—members of the AU, there is greater anger at what has happened in Sudan than exists even in this House or in the continents of Europe and the Americas. There is real, profound anger—not only among the non-Arab African states, but among many of the Arab Muslim states as well. They see it as a great test of the African Union itself. We should not put them to the test, but allow them to make their own test for themselves and help them in every way that we can. We are doing so through provision of some monitors and the facilitation that we have already provided to move in, for example, Nigeria's armed forces—and not only a couple of companies, as we have said that we stand ready to provide for many more troops to be moved there. There are already troops from Rwanda and Nigeria in the country. If the African Union asks for our logistical or financial help, by God we are ready to provide it, as are many members of the European Union.
Mr. John Redwood: In view of the daily death toll, the murders, rapes and brutalities,
628
matters are urgent and there is a growing sense of anger throughout the House and outside it. Which are the countries on the Security Council that understand the need for urgent action by the international community. and which are the worst offenders that are holding it all back? I need to be able to tell my constituents why the Government are well intentioned but nothing happens.
Mr. Straw: It is not adequate, but a good deal has happened as a result of the passage of resolution 1556, as I set out in my statement. I am not here today to name names on a contingent basis: we have not reached the point of discussing the terms of the new resolution in open Council. I can tell the right hon. Gentleman that, as a result of intensive diplomacy by the United States Government and the UK, we managed to achieve a position on 31 July where 30 member states—all the European countries, American countries and all three relevant African countries—voted in favour of 1556 and two abstained. The abstainers were China and Pakistan, and he should seek their explanations for the way they voted—it is for them, not for me, to explain. However, it was not because they lacked concern about the situation, but for other reasons.
Andrew Selous: The Foreign Secretary referred to UN resolution 1556 as being tough when he spoke to the House earlier, but is he satisfied that it has sufficient teeth so that the necessary international action can be taken—for example, in policing a no-fly zone?
Mr. Straw: I am satisfied that it was tougher than the Government of the Sudan anticipated at the end of July, because it certainly came as a shock to them and put greater pressure on them. Resolution 1556, as the hon. Gentleman would see if he read the text, does not of itself lay down what sanctions are to be taken. It simply lays down in operational paragraph 6 that the Security Council is ready to consider measures under article 41. It remains to be seen what measures, including the policing of no-fly zones, would be taken. Any such measures would require further specific authorisation by the Security Council under chapter VII.

Points of Order
4.53 pm
Mr. Oliver Heald: On a point of order, Mr. Deputy Speaker. The standard practice is to give the House notice of two weeks' business in advance. So far, however, we have details of business only for this week, although it seems that every national newspaper has been briefed and reported what we will be dealing with next week. In those circumstances, have you had a request from the Leader of the House to make a business statement today? If not, will you confirm that that is not in accordance with the practice of the House and that the Leader of the House should make such a statement? Modernisation should not apply only when it suits the Government.
Mr. George Foulkes: Further to that point of order, Mr. Deputy Speaker. Is it not the case that we should receive information about the subject for Opposition day debates two weeks in advance as well?
Mr. Deputy Speaker: I am not entirely sure how far that supplementary point of order was helpful and I must say to the right hon. Member for Carrick, Cumnock and Doon Valley (Mr. Foulkes) that that matter has been aired before Mr. Speaker in the past. It is a question of balance between topicality and longer-term planning.
I am sure that the hon. Member for North-East Hertfordshire (Mr. Heald) will appreciate that announcements on the business of the House are not a matter controlled by Mr. Speaker. No notice has been given of any intention to make a statement on next week's business any earlier than the usually predicted time. Indeed, it is the Chair's understanding that it is often the hon. Gentleman who receives earlier notice than anyone else of these matters.
Mr. Brian H. Donohoe:On a point of order, Mr. Deputy Speaker. In a previous life, I was a trade union official and took much interest in questions of health and safety. I must admit that, on returning to the House today, I would condemn the
630
conditions that obtain here and that I would not let anyone work in this environment. Worse still, staff have been expected to work here all summer, when the temperature in the offices has sometimes reached 38°C. Surely something must be done to protect everyone who has to work in this environment.
Mr. Deputy Speaker: I appreciate the hon. Gentleman giving notice that he wished to raise this subject. Obviously, it is a matter of great difficulty for hon. Members and for the staff of the House. Necessary long-term work has to be completed and hon. Members were given notice that there would be some inconvenience in the short term, and that it would be impossible to get the building back to normal in time for the September sitting. In certain instances, conditions may have gone beyond what is normally acceptable, but I obviously do not know the details. If the hon. Gentleman is aware of specific concerns, they should be brought to the attention of the Clerk of the House and the Serjeant at Arms so that they can be investigated. I am sure that the whole House will agree that everything possible must be done to safeguard the interests of our staff, and of those who are working on a temporary basis, and to put the building to rights. Ultimately, that will benefit us all.
Mr. Patrick McLoughlin: On a point of order, Mr. Deputy Speaker. I draw your attention to today's Order Paper, and to the 17 written ministerial statements listed on page 2374. Those statements are due to be given today, and they include two—Nos. 12 and 13—that are listed to be made by the Secretary of State for Work and Pensions. However, my understanding is that that person resigned yesterday, so how can he make a statement?
Mr. Deputy Speaker: It is a constitutional feature that Secretaries of State are interchangeable. Indeed, legislation only ever refers to one Secretary of State, even though several in fact exist. However, I am sure that there are adequate deputies in the particular Department of State to which the hon. Gentleman has referred, and it may be that the statements will be made in their names on this occasion. I suspect that the large number of statements being made today is because there has been an accumulation while the House has been in recess over the past few weeks.

Disposals of Public Land and Property (Design Competitions)
4.58 pm
Roger Casale: I beg to move,
That leave be given to bring in a Bill to enable the Secretary of State to require public bodies to hold design competitions when drawing up planning briefs in respect of the disposal of publicly-owned land and property.
The purpose of this Bill is to introduce a systematic and informed approach to the disposal of publicly owned land and property. Most hon. Members will know of cases where public land has been disposed of by central or local government, or by a public body such as an NHS trust. In some cases, that property will have been developed sympathetically, but in too many others, subsequent development will have been poor. Until this Government introduced stricter criteria for their disposal, many school playing fields were lost, and buried under anonymous, badly designed housing. We have all passed examples, and I am sure we have all thought, "Surely that could have been better designed. What a wasted opportunity!"
Such regret is pointless. It is rarely possible to remedy development mistakes, as to do so is always time-consuming and often expensive. The Government now plan to secure £30 billion from the sale of public assets. My Bill is designed to avoid future mistakes, and to make sure that the assets are disposed of in a way that enhances the quality of urban design and of our environment.
The Atkinson Morley hospital site in my constituency is currently owned by the St. George's NHS trust. In 2002 the hospital vacated the site to move to the new Atkinson Morley wing at St. George's hospital. The site comprises a large range of Victorian and more recent health buildings, standing in 17 acres of open land. Initial proposals were put before the local planning authority to convert the existing buildings into residential units and to add a number of new homes. That not only sparked enormous concern among my constituents in relation to the loss of precious open space, but gave rise to the feeling that the current proposals did not do justice to the site and that something better could be done.
I declare an interest as the honorary president of the Wimbledon civic forum, which has established a taskforce bringing together the trust, potential developers, the local authority and other interested parties. I am grateful to the forum for all its hard work, and in particular to its chairman Marcus Beale, an architect who gives me valuable advice on such matters. Marcus and our forum colleagues, including Sir Jack Zunz, established a taskforce that has worked with the London borough of Merton on drawing up a planning brief. I commend the local authority for listening carefully to our views, as well as to other Wimbledon residents and to amenity associations such as Lung and the Wimbledon Society.
In the face of that positive process, the former trust management launched an unsuccessful and expensive challenge to the planning brief and metropolitan open land designation, at a public inquiry held at enormous public cost. It commissioned its own architects to
632
develop proposals for the site, which were inappropriate. Eventually, those plans were thrown out and two years were wasted.
Like the civic forum and local residents, I want a solution that preserves the integrity of the land and achieves an appropriate development sensitive to local needs. The initial proposals from the trust met neither criterion. The overriding duty governing the disposal of public assets is surely the duty to secure best value. In the bad old days, that simply meant trying to get as much money as possible. Now, I am happy to say, a more enlightened spirit is abroad. Best value should be taken to encompass a range of other factors that are not always as readily measurable as pure cash, such as environmental quality, urban design, educational or cultural provision, and the enhancement of public space.
There are encouraging signs. In relation to general issues, the Government are pointing in the direction in which I would wish them to go. Their regeneration body, English Partnerships, has worked well with good developers to leave a mark of quality on former publicly owned land. The millennium village on the Greenwich peninsula, of which my right hon. Friend the Deputy Prime Minister and his colleagues are justly proud, is a great example of how the system can work well. Sadly, however, such cases—particularly those concerning local government assets—are usually the result of happy accident and rely too much on a senior figure who can champion good design being in the right place at the right time. In my constituency example, it was only when new management—a new chief executive and chairman—took over at the trust that new proposals were made that took better account of residents' concerns.
Communities are rarely involved in decisions about the disposal of public assets until it is much too late. There is a fundamental issue of legitimacy, and it is little wonder that local people feel disfranchised when public property is gobbled up by development that they have no desire to see, and in a process in which they seem to have no say. Is it any wonder that local people so often treat development in their community with suspicion? Is it any wonder that local people so often say, "We don't want this—not in my backyard."?
I believe that there is a desire within communities—often latent, but it certainly exists in my community—for better-designed buildings and public space. People want an improved sense of place, and this Bill can give them that. We cannot leave it to chance to answer that demand. We need a systematic approach, and that is what my Bill would seek to achieve in relation to surplus public land and property.
The public sector is one of the biggest architecture clients in the country, and its record as a client has certainly improved. In 2001, my right hon. Friend the Prime Minister launched the better public buildings initiative and committed Ministers to seeking higher standards in public building programmes and becoming champions of good design. Thanks to the assistance of the Commission for Architecture and the Built Environment, a great deal of progress has been made, but the Government are also one of the UK's major

633
landowners, and informed disposal is a critical issue, alongside informed commissioning. My Bill would enable government at all levels to lead by example. It would avoid the sense of disfranchisement and frustration felt by many communities when local public amenities are disposed of, and it would avoid wasted opportunities to involve them at an early stage. Design competitions offer a flexible, well-structured, transparent and auditable process. Community representatives can work alongside other interested parties and experts in drawing up a competition brief, sitting on selection panels and aiding selections. A well-publicised and well-organised competition can include opportunities for the wider community to have its say through consultations, exhibitions and workshops.
The Royal Institute of British Architects runs the most respected and experienced architectural competition system in the country. Iconic buildings such as the Baltic Centre for Contemporary Art in Gateshead and the Evelina children's hospital across the Thames at St. Thomas's are the results of RIBA-organised competitions, alongside many projects of every size and type around the country. That is a record of success that ought to be spread as widely as possible. The competitive process can be used to throw up a range of innovative design concepts, master plans or detailed solutions for particular sites, involving the local community at every stage. Alternative visions can be set out, debated and discussed. By exploring possible options, we can avoid embarking on a course which all involved may later live to regret.
How would my Bill work in practice? There would have to be a trigger for a competition. First, the property would have to be on a public asset register of the kind that already exist. Thereafter I envisage a system analogous to the call-in powers enjoyed by my right hon. Friend the Deputy Prime Minister in respect of individual planning decisions. Acting on advice from local planning authorities or other statutory advisers—either the CABE or English Heritage—the Deputy Prime Minister would then have the power to order a competition. The Secretary of State should have discretion, but for the most important or sensitive sites I suggest a presumption in favour of ordering a design
634
competition. Elsewhere, his decision would be affected by the weight of advice coming from his statutory and other advisers.
Some developers may resent and resist such an initiative, but enlightened developers are already welcoming public involvement and community ownership as important factors for the success of their project. My Bill is all about flushing out bad development, which should not go ahead, before it is too late. Surely a well-thought-out development would stand up to the public and critical scrutiny afforded by the design competition process.
Had the proposed measure been applied to the Atkinson Morley hospital site, a great deal of time and money could have been spared, the local community could have been properly involved in the disposal of a public asset, and we could have ensured that the resulting development was the best possible solution in terms of its design—something that we still hope to achieve. A good design, which made the most of the site and enhanced its setting, would deliver value and be seen to have done so in a transparent and accountable way. Such competition would not only add value to the disposal of sites but save money because the disputes that often occur as a result of divisions and contention over the disposal of a site can weigh heavily on the public purse.
In short, my Bill offers a systematic approach to delivering an informed and enlightened disposal system for public land. I commend the Bill to the House.
Question put and agreed to.
Bill ordered to be brought in by Roger Casale, Peter Bottomley, Mrs. Anne Campbell, Sir Sydney Chapman, Mr. Mike Hancock, Alan Howarth, Ms Christine Russell, Mr. Derek Wyatt and Richard Younger-Ross.

DISPOSALS OF PUBLIC LAND AND PROPERTY (DESIGN COMPETITIONS)
Roger Casale accordingly presented a Bill to enable the Secretary of State to require public bodies to hold design competitions when drawing up planning briefs in respect of the disposal of publicly owned land and property: And the same was read the First time; and ordered to be read a Second time on Friday 15 October, and to be printed [Bill 148].
Orders of the Day

  Companies (Audit, Investigations and Community Enterprise) Bill [Lords]
  Order for Second Reading read.
  5.9 pm
  The Minister for Industry and the Regions (Jacqui Smith): I beg to move, That the Bill be now read a Second time.
  The Bill comes to us having been thoroughly and expertly examined in the other place. Their lordships debated the Bill for some 27 hours and made 67 amendments, many of which were, at least in part, in response to points made by Opposition parties. I hope that this House can continue to deal with the Bill in such a constructive manner.
  Good company law needs to provide the framework for enterprise—to provide a legal form for organisations to help them to do business, to build prosperity, and to create jobs and opportunity in our economy. Company law has a long history. Before Gladstone's Joint Stock Companies Act was passed in 1844, it was very difficult to form a company as a body corporate. Once it became possible to incorporate a company simply by registration, and especially when limited liability became available a decade later, the company form very quickly gained in popularity, and today there are some 1.8 million companies on the register in Great Britain.
  We all need to feel confident in our dealings with business. As investors, creditors and consumers, we need to know that our money is secure, and to have trust in corporate Britain. Our company regulation is designed to balance the freedoms that promote enterprise and wealth creation with the necessary minimum safeguards to protect investors, creditors and others who do business with companies. The law therefore requires companies to comply with certain requirements and make available specified information. Almost all companies also opt for limited liability, meaning that if a company becomes insolvent, its shareholders are liable only for the amount that they have agreed to invest in the company. Limited liability companies must therefore provide additional financial information, so that those doing business with them can judge their soundness.
  A sound system of company regulation is an important source of competitive advantage. By matching the degree of control to the amount of risk to the economy and society, a good system will encourage business start-ups and minimise regulatory burdens. It will ensure confidence in companies and financial markets and thus lower the cost of capital.
  Company law not only sets out the conditions for incorporation and limited liability. As the author of one book on company law puts it, there are
  "arguments for state-provided default solutions, so that each set of contracting parties"
  does
  "not have to re-invent the wheel".
  The Bill sits firmly in the tradition of statutes that facilitate the framework for enterprise and set the terms of the company bargain. Part 2 creates a new type of
  636
  company, the community interest company, as a tailor-made vehicle for social enterprise—for businesses trading with social objectives rather than to make private profit. We believe that social enterprises can play a distinct and valuable role in creating a stronger, sustainable and socially inclusive economy. They can help to drive up productivity and competitiveness, enable individuals and communities to work towards regenerating their local neighbourhoods, develop new ways to deliver goods and services, and encourage active citizenship. Social enterprises also help to drive innovation, not only in relation to their products and services, but in relation to the way in which they operate.
  Research by the Small Business Service found that social enterprises made both a substantial contribution to local economic development, with 86 per cent creating additional jobs, and a wider social contribution—for example, involving volunteers and providing training and experience for socially excluded people. Social enterprises include Bulwell Hall Community Garden, a business that provides training opportunities for the long-term unemployed and work placements in gardens and allotments; at the same time, it grows and sells healthy produce and creates community space. Bulwell Hall supported the principle of the community interest company and agreed that it would help to raise the profile of the sector and help others to understand social enterprises. That organisation and others in the social enterprise sector told us that they wanted the advantages of the company form but found it difficult and expensive to set up a company with the special features that they needed, such as safeguarding the company's assets. Thus, we are doing exactly what the textbook prescribes and providing a default solution so that people who start a company for social enterprise do not have to reinvent the wheel. That will make it easier to set up social enterprises and will, over time, encourage the development of the social enterprise sector, which has much to offer our communities and economy.
  The community interest company will be a new and additional choice for social enterprises. It is not meant to replace other options such as charities, or the industrial and provident society, which is the form used by many co-operatives. Indeed, the Government are committed to modernising all legal options used by voluntary and community organisations and helping people to choose their most appropriate option. The special value of the community interest company is that it will offer the flexibility of the company form, yet be more suitable for many social enterprises than existing types of companies. Responses to consultations show that there is about 80 per cent. support for the idea of the community interest company, and it is supported by bodies including the Social Enterprise Coalition, the National Council for Voluntary Organisations and the Association of Charitable Foundations.
  Again, the community interest company is based on the idea of a bargain, and part 2 of the Bill creates the legislative basis for that balance. The people who run a community interest company will voluntarily accept certain constraints and a higher level of supervision and, in return, the company will acquire a status that signals to customers, investors, employees and bankers that the business is run for the benefit of the community, that its profits are wholly or largely applied for the benefit of the

  637
  community, that its assets are protected for the benefit of the community and that it is subject to oversight from a regulator. The regulator will have the task of maintaining confidence in community interest companies and will also promote awareness of the potential of the new type of company.
  Bob Spink: Of course we are all in favour of social enterprise and want the new CICs to succeed. How many of the new companies does the Minister expect to be formed over the first year and over the first five years? What will be the cost of the regulator for such companies?
  Jacqui Smith: I genuinely do not know how many companies will be formed over the first year or five years. However, we have already received general support for the measure and from the sector, and specific requests for information from enterprises that think that the provision might be appropriate for them. Such enterprises range from educational companies to companies that provide community services, such as community transport companies. Many bodies think that the measure will be beneficial. As we made it clear in the regulatory impact assessment—I will correct myself if I am wrong—we suggest that the set-up costs will be about £500,000, that the cost of the regulator will be about £150,000 a year and that the cost of setting up an individual community interest company will be about —40.
  Part 1 of the Bill will strengthen existing provisions on company accounts and audit, on the regulatory system for auditors and on company investigations in the wake of the Enron and WorldCom scandals. Although those scandals occurred in the United States, they raised fundamental questions about the reliability of the accounting and auditing system. However, we did not rush to legislate here. Instead the Government, acting jointly with business and the accounting profession, reviewed the whole British system of controls on financial reporting in the light of lessons learned from the American problems. We reviewed our corporate governance, company law and the role of the auditor in a measured and inclusive way. We consulted widely, listened to experts and set up the co-ordinating group on audit and accounting to consider issues of financial reporting and auditor independence. Of course, our system comprises not only company law itself but those parts of the financial services regulatory system that set standards for companies listed on the stock exchange. The FSA's listing rules give legal force to the Financial Reporting Council's combined code on corporate governance, which was revised last year, with the Government's full support, following reviews by Sir Derek Higgs and Sir Robert Smith.
  Sir Robert Smith's report called for the strengthening of the role of the audit committee. In addition to recommending that all members of the audit committee be independent, Smith recommended that at least one member should have significant recent and relevant financial experience. Those recommendations, along with Sir Derek Higgs's proposals on the role and
  638
  strengthened effectiveness of non-executive directors, provide a sound basis for improvements in audit and in our boardrooms.
  Mr. David Drew: If my right hon. Friend does not mind my saying so, something is missing from the Bill, as the administration process needs to be made more transparent. Accountants and auditors play a specialist role in running companies in difficulties, but the lack of transparency means that the companies, their workers and pensioners are completely in the hands of the administrators. Would my right hon. Friend care to look at this matter to see if we can open up that secret garden, as insolvency practitioners can do enormous damage to our country—let alone individual companies?
  Jacqui Smith: My hon. Friend is right that that is not within the remit of the Bill, but I, like him, have dealt with constituency cases that demonstrated that we need to shed light on the process for the sake of people's jobs. I cannot undertake to look at that matter in this Bill, but as is the case in a range of areas in corporate governance and financial reporting, we will ensure that the greatest amount of transparency and information are provided so that we can serve the best interests of businesses and the people who depend on them for their jobs and livelihood.
  I was outlining the review process, which confirmed that the British system of company regulation was fundamentally sound. The priorities for change, however, were to build independence, transparency and high standards of corporate governance to keep Britain at the forefront of company regulation. Many of the recommended changes were aimed at companies and accountants and did not require legislation. Audit firms, for example, have agreed to rotate at regular intervals the lead and other audit partners working on a company's audit. Non-legislative changes, including the reform of the combined code I mentioned earlier, work with the targeted statutory provisions in this Bill to create a measured, well-considered and thorough response to the problems highlighted by Enron and WorldCom. The review ensured that there was wide consultation leading to much consensus, both on what should be done and how it should be done. In particular, there was much agreement that, wherever possible, transparency was preferable to inflexible rules.
  Lynne Jones: The Bill merely proposes rotating the partners of an auditing company. Is my right hon. Friend satisfied that that is sufficient, as it is hardly likely that a partner who replaces his colleague as auditor will criticise him?
  Jacqui Smith: We started from the belief that auditors are professionals who are committed to their responsibilities to company shareholders. My hon. Friend may be suggesting that an alternative is to make it a statutory or compulsory requirement to rotate the firm. No other European country has undertaken to do that.
  The emphasis on good practice already adopted by the profession, such as rotating the audit partner, is likely to bring about improvements. My hon. Friend says that that is the only thing the Bill does, but that is

  639
  not the case. We have taken non-legislative action, as well as legislative action in the Bill, to create a comprehensive range of improvements with respect to audit, in terms of the independence of the regulation of auditors, the recommendations that Sir Robert Smith made in his report, which are now enshrined in the combined code, and the rotation of audit partners, as I outlined. All those together help to build the improvements in the quality of audit which—I agree with my hon. Friend—we want to see.
  Bob Spink: With all due respect to the right hon. Lady, I hardly see how she can pass the Bill off as providing a comprehensive range of solutions to the problems in company law. The Bill simply tinkers at the edges. It would be far better to tackle the wholesale reform of company law, rather than introducing piecemeal solutions such as the Bill.
  Jacqui Smith: The hon. Gentleman accuses me of doing something that I do not think I did. I did not say that the Bill was a wholesale reform of company law. I said that, together with the non-legislative measures taken following the reviews that the Government carried out, it brought about a comprehensive change in the system of audit regulation and independence. That is what the Bill focuses on, particularly the role of auditors. It is right that we did that in response to the concerns raised internationally and certainly in the House after the Enron and WorldCom scandals. As I suggested, there is a fundamental need to ensure that we have faith in our financial reporting arid our corporate governance. Of course it is important that we also take action more broadly on company law reform. That is why we instituted the company law review and why we will introduce more fundamental legislation as parliamentary time allows.
  To build on what I was saying to my hon. Friend the Member for Birmingham, Selly Oak (Lynne Jones) about the scale of what is being changed with respect to audit, the Bill, in line with the principle of transparency, extends the requirements for disclosure of the non-audit services that a company buys from its auditors. It completes the review process by giving legal underpinning to many of the changes that have already taken place.
  Lynne Jones: My right hon. Friend is correct—as she would be, being the Minister in charge of the Bill—that there are many measures in the Bill, but are not most of them very weak? Again she mentions non-audit activities. The United States legislation passed in response to the Enron scandal, the Sarbanes-Oxley Act 2002, prohibits certain non-audit functions or requires the rest of them to be authorised by the audit committee. Why are our provisions so much weaker than those in the US?
  Jacqui Smith: Given the experience of the US and the fact that the Enron and WorldCom scandals happened there, it can hardly be argued that the basis of our regulatory system is much weaker than theirs. It is true that the changes made in the Sarbanes-Oxley legislation with respect to non-audit services took a different route
  640
  from ours. That Act lists a range of non-audit services which it would be illegal for the auditor to provide. Interestingly enough, the list is not as wide-ranging as some believe—it does not include tax advice, for example. That is not forbidden in the Sarbanes-Oxley legislation. We took a different approach, in line with our principles-based approach to company legislation, so that, for example, under the new ethical standards drafted by the Auditing Practices Board and currently out for consultation, it would not be appropriate in this country to provide alongside audit many of the non-audit services that are contained in the Sarbanes-Oxley Act. Alongside that, we have clarified the detail that companies must provide to their shareholders on types of non-audit services and money spent on non-audit services.
  Mr. Austin Mitchell: Will the Minister give way?
  Jacqui Smith: I shall give way in a moment.
  We can take one of two approaches to audit regulation. We can take a rules-based, legislative approach, which was adopted in the United States, or we can build on the principle-based approach that we already have in the UK. My hon. Friends push for more legislation, but I ask them to consider which of those approaches has been most successful up to this point.
  Mr. Mitchell rose—
  Mr. Jim Cousins rose—
  Mr. Deputy Speaker (Sir Alan Haselhurst): Order. It would help if the right hon. Lady gave an indication.
  Mr. Cousins: The Minister knows that the Sarbanes-Oxley Act does not contain a system of exemptions for British companies that are registered and quoted in the United States, so the provision about the separation of audit and non-audit services will be imported into the British system by that route. Has she closed her mind to a statutory provision on the separation of audit and non-audit services, because possible conflicts lie ahead if she has?
  Jacqui Smith: We have not closed our minds to anything, which helps us to improve confidence in both financial reporting and the quality of audit. My hon. Friend is right that the Sarbanes-Oxley Act has implications for the operation of UK companies, and it has potential implications for UK audit companies operating in the US. Nevertheless, that does not mean that the US and the UK must take the same approach to delivering the same objective. As I suggested earlier, evidence suggests that our approach has successfully achieved the objectives of effective auditing and confidence in financial reporting. Confidence in the quality of auditing depends on high standards for the training and supervision of auditors, high standards of practice and ethics and an independent system for investigating and disciplining auditors who fall short of those standards.

  641
  A clear recommendation from the reviews was that the regulatory regime for the accountancy and audit profession could be simplified, improved and made more visibly independent by combining the bodies under the Accountancy Foundation with those under the Financial Reporting Council. That has created a single, independent group of organisations responsible for the recognition and supervision of the professional accounting and audit bodies, the preparation of accounting and auditing standards and for ensuring that major companies' accounts comply with the law and accounting standards.
  That reorganisation has already taken place with the profession's full involvement and the Government's full support. The Bill makes the necessary amendments to legislation to support those organisational changes and bolster the independence of those arrangements. In particular, it requires that ethical standards, quality control and disciplinary action for audits of public interest companies be independent of the professional bodies themselves.
  The Bill also contains measures to help auditors do their jobs properly and effectively. It extends the range of people from whom auditors are entitled to obtain information and, in effect, requires directors to state that they have not withheld relevant information from auditors. We redrafted that provision in response to concerns expressed while the Bill was in another place, and it now sends a clear and useful signal to directors and auditors, while avoiding placing an unreasonable duty on, for example, non-executive directors.
  In addition, the Bill contains important clauses aimed at strengthening compliance with the law and standards on accounts, which, again, largely involves implementing recommendations from the post-Enron reviews. The Bill strengthens the body responsible for compliance—in practice, the financial reporting review panel, which is part of the Financial Reporting Council group. It will, for example, enable the Inland Revenue to pass to the panel information to help it in its function of securing compliance with accounting requirements. The panel will also be able to require information to assist it in its inquiries, and its scope will be extended to cover interim as well as annual reports.
  Of course, the vast majority of British companies conduct their business honestly and produce accurate financial reports. They will seldom, if ever, be subject to enforcement action by bodies such as the financial reporting review panel or the DTI's companies investigation branch. However, a very small minority of companies do seek to abuse the system and we need to take firm and effective action against them. Their misdeeds can harm not only their own customers, suppliers, employees, creditors and investors, but confidence in companies generally. That is why the Bill contains some amendments to the powers of company inspectors and investigators.
  In a typical year, the companies investigation branch receives more than 5,000 complaints about companies. All are examined to see whether they merit formal investigation. Some are passed to other bodies, such as trading standards authorities, the Financial Services Authority or the police. Each year, the DTI itself investigates some 350 companies out of the total of 1.8 million. Where an investigation reveals significant wrongdoing, further action can be taken. In 2002–03,
  642
  following DTI investigations, 80 companies were wound up by the courts, 17 directors were disqualified, and seven individuals were convicted of offences. Moreover, my right hon. Friend the Secretary of State can disclose the otherwise confidential information resulting from investigations to a regulatory or professional body, such as the FSA, the financial reporting review panel or the Accountancy Investigation and Discipline Board, so that it may take action where appropriate.
  The amendments in the Bill to increase investigators' powers—for example, to enter and remain on premises and require documents and information, including from third parties—are modest and remain subject to safeguards to protect human rights, legal privilege and banking confidentiality. But they are necessary to prevent a very small number of people from exploiting limitations in the existing law so as to frustrate investigations. That small minority gives companies a bad name. Indeed, victims are often other companies, as well as other organisations and individuals. These changes are therefore necessary and urgent, and it is right to include them in part 1, which is about maintaining and improving standards of financial reporting and preventing abuse.
  I turn to the subject of director and auditor liability, on which the Government published a consultative document in December last year. That was in response to calls from some quarters to change the law dating from the 1920s that prohibits companies from agreeing to limit the liability of their directors or auditors. We received more than 120 responses to the consultation, from a wide cross-section of British business. The Government are grateful to all those who took the time and trouble to respond to the consultation. My right hon. Friend the Secretary of State set out our response in a written statement this morning. I do not intend to repeat that statement, but it explains that we propose to table amendments in Committee to tackle concerns that good candidates for directorships are being increasingly deterred by the risk of lengthy and expensive legal proceedings. I shall ensure that hon. Members on both sides of the House receive those amendments as soon as possible.
  The statement also explains why the Government do not propose to introduce a cap on auditor liability. However, we remain committed to improving the operation of the audit market. We will continue to consider any proposals, including the possibility of limiting liability on a proportionate basis by contract, which can be demonstrated significantly to enhance competition and to improve quality in the audit market. We urge auditors, business and investors to work together to examine whether proposals for a system of proportionate liability via contract are practical and desirable.
  Mr. Cousins: I apologise for interrupting my right hon. Friend's flow on an important point, which is at the heart of the Bill. She has outlined a system whereby audit liability could be limited by contract. That was in this morning's important statement. Do I understand correctly that any reflection of that in legislation will not be for the Bill but for a future date and that her

  643
  assurance that the Government have no proposals on restrictions or caps on auditor liability will remain in full for the lifetime of the Bill?
  Jacqui Smith: I said that we would not want to act unless there was evidence that that would improve quality in the audit market or support competition. However, the ball is now in the court of the auditors, business people and investors to ascertain whether that would be desirable or practical. The speed of the considerations and those of Government would determine when, if and in what legislation the proposal was presented.
  Mr. Mark Hoban: I am grateful to the Minister for clarifying the statement that the Secretary of State made this morning. Could she set out more clearly whether, if industry and the professions come together and reach a consensus on how to limit liability by means of proportion, the Government will accept their conclusions, subject to their being capable of translation into law? Is it down to professions and the industry to drive the process forward? Will the Government accept their conclusions?
  Jacqui Smith: I do not believe that the Government would ever give carte blanche and simply accept conclusions without careful consideration. We would want to put our objectives at the centre of that consideration. They are that companies in this country can find and get access to suitable audit, that the audit quality continues to be driven up and that we improve the competitive position in the audit market. If it is possible for us to find a route that enables us to deal with the auditors' concerns and support could be built for it with business and the investor community, I have undertaken to consider how, when and if it could be included in legislation.
  Mr. Andrew Mitchell: I want to cover the matter in my remarks later. However, in view of the comments from the hon. Member for Newcastle upon Tyne, Central (Mr. Cousins) and my hon. Friend the Member for Fareham (Mr. Hoban), will the Minister explain why this morning's statement contained no clear analysis of the responses that were received to the consultation process? Will she make available to hon. Members an analysis of all the responses so that we can judge whether there might be the sort of agreement to which both hon. Members referred?
  Jacqui Smith: I shall ensure that, in the next couple of
  days, an analysis of the responses to the consultation is made available to all hon. Members. It is worth saying that the option was not presented in the consultation, but it has now rightly been proposed, so we need to examine it in detail. I undertake to ensure that the analysis of the consultation is made available to all hon. Members as soon as possible.
  Company law is fundamental to our economic success. It is a large and complex subject that has developed somewhat haphazardly in the past 150 years. It has been further complicated in recent years by the
  644
  addition of European legislation on some aspects, and the task of updating and, wherever possible, simplifying that body of law has proved challenging. We are now close to completing it and we intend to restructure the law in line with the principle that we set out from the beginning: think small first. Instead of complex and detailed provisions, coupled with exemptions and relaxation for smaller companies, often hidden away in different parts of the legislation, the law will start with the basic requirements for all companies and subsequently set out any necessary additional requirements for larger companies. That will help to make the law clearer and more accessible for all, but especially for smaller companies and their advisers. It will be a valuable reform and a good example of better regulation.
  As I suggested earlier, we are working to modernise company law in the light of the recommendations of the independent company law review. We intend to publish a draft Bill for consultation and then introduce it as parliamentary time allows. We are already consulting on a key element of the modernisation proposals, namely powers to reform and restate company law so that it remains flexible and accessible to business, especially smaller companies. We have also consulted on many other elements, as did the company law review itself. Topics include directors' duties, annual general meetings and the requirement for company secretaries, and we intend to consult on a new additional element, namely the implementation of the EU takeovers directive.
  The Bill makes some important improvements, facilitating a new type of company and giving further opportunities to the social entrepreneurs who are doing so much to build new ways of providing services and doing business. In improving our audit regime and our investigations powers, it will help to maintain and improve the integrity of financial reporting, further underpinning confidence and trust in markets, with higher standards and, importantly, an effective enforcement regime for when things go wrong. It will build on the remarkable success of the company form, which is the keystone of economies throughout the world, and ensure that this country's corporate structures and regulation remain one of our key competitive advantages. I commend the Bill to the House.
  5.46 pm
  Mr. Andrew Mitchell: I draw the House's attention to my interests, which are clearly laid out in the register.
  In her most interesting speech, the Minister inadvertently emphasised the fact that this is a very disappointing Bill. In opening, she referred to the joint stock company and to what Gladstone had said about it. When the Bill received its Second Reading in the other place, Lord Sainsbury, quoting a recent publication, said that the joint stock company was
  "the greatest single discovery of modern times".—[Official Report, House of Lords, 8 January 2004; Vol. 656, c. 258.]
  It is certainly true that the company has a claim on such an accolade, but it has been severely let down by this Government.
  As my hon. Friend the Member for Castle Point (Bob Spink) asked in an intervention, where is the long-promised, comprehensive and much-needed reform of

  645
  company law? Did not the distinguished men and women who made up the company law review produce and deliver their two-volume report to the Department as long ago as 2001? Why are we abusing the parliamentary timetable with this partial and emaciated little Bill? How long does she think it will be before her Department is able to secure once again parliamentary time for such matters?
  The Bill in no way provides the comprehensive, much-needed and long-promised reform of company law. Despite the Secretary of State's assertion that
  "the law needs to change. It needs to modernise and reform. It needs to be fit for the twenty-first century and beyond",
  the Government have instead chosen to amend and add yet another layer of complexity to existing company law while tackling only a very small area of reform. Despite the excellent work of the 15 members of the company law review group, the Government have failed to tackle wholesale reform as promised.
  If the Government had devoted sufficient resources following the presentation of the report in July 2001, we would not now be debating the Bill. Instead, we would be tackling a Bill that would streamline procedures for all companies, especially smaller companies, making the law clearer, more accessible and responsive to developments, strengthening trust in UK markets and its companies and developing an even more effective UK corporate law and governance regime. Instead, more than three years later, we are dealing with a Bill that cobbles together bits and pieces and adds yet another layer of complexity and confusion.
  I draw the House's attention to page 19 and clause 15, which tackles the
  "Application of provisions inserted by sections 11 and 12 to bodies appointed under section 14".
  The entire page is comprised of references to the Companies Act 1985. It does not read as prose, but as a series of numbers so complex and inter-related as to obscure the implications and meaning.
  The second key point about the Bill is equally worrying. We remain concerned that the Government have no concept of the damage excessive regulation and bureaucracy do to UK plc and of the difference between the two separate concepts of fraud and risk. As a result, Labour continues to impose burdens on business that frustrate the honest and may not much impede the dishonest.
  Where the Government are targeting fraud and wrongdoing, we will, of course, support them, but when the Bill imposes burdens on business that are little more than box ticking and that discourage entrepreneurs and entrepreneurialism, we will oppose them.
  During the recess, hon. Members may have enjoyed a series of articles about the British economy by Anatole Kaletsky. He explains how its current strength is derived from a number of reforms, made principally, it has to be said, by the last Conservative Government, but also by this Government. However, with words that the Minister would do well to heed, he warns that red tape and bureaucracy—hugely increased and promoted by this Government—are seriously damaging the British economy, saying that
  "proliferating regulation, especially employment regulation, is now probably the greatest threat to the long-term growth of living standards in Britain. Over-regulation is also a greater handicap for
  646
  exporters than the value of sterling, the scale of the consumer boom or any of the other macroeconomics 'blunders' attacked by the manufacturing lobbies. Anyone concerned about the sustainability of Britain's balance of payments should forget about the Bank of England and Gordon Brown and worry instead about the threats to Britain's export earnings from heavy-handed regulation."
  Anatole Kaletsky is entirely right.
  The Government's failures in those two areas—delivering on company law reform and understanding the damage to business caused by excessive regulation and bureaucracy—are matched in part 2 by our third major concern, which is the cack-handed way in which they are seeking to introduce the community interest company. This new legal form for charitable and not-for-profit enterprises is peculiarly tacked on to an audits and investigations Bill, rather than forming part of the long-awaited Charities Bill, which is due to come before Parliament this very autumn and is now receiving pre-legislative scrutiny.
  It would have been far better to allow the major debate on charity law reform to run its course before engaging in this minor debate on CICs. We do not even know how CICs will fit into the new regime once major reform has taken place. I commend to the Minister the opportunity to study the charitable incorporated organisations—the CIOs—planned for the Charities Bill. This is yet another example of the cart being placed before the horse.
  I have the honour to sit on the Committee of both Houses that is examining the draft charities legislation under the able chairmanship of the right hon. Member for Darlington (Mr. Milburn). I hope that we can improve the draft legislation that the Government have helpfully already published, so what a remarkable decision it is to introduce the CIC in this Bill and at this time, rather than wait until the eminently sensible discussions and consultations on the wider issues affecting charities have been concluded. This is yet another example of Government incompetence, their abuse of the House of Commons and their failure to live up to their high aspiration for joined-up government.
  Fourthly, the Bill, which was introduced in November 2003 and imposes more liabilities on directors, completely pre-empts and makes a mockery of the Government consultation exercise on auditor and director liability concluded in March this year and on which they have only this morning rushed out a statement. Thorough consultation before the drafting and publication of the Bill would have been far more appropriate and would have led, one hopes, to a more tightly and better-drafted Bill that was less in need of correction and amendment.
  As the Bill is an amalgam of leftovers and add-ons, it is very difficult to appreciate the full impact that it will have. That is particularly true of the measures designed to strengthen corporate governance and audit practice, some of which the Minister mentioned. The Bill is only the tip of the iceberg—the tip that requires legislation—but there is a great deal going on elsewhere that does not require or has not required legislation.
  Paragraph 3 of the original explanatory notes states:
  "These legislative changes…are intended to complement a package of non-legislative measures designed to strengthen corporate governance and audit practice".

  647
  The non-legislative measures are very important. They include changes to the combined code on corporate governance in July 2003 following a review by Sir Derek Higgs of the role and effectiveness of non-executive directors, Sir Robert Smith's guidance on audit committees in January 2003 and the Financial Reporting Council taking over the functions of the former Accountancy Foundation.
  No one can be in any doubt about how very complicated these issues are, and especially about how the Bill relates to the wider package of reforms and changes. We need to ensure that the parameters of these legislative provisions are appropriate, given that wider framework. A great deal remains to be done. Not only do we continue to await wholesale reform of company law, but the Government still have not tackled issues such as auditor liability. I hope to say something about that at the end of my remarks that may even be helpful to Ministers.
  In the rush to push the Bill through Parliament, the Government have produced a measure that is deeply flawed and often poorly drafted. I am particularly alarmed that so many provisions rely on secondary legislation and additional and often undetermined regulations. There are no fewer than 81 references to further or existing regulations. Even in the smaller second part of the Bill, which tackles the CICs, further regulation is required under—at the very least—clauses 27, 28, 29, 31, 32, 33, 34, 44 and 55. We are all grateful to the House of Lords, and especially to Lord Hodgson and Lord Glentoran for their thorough scrutiny of the Bill, which led to much-needed amendments and clarifications. Here, at last, we can say something more positive.
  On reading the list of amendments accepted on Report in the other place, I was relieved to see that the Government have made several concessions, which go some way to improving the legislation. About half the Government amendments were a response to points made by the Opposition during consideration of the Bill. In particular, we are pleased to see the original clause 9 replaced entirely, in response to Lord Hodgson's argument that the original wording—relating to the statement of disclosure to auditors—placed an onerous and unacceptable burden on directors.
  We remain concerned, however, that the introduction of a new clause 9 does not go far enough. Although directors are now provided with some defence, there is not sufficient distinction between the role and responsibilities of executive and non-executive directors. Under company law, all directors are considered equally responsible for the company and therefore equally liable; new clause 9 does not undermine that. However, in reality a non-executive director does not play the same role as an executive director, nor is he as well informed about the operations of the company. He must rely on his co-directors, yet the Bill fails to recognise that.
  Any person who is thinking of taking on such a role will ask themselves, "If I am going to take on this non-executive role, what are the risks involved and possible costs?" If we want to encourage good-quality people to take on those positions, we must ensure that the risk
  648
  involved does not outweigh any potential reward. As the Bill stands, the role of a non-executive director will become increasingly undesirable.
  Picking on directors or auditors may excite the juices of some Labour Members, but there are very serious issues at stake. The potential personal liability of a director of a public company is out of all proportion to any rewards he or she may receive. That simply means that good people will not come forward to serve on major public boards. We are moving towards a situation where experienced independent non-executive directors will not be willing or available to come forward just when we are all agreed that company boards should have more independent non-executives on them to promote good corporate governance.
  As Lord Hodgson said in the other place, we are nearing the point when the only qualification for being a non-executive director is to know nothing about it. I shall come to auditors later, but our argument about capping potential liability of directors remains compelling, as the Government have begun to accept in their response to the consultation document today.
  We have also made some progress in other areas. We are glad that the Government have accepted the Opposition argument that co-operation between the FRC and the accounting profession is vital, and that clause 2 has been amended to ensure that co-operation is not misconstrued as compromising the independence of arrangements under the FRC structure. The original clause ran the risk of preventing senior members of the accounting profession from sitting on the council or its board of directors, providing much needed experience and advice. We can all agree that co-operation is essential for the smooth running of the new system.
  I will not tire the House with a full list of the changes that have been secured, but it will be a relief to those thinking of setting up a CIC to learn that clause 23 of the original Bill—now clause 24—has been amended, replacing the original and vague wording with a clearer and more precise concept of the CIC and the issues surrounding charitable status. They will also find a number of amendments accepted to clause 28, which places a cap on distributions and interest, creating an asset lock relating to restrictions on distributions; distribution limits, which are now to be set according to "descriptions" of CICs, based on sector or geographical area rather than each CIC; and the removal of specific powers from the Secretary of State relating to the manner in which the regulator is to review the limits on distributions. Furthermore, greater transparency will be achieved as a result of the Government's support for an amendment to clause 32, which will require that information on directors' remuneration must be included in the annual report of any CIC.
  That is not a complete list, but I hope that it might show that the Government continue to have an open mind about other necessary amendments, on which basis I advise my right hon. and hon. Friends not to oppose this Bill on Second Reading today. I can tell the Government, however, that our position on Third Reading will depend on whether the spirit of cooperation evident on Report in the other place survives the Bill's translation to Committee and Report in this place.

  649
  I turn now to our concerns about the Bill, and it might help the Minister to consider them before they are discussed in Committee. We remain particularly concerned about six aspects.
  First, on the independent monitoring of major audits, the Bill's scope is too broad. The aim of part 1 is to reinforce faith in the auditing and investigatory regime and to protect the UK economy from the impact of a crisis similar to that experienced in the United States. The Government would have us believe that that can be achieved only by introducing the independent monitoring of audits of all listed companies—excluding the alternative investment market—and other major companies. However—this point has been made many times in the Lords, albeit with little effect on the Government—the same protection could be achieved by limiting the compass of the term "major audit" to the constituents of the FTSE 350 index, which, after all, cover 96.5 per cent. of the whole market capitalisation.
  In that way, we may avoid excessive regulation and supervision where it is not warranted, and instead focus attention and resources on the areas where an audit failure is likely to have the most significant adverse effect and impact on the economy. That is not a choice between monitoring and not monitoring, but a choice between an independent body monitoring audits of major companies and the regulatory bodies continuing to regulate the audits of other companies. As the law stands, accountancy firms have a statutory obligation to carry out company audits in accordance with the rules set down by the recognised supervisory body, and that body has a duty to monitor it. That situation will continue.
  The imposition of statutory regulation under the FRC to complement the already existing self-regulation through the recognised supervisory bodies runs the risk of creating a complicated, multi-layered regulatory system. A more cautious and limited approach would be better and would achieve very similar results.
  Secondly, on the levy, there is a considerable danger that part 1 will overburden businesses, leaving them with little hope of redress. In particular, the ability of the Secretary of State, under clause 17, to increase the levy payable, without limit, to cover the costs of the FRC could see listed companies' contributions rise inexorably. The Government have already predicted a 400 per cent. increase from £400 to at least £1,600 by 2006.
  A safeguard is necessary in the event that the current funding arrangements, which are purely voluntary, break down. The voluntary arrangements have seen the running costs of the Financial Reporting Council
  "broadly shared by Government, business, and the professional accountancy bodies",
  but there is no guarantee that the Government will continue to pay one third of the FRC's costs. They may choose, particularly in a cash-strapped year, to pass the costs on to those that pay the levy, and there will be little that anyone can do to prevent it.
  We are particularly concerned that the levy may become an onerous burden for the smaller listed companies. Irrespective of their size in terms of turnover, all listed companies, simply because they are listed, will face the exact same bill as decided by the Secretary of State. The impact, however, will not be the
  650
  same. Selecting those that will pay the levy by relying on a criterion of being listed is incredibly crude. Lord Evans of Temple Guiting assured us in the other place that it is not the Government's
  "intention to use the levy power to change this balance of funding"—[Official Report, House of Lords, 22 March 2004; Vol. 659, c. GC242.]
  He can only speak for now, however; his word is not a safeguard against the future.
  Thirdly, a wider group of people could face serious criminal penalties for failing to provide necessary information—
  Mr. Cousins: To return to the hon. Gentleman's previous point, is the implication of his remark that he would want a cap on expenditure on regulation, and that he would want to build that into the Bill? That would be a very significant step.
  Mr. Mitchell: Indeed. However, I assure the hon. Gentleman that that is not my intention. I want to see the Government committed to paying their fair share, along with the business community. They cannot in one year decide that they are not going to pay it, and leave the cost entirely to the business community as a result.
  My third point relates to the wider group of people who could face serious criminal penalties for failing to provide necessary criminal information. There is concern that the correct balance has not been struck between strengthening the auditing regime—empowering auditors and investigators—and adequately protecting those against whom the powers may be exercised. For example, the original clause 9 required directors to state that not only have they given to the auditors any relevant information, but that each and every other director of the company has also given to the auditor the information that he or she should have. Directors were not only asked to take responsibility for the actions of their colleagues but were required to state that there was no information that had not been disclosed to the company's auditors—an extraordinary requirement.
  The problem has been dealt with by the introduction of new clause 9, following several amendments sponsored by Lord Hodgson, but officers and employees of the company remain relatively at risk under clause 8. Clause 8 empowers an auditor to require a very wide range of people—under sanction of serious criminal penalties—to provide him with information, including
  "any officer or employee of the company"
  or "a subsidiary". An auditor may require information from any and every employee of the company, irrespective of their role or position.
  There is a considerable risk that employees who have not had their duties explained to them in as much detail as directors might unwittingly fail to provide information, or sufficient information, and face considerable penalties and/or fines. It is possible to imagine a scenario in which a junior employee, perhaps on the accounts team, might have access to, or handle, relevant information, and yet he or she may not fully comprehend what is required of them by the auditor or the nature of the information to which they have access. There is a distinction between having information and

  651
  having knowledge. I have in my study an encyclopaedia, but that does not mean that I have encyclopaedic knowledge.
  Mr. Austin Mitchell: Is not the real problem not the hypothetical one to which the hon. Gentleman refers, but that someone who does give information—such as a tea lady reporting a conversation that she has heard in the canteen between directors, which indicates that something irresponsible is going on—is effectively a whistleblower, blowing a whistle to the audit firm, and will be dismissed? That kind of person needs protection.
  Mr. Andrew Mitchell: I look forward to discussing those measures with the hon. Gentleman in Committee. He is dealing with exactly the same problem as me: the role and position of a junior employee not being protected in the same way as that of a director.
  Similarly, an employee may handle aspects of company accounts without realising their import.
  The Bill fails to provide adequate grounds of defence. The defence allowed to an employee of the company is that
  "it was not reasonably practicable for him to provide the required information or explanations."
  That is insufficient.
  I therefore hope that the hon. Gentleman agrees with me that the Government have agreed to give an improved level of protection for directors but not for those further down the scale. It will therefore fall to the Conservative party, as so often before in Committee, to protect and enhance the position of ordinary people, unionised or not, whom Labour has forgotten.
  Fourthly, I turn to the issue of excessive investigatory powers. Provisions contained in the Bill, particular clause 21, place only the barest of limits on investigatory powers, and may well give rise to an abuse of power. Clause 21 empowers inspectors and investigators to enter and remain on premises, considerably extending their existing powers. Previously, they had no power of entry without a search warrant.
  I am not against giving inspectors and investigators power of entry, but I am firmly against allowing them entry when they only think it will materially assist their work. The House has rightly resisted the giving of powers to investigatory officials to go on fishing trips for information, and it should certainly do so again in this case. The inspector or investigator must reasonably believe that entering and remaining on the premises will materially assist him. That is particularly vital because there is no limit to the time for which he may remain on the premises. Is he to be allowed to sit in someone's house for any length of time, just because that person carries on a business from his home? The Government must offer clear legislative protection against abuse, rather than seeking to rely on administrative law and retrospective challenge.
  My fifth point relates to compliance with the European convention on human rights. Despite Lord Sainsbury's statement, under section 19(1)(a) of the Human Rights Act 1998, that the provisions of the Bill are compatible with the convention rights, the
  652
  Government appear reluctant to enforce ECHR article 6, which concerns the right to a fair trial. We fear that the Government will not prescribe in legislation how disciplinary hearings relating to public interest cases are to be conducted. We are informed by Lord Sainsbury that the representation of all defendants is too detailed a matter to include in the Bill, and is
  "best left to the arrangements".—[Official Report, House of Lords, Grand Committee: 16 March 2004; Vol. 659, c. 33.]
  Although we accept the Government's argument that if there were no access to representation the person or body exercising the recognition function would not agree that the particular disciplinary arrangements were "appropriate", there seems no good reason not to "set in stone" the rights of the defendant.
  It must be made clear that the hearings are to comply with the rights of the defendant in accordance with the ECHR—specifically article 6—and the standards expected in a fair trial. As all parties are agreed that representation is necessary, and the Minister has stated that the Bill is compliant with the ECHR, there is no good reason why that should not be confirmed in primary legislation.
  Let me say something about CICs, which the Minister mentioned. While we support the concept of the CIC, I feel that the introduction of yet another legal form for those wishing to set up a not-for-profit body or a social enterprise is unnecessary, and is contributing to the growing confusion of the wider public and those wishing to set up such enterprises. As I mentioned earlier, it seems very strange that CICs are to be introduced ahead of the Charities Bill, which promises wholesale reform of charity law, when that Bill is only now receiving pre-legislative scrutiny. It would surely have been sensible to keep the proposals on CICs until we could see how they would fit into the new regime following the long-promised overhaul of charity law. There may even be other models that would be preferable.
  In creating ad hoc new legal forms and tacking them on to any Bill, we risk confusing and discouraging both the wider public and people wishing to set up a not-for-profit body or a social enterprise. I doubt that there is a benefit in setting up an additional special legal form for non-charitable public interest organisations. In particular, I cannot see that CICs offer any real advantage over industrial provident societies, established in 1965 and reformed partially in 2000 and 2003.
  The "distinguishing" characteristics of a CIC, outlined in paragraph 161 of the original explanatory notes, are very similar to those of industrial provident societies, established by the Industrial and Provident Societies Act 1965. In particular, the justification for CICs has focused on the provision of an asset lock, but sufficient protection already exists for industrial provident societies. The Financial Services Authority will not register a community benefit society unless it has an asset lock-in, prohibiting the distribution of assets to any person or body other than another society with an equivalent rule or a charity, in its constitution.
  The problem that a society might convert to a company and some time later reverse the asset lock-in rule in its company constitution was tackled by the Cooperatives and Community Benefit Societies Act 2003.

  653
  The Act contained an enabling provision allowing the Treasury, through secondary legislation, to make provisions to permit IPSs whose business is conducted for the benefit of the community to commit their assets permanently for that purpose—in other words, an asset lock-in—subject to appropriate safeguards and supplementary provisions, thus giving community benefit societies the option of protecting their assets in perpetuity for a public purpose. All that is set out in the regulatory impact assessment.
  Rather than introducing yet another additional form, the Government should provide the much-delayed and much-needed secondary legislation. There are problems with the industrial provident societies, but it would be far better to amend IPS legislation so that one form is flexible enough to cope with differing circumstances than to create a plethora of new forms.
  Let me now deal with an issue that has attracted a great deal of public comment—auditors' liability. This is a glaring omission from the Bill. Large audit firms are in all respects, bar one, like any other commercial business. Every other business—I can think of no exception—can either limit its liability by way of contract with its customers, or obtain insurance to cover any residual risk that cannot be limited by contract. Auditors can do neither. They are unable to limit their liability by contract, because of the terms of section 310 of the Companies Act 1985; but they are also not able to obtain insurance in the commercial market to protect them from catastrophe. There is simply no capacity in the market. In other words, we have the bizarre situation that professional men and women are being asked to take on a risk that the insurance market, with all its resources, deems to be unacceptable.
  Mr. Cousins: Does the hon. Gentleman accept two things? First, does he accept that limited liability partnerships have been introduced to protect people involved with audit firms? Secondly, does he accept that the motivation behind the exclusion clause in the 1985 Act was the fact that those who remove financial hazards create moral hazards?
  Mr. Mitchell: The hon. Gentleman is right about the creation of a new form of company, but wrong in thinking that it works in these circumstances. If he will bear with me, I hope I will be able to carry him with me.
  There are only four auditors left who can audit our largest companies. It is therefore important not only to make sure in so far as we can that those four remain, but, if possible, to encourage new entrants to make the necessary investments to take on the audits of larger companies.
  The Government recognise that the problem is a real threat to the stability of the audit profession, and indeed to the UK corporate sector. Today, they have finally responded, very negatively, to the consultation on auditors. It is widely believed that DTI Ministers understand and accept that the liability must be capped, but are being restrained from taking the necessary action by their colleagues in the Treasury. In Committee the Conservatives will table a range of amendments for the Government to choose from, so that the Government can discharge their responsibilities to the UK corporate sector.
  Mr. Austin Mitchell: I do not want to restrain the hon. Gentleman's headlong rush into this folly, but does he accept that most actions against auditors are pursued by the insolvency arm of the big four, which is anxious to recoup fees and other money from the auditors of another arm? Where will this end? If we cap the liability of auditors, why cannot motor manufacturers or insurance companies, or any other section of society, say, "We want our liability capped?" Why should we give so much to a group that is making enormous profits from selling other services that often produce the problem?
  Mr. Andrew Mitchell: The hon. Gentleman did not listen to what I said earlier, which explained precisely that point. I can think of no other group of men and women who cannot go to the market to receive insurance to cover those risks, apart from the big four audit companies. The reality of section 310 of the 1985 Act is this: if, God forfend, there is another collapse and one of the auditors goes down, there will then be only three. There will certainly be no new entrants to the market. There will be a systemic failure in the governance of our major companies, with all that that means for the corporate sector, for savers, for pensioners and for others who depend on it.
  One of our amendments—I have made it clear to the House that we will submit various amendments—in the best tradition of the deregulatory agenda championed by the Conservative party, would amend or scrap section 310 of the 1985 Act. That would allow markets to reach a conclusion and would be a deregulatory and permissive measure, subject to negotiation between willing parties. There would almost certainly be a role for the CBI and the Financial Reporting Council in bringing together all the relevant parties, and there would also be full transparency in respect of any contractual arrangements.
  There are of course other ways of limiting auditors' liabilities, but the important point is that they should no longer be unlimited. Leaving the matter to a later date, as the Government's response today envisages, increases the very real risk of one of the large firm's failing, and of consequent damage to confidence in the UK capital markets. That, in turn, would cause huge damage to savers.
  We have a lot to examine in our two days in Committee and on Report. The Bill has already benefited from some improvement in the Lords, but we remain very concerned about the Government's failure to introduce the long-promised company law review, and about the way in which CICs have been tacked on to the Bill. Those issues are small parts of what should be two major and separate Bills, and we greatly regret the Government's failure to tackle the important issue of auditor liability.
  We are committed to ensuring that the UK is the best place in the world to do business, which means achieving the correct regulatory balance. The continuing delay in the overhaul of company law will certainly not improve the UK's competitive position. As in so many other areas, this Government have lost an important opportunity and failed to measure up to the challenges before us.
  6.21 pm
  Mr. John Battle: I generally welcome the Bill and I note in passing the Opposition's willingness to see it progress to consideration in Committee, despite their having serious reservations about it. The first part deals with the organisation and regulation of auditors of companies, and the second and substantial part, which consists of clauses 24 to 61, is concerned with setting up a new form of company, known as a community interest company. CICs will build on Britain's experience of social enterprises, which provide new kinds of mutual companies that offer support, goods or services to particular groups in our communities. I welcome and look forward to the setting up of these CICs.
  The Bill could provide a new instrument to help in the economic development of communities. In talking about community development, we often miss out the crucial word "economic". Such development is central, and vital in ensuring that our communities have a future. We can talk for ever about social work in the best of all senses, but without genuine micro-economic development our communities will have no future. So I welcome the introduction of another such instrument, and in that regard I do not take quite such a dim view as the Opposition.
  I hope that CICs will not be overlooked, not least because in the other place, gladly, most Members seemed to be satisfied with the detailed provisions relating to them. I would not like this issue to die through lack of interest in the House or in Committee, or for the real potential of CICs not to be recognised outside this place. The Social Enterprise Coalition welcomes the introduction of CICs, as does the new West Yorkshire Social Enterprise School. In her introductory remarks, the Minister talked about the difficulties associated with forming companies before Gladstone's Act. I should point out that, even now, it is difficult to set up companies. It can take up to a year for even a well-developed proposal to be turned into a business proposition that gains acceptance. However, CICs would cut through that difficulty, and well-developed proposals could get through in days. Encouraging people to set up more businesses more quickly is to be warmly welcomed.
  The CIC will be used primarily by non-profit enterprises that provide benefits to the community. Such enterprises will have to define what those benefits are. Traditionally, social enterprises provide community services such as child care, housing, services for the elderly, leisure services and community transport. As we know, existing social enterprises, like traditional private businesses, are usually companies limited by guarantee and share ownership. However, the new vehicle of the CIC will enable those working specifically for the benefit of the community to do so within the relative freedom of a non-charitable organisation; they will not be limited by the restrictions of charity law. Those of us who have been involved in charity law know how constricting such restrictions can occasionally prove. At the same time, a clear assurance of non-profit distribution status will be offered.
  I should point out to the Minister that we need to spell out to people—be it in Committee or at a later stage—what non-profit distribution status will actually mean, so that they can be encouraged to join in. In order to set
  656
  up a CIC, a proposed company will have to satisfy a new community interest test. It will have to show that it will pursue purposes beneficial to the community and will not serve a restricted group of interests, so the key test will be the provision of services to the community. That could prove incredibly innovative. New kinds of services and blends of services and goods could be provided. The primary interest will not be the promoting of a trendy name for a company and the floating of a new brand in order to see how it goes; nor will it simply be a question of keeping a good idea for a business ticking over, or of providing employment for those who work for the company. The focus will be not just on jobs for paid employees, but on how the business will benefit the community.
  CICs could prove a very innovative generator of micro-businesses. I accept that they will not wipe out the residue of unemployment, but they could spark some new ideas and ways of providing goods and services in our neighbourhood communities. They will be wider in scope, but simpler and clearer, than the traditional charitable test of public benefit.
  Some immediate benefits arise from CICs. When a proposal is put together, it will be easier for other investors, supporters and public bodies to back it. In other words, it will be easier to attract funds in the first place. At the moment, there is some haziness so far as charities considering their trading options are concerned. It should also be easier to engage individual people, who will be able to become economic participants in companies in their neighbourhoods. They will be able to buy shares in a community enterprise, which is to be welcomed. Such companies will be able to act like proper companies—pay their directors, change the nature of their activities—but they will also have to meet the reporting and accounting requirements associated with being a company. That is also to be welcomed.
  In the other place, the Minister emphasised that
  "CICs should resemble other companies as far as possible in terms of the way in which company law applies to them.".—[Official Report, House of Lords, 25 March 2004; Vol. 659, c. GC354.]
  So they will still be under company law, but we need to spell out not just the legal details of how to set up a CIC; we also need to give general advice on the benefits of a CIC to a neighbourhood. For example, what would be the gain in terms of regenerating our urban neighbourhoods in particular? What are the benefits associated with blending together workers and volunteers to provide goods and services locally? The new corporate vehicle that the CIC could become should make it simpler and easier to set up a local business whose profits and assets are used for the benefit of a given neighbourhood and community. That is why the special feature of the CIC's statutory lock—as we now refer to it in technical terms—on profits and assets is important. It sends a clear signal to ordinary people who might want to buy a share that their investment is safe. They are investing in their neighbourhood not to walk away as millionaires at the end of it, but to contribute to building up the community. That is where the lock on profits and financial assets as well as the cap on dividends is such a positive attribute of the CIC.

  657
  Basically, CICs will ordinarily be prohibited from distributing any of their profits to their members and I understand that, when the CIC is wound up, its residual assets will not be distributed to its members, but will remain in the community. If I understand it rightly, the assets will be passed on either to other CICs or to other charities in the neighbourhood, so the assets will remain in the locality. That is rather different from other co-operative ventures—the provident societies and other kinds of mutuals—to which the hon. Member for Sutton Coldfield (Mr. Mitchell) referred. Locking the assets into the community provides a different feature—an insistence that the assets are reinvested locally, even if the company goes under.
  There was a debate in the other place about the implications of charity law and charities, but we do not need to get bogged down by it. We need clarity and to be able to give good advice about what non-profit distribution status actually entails. Already some charities providing services that budget from month to month or hand to mouth are looking into the trading possibilities. They need to be clear about what the new option actually means. I know that there are further proposals to reform charity law, but we do not need to wait for them. I believe that we can get this vehicle up and running in the meantime.
  A letter from the charity commissioners supporting the Government's approach was quoted in the other place and is worth repeating. The letter said:
  "It is not always clear-cut when a particular form of object is charitable or not. That is, perhaps, particularly so in the area of social enterprise where many CICs are likely to operate, and where ideas as to what should, and should not, be regarded as charitable are evolving. Our understanding is that there is a demand for a form of company where the promoters can be certain that, notwithstanding the public interest element, the company will not fall within the framework of charity regulation."
  It is the freedom there that is important, without getting bogged down in the constraints of charity law. That is what we should focus on and emphasise at this point. I particularly underline the word "evolving" in that letter. I have dealt with charity law for many years, so I know that it has been evolving and I hope that it will continue to evolve, as will the nature of businesses, social enterprises and community businesses. It is right and proper to move forward and not hold back in the vain hope that we can fix all the law so that businesses will fall into line to suit the needs of the people in the future. It will not happen that way round.
  We therefore need rather more clarity about the status of a community interest company. It is not a charity, so a donation to a CIC will not attract tax relief, to give a practical example, whereas a donation to a charitable trust of which a CIC is a trustee will be eligible for relief. Those issues are important for people who deal with charitable status and they must have clarity at an early stage, so that they know whether to move into CICs or even whether to take an interest in them rather than be frightened off by them. If we do not provide more clarity about the relationship between CICs and the difference between them and charities, it might put people off.
  Transferring existing companies into CICs or setting up CICs for charities requires particular clarity in respect of the financial benefits. We must be able to spell out what it means when a CIC is established for a
  658
  charitable purpose without being a charity, as it states in the Bill, so that ordinary people who want to set up businesses are not frightened off by feeling that they are going into a morass of charity law or an enmeshing argument between business law and charity law. I want people to be enthusiastic, to see the benefits simple and clear and to move forward to have a go. We need the new legal entity to be as simple and as uncomplicated as possible so that it is clearly understood not only by people in communities that might get engaged in these companies, but—dare I add—by banks and other businesses that will deal with them and will also want to know that the rules of the game are clear. Let us remember that it is a new option for organisations seeking a flexible form that will not be restricted by traditional charitable status, so it should be of benefit to communities.
  As said in the other place, we should not see the new CICs—I am already falling into the acronym for community interest companies—as a brand for all social or co-operative ventures or mutuals. It is another form within that family, which we should experiment with and support. The difference in the Bill between the non-profit distribution service and charitable status benefits needs spelling out rather more clearly.
  I have already said that there was a debate in the other place about the difference between a community interest company and a charity, particularly the benefits or otherwise of charitable status. That relates to tax reliefs, mandatory reliefs and all the rest of it. The noble Lord Sainsbury spelled out that clause 23 is in the Bill to ensure a clear distinction between the new type of company and charities, but I have to say, in all honesty, that I do not fully understand the distinction. I doubt whether it has the practical clarity that he claimed for it. However, I understand and accept the intention to regard the CIC as a new instrument rather than simply a revision of charity law that will arrive later with the forthcoming Charities Bill. CICs should be regarded as an alternative or a new model that we should experiment with. They will be able to trade and behave in enterprising ways as other businesses do.
  My main point is that while it is right to focus on the regulation and the legal framework of the CIC, that should not overshadow encouraging people to set them up. I am in favour of making use of this new instrument and encouraging more people to set up new businesses—not the opposite. I do not want people to be warned or frightened off. There is almost a tendency to discuss getting the disposal of a CIC's assets right before convincing anyone that they should try to set one up. I welcome the establishment of a regulator and the forthcoming detailed regulations, but at this stage we should be advertising the benefits to convince people to have a go.
  My constituency of Leeds, West is a sort of pizza slice coming out from the city centre towards Bradford and the ring road. It is on the south-west of the city and, amazingly, if we examine the structure of cities in Britain, we find that small businesses often cluster in the south-west corners. The heavy industry tends to be, for some reason, on the eastern side of cities. In my neighbourhoods of Armley, Kirkstall, Wortley, Farnley, Burley and Bramley, there are more than 400 small businesses, most of which employ fewer than 10 people. I was surprised to discover how many small

  659
  businesses and family firms—some going back more than 100 years—have been based there. One or two have moved out nationally, but there could be an entrepreneurial gene in the water in west Leeds, which we should encourage and build on. We want more businesses to come forward.
  At the same time as small businesses are developing, the needs of the people are increasing, particularly in respect of care for the elderly, the sick and the young. We have good voluntary bodies working locally—whether it be Bramley elderly action, Armley helping hands, the Burley 2000 or the Farnley elderly group—but I see no reason at all why new mutual forms of business cannot be engaged in all that, particularly in view of the community focus. The introduction of Sure Start projects in Bramley and Burley is welcome, and a healthy living project supplements the work of the new primary care trust, but much more remains to be done, especially in the provision of caring services. Help is needed with shopping and gardening, and with the provision of nurseries and play services. I see no reason why that cannot be part of the structure of businesses formed through CICs.
  The decline of local family shops has led to units in community shopping parades being boarded up, but people still need fresh food, healthy eating options and even farmers markets. Where there is little in the way of entertainment for local people, the provision of cinemas, theatres and music venues could be part of the new initiative.
  Mr. Cousins: Jazz clubs.
  Mr. Battle: My hon. Friend suggests that jazz clubs could be provided, and I know that he is a great jazz fan. I see no reason why entertainment and leisure provision should not be part of the new companies' remit. A micro-economy is developed through the local provision of services and goods. New forms of social enterprise can meet local needs, and new community economic development can serve as the focus for the work of community development and rebuilding. In turn, that will lead to local people being trained in new skills. People will therefore remain in the community because they enjoy living there, as a result of having the access to the same services and goods as are available elsewhere.
  A recent report from the London Business School entitled "Social Entrepreneurship Monitor UK 2004" found that 7 per cent. of the UK population was engaged in some form of community work or social entrepreneurial activity. That is a start, but the figure is still far too low if we want to think about regenerating urban neighbourhoods. In the past, social enterprises that use business tools and techniques have resulted in co-operatives and housing associations being set up. Café Direct and The Big Issue are examples of that, but most social enterprise has been focused around London, as the LBS study found. I suggest that it needs to be spread around the country.
  We need more of it in west Yorkshire and in my neighbourhood. We must encourage people to have a go, and we will not do that if we do not sell the ideas
  660
  behind CICs. If people take on this new interest, the development of micro-businesses could be assisted. What is more, they could open up some innovative space and provide to their communities new goods and services that have not previously been thought of. That entrepreneurial imagination would be most welcome.
  There remains a need for quality jobs and training and for businesses to provide goods and services. That is certainly true in my constituency, but the provision must happen within a fully sustainable economy so that we can move into the future with some stability.
  I am enthusiastic about CICs and believe that they will have a role to play in the community economic development of the future. However, I urge the Minister to ensure that we get the solid legal framework right in our discussions in this Chamber and in Standing Committee. I hope that she and the Government will take a more proactive role in encouraging and supporting the development and growth of CICs, as soon as the Bill becomes law.
  6.43 pm
  Brian Cotter: Thomas Edison, the famous inventor, once said that opportunity is missed by most people because it is dressed in overalls and looks like work. When it comes to the question of reforming company law, I would certainly not accuse the Government of being workshy. An enormous amount of consultation has already been completed in this area, yet various proposals are still waiting to be enacted.
  Thus, for whatever reason, this Bill represents a major missed opportunity to carry out the extensive reform and simplification of the law that is so desperately needed. That point that was made eloquently by my noble Friend Lord Sharman in the other place when he criticised the Government for nibbling away at the edges of company law reform. My noble Friend mentioned the Enterprise Act 2002, which dealt with questions of bankruptcy and insolvency, but now we have this Bill, which devotes 17 clauses to the reform of regulation, five to improving company investigations, and 37 to establishing community interest companies.
  But what about other matters that have yet to be addressed? We still await draft regulations to require companies to produce an annual operating and financial review. This continued piecemeal approach to company law is causing immense frustration. Last month, Eric Anstee, the chief executive of the Institute of Chartered Accountants told the Financial Times that, without action on both auditor and director liability, the initiative by the Department of Trade and Industry on the OFR was "doomed to failure."
  I now turn to this morning's statement announcing the Government's approach to director and auditor liability. I shall come to auditors later, but I give one cheer to the announcement that companies will be allowed to indemnify directors in terms of legal costs. That is a step forward, but will the Minister explain why the Government rejected the proposal from the Institute of Directors to cap director liability?
  The prospect for company directors is therefore bleak and, for the near future, it is evident that they will have no choice but to continue wading through successive

  661
  layers of company law many of which have become unfathomable as a result of continual change and amendment.
  Mr. Austin Mitchell: Does the hon. Gentleman agree that, if we are to cap the obligations of company directors, chief executives and the like, we should also cap their salaries? Their salaries can be raised to quite obscene levels, and the people involved use their positions to control and decide them.
  Brian Cotter: The hon. Gentleman raises a matter that is of great concern. The way salaries have been raised is absolutely appalling, but I do not think that problem falls within ambit of this Bill.
  A written ministerial statement made by the Secretary of State on 26 May 2004 announced new proposals to try and deal with this problem, promising the introduction of
  "new types of legislative power enabling company law in future to be amended by a special form of secondary legislation".
  That would make it easier to keep company law updated over time. The Secretary of State assures us that these new powers will be
  introduced as part of the major new Companies Bill…as soon as Parliamentary time allows."—[Official Report, 26 May 2004; Vol. 421, c. 78W.]
  Yet here we are in the meantime scrutinising another companies Bill. On behalf of all the company directors who are currently frustrated by the plethora of company law regulations, the first thing I ask the Minister is how much longer they will have to wait for the major reform and simplification that is promised.
  Although the Bill is a missed opportunity, it still has merits that the Liberal Democrats wish to support—as do those who sit on the Conservative Benches. The first part of the Bill aims to improve public confidence in companies and financial markets by strengthening the system of regulating auditors, tightening up the enforcement of accounting and reporting requirements, and strengthening the company investigations regime.
  That is very welcome in light of the recent Enron and Parmalat cases, and others, and I know that my noble friend Lord Sharman was able to offer his expertise to strengthen the Bill further, in respect of the provisions relating to auditing and investigations. Indeed, he has applied his expertise so rigorously that we are relatively content with this part of the Bill.
  We are all aware, as a result of what has been written in the pages of the Financial Times, of the arguments that have been raging between the Treasury and the DTI about whether a cap should be introduced to limit auditor liability. We found out today who won that particular argument.
  The Liberal Democrat party is concerned to ensure that the free market should be allowed to operate in this area. We currently have a unique situation in which statutory intervention will not allow an auditor and a company freely to negotiate the liability to be borne by either party. We know that auditors, lawyers and the business community have questioned the Office of Fair Trading's conclusion that a cap on liability would be competitively neutral and that they have claimed that the OFT's report is flawed.
  662
  At face value, those claims carry some weight. In Germany, where a cap is in existence, 67 of the top 300 quoted companies are audited outside the big four auditing firms, and the story is similar in countries such as Greece and Austria. In the UK, in contrast, all the FTSE 100 companies, and 248 of the FTSE 250 companies, are audited by the big four firms. Are the Government satisfied that these competition points were adequately addressed by the OFT? If agreement is reached, will the Secretary of State consider a legislative timetable in relation to auditors' liability so that we can look forward to legislation early next year?
  Does the Minister further accept that confidence is dented if the OFT gets so wrong the availability of personal indemnity insurance for auditors? In the statement issued earlier, the Secretary of State said that the Government would look closely at the option of proportionate liability by contract. We welcome that. It would ensure that auditors paid for their mistakes in an equitable way, which would, I think, carry the support of businesses and the auditing profession. I ask the Minister to clarify two points. First, what is the timetable for looking at proportionate liability by contract? Secondly, will the right hon. Lady make a commitment the effect that if agreement is reached between auditors, investors and business, the Government will quickly legislate to allow proportionate liability by contract?
  Mr. Cousins: In his apparent support for the idea of a contractual limiting of auditor liability between the auditor and the company, does the hon. Gentleman conceive of possible collusive relationships that might be built up?
  Brian Cotter: Yes. That is why we need a lot more consultation to arrive at the solutions we need. We certainly need a way forward.
  The second part of the Bill introduces the community interest company, which is a new type of company whose profits and assets will be used for the public good. The Minister quite rightly applauded that sector, and I pay tribute to the right hon. Member for Leeds, West (Mr. Battle) who promoted CICs through his very constructive speech. For many years, we as a party were leaders in the co-operative field, and we therefore support community interest companies very much. When we reach Committee stage, I hope to deal with the important issues that the right hon. Gentleman raised. I shall certainly look at the Bill with renewed interest to ensure that it contains every encouragement for community interest companies to be effective and to provide a route for economic progress in many parts of the country. I have met a number of people involved in community interests of one sort or another—the right hon. Gentleman mentioned cinemas, but there are many others. I welcome the Government's saying that they will progress that part of the Bill.
  We have historically welcomed such things. Indeed, we argued that the Government's long-promised companies Bill should be used to create a public benefit organisation structure, which is very much in sympathy with the aim of the community interest companies that are now being proposed. However, we still have some concerns about the nature of the new companies. In the other place, Lord Phillips of Sudbury was able to use his

  663
  expertise in the legal and charitable sectors to argue that the Bill should not prevent charities from choosing to become community interest companies, which is what seems to be being proposed. As he said,
  "the law of charity has been distinguished by being a function of purpose and not a form or format."—[Official Report, House of Lords, 7 July 2003; Vol. 663, c. 848.]
  That principle has given charities maximum choice in allowing them to determine whichever form best allows them to carry out their work. The Bill represents the first step away from that flexibility. Although opinion is somewhat divided on the issue, we feel that there is an important point to which we shall return in Committee.
  Corporate governance is an area in which the general public increasingly look to companies to demonstrate high standards. Indeed, we would hope for high standards when it comes to remuneration and just returns as shareholders and stakeholders. My friends in the other place, Lord Sharman and Lord Razzall, attempted to mitigate the slow progress towards reporting details of social and environmental performance by tabling an amendment requiring the Secretary of State to publish standards in order to guide companies further in that respect. That may be an issue to which we will wish to return, as it is an important one. I have been involved in small business all my life, and when I came back to big business after many years of non-involvement, I was quite concerned about the lack of transparency.
  There is another issue of corporate governance relating to larger companies dealing with smaller suppliers. In particular, there is the issue of late payment of debt, an ongoing bugbear for British small firms, which according to some estimates are owed up to £20 billion by larger companies in payment for services and goods provided. The Federation of Small Business estimates that one in four business failures are as a result of cash-flow problems caused by the late payment of commercial debt. I very much supported the Bill on late payment brought in by the Government, and the FSB and the Forum of Private Business were instrumental in helping me and others to do our best to ensure that it was placed on the statute book. Clearly, there is a major problem, and despite the introduction of legislation allowing businesses to claim statutory interest on any overdue invoice, the situation has not improved as much as we had hoped. Further action is needed to tackle the culture of late payment.
  At least five pieces of independent research confirming that have been published since January. A Bank of Scotland survey this month found that almost half of small businesses had been forced to take legal action against late or non-paying ones. The FSB payment performance tables in April showed no improvement in the amount of time it takes plcs to settle their commercial bills. The latest survey, published in July by Experion, suggested that the amount of time it takes companies to settle their bills has risen to its highest level since 1998, which is very worrying. Unless the Government encourage and actively help the largest companies to lead by example, we will never achieve the culture change that is needed to eliminate the late payment that continues to plague Britain's small businesses.
  664
  Sadly, the Government are failing to lead by example, as my hon. Friend the Member for Twickenham (Dr. Cable) illustrated when he revealed this week that the Treasury is one of the worst culprits when it comes to late payment of bills. The Forum of Private Business has been particularly assiduous in pressing the Department for Environment, Food and Rural Affairs to release the money that it still owes many foot and mouth contractors for work carried out during the crisis some three and a half years ago. It is hardly surprising that many large businesses still fail to pay small suppliers on time.
  Trying to identify in advance whether a large company is likely to pay on time is near impossible for small businesses. Under the Companies Act 1985, UK plcs are required to publish details of their payment performances in their annual accounts. Yet when the FSB was conducting research for its payment performance league tables, it was unable to find that information for 57 of the FTSE 100 companies. Following an investigation at my request, Companies House confirmed that all the companies had published the details, but the problem is that there are no standard requirements for reporting payment performance. The job of finding the information is rather like hunting for the proverbial needle in the haystack. Following my inquiries, Companies House admitted that it had taken
  "a considerable amount of time to examine each set of accounts"
  to check whether the companies had made the required disclosure. Clearly, there is a problem there. If Companies House cannot easily identify the information, how on earth is a small business person who lacks the necessary resources supposed to identify it?
  I hope that the Government will take the issue seriously. Liberal Democrats, the Government and others are committed to the measure, but there are clearly problems with the way in which it works. If a business cannot access a company's payment performance record, how can it make an informed decision about whether to enter into a contract to supply that company? Given that the law was introduced to help small firms, we must ensure that it does so effectively.
  Having addressed that point, let me say that I hope we can make progress on the Bill in Committee to ensure that small business and others have transparent information available based on strict and clear guidelines on what firms should include in their records. As Companies House has difficulty in listing the information, perhaps we can do something to clarify that situation. I look forward to addressing that issue and others in Committee.
  7.2 pm
  Mr. Austin Mitchell: I am surprised that the spokespeople for the two Opposition parties are so overwhelmingly favourable to the big four. It is an interesting revelation. They are both sycophantically grovelling at the feet of the big four, but it is no use: we have been so kind to the big four that they are probably about to affiliate to the Labour party, so there is no hope of attracting their support.
  The hon. Member for Sutton Coldfield (Mr. Mitchell) gave us the views of unregenerate accountants, greedy and irresponsible chief executives and indolent non-

  665
  executives—three small minorities in the business community—and erected them into an ideology for the Conservative party. Indeed, the longer he spoke, the more favourable I became to the Bill, which I did not favour in the first place. Having given that panegyric on the big four and that astonishing rant against a mild an innocuous Bill, he has given me the opportunity to welcome it. The measure is long overdue and has the potential for being improved in Committee. I know that there are doubts about the Whips' enthusiasm for putting critics on Committees, but I hope to contribute to those debates to produce an effective system of regulation of the business community. That is the strongest praise I will give the Bill, so I put it at the head of my speech.
  I want to deal primarily with part 1. It follows a long period of delay and obfuscation by the Department of Trade and Industry, which over the years has acted as the protector, friend and, alarmingly, sometimes the spokesperson for the big four. The DTI stands in awe of them. It must be frustrating for civil servants to have to put the views of the big four when they get much lower salaries than the partners of the big four, but that is the reality: hear no evil, see no evil, speak no evil.
  The measure goes back a long way. In 1992, my hon. Friend the Member for Newcastle upon Tyne, Central (Mr. Cousins) and I, along with our advisor, Professor Prem Sikka, persuaded the then Opposition spokesperson on trade and industry, Mo Mowlam, to include in the manifesto a provision for the independent regulation of accountancy, like the Securities and Exchange Commission. In 1997, independent regulation of accountancy appeared in Labour's business manifesto and stayed there all those years, which is quite an achievement given the transformation that took place. However, when we sent our ritual delegations to the DTI to ask when we were getting the independent regulation, we were told, "Oh no. Sorry. There's no time for the independent regulation that we promised in the business manifesto. What we're going to do is create a foundation based on the Swinson report", which was a means of avoiding independent regulation. The Department would have put that foundation on top of the 23 other bodies responsible for regulating accountancy and auditing—a cherry on top of the pie. Lovely.
  We were told there was no time for legislation and that the foundation would do the job, but the Bill effectively kills off the foundation, which in reality was stillborn. It achieved nothing and was a waste of seven years. The big four, however, decided that that was not enough. They wanted limited liability partnerships, which they set about achieving by buying legislation in Jersey. They drew up legislation, which Jersey passed. That clearly concentrated the mind of the Government. Indeed, the senior partner of Ernst and Young said:
  "It was the work that Ernst & Young and Price Waterhouse undertook with the Jersey government"—
  they actually took over the job of the Jersey Government—
  "that concentrated the mind of UK ministers on the structure of professional partnerships… The idea that two of the biggest accountancy firms plus, conceivably, legal, architectural and engineering and other partnerships, might take flight and register offshore looked like a real threat…I have no doubt whatsoever that ourselves and Price Waterhouse drove it onto the government's agenda because of the Jersey idea".
  666
  By threatening to go to Jersey and getting limited liability partnerships past their Government, the big four forced the hand of our Government who, having told us that there was no time to legislate for independent regulation, immediately rushed through limited liability partnerships.
  The big four now want us to move a stage further. We are told that they want us to cap their liability. It appears from the report that I received that the Minister told the Institute of Chartered Accountants conference in July that the DTI would cap their liability. We are confused about what will happen and I want to encourage the Minister not to go ahead with that disastrous idea or anything like it. It is not simply that the European Union Commissioner, the American Government, the Office of Fair Trading and the institutional investors—all minor, unimportant people—are against it, but that it is daft. We could have a dual system, as the Americans do. They have a day-tripper auditor—an external auditor—plus the Federal Reserve audit of all financial institutions, which could be handled by the Financial Services Authority here.
  We are told that there is an issue of competition. In that case, why were all the mergers of the big accountancy houses allowed? If competition is now so restricted that we have to revive it and encourage it by capping liability, why did we allow the mergers in the first place? It seems a little illogical. We could introduce competition by using other sources of audit. Why should not the Inland Revenue, Customs and Excise or the National Audit Office do audits? Why should not financial service groups such as Virgin or Marks and Spencer's financial services do audits? Either widen the competition or, having encouraged the concentration, break up the big four so that we get real competition.
  Most of the claims against auditors come from the insolvency arms of other big accountancy houses. The problem is self-perpetuating. The inflated figures that have been bandied around to create shock and horror take no account of the fact that the principle of contributory negligence was introduced in 1993. Deloitte used that in the Barings case to get a fine of £150 million reduced to £1.5 million on the basis that its negligence was only contributory.
  We also have to think of the knock-on effect on other sectors and industries. It is all very well for the Opposition to say that other firms can get insurance cover against their failures, but they might not want to because it becomes expensive. So why not cap their liabilities, as has been suggested for accountants? If we do it for one sector, we shall have to do it for others. It is ludicrous to argue that we would not because the companies can get insurance cover, because there is no guarantee that that will be maintained.
  Mr. Andrew Mitchell: With the greatest respect, the hon. Gentleman is talking absolute nonsense. People might not like the cost of getting insurance, but insurance is available for them in the market, if they choose to take it. Can he name any other group in society that is in the position of the auditors, which simply cannot get insurance but are expected to take on the liability?
  Mr. Austin Mitchell: Speaking from a higher level of nonsense than the hon. Gentleman, let me say that there is no need for it, because the claims are enormously exaggerated and hypothetical. In addition, the firms have not tried to get insurance cover, so we do not know whether they could get it; in any case, insurance cover could be arranged. There is no need to cap liability. Why should one sector, comprising the incompetent auditor, the failed auditor, and the auditor who has cut corners, be protected from the consequences of its failure? If the auditors' liability is capped and the public have no right to sue, why should the public not demand compensation from the Government who applied capping? Capping will lead to all sorts of legal complications, of which the hon. Gentleman took no account.
  Perhaps we should give up on the proposal. I am sorry to say that, because my right hon. Friend the Minister for Industry and the Regions, who spoke well today, has received us courteously and always listens to our arguments. However, I remember that when F. E. Smith claimed that something that he had said in the House of Commons had shocked the world, moved the Hottentots and frightened the Eskimos, the concluding line of Chesterton's poetic response was was, "Chuck it, Smith!" The same applies to limited liability, capping and the rest of my right hon. Friend's proposals for the big four.
  The Bill is the product of a review conducted by interested parties dominated by business and accountancy interests, and spatchcocked into it is our response to Enron, Global Crossing, Tyco International, Parmalat and all the other scandals. We have had our own share of scandals, including the Versailles accident group, Wickes, Slug and Lettuce—I am not sure which of them failed—Wiggins and Shell, as well as the endowment mortgage scandal, personal pension failures and Equitable Life. It is time that something was done to prevent further problems, but the pressure for action arose from the scandals in the USA. It is interesting to compare what happened in this country with what happened in America when both were faced with similar scandals and similar potential for business fraud.
  In the United States, the independent regulator had the strength and the independence to take powerful action—"perps walked," as they say in the USA. In this country, if they walked, they walked off to Switzerland or to the south of France with their retirement benefits. In the USA, fines ran into billions of dollars; here, they were pathetic in relation to the income of the accountancy houses. Even a company the size of Shell received only a small fine. In contrast, in the United States Andersens was closed down within five months, after the authorities launched criminal actions against it in respect of the frauds that had been carried out. In addition, 250 chief executives were prosecuted, at least 25 of whom were convicted and imprisoned, such is the strength of the sanctions available in the USA.
  All big four accountancy houses are now being pursued for various infringements by federal or state authorities—a study of auditing practices at PricewaterhouseCoopers revealed 8,000 violations of rules and ethics by that one firm in a single month, such is the scale of invigilation in the United States. Ten banks were charged in connection with fraudulent research, and 350 companies were forced to restate their
  668
  accounts. Ernst and Young was banned from new audit business for a year, the judge in that case saying that the company had shown no regard for the rules, for professional ethics or for morality.
  That is the treatment meted out by independent regulators in the United States to the big four accountancy houses—multinationals operating in this country as well. What happened in this country? Our first reaction resembled
  "going around the country stirring up apathy,"
  as Lord Whitelaw put it. It was to say that what happened in the US could not happen here—there was no problem. The British Government even lobbied for exemption for British multinationals from the Sarbanes-Oxley legislation. I had the pleasure of meeting Senator Sarbanes last year and I introduced myself as a British MP. He leapt back, saying "No!" When I asked him why, he said, "You are the latest in a long line of Brits and British companies who have come to me to ask for exemption from Sarbanes-Oxley. Well, you're not going to get it!" He is a good man who got through good legislation—earlier, my hon. Friends and I agreed that in this country, Senator Sarbanes would have been a member of the old Labour party. It is incredible that the British lobbied for exemption on the grounds that our accountants were better regulated, our standards higher and our accountants more honourable.
  The proposals in the Bill are weak. The Financial Reporting Council will now dance to a different tune and will be an independent regulator—one of 23 remaining regulators, not including the DTI. That will simply add to the confusion. No ombudsman is provided for appeals at the end of the process. Let us consider what the effect of the Bill would be on the type of scandal experienced in Britain and the United States.
  Four problems are common to all the big corporations that have been affected by scandals and, in some cases, collapsed because of them. First, corporate power is concentrated in too few hands—the classic example is the case of Robert Maxwell, where corporate power was focused entirely on him. The Bill contains no proposal to prevent such concentration of power in the hands of a few overweening individuals, who are able to serve their own greedy purposes, set their own salaries and rewards, and milk the companies like Lord Black milked Hollinger. The Bill contains no proposal for two-tier boards, which are an effective form of protection against concentration of power that enables one individual who is paid according to the company's profitability to hike profits by using creative accountancy in collusion with the accountants, thus enabling that individual to pay himself more and milk the company uncontrolled.
  The second common characteristic of such companies is that they have ineffective audit committees. Traditionally, such committees often comprise non-executive directors who are the directors' golf club pals, or the chief executive's mates. They hold too many non-executive directorships and do not bother themselves with getting to grips with the affairs of any one company, because they are waiting for the Rolls to collect them and take them to another board meeting at another company that has a different set of problems. They do not have time to focus on the issues. The Bill makes no provision for representation on audit

  669
  committees of stakeholders—people who invest their lives in the companies—or for election of the audit committee.
  The third characteristic common to the companies in question is that they all had extremely complex structures, which resulted in extremely opaque accounts. No one knew what was going on. No outside assessor was able to deal firmly with the accounts or to obtain a clear picture of what was going—on usually because so many transactions were channelled through tax havens and companies in other jurisdictions that no one could trace the money. Most FTSE 250 companies use tax havens and channel money through overseas companies to obscure their accounts. It has become a classic technique for News International because as most of its profits pass through companies in other jurisdictions, it does not pay tax here to any extent and its accounts cannot be effectively audited. Virgin does the same thing, but it restructures every couple of years, so no one can work out a clear trail of where the money has gone, the companies through which it has passed, who has done what and who has responsibility for it. Nothing in the Bill will stop that practice because it cannot be traced.
  We cannot control transfer pricing, transfers of capital or companies' activities if we do not know what is going on and, indeed, we cannot stop off-balance-sheet accounting. Private finance initiative projects in this country are financed by that practice, but the Americans have just banned it. Cable and Wireless indulges in hollow swaps with other telecommunications companies and treats debts as investments, which is the basis of the finance of British Nuclear Fuels Ltd., in which the Government are the only major shareholder. Capitalising interest is the basis of the finance of British Energy. All the practices that brought down American companies are available here. They are authorised by accountants and used by companies whose accounts are opaque and kept that way.
  The fourth common factor of such corporations is the longevity of their relationships with auditors. It is all very well for the Minister to tell us about rotating partners, but Maxwell's relationship with Coopers and Lybrand was so long standing that the partners must have rotated several times. However, that did not change Coopers' deference to Maxwell because it wanted to keep its other business.
  We must tackle the key problem that auditors are deferential because they make more than 70 per cent. of their money from selling other services to audit clients, but the Bill does nothing about that. Auditors are deferential because they want to sell more business. Ernst and Young has established a $4 million contract in the United States for cleaning lavatories. Accountancy firms will sell any services to audit clients to make a buck, but that creates a collusive and damaging relationship in which auditors authorise practices that they should not and treat things that are dodgy as safe without drawing public attention to the fact.
  The most telling quote about the problem comes from the senior audit partner of Coopers who was responsible for the Maxwell audit. He told his audit team:
  "The first requirement is to continue to be at the beck and call of RM"—
  670
  I give hon. Members three guesses at who RM is—
  "his sons and staff, appear when wanted and provide whatever is required".
  The senior audit partner told his team that it was its job to jump when Maxwell wanted it to jump and to do whatever Maxwell wanted. Dependent relationships produce such practice and the situation has not changed—rotating partners will not change it. It might be changed only if new auditors are brought in and the sale of other services to audit clients is banned—that is the key problem. The Government have not done that. Although they are holding a consultation on what should and should not be sold, only a total ban will work.
  A classic example of why the rotation of individual auditors in a company will not work comes from Andersen. Carl Bass, one of its auditors, began to have doubts about Enron's accounting practices in 1999. He voiced them to Andersen, but the firm did not say, "More power to you! Keep at it and we'll stop this." It simply moved him on to another account, thus getting rid of the man and the inconvenience.
  The sale of other services makes for complacent auditing, so the practice should be stopped. The Bill does not address such matters, so although it could be improved, it represents a lost opportunity. I could have understood that happening if the Bill had been introduced in 1997 because we were learning the job then, but we have now had seven years' experience of such practices and we have not done enough about them. The Financial Reporting Council will not be able to do much either. I tabled a question about the council and found that since 1991, it has required only 14 companies to restate their accounts, although some 350 companies were required to do that over six months in the United States. Only two such cases occurred in 2002, and two in 2003. The council is statute based, which I want, but it is insufficiently independent because it is made up of representatives of the big four and other corporate interests that dominate the scene and work with them and because it has no ombudsman. We could devise a more effective way of dealing with the problem—I hope that the amendments that I will move in Committee will do that—than such comparatively weak and inadequate measures.
  I am not impugning the integrity of auditors. We need audit because it represents the police force of capitalism. We need accurate reports and information for markets, shareholders and stakeholders. We must have good audit and if that costs more, the charge must be paid. No market can work without the accurate and honest information that is provided by independent auditors who are not brought into a collusive relationship with the companies that they audit.
  I look forward to a co-operative relationship with Ministers who will serve on the Committee on the amendments that I have in mind to improve and strengthen the Bill, which I welcome. I hope that my critical remarks about the DTI's relationship with the big four will not affect my impetuous enthusiasm to work with it for a better Bill.
  7.27 pm
  Mr. Mark Hoban:I rise with some trepidation because I am probably the only person in the Chamber who has worked for one of the big four firms

  671
  that the hon. Member for Great Grimsby (Mr. Mitchell) called into disrepute. I am a non-practising chartered accountant, and I want to focus my speech on auditors' liability.
  The Minister was right to stand firm against the siren voices of her colleagues, especially the hon. Member for Great Grimsby, who called for more detailed regulations and rules on aspects of audit firms' operations, because a rules-driven approach has been shown not to work in certain jurisdictions. The principles that underlie UK accounting standards, rather than the rules-driven approach that underpinned US practice, explain why we have managed to avoid the great corporate collapses experienced in the States over recent years. It is important to stand behind the principle-driven approach on regulation and accounting.
  Having said that, it is a great shame that the Bill has not been used to limit auditors' liability by setting up rules for proportionate liability or capping the liabilities faced by audit firms—different approaches to tackling liability that, I suspect, would have different consequences for the market for audit services. It is especially disappointing that this morning's written ministerial statement used the cover of the Office of Fair Trading report as a reason not to proceed with limiting liability through the Bill. The report has come in for a fair bit of criticism from not only the accountancy profession but independent commentators, due to its relative merits, the time scale in which it was completed and its lack of a thorough investigation of the market. I hope that the Government will support and encourage the consultation process to which the Minister referred in her speech and the Secretary of State referred in the written statement so that the issue will not continue to fester for years to come.
  Limitation of liability is a problem for auditors for two reasons. First, the legal position is that an auditor held responsible with other parties for the loss suffered by a company, no matter how minimal its role in that loss, is liable as a consequence of joint and several liability to pick up the whole loss. People often sue audit firms because they believe that they have deep pockets. The hon. Member for Great Grimsby highlighted the fact that insolvency practitioners pursue firms of auditors to recover losses suffered by creditors and shareholders. It is right and proper for them to do so, as they have a duty to maximise the amounts that they secure for creditors. Sometimes, however, auditors are seen as an easy target, compared with directors, who may not have the resources of accountancy firms.
  Secondly, limitation of liability is a pressing issue because of the financial risk to which my hon. Friend the Member for Sutton Coldfield (Mr. Mitchell) referred. Large firms of auditors may be unable to secure sufficient insurance cover for the financial risks that they face as a consequence of claims. If cover is not in place firms are exposed to the danger of a catastrophic loss, leading to the collapse of the business. That also acts as a barrier to other audit firms that may wish to enter the market for large audit clients—a point to which I shall return. As well lacking access to insurance cover an audit firm, by virtue of being a people business and a partnership, may lack ready access to capital. A big four
  672
  firm may have a £1 billion turnover in fees, but its net assets are a quarter of that sum. A successful claim against such a company could lead to its collapse.
  We need to think carefully about the consequences of not implementing limitation of liability. Audit firms will continue to tighten their client acceptance and retention procedures, which determine whether or not they take on or retain a client. When I worked for an audit firm, there was a distinct tightening of risk management. Audit firms are focusing much more on risk in a range of different areas, especially client acceptance and retention. In recent years, their procedures for doing so have become more rigorous, and as the risks faced by auditors increase as a result of the growing size and complexity of their client companies, they will adopt an even more rigorous approach to client acceptance. Auditors will look more carefully at high-risk factors and companies, and decide whether or not they want to be exposed to the risk that such companies bring. They may start to show the independence that the hon. Member for Great Grimsby wanted them to show by turning such clients away. That process could start if limitation of liability is not implemented.
  Mr. Austin Mitchell: Does the hon. Gentleman think that that careful scrutiny of clients is more common than the widespread practice of low-balling—putting in a low bid to get the audit contract? We have heard several examples of things that firms have done to get their foot in the door and get the contract, so that they can sell other services. However, they have to reduce the quality of the audit, perhaps by using unsupervised and untrained staff, and cut corners so that the audit meets the cost given in their bid.
  Mr. Hoban: The hon. Gentleman's intervention demonstrates the weakness of his case, as he tends to overstate the extent of low-balling and collusion. In her written statement today, the Secretary of State referred to the reputation of audit firms, which they know they risk if they produce poor quality audits. The value that they place on their reputation stops them cutting corners and risking the quality of their audit work. In overstating his case, the hon. Gentleman does himself an injustice, as earlier he made a powerful argument about problems that need to be tackled.
  There is a risk that some clients will be turned away and will not find an auditor to audit their accounts. At the weekend, one newspaper referred to the prospect of companies in the financial services sector being unable to find an auditor, which would create a serious risk for capital markets and shareholders. Auditors must engage in a debate about the financial risks that they are prepared to accept when taking on clients and the extent of their financial exposure. Reluctance to limit auditors' liability could also restrict the work that they do. In the past few years, as I saw when I was in the profession, more and more information has been included in company accounts. In addition to financial data, there are reports on corporate governance, internal controls and, as was said earlier, operating financial reviews. Much of that information is non-financial and is not audited. Auditors are required only to give a true and fair opinion of financial statements, so a large part of the accounts that shareholders receive includes information that the auditor has not looked at. I looked at a copy of

  673
  an audit report earlier today, and the auditors clearly differentiate between their work to test the accuracy and integrity of financial accounts and their work on non-financial data. They do not pass comment on the quality of a company's systems, on which the directors themselves report. They do not say whether those controls are adequate or inadequate—they simply say that a board has published a statement, and do not comment on the effectiveness of corporate governance or risk and control procedures.
  I should have thought, however, that many investors would like the auditors to comment on those internal controls and corporate governance procedures. The risk to which audit firms would be exposed if they made such a report restricts to the minimum the scope of the comfort that they can give. If we want better-quality information to be given to shareholders, and if it is to be validated and verified by accountancy firms, we must look at their liability, and decide whether we want to restrict it to enable auditors to undertake more services of genuine value to investors and shareholders. The hon. Member for Weston-super-Mare (Brian Cotter) referred to the comments of the chief executive of the Institute of Chartered Accountants, Eric Anstee, who said:
  "A fair liability regime encourages more transparent corporate reporting and enables auditors to exercise professional judgment on matters that go beyond the statutory audit requirements."
  That is a valid point—if the Government want auditors to comment on the operating financial review and non-financial data and accounts, they must look at the liability faced by auditors in producing such work and consider whether they should restrict it to enable them to provide much greater assurances.
  Another consequence of a failure to tackle limitation of liability in the Bill is a restriction of the number of firms willing or able to audit large companies. I became an accountant in the mid 1980s, when I joined a big eight firm. Those firms have now been reduced to the big four, which, as has been said, dominate the market for large audits, auditing every single FTSE 100 company and 97 per cent. of FTSE 250 companies. A catastrophic claim against one of the big four could restrict those firms to the big three. It could be argued that that creates an opportunity for someone to enter the market and pick up audit work, but under current conditions that is not possible, as Steve Edmonds of Grant Thornton pointed out:
  "The OFT's report has not addressed the consequences of the marketplace if another Big Four firm were forced to seek protection from enormous professional indemnity claims. Were the Big Four reduced to a 'big three', it is highly unlikely that Grant Thornton or another mid-tier firm would seek to take the place of the former Big Four member in such a risk segment of the audit market."
  Eric Anstee said of middle-tier firms:
  "These firms wrote to the DTI at the time of the original consultation indicating they wished to audit larger public companies but were reluctant to do so either because they could not get insurance or because the potential exposure was too great."
  There we have it. If we are looking to support the existing structure of the market or to support competition between audit firms, we need to reconsider the limitation of liability for audit firms. If we wish to move away from the big four and encourage middle-tier
  674
  firms to audit larger clients, we need to limit liability for their sake, to reduce their exposure. Comments have already been made about the much greater dilution of power in some of the overseas markets where there is already limitation of liability. In Germany and Austria a larger number of companies are audited outside the big four because those smaller firms feel confident, given the existence of the cap on liability.
  The principal argument against the limitation of liability is the concept of moral hazard—that if we start to restrict the liability of auditors, they will reduce the standard of their work and, in the words of the hon. Member for Great Grimsby, cut corners. I am not sure that that would happen. I have done work that was subject to unlimited and limited liability, and I do not believe that my standard of professionalism dropped between different types of assignment. One tackles all assignments with the same degree of care and the same sense of the importance of one's work for the firm's reputation.
  The Government have made a mistake by trying to kick the issue of limiting auditors' liability into the long grass. By setting up an open-ended consultation process and by not tackling the issue in the Bill, they are creating the potential for a further concentration of the audit market down to the big three, and a situation where audit firms will turn away clients whom they consider to be too great a risk for them to bear. That will lead to a restriction in the type of work that audit firms will consider. I hope that the Government will take advantage of a short Committee stage to think again and take some positive action to tackle the issue of auditors' liability.
  7.42 pm
  Mr. Jim Cousins:I intend to be extremely brief, so I shall do nothing other than comment on the part of the Bill that refers to the creation of community interest companies, except to say that I thoroughly support the remarks of my right hon. Friend the Member for Leeds, West (Mr. Battle) in his excellent exposition of the case for such companies and the service that might be provided by them. I shall not dwell too long on aspects of the Bill that I wholeheartedly support, such as the creation of new rights for auditors to demand papers and to demand replies of the companies and services that they audit. That is extremely sensible.
  My hon. Friend the Member for Great Grimsby (Mr. Mitchell) draws to the attention of the House the problem of the new grandees of our economic life—the big four accountancy firms. The Bill does not address that issue. It is one thing for a Parliament to decide that it does not wish to address some matter. It is another thing for a Parliament to give the impression that it is happy and satisfied with the matter. Of course, Parliament and Government have important relationships with the big four accountancy firms. More than £100 million in the past three years was commissioned in contracts by Government Departments. That does not include the cost of the beginnings of the implementation of the identity card scheme by the Home Office, which has been placed by one of the big four accountancy firms, nor does it include the Department of Health, for the remarkable

  675
  reason that the Department of Health cannot tell us the extent of its contracts with the big four accountancy firms, which is not good news.
  For that reason, I share with my hon. Friend the Member for Great Grimsby great concern about the connection between audit and non-audit services. We should recognise that the value of non-audit services now far exceeds the value of audit services. That offers the possibility that audit services become a loss leader to attract non-audit business. It is true, as my right hon. Friend the Minister set out, that it is open to the Auditing Practices Board to lay down guidance and rules about limitations on audit and non-audit services, but that would mean Parliament farming out its duties to another body. I regret the fact that the Minister did not offer any guidance to the Auditing Practices Board on how it should seek to exercise its powers in that respect.
  The House should recognise that it is no longer its own master with regard to these issues. The Sarbanes-Oxley Act—the new regulatory legislation in the United States—will apply to a great many British companies if they list and are quoted on American stock exchanges. Parliament cannot simply pass such matters over to some other body. It would be entirely wrong for Parliament to leave these issues to be determined by the US Congress. When we see in the American legislation that, for example, audit firms are banned from outsourcing internal audit functions, it is hard to say that that is not right. When we see that the American legislation bans audit firms from supplying investment broking services to the companies that they are auditing, it is hard to say that that is wrong, or that we would not want to consider that for our own legislation.
  The Minister said that tax advice was not part of the limitations of the American legislation, and that audit firms can carry out tax advice as part of their non-audit services to the same firms. That is true, of course, but she did not tell us that that was one of the most hotly contested issues in Congress, and that many in Congress bitterly regretted the fact that there would be no ban on tax advice being given by firms that were supplying audit services to the same companies.
  The Minister also did not tell us that those in Congress who wanted passionately to see that limitation introduced were successful in requiring that audit firms that offered tax advice should have the specific approval of the audit committee for the tax advice that they were giving, issue by issue, contract by contract. These issues are being raised in the US Congress and put into American legislation, and they will apply to UK companies, yet Parliament expresses no view about them. What an incentive, what an encouragement to all the proactive prosecutors in the United States to take their revenge on our companies for our failure as a Parliament to address the same and similar issues.
  What a pity, too, that we have offered no guidance to the financial reporting review panel on what duties it should regard itself as having. The Bill increases the panel's powers and allows the Inland Revenue to talk to it. That is good, but we have not provided any guidance on what duties we see the panel carrying out or how it should report to Parliament or the outside world. We have left the impression that those activities are simply
  676
  the property of a small collection of key stakeholders and that they are not a matter of public interest and public debate. That omission is important, and British companies will pay a heavy price for it at the hands of prosecutors in other jurisdictions.
  On a cap on audit liability, the Companies Act 1985, which has already been referred to, specifically provided that no cap on auditor liability should be introduced. That was not an oversight, because Parliament considered the matter in 1985 and decided that it did not want to go down that route. Why did the 1985 Act provide that no cap on auditor liability should be introduced? It was because Parliament sought to strike a balance between financial and moral hazard—by increasing financial hazard, moral hazard is reduced, which provides the need for regulation.
  If Opposition Members who want to remove the cap on auditor liability go down that path, they will change the debate, and the issue of Parliament itself providing statutory regulation for the resulting moral hazard issues will be on table. I invite them to consider that the shift is not one way—if they shift the debate in that way, they will shift it in other ways, too.
  Mr. Austin Mitchell: The same point applies to limited liability partnerships. If the liability of one particular partner is reduced, the tendency for all partners to invigilate each other in order to protect the whole firm's reputation diminishes, which weakens corporate strength in the big accountancy houses.
  Mr. Cousins: When Parliament conceded limited liability partnership legislation and provided the framework, it was a great shame that it did not also address the inevitable issues concerning regulation. That was a failure, but in politics it is pointless to dwell on battles lost, because one is likely to lose current battles. I simply say that we should not compound that mistake.
  I welcome this morning's statement by the Department of Trade and Industry. When I asked my right hon. Friend the Minister whether the closure of the issue of a cap on auditor liability applies to this Bill, however, I did not get a clear answer. I wonder whether the Government will return to that issue during the passage of the Bill, and I therefore need to make the point that such a return would be unacceptable to many Labour Members.
  I do not regard allowing a system of contractual limitation of liability agreed between companies and their auditors, which was outlined and suggested in this morning's statement, as a comfortable or satisfactory way in which to proceed, because it opens the way for collusive relationships between auditors and those whom they audit, the prevention of which is a company audit's entire purpose.
  I am extremely concerned about those issues. I will not dwell on them now, but I remind the House that if it fails to grasp them, it will not kick them into touch, but it will leave British companies wide open to legislation in other jurisdictions, such as the United States of America. On the strength of tonight's debate, the land of the brave and the home of the free is more courageous than this House on the regulation of enterprise and auditors.
  7.55 pm
  Mr. Andrew Mitchell: With the leave of the House, Mr. Deputy Speaker.
  Given the nature of the subject, the debate has been interesting. With regard to my contributions, I hope that the Minister feels that there is no party political division on much that we have discussed. We both paid tribute to the good work that has been done in the other place on reforming the Bill and I pay tribute to the way in which the Government have listened to the Opposition and framed a number of their amendments around our concerns.
  Broad strategic agreement exists on both sides of the House about where we want to go. I say to the hon. Members for Great Grimsby (Mr. Mitchell) and for Newcastle upon Tyne, Central (Mr. Cousins) that I agree with their desire to ensure that the law punishes wickedness and holds to account people who do not behave as they should.
  I shall make a couple of points about this morning's statement and I hope that the Minister will comment on them in her winding-up speech. On directors' liability, we must consider her remarks carefully, but, on the face of it, the measure looks rational and hopeful, in so far as it goes. I am sure that we will return to that point in Committee when the Minister tables her amendments, which she kindly says that she will make available to the Opposition parties.
  Will the Minister explain why her Department has decided that capping for auditors is wrong, but that capping of directors' liabilities to protect them from third-party claims is right? Does she intend that companies that make such arrangements with their directors should get their shareholders to approve them?
  Why have the goalposts been moved on auditor liability? In the consultation document, the Government refer to their determination to ensure that a "competitive market is maintained". In today's statement, they say that they want to see "significantly enhanced competition". How does the Minister think that enhanced competition and new entrants into the market can be achieved while maintaining unlimited and uncapped liability?
  The Minister has kindly said that she will ensure that Opposition parties receive an analysis of the responses to the consultation process. However, the vast majority of respondents said that action was urgently needed, and most respondents, including the Association of British Insurers and Hermes, favoured some form of proportionality. How can hon. Members form a proper view without seeing an analysis of the views that were received? What possible justification can there be for further delay? More than three years ago, the company law review recommended that serious action should be taken, and the Minister's Department must take the necessary action.
  The right hon. Member for Leeds, West (Mr. Battle) spoke with his usual passion and commitment—his credentials are very strong too—about the charity sector. Conservative Members agree with his point about the need to support such community enterprises. Our reservation, with which I think he will agree, is that the structure that he described is confusing.
  The right hon. Gentleman rightly pointed out that the failure to introduce secondary legislation to deal with the lock-in in the industrial provident society legislation
  678
  is extremely important. This Bill introduces the community interest company and the draft Charities Bill introduces the community interest organisation. I venture to suggest to the House that the CIO will be successful, but I suspect that the CIC will be much more challenged in meeting the objectives that the right hon. Gentleman set out for it and that Conservative Members fear that it may well not meet. I share his enthusiasms; I hope that he shares my reservations on the nature of the format.
  The hon. Member for Weston-super-Mare (Brian Cotter) largely agrees with Conservative Members on the nature of the Bill. He wants its remit to be extended significantly, not least to deal with the vexed subject of late payment. I have no doubt that we can explore that in Committee.
  The hon. Member for Great Grimsby, whose accusations against international capitalism are far too hot for me to handle, inveighed against indolent non-executives, overpaid chief executives, fat cats, friends of the big four, and—rightly—Robert Maxwell, a former member of his party. The hon. Gentleman described the audit partner's relationship with that company, which he and I can agree was an absolute scandal.
  In relation to clause 8, the hon. Gentleman said that he is anxious to protect those people who were forgotten by the Government in the Lords. I look forward to tabling what might come to he known as the Mitchell amendment in Committee to deal precisely with the point that we both raised in that respect.
  From the vantage point of expertise, my hon. Friend the Member for Fareham (Mr. Hoban) made a wise speech in which he stressed that in every other business sphere, a business man or woman can limit their liability either by contract with their customers or by obtaining insurance. He flagged up the real danger that a major company might not be able to secure an auditor. We want a fair liability regime, and that is what we should be working towards.
  The hon. Member for Newcastle upon Tyne, Central talked about the danger of collusive relationships in the sphere of auditor activity. He is right: that is precisely why the legislation—not that passed in 1985, but much earlier in the last century—sought to deal with the issue of collusive relationships between companies and their auditors. I wish to propose in Committee a relationship that deals with the serious issues that I discussed in my opening speech—one that does not fall into the moral hazard that was suggested by the hon. Members for Great Grimsby and for Newcastle upon Tyne, Central, but that tackles it in the interests of a competitive market where many of the abuses about which the hon. Member for Great Grimsby is so concerned would be dealt with.
  Conservative Members are not prescriptive, but we strongly believe that the Government must measure up to their responsibilities to the corporate sector and come up with a proposal for handling the problem. We will try to table the widest possible range of amendments to deal with that. We do not have the resources that the Minister has, with her fine body of civil servants, and if our drafting is defective we will of course defer to her, but we hope to carry her on this point. Something needs to be done, and we will come up with some ideas that we hope will find favour.

  679
  We are concerned about three aspects of the Bill. The first relates to its diminutive status. The Government have missed the opportunity to address the excellent work done by the 15 members of the company law review, which has been on the Minister's desk since the middle of 2001. We are disappointed that the DTI has not taken this opportunity to bring forward that much-needed legislation.
  Secondly, we are worried by the Government's failure to understand the effect of this level of regulation in terms of stifling initiative and entrepreneurialism. It used to be high tax that killed off enterprise in this country; now, the spirit of enterprise is being strangled by red tape, regulation and bureaucracy. The Government must have a care to ensure that they do not allow that to persist.
  Thirdly, on the community interest company, we are worried that the Bill as it stands will not meet the aspirations expressed by the right hon. Member for Leeds, West. We hope that we can improve the situation by probing and questioning the nature of the CIC with the Minister in Committee.
  As the Minister knows, we are concerned about directors' liability, although we will look carefully at what she said today. We are concerned about auditor liability and about the difference between directors and non-executive directors, with all the risks and dangers for our system of corporate governance that result. We are worried about the levy and seek assurances from the Government on that. We are worried about the extent of the independent monitoring of major audits and fear that it may be excessive. We want to protect the rights of the individual, about which this House has always been concerned, in relation to excessive investigatory powers. We want to reassure the citizen that the powers that we give to officials and enforcement authorities are really necessary.
  Conservative Members do not wish to divide the House tonight. We hope that the spirit of co-operation shown by Government Front Benchers on Report in the Lords will persist in Committee and on Report here. On that note, I rest our case.
  8.5 pm
  Jacqui Smith: With the leave of the House, Madam Deputy Speaker.
  We have had a useful debate that was probably more interesting than some people thought that it was going to be, although it ranged a little wider than the Bill. I am pleased that the House has had the opportunity to devote some attention to the subject of company law. Companies are an essential feature of our lives and it is crucial that we do not leave this area solely as the preserve of specialist lawyers—or even accountants, notwithstanding the very good speech by the hon. Member for Fareham (Mr. Hoban).
  I want to respond to some of the issues that hon. Members raised, but we will return to some of the more detailed points in Committee. Several Members asked about the progress that we are making on the company law review. As I said in my introduction, we are the Government who undertook that review, which spelled out the comprehensive nature of the reform that is
  680
  necessary. Let me be clear that we are working on and will make proposals that will enhance shareholder engagement, foster a long-term investment culture, help to ensure better regulation, enshrine the principles of "think small first", make it easier to set up and run a company, and ensure that the law remains flexible for the future.
  As the hon. Member for Weston-super-Mare (Brian Cotter) said, we have already started our consultation on the new powers to reform and restate company law. Taking forward that detailed work is no small task, but we will ensure that we get it right by drawing on expertise in business and elsewhere to help us. We will legislate as soon as parliamentary time allows and publish a draft Bill beforehand to allow for further full consultation.
  Several hon. Members referred to the operating and financial review, which represents an important opportunity to develop the information that is available to shareholders and the market and to enhance financial statements to allow much broader discussion and analysis of the business. We consulted widely on that. The consultation closed on 6 August, and we received more than 130 responses. We will soon introduce regulations to ensure that we make progress on that important aspect.
  Interestingly, almost all hon. Members commented on audit liability. The voices of the hon. Members for Sutton Coldfield (Mr. Mitchell), for Fareham and for Weston-super-Mare, on one side of the House, and of my hon. Friends the Members for Great Grimsby (Mr. Mitchell) and for Newcastle upon Tyne, Central (Mr. Cousins) on the other, identified the difficult challenges involved in taking that matter forward.
  I am somewhat averse to calling the hon. Member for Sutton Coldfield a Johnny-come-lately to this issue, but not so averse that I will not. It was this Government who undertook the review that led to the changes that brought in limited liability partnerships, and this Government who undertook the consultation to which we have received several detailed responses. Although some respondents will have asked for confidentiality, I will ensure that those responses that we can make available are placed in the Library. Subsequently and rightly, we asked the Office of Fair Trading to consider the competitive impact of proposals for a cap on auditor liability. Let me reiterate our objectives for progress on that: to ensure access to high quality audit provision for our businesses; to ensure that we continue to drive up the quality of the audit; and to ensure competition in the audit market. I believe that I am—dare I say it—the voice of reason in the discussion. We shall keep the objectives at the centre of our consideration.
  As my right hon. Friend the Secretary of State made clear in the statement, we will not ignore the advice of the independent OFT, which has made clear its view that the proposals for a cap on auditor liability as proposed in the consultation may be competitively neutral. However, we shall consider seriously ideas for limiting liability proportionately by contract. As I said earlier, the challenge is for us all, including auditors, investors and business, to come together to ascertain whether that would work, whether it would be desirable and whether it would deliver the objectives that I outlined.

  681
  The hon. Member for Sutton Coldfield mentioned directors' liability. Our objective is to maintain the necessary pool of expertise to direct our businesses. He asked some specific questions. He asked why we were changing that law but not the law on auditor liability. As I said earlier, changes should be considered on their merits. There is stronger and clearer consensus that the need for reform is more urgent in respect of director liability and greater agreement exists on the proposed reforms, which are not a cap on directors' liability but provide the ability for businesses to indemnify some of the costs that might confront directors when facing action.
  On shareholder approval, the proposals will provide shareholders with information. They will not require prior shareholder approval specifically because we do not propose a cap on liability in the way in which the hon. Gentleman expected.
  The hon. Gentleman criticised us both for not taking action quickly enough and for bringing forward action on community interest companies in advance of the Charities Bill and the proposals for a charitable incorporated organisation. As my right hon. Friend the Member for Leeds, West (Mr. Battle) ably pointed out, the introduction of the community interest company is an important part of the Government's programme for support for social enterprise and will complement the other available options. Work is well advanced on it and many community and social enterprises will benefit from its introduction. It is therefore right to take that forward.
  Charitable incorporated organisations come from a different direction, although both they and community interest companies were recommended by the strategy unit and both were supported in consultation. As my right hon. Friend said, although charitable incorporated organisations provide some of the restrictions, they come from the charity sector and are therefore subject to some of the restrictions of charity law, whereas community interest companies come from the enterprise end, take the form of a company and therefore do not have some of the restrictions but bring with them other responsibilities. There is a distinction between the two and it is therefore logical to bring forward community interest companies in a way that will help to promote social enterprise and create many of the benefits that my right hon. Friend rightly identified.
  The benefits include communities' ability to develop not only socially but economically, therefore facilitating the establishment of the asset lock and ensuring that entrepreneurs do not need to reinvent the wheel when determining an asset lock. The hon. Member for Sutton Coldfield appeared to suggest that they should have to do that on each occasion. We believe that the measure will help us to help entrepreneurs and to develop the social enterprise sector.
  I agree with my right hon. Friend the Member for Leeds, West that we need clarity about non-profit distribution and to encourage and support growth. I hope that we can discuss in Committee, and when we consider the Department's action to promote social enterprise, how we can ensure that we not only put in place the legal framework but that CICs deliver the benefits for our communities and our economy that he ably spelt out.
  682
  The hon. Member for Weston-super-Mare mentioned, among other things, late payment. It is a serious issue, albeit outside the Bill's remit. Of course, the Government are aware of the problems that late payment causes small firms in particular. That is why, as he pointed out, we legislated on that basis. We shall study his remarks carefully and are always open to suggestions to help smaller businesses and encourage enterprise.
  My hon. Friend the Member for Great Grimsby continued his crusade, possibly against auditors and accountants, although he claimed to recognise the important role that auditors play. I look forward slightly to the time when the comments of one A. Mitchell are confused with the comments of the other A. Mitchell.
  My hon. Friend made several important points. I agreed with some and disagreed with others. He mentioned competition among the big four auditors. I have already mentioned competition in the context of auditor liability. The OFT reviewed the competitive position of the big four in 2002. It concluded that the market for audit and accountancy is highly concentrated and announced its intention to keep that under review. In addition, the European Commission has announced that it intends to progress such work. We do not disagree about the importance of competition in the market for audit, but we possibly disagree about how we get there.
  I disagree with my hon. Friend's comments about the nature of the regulatory structure. The Bill makes the regulatory structure more independent and coherent. The new financial reporting council will be a more effective regulator with the four clear responsibilities that I set out.
  My hon. Friend the Member for Newcastle upon Tyne, Central was worried about whether we had abrogated our responsibility to the Auditing Practices Board on how to frame standards. The co-ordinating group on accounting and audit, which was not dominated by professional interests but made up of Government regulatory bodies and independent experts, gave much attention to precisely the sort of standards that my hon. Friend mentioned. The Auditing Practices Board has made constant reference to that report. There has also been the report by Sir Robert Smith on audit committees and the European Commission recommendations have been borne in mind. There has been considerable input, including considerable independent and lay input, into the progress that needs to be made in developing audit standards.
  My hon. Friend the Member for Great Grimsby mentioned the enforcement of financial reporting requirements and suggested that we had not strengthened them sufficiently. The Bill strengthens the role of the financial reporting and review panel in three important ways. Clause 14 allows it to consider interim as well as annual accounts. Clause 12 grants the panel the power to require information so that it no longer relies on voluntary co-operation and opens an information gateway to enable the Inland Revenue to notify the panel in the course of its normal business when it becomes aware of instances of mis-accounting.

  683
  On top of that—this does not need the Bill; it is already happening—the panel is taking a more proactive approach to the scrutiny of accounts. That is important in turning the spotlight on to accounts to ensure that they maintain the high standards that we expect.
  A general theme outlined by some of my hon. Friends is that this package of measures does not go far enough to improve audit independence and quality. I repeat my contention that the UK system of core principles and safeguards has already proved itself to be more effective than an American-style set of rules and prohibitions. We are putting in place a whole range of measures to address auditor independence. As a result of that, the co-ordinating group report deals with the problems from various angles—those of the auditor, the company and the oversight body. That is why there will be tougher ethical standards on independence and objectivity and they will be binding on the profession. That is why the standards setter, the Auditing Practices Board, will be independent of the professional accountancy bodies. That is why the new standards will require audit partners to be rotated more frequently and will introduce a two-year cooling-off period before an auditor can be employed by a client.
  Firms themselves will ensure that there is a much stronger role for the company's audit committee. Clause 7 builds on that by increasing the transparency of the non-audit services provided to permit the market itself to decide when the company audit relationship may be inappropriate. When the legislative and non-legislative measures are taken together with the independent body that is being set up through the FRC, they will provide a UK approach as well as a strong and independent approach to ensuring the quality of audit that we all want.
  Whether as Governments, businesses, investors or individuals, we all have a role and a responsibility in taking forward the strengthening of the environment within which businesses operate in the UK. I strongly believe that the UK continues to offer an attractive environment for companies to operate in. It is an environment in which our regulation does not overly burden businesses and in which change is driven forward by consultation and mutually agreed solutions. This enables investors and markets to prosper, enterprise to thrive, communities to develop and jobs to be created in the knowledge that a secure supporting structure is in place that is flexible enough to respond to the concerns as they arise.
  That approach is taken forward in this carefully targeted Bill. It responds to important issues that have been raised in the context of company law. It contains the legal changes identified as priorities in the light of Enron and similar scandals, and it contains measures to promote the creation and development of social enterprises that can bring significant benefits to local communities and more widely.
  On Third Reading in another place, one of the Opposition spokesmen said that
  "we now have a Bill that is workable and will be of great benefit".—[Official Report, House of Lords, 14 July 2004; Vol. 663, c. 1297.]
  684
  I cannot put it better myself. I commend the Bill to the House.
  Question put and agreed to.
  Bill accordingly read a Second time, and committed to a Standing Committee, pursuant to Standing Order No. 63 (Committal of Bills).

  COMPANIES (AUDIT INVESTIGATIONS AND COMMUNITY ENTERPRISE) BILL [LORDS] [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 Companies (Audit, Investigations and Community Enterprise) Bill [Lords], it is expedient to authorise the payment out of money provided by Parliament of any expenses of the Secretary of State under that Act.—[Joan Ryan.]
  Question agreed to.

  COMPANIES (AUDIT INVESTIGATIONS AND COMMUNITY ENTERPRISE) BILL [LORDS] [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 Companies (Audit, Investigations and Community Enterprise) Bill [Lords], it is expedient to authorise—
  (a) provisions enabling a levy to be imposed on bodies or persons specified, or of a description specified, in regulations for the purpose of meeting expenses incurred (or treated as incurred) by a grant-aided body within the meaning of those provisions, and
  (b) the payment of sums into the Consolidated Fund.—[Joan Ryan.]
  Question agreed to.

  COMPANIES (AUDIT, INVESTIGATIONS AND COMMUNITY ENTERPRISE) BILL [LORDS]
  Ordered,
  That, during proceedings on the Companies (Audit, Investigations and Community Enterprise) Bill [Lords], the Standing Committee on the Bill shall have leave to sit twice on the first day on which it shall meet.—[Joan Ryan.]

  HEALTH
  Ordered,
  That Mr Paul Burstow be discharged from the Health Committee and Mrs Patsy Calton he added.—[Mr. Bob Ainsworth.]

PETITIONS

  Antennae
  8.24 pm
  Bob Spink:As you know, Madam Deputy Speaker, from debates, petitions and late nights, I have been campaigning for more controls on mobile phone and other masts for some years. The

  685
  rights of communication companies to put masts where they want with total impunity with respect to the views of residents must end. We must listen to local people's views and need a policy that empowers local people to control and protect their own environment. We must take the precautionary approach to the possible health impact of antennae.
  To add yet another six antennae to a mast in a residential area that already has 30 or so would be lunacy until we are sure that the cumulative effect of all that radiation from those masts going into people's homes will not harm them and their children. I encourage Castle Point borough council to throw out the application in the way that the petition requests.
  The petition states:
  To the honourable the Commons of the United Kingdom of Great Britain and Northern Ireland in Parliament assembled.
  The humble petition of Mr. and Mrs. Pownall, Jeff Stanley and concerned residents of Castle Point sheweth
  That there is strong opposition to the proposed installation of the six antennae, six equipment cabins and a feeder gantry to the existing mast at the NTL transmitting station, EDF Energy Substation at Rayleigh Road Thundersley as this will adversely affect the character of the area and street scene and, most importantly, will increase the serious potential health risks to residents and especially to children, particularly since there is no firm evidence that such equipment does not pose an increased health risk and that therefore the long term health risks are unknown.
  Wherefore your petitioners pray that your honourable House will urge the Castle Point Borough Council to reject the planning application CPT/572/04/FUL.
  And your Petitioners, as in duty bound, will ever pray, etc.
  To lie upon the Table.

  Scottish Regiments
  8.26 pm
  Mr. Peter Duncan:The future of my constituency's local regiment is close to the hearts of the people of Dumfries and Galloway. For its future to be in doubt is simply unbelievable. The King's Own Scottish Borderers have served with valour across the globe for generations while providing a local source of opportunity for our region's young people. For the Government to suggest massive cuts in our armed forces now is sheer folly. These are the same troops who are ready to serve in the dispute and conflict zones across the world and who provided a vital resource during the foot and mouth outbreak.
  The petition reads:
  To the House of Commons
  The Petition of residents of Dumfries and Galloway and others,
  Declares that the distinct and historic Scottish regiments, including the King's Own Scottish Borderers, have served with distinction over generations; and that any change to the structure of the regiments would severely weaken their valuable links with the local community.
  The Petitioners therefore request that the House of Commons urge the Government to reverse its plans to abolish the Scottish regiments.
  And the Petitioners remain. etc.
  To lie upon the Table.

  Wartime Civilian Prisoners (Far East)
  Motion made, and Question proposed, That this House do now adjourn.—[Joan Ryan.]
  8.27 pm
  Mr. Andrew Dismore: This debate's full title is "Compensation for former civilian prisoners of the Japanese in the Second World War". Perhaps a better title would have referred to lack of compensation for former civilian prisoners, because that is really the theme of the debate.
  I became involved in this issue at the instigation of some constituents—two families in particular—to whom I shall refer later. Little did I know when I began to put their cases forward that I would end up as chair of the far east prisoners of war all-party group, and to some degree spearheading a campaign that I know has support from all quarters of the House.
  The historical background is pretty well known. After the attack on Pearl Harbour on 7 December 1941, the Japanese invaded east and south-east Asia and many British nationals were captured: 50,000 members of the British armed forces were taken prisoner and an unknown number of civilians interned. The conditions in which they were held were appalling; their treatment was utterly cruel. One in four prisoners of war died in captivity at the hands of the Japanese. Of course, many films and television dramas have been produced and many books written, but none can accurately or fairly reflect the absolute horror experienced by our fellow citizens over 60 years ago.
  In 1951, a peace treaty with the Japanese was concluded at San Francisco, which made arrangements, among other things, to pay compensation. A pittance was made available—£76 10s, in old money, for military prisoners of war and £48 10s for civilian internees. To qualify for that scheme, one had to be a British national over the age of 21 on 8 December 1941, normally resident in the United Kingdom before internment, and to have returned to the UK before an application for compensation was made. Approximately 8,500 civilians received compensation under those arrangements.
  Of course, many more were left out, and subsequently efforts were made to persuade the Japanese to provide additional compensation—so far, and I think for the foreseeable future, fruitlessly. The Japanese simply would not reopen the issue; they claimed that the matter had been settled under the 1951 treaty. The attitude of the Japanese can be compared very unfavourably with that of Germany, which has for example reopened the issue of compensation to holocaust survivors. A significant effort has been made to provide proper restitution in respect of assets seized from families who died in the holocaust and to provide compensation as a result.
  Over the years, successive Governments here have been lobbied on the issue by the Royal British Legion and, more recently, on behalf of the Association of British Civilian Internees, Far East Region—commonly known as ABCIFER. I pay tribute to the efforts of its chairman, Ron Bridge AFC, and his predecessor, Keith Martin, for their persistency and consistency in putting forward their case.

  687
  After so many years, this Labour Government acted. On 6 November 2000, a scheme was announced. A statement was made to the House on 7 November by my hon. Friend the Member for Kirkcaldy (Dr. Moonie), then Minister for Veterans, who said that the Prime Minister
  "initiated a reconsideration of the long-standing policy…towards …far eastern prisoners…as a result of the review, the Government have decided to make a single ex gratia payment of £10,000 to each of the surviving members of the British groups who were held prisoner by the Japanese during the second world war, in recognition of the unique circumstances of their captivity. In cases in which a person who would have been entitled to the payment has died, the surviving spouse will be entitled to receive it instead."
  My hon. Friend continued:
  "We estimate that up to 16,700 people may be eligible for the ex gratia payments, which will accordingly cost up to £167 million to make."
  He concluded by saying that
  "the country owes a debt of honour to them. I hope that I am speaking for everyone…
  —am sure he was—
  "when I say that today something concrete has been done to recognise that debt."—[Official Report, 7 November 2000; Vol. 356, c. 159–60.]
  I thought, on behalf of my constituents, that we had finally cracked it and got a result. I was very pleased by the announcement and I even issued a press release for my local newspaper:
  "This is something on which I have campaigned since I was elected to Parliament. I am delighted that Labour has put right this longstanding injustice…It is a timely reminder in the run-up to Remembrance Sunday of the suffering endured by those held in captivity in Japan under the most brutal of conditions. I hope this payment will go some way to making life a little easier for the survivors."
  Hindsight shows that I spoke a little too soon, although that is not to say that the scheme has not been successful. It has been very successful. There have been 8,430 payments to former prisoners of war, 1,882 payments to former internees and 12,973 payments to spouses of deceased prisoners or internees, which is a total of 23,285 awards. However, that is 6,500 more than originally expected.
  The original estimate was based on figures from the Royal British Legion of 6,500 POWs and 6,500 widows of POWs, and from ABCIFER, on behalf of the civilian internees, of 2,500, which provided for a range of 2,100 to 3,000 survivors. It did not make an estimate of the number of widows.
  ABCIFER's figure was actuarially calculated, based on the original Japanese statistics relating to the numbers they held, and it has proved remarkably accurate in that there were 2,922 claims on behalf of the civilians, taking into account those that were rejected for reasons other than that for which we are here tonight. Unfortunately, that for service personnel was significantly underestimated. That is why I say that the scheme has not been an unqualified success. Initially, the Gurkhas were excluded, but in November 2003, they were accepted after they brought a case to the courts, over race discrimination, on the basis that they should
  688
  have been paid out. I am pleased to say that the Government accepted the findings of the court and agreed to include them.
  My main concern relates to the excluded civilian internees, whose suspicion is that the rules were changed when, owing to the number of cases, the cost turned out to be higher than expected. That is the real issue at the heart of this debate: the introduction, it appears ex post facto, of the qualification known as the blood link.
  The original claim form, published in November 2000, came out soon after the announcement. I have a copy of it with me, along with the explanatory notes. It states:
  "This leaflet describes the new scheme that will be administered by the War Pensions Agency…and explains how to make a claim. Who can claim the ex-gratia payment?…(d)—
  I will not list those categories that are not relevant—
  "surviving British civilians who were interned by the Japanese in the Far East during the Second World War; and (e) the surviving widow or widower of a person who would otherwise have been entitled… providing they were still married at the time of death."
  There is no reference in the explanatory notes, or on the claim form, to the place of birth of the claimant, the claimant's parents, or the claimant's grandparents. On the face of it, there is no reason why there should be, because the assumption, based on the original statement in the House, was that if one was British enough to be interned by the Japanese in those appalling conditions, one was British enough to receive compensation.
  The nationality rules at the time of the second world war were that a person inhabiting a colony or dominion of the Crown was British, independent of whether they or their parents or grandparents had been born in the United Kingdom. They became a British subject when the colony was annexed, or having moved there and become naturalised, or having been born there. That is under the British Nationality and Status of Aliens Act 1914. There was a single and equal status of British subject throughout the United Kingdom and dominions. Such persons were entitled to a passport issued by the Crown describing them as British subjects. They owed an allegiance to the Crown. They had the right of abode in the United Kingdom and throughout the Crown colonies.
  Claims were being processed pretty rapidly after that initial announcement in November 2000. By 1 February 2001, some 14,000 payments had been made. By March 2001, however, ABCIFER started to realise that some claims were being unexpectedly rejected, and it took that up with the Government. On 21 March 2001, the interdepartmental working group, which had been involved in producing the scheme, decided to restrict the scheme to claimants born in the United Kingdom or to those who had a parent or grandparent who was born in the United Kingdom. The Government say that there has been no change in the rules, and that that was what was always intended. I have no reason to suggest to the Minister that that is not necessarily true. Whether or not it is true, however, bearing in mind that that expectation was raised, the effect has been to create both a feeling of unfairness and a series of anomalies when the new rules are combined with the way in which the system is administered. I will refer to some of those anomalies shortly.
  ABCIFER has been tenacious in challenging this ruling. It has referred the matter to the ombudsman, whose report we are still awaiting, and the matter is in

  689
  the hands of the Commission for Racial Equality, because the rule discriminates unfairly against certain ethnic groups. ABCIFER also took a legal action in the courts for judicial review. Unfortunately, however, that case failed, not on the substantive issue but on relatively narrow points of law. It is worth while quoting not the ratio of the Court of Appeal's conclusions, which were on those narrow points of law—judicial review is difficult to achieve in relation to an ex gratia scheme, as the court said—but the overall conclusion:
  "Naturally, we feel very great sympathy for all those who suffered appalling ill-treatment at the hands of the Japanese during their captivity. We also well understand that many civilians had their hopes of receiving compensation raised by Dr. Moonie's announcement of 7 November 2000, and that they have been extremely disappointed, and indeed angered, by what they see as a subsequent and unfair change of heart on the part of the Government. But anyone who seeks to challenge as unlawful the content of a non-statutory ex-gratia compensation scheme faces an uphill struggle. We do not think that the introduction of this scheme was well handled by the Government."
  That is the real issue.
  Clive Efford: The great-grandparent of one of my constituents went to the far east to represent the Government. There was no question about his nationality, that of his grandparents or that of his own parents; but having been born abroad and then spent a period of internment as a result of the occupation, he is refused any form of compensation—despite having spent a great deal of his formative years in internment. That clearly is not fair on him, and I think he is entitled to some kind of recompense.
  Mr. Dismore: I entirely agree, and I shall be giving a number of similar examples.
  Let us examine some of the anomalies. First, there are those who have been paid. Under the grandparent rule, foreign nationals who were never British themselves have been paid. Stateless people and United States citizens have received money. People who have renounced British nationality have been paid. People who have never set foot in the United Kingdom have been paid. So far there have been 847 payments to overseas residents. Irish citizens who can show a grandparent link before 1922 have been paid. Some can do so, although all the records were destroyed in 1916, by reference to birth announcements in local newspapers. Birth records relating to the period between 1860 and 1886, when the grandparents would have been around, were destroyed.
  I have heard of the case of a man whose father was born in Shanghai. Although there is no grandparent link, he has been paid because under the 1860 treaty with China, at the time of his birth British law applied extra-territorially. In 1860, Shanghai was classified as British. That seems a bizarre anomaly. People who have not been detained or interned have also been paid. Anyone covered by the 1950s scheme, whose rules I mentioned earlier, has been paid. A good example is that of diplomats put under house arrest by the Japanese. They were never put in internment camps, and in the summer of 1942 were freed in return for the repatriation of Japanese diplomats. Although they had not been interned, they were paid.
  Then there are children under five with mixed parentage. I know of an example of someone with a Chinese mother. It was Japanese policy not to intern
  690
  those under five who were born of mixed parents. Such people have been paid. People who were resident in Red Cross camps, not interned but usually dependants of people who were—generally wives and children of mixed marriages—were not detained, but free to move around freely in the camps. I am thinking of, for example, the Dominican monastery at Rosary Hill in Hong Kong and the camp at Bahau in Singapore. Although never interned by the Japanese, they have been paid.
  Perhaps there is a fear of a "floodgate" rule—a fear that if we allow people who may not have a European background to qualify, there will be a huge rush of claims. There will not. In Shanghai, police constables were mainly Indians and Nepalese, and in Hong Kong and Singapore mainly Indians and Chinese. They were never interned by the Japanese; in fact, they were used to maintain the police service under Japanese—and in the case of Shanghai, French—officers. Given those anomalies, there is no risk of large numbers of claims.
  Mr. Roger Gale: I congratulate the hon. Gentleman on securing the debate. Like us, he knows that this is not a party political issue; we are all here to represent relatively few constituents. I am sure he would not wish to suggest, however, that those whom he has just listed should not have been compensated. Does the fact that they were compensated not indicate that in November 2000 the Government intended to be generous? Is that not borne out by the letter from the Prime Minister to Keith Martin, Ron Bridge's predecessor, in November 2000? In that letter the Prime Minister wrote:
  "I am so glad that we have been able, at last, to give proper recognition to the terrible experience of the civilians interned in the Far East".
  I am sure that is what the Prime Minister meant at the time, and it seems a matter of great sadness that the scheme has been sullied by this relatively parsimonious restriction.
  Mr. Dismore: I am grateful to the hon. Gentleman for that intervention. He is right: the intention was to be generous and an enormous amount of money has been spent, yet we are spoiling the ship for a relatively small amount of tar. I do not want to deny any of those people whom I have quoted the right to compensation; I simply want to contrast their cases with my next series of anomalies concerning people who were rejected.
  I referred earlier to Shanghai. The birth certificate of a father who was born in Bombay was virtually identical to that relating to the Shanghai case, yet the claim was rejected. I should have thought that, in the days of the British empire, Bombay was regarded as rather more British than Shanghai. That is a complete anomaly. Let us consider some other cases that were rejected. Women who obtained their nationality by marriage, stuck by their husbands when they were interned and were interned themselves, have received no compensation. People—usually of European parentage—who were naturalised before the last war and served in the British Army in the first world war, or in the colonial administration, have not received payment. We should also remember those born in colonies such as British India; indeed, I have already referred to one such person.

  691
  Irish people who cannot produce a copy of their local newspaper to show that their grandparents were born in Ireland have been rejected because the records were burned in 1916. The British far east Jewish community is almost entirely excluded; indeed, the two cases in my constituency to which I referred fall into that category. Some 314 UK residents—people who have lived in the United Kingdom and contributed to its economy for most of their lives since the war—have been rejected under this bizarre ruling.
  This issue arose during Defence questions in November 2001, and a few such examples were given. My hon. Friend the Member for Luton, North (Mr. Hopkins) referred to the case of Dr. Mark Erooga, who was naturalised in 1940, swore allegiance to the King, served in the Hong Kong defence reserve and was interned in 1941 while working at Kowloon hospital. After the war and until his retirement, he worked in the national health service from its inception, yet he was not compensated. The hon. Member for East Worthing and Shoreham (Tim Loughton) referred to a Mrs. Leeson, who was interned as a child in Singapore, where her father died. She lost her documents while fleeing from the Japanese. There was also the case of Mrs. Pyett, who was separated from her parents and interned in Singapore at the age of seven. Her stepmother received compensation, even though she did not marry Mrs. Pyett's father until 1947. Mrs. Pyett received no compensation.
  Let me turn to cases in my constituency. Mr. Isaac Shalom Abraham was born in Shanghai on 12 October 1934; by then, Shanghai's status had changed. His paternal grandfather was born in Baghdad under the Ottomans, but he had a UK passport; his paternal grandmother's birthplace was unknown. His maternal grandfather was born in Russia, and his maternal grandmother was born in Russia, or in Poland under Russian rule. His father was born in British Bombay in 1891 and his mother was born in Russia. His parents took him as a child to Shanghai in 1910, where he married. He was arrested in Shanghai and interned on 5 April 1943 until August 1945.
  Mr. Abraham and three of his siblings now live in London. He remained in the camp in Shanghai until March 1948, as a British citizen under British administration. He came to Britain in November 1949, having been evacuated by the RAF from Shanghai to Hong Kong on 16 May 1949. After qualifying here, he worked as a schoolteacher for nearly 30 years, and he worked for a further 10 years within the Jewish community. He has lived in Britain all his adult life. He was interned because he was a British subject, and he finds it impossible to understand—as do I—why he has been excluded from the compensation scheme.
  The second case from my constituency concerns Mrs. Sophie Sopher, née Hardoon, who was interned by the Japanese in Stanley camp. Nothing is known of Mrs. Sopher's grandparents. Her mother was born in Baghdad under the Ottoman empire. Her father was born in Bombay in British India, and Mrs. Sopher herself was born in British India. Mr. Hardoon, her father, had been working in Hong Kong, where he was detained by the Japanese. The family were interned until 1945, and they were then repatriated to Bombay, in
  692
  British India. Mrs. Sopher's father, Mr. Isaac Hardoon, died soon afterwards in Australia. Mrs. Sopher came to the UK in June 1964, and upon her marriage she became a UK citizen in 1969. Her sister, Mrs. Elias, provided a graphic account of her wartime experience, in which she said:
  "The Japanese had already been to the British consulate to get a list of British passport-holders. They came to our house and told us to get into a van. They hit my father because he was not quick enough. We were all taken to the camp. When we came out four years later, ill and malnourished, our house had been pulled down. We all suffered from beri-beri, typhoid and diphtheria. My brothers had been beaten. My father was so ill that he could not be treated and he died a few months later."
  What makes the case even more bizarre is that although Mrs. Sopher and her sisters have not been compensated, their two elder brothers have been, even though they had exactly the same parents. That seems to me to be an utterly bizarre anomaly in the administration of the scheme—and these people cannot understand why. It is not surprising that they have a sense of grievance. The Hardoon family believed that they would be paid out, but they have not been.
  The problem is compounded by evidence that has recently come to light about the failures of successive Governments to reopen the 1951 treaty with the Japanese—despite our right to do so in the 1950s and subsequently. I have with me a Foreign Office paper, FO 371/115281, of 25 May 1955. It is headed, "Claims against Japan" and it states:
  "Article 26 of the Treaty of Peace with Japan states that, should Japan make a peace settlement or a war claim settlement with any State granting that state greater advantages than those provided by the San Francisco Treaty, those same advantages shall be extended to the parties to the San Francisco Treaty…Japan has recently signed a Peace Treaty with Burma…which gives Burma greater advantages in respect of reparations than those enjoyed by the parties to the San Francisco treaty…Japan has also recently signed a War Claims Agreement with Switzerland which…constitutes a greater advantage".
  Under the heading "Discussion", it states:
  "Those states which are parties to the San Francisco Treaty are thus entitled to claim from Japan benefits similar to those stipulated"
  in the new treaties. It continues:
  "The Japanese realised the risk of that happening when they were negotiating the agreement with Switzerland…In agreeing to the San Francisco Treaty Her Majesty's Government waived a very large proportion of their just claims against Japan".
  Under the heading "Recommendation", it states:
  "It is recommended that we should not invoke Article 26"—
  meaning the right to reopen the treaty—
  "Nor should we do so in regard to any similar Article of any Peace Treaty or reparations agreement which Japan may conclude with another country in the future unless there is a material change in circumstances. We should not of course give any publicity to this decision."
  It is signed by Mr. Crowe on 25 May 1955.
  Since then, at least 12 countries have signed peace treaties with Japan that give far better terms than under the San Francisco treaty. On 19 December 1955, however, it was decided that we should not reopen the treaty. That was confirmed in a document signed by Mr. Coplestone of the Treasury, which stated that
  "the Financial Secretary has accepted the conclusion…on general grounds of foreign relations, despite the possibility or domestic political embarrassment in connection with Allied

  693
  prisoners of war… no publicity should be given to the decision… we retain our freedom to use this legal entitlement to claim on Japan…as a bargaining counter in negotiation or other claims against Japan."
  That cynical approach betrayed former prisoners and internees of Japan.
  If the Government are not prepared to examine the scheme further, pressure to reopen the San Francisco treaty of 1951 will continue. In 1998, the Government reviewed it and said that it was time-barred, as it was so long ago. That argument has been refuted by a series of four legal opinions obtained by former POWs and internees, most recently from Professor Ian Brownlie, QC—an extremely eminent international lawyer, of whom I suspect most hon. Members will have heard. He argued a similar point successfully in an international law case in Australia. I have a post-graduate degree in international law myself, albeit a long time ago. Having read these opinions, I believe that there is a strong argument for reopening the treaty.
  What is the way forward? We should either reopen the treaty with Japan and seek reparations similar to those negotiated with Germany—we should at least use further legal opinion to check whether that is an option—or the Government should compromise on the strict rulings made in the schemes.
  There are two possible compromises. First, the Government could pay those who claimed before 25 June 2001, when the blood link rule was first announced to claimants who were then rejected. That compromise assumes that the people involved claimed correctly as internees and British nationals. Of the 851 cases that were rejected, some were rejected on grounds other than the blood link, so the correct figure would therefore probably be below 600. The maximum cost of that approach would be about £6 million.
  A cheaper compromise for the Government would be to pay out on the basis of residency in the UK. Claimants who had resided in the UK after the war for 20 or 25 years, and were still resident here, would be eligible for payment. That would cover the relevant people in my constituency, and those referred to by my hon. Friend the Member for Eltham (Clive Efford). The maximum number of people involved would be 314, and in fact the number would probably be rather lower, as some would be rejected for other reasons under the scheme. The total payment would amount to nearer £2 million than £3 million. That is a small amount compared with the overall cost of the scheme.
  The Government were extremely generous when they set up the scheme, as was noted earlier. However, that generosity has been tarnished by the exclusion of such a small number of deserving cases. The problem has been compounded by the anomalies raised by the people who have been covered by the scheme in rather questionable circumstances. We are talking about a few hundred people at most, to whom this country's debt of honour remains unpaid.
  The far east campaign used to be known as the forgotten campaign. The former internees are mostly very old now, but they will not allow themselves, or their suffering, to be forgotten. They will not go away. Next year is the 60th anniversary of VJ-day. It is time for these people to have closure in this matter, and for justice to be done. It is time for us to pay these poor internees their due.
  8.56 pm
  Mr. Austin Mitchell: I congratulate my hon. Friend the Member for Hendon (Mr. Dismore) on securing this debate, and on his powerful advocacy of his case. I am grateful to have the opportunity to make a short contribution, of which I have made both the Minister and my hon. Friend aware. There is no need for a longer speech, as the case is both simple and straightforward, as my hon. Friend said.
  This matter began with a great and magnanimous gesture by my right hon. Friend the Prime Minister. In the 1955 peace treaty, the Foreign Office did not pursue the matter of British prisoners, so as not to complicate the negotiations. My right hon. Friend was made aware in 2000 of the fact that the Foreign Office had kept quiet about the problem. He was told that preparations were in hand to bring a case before the European Court of Human Rights, which would be heard in May 2001. He realised the difficulty of the situation and understood the failure of the Foreign Office in the matter, and he agreed that such a case should be prepared.
  On 7 November 2000, my right hon. Friend the Prime Minister made a statement in the Army museum that prisoners of the Japanese would be paid compensation. He also said that civilians who were interned because they were British citizens would benefit from that compensation. That was a magnanimous and wise gesture. My right hon. Friend said that the matter involved a debt of honour—as, indeed, it does.
  A meeting of the relevant departmental officials took place in the Cabinet Office on 27 November 2000 to rough out how the compensation was to be paid. The minutes of that meeting state that
  "there was nothing to suggest from this initial response to the announcement that the original estimates of the numbers of"
  Japanese prisoners of war
  "were wide of the mark."
  The minutes also stated:
  "UK nationals' should be defined as those civilian internees who were British at the time of their incarceration; those who became British citizens only subsequently would not be eligible for payment."
  That was the position. My right hon. Friend the Prime Minister made a clear announcement and a magnanimous gesture, which was followed by a clear statement—by him and by officials—that the compensation would be paid to people who were interned because they were British at the time. However, matters went downhill from there.
  The War Pensions Agency had led the earlier meeting to which I have referred, and it supported the wider definition—that compensation should be paid to all those who were British at the time. However, the agency was subsequently transferred to the Ministry of Defence, which took a different view of the matter. It was the MOD that introduced the notion of a blood link with the UK. It is important to note that that was not the case at the time. These people had British passports, were British citizens and were interned by the Japanese because they were British citizens. At the time, it was totally accepted that they were British.

  695
  The Ministry of Defence introduced the later concept of a blood link to the United Kingdom. That was an irrelevant thing to do. Migration and movement patterns are complicated, but those people were children of empire, and it was an empire that sprawled across the continents. There were Jews who went from South Africa to India and then further east to work as British citizens, holding British passports. There were civil servants, and the children of civil servants who had gone perhaps a generation or two before to work in the Indian civil service or on the concessions in China. Those children were born in the place where their fathers and mothers acted as officials. Children of empire are a race in themselves in a sense, scattered as they are over the globe. At the time, though, they were entitled to British passports and were recognised as British citizens. They were interned by the Japanese for that reason.
  The later decision was irrelevant, and it was hurtful. People—most of them very old—who have been proud of being British have suddenly been told in the evening of their lives that they are not British. "No," they have been told, "we want nothing to do with you, and there is no compensation for you because you are not British." They have been told that, even though the fact that they were British was why they were interned.
  It is a cheapjack decision. I am not sure how many people have been excluded—400 or 500, I just do not know. Perhaps the Minister can tell us. We will save perhaps 500 times £10,000 by taking this hurtful decision, which is peanuts.
  The decision is also racist: many of the people concerned are of mixed racial origins, particularly women who married British citizens. My hon. Friend gave several examples of people of different races born in the British concessions in China. The decision is arbitrary. It is unreasonable. The Court of Appeal, of course, found it perfectly legal: it would, because the scheme is an ex gratia, and Government Departments can do anything they want with ex-gratia payments. They can decide they should go to Fred and not to Joe, and it is up to them to define whom the payments go to. The court did say, however, that the whole business had not been well handled, and that is putting it fairly mildly. The fact that the scheme is legal does not make it right. It is wrong. It is immoral.
  Adjournment debates are not the occasion for Damascene conversions, and my hon. Friend the Minister has had to put up with long letters from me and other Members—
  The Parliamentary Under-Secretary of State for Defence (Mr. Ivor Caplin)indicated assent.
  Mr. Mitchell: I see the Minister nodding vigorously, but I do not expect him to get up and say, "My God, you are right. Why did we not think of all that at the time? Policy will be changed immediately." Adjournment debates are not famous for that, and I do not think that I have ever produced that effect myself. I hope, however, that my hon. Friend will think seriously about the points that we have made. I hope that he will realise that a wrong has been done to a small number of people who have suffered because they were British and who should
  696
  not now be deprived of the compensation that is their due. I hope that he will accept, too, that we shall not give up. This argument will go on and on; we shall raise it along every available path, and several are still open and in play. We shall continue to fight until the Government give way on this point of honour.
  9.4 pm
  The Parliamentary Under-Secretary of State for Defence (Mr. Ivor Caplin): I congratulate my hon. Friend the Member for Hendon (Mr. Dismore) on securing a debate on such an important subject. A number of right hon. and hon. Members on both sides of the House have shown a significant interest in it, and that is demonstrated by the number of them in the Chamber tonight. My experience of Adjournment debates is that they are usually attended by you, Madam Deputy Speaker, me and the hon. Member whose debate it is.
  I also welcome my hon. Friend's chairmanship of the all-party group on parliamentary far east prisoners of war and civilian internees and all those hon. Members who are members of it. I have said before in the House that I would be happy to meet the group if it had a point to raise that had not previously been considered. However, let me establish the history of the subject as this is the first time that the House has had the opportunity to debate it formally since the initial announcement.
  The Government established the far east prisoner of war and civilian internee ex gratia payment scheme in November 2000. My hon. Friend the Member for Kirkcaldy (Dr. Moonie) announced that in the House on 7 November that year. The scheme was intended as a tangible recognition of the unique circumstances of the captivity of those held prisoner by the Japanese during the second world war, something that is recognised by the whole House. Under the scheme, those former prisoners of war and civilian internees who qualify, and the surviving spouses of those who had died before the scheme was announced, receive an ex gratia payment of £10,000 each. Nearly 24,000 payments have been made, totalling nearly £240 million to date, and claims continue to be received. It is important that I make it clear that there are no financial constraints. We will continue to pay out on all valid claims and we have, as I have said, already exceeded the initial budget that was allocated, which was mentioned by my hon. Friend the Member for Hendon.
  The scheme has been the subject of legal challenge concerning the eligibility of both former Gurkha prisoners of war and civilian internees. I intend to concentrate initially on the issues raised for civilian internees, which was the thrust of my hon. Friend's remarks. The scheme is and has always been intended to be for those who had close links with the United Kingdom at the time of their captivity. For former prisoners of war, that link is demonstrated by their service as part of our armed forces. For former civilian internees, the connection is demonstrated by their having been a British subject who was born in the United Kingdom or who had a parent or grandparent born here. I must emphasise that there has been no change in our view of those who should be eligible for the scheme.It was, however, necessary early on to clarify

  697
  the meaning of the term "British" in the context of civilian claimants, and the criterion agreed was the birth link to the United Kingdom.
  I thought that it would be helpful to place on record the legal process that has occurred. The birth link requirement for former civilian internees has been challenged in the courts by the Association of British Civilian Internees, Far East Region. The association was granted permission for a judicial review in 2002 and in October that year the courts found in favour of the Ministry of Defence. The association then appealed against the judgment. The case was heard in March 2003. The Court of Appeal, however, again found in favour of the Ministry of Defence and the appeal was dismissed. The association was refused leave to appeal to the House of Lords and this lengthy process finally ended last summer in a rejection of their petition seeking leave to appeal to the House of Lords.
  The birth link criterion and the way in which it was introduced were most carefully considered by the courts. The Court of Appeal examined both the limitation of eligibility for the scheme
  "to those British subjects who had close links with the UK at the time of their internment"
  and the use of the birth link to establish those close links.
  Their lordships also concluded that it was impossible to say that the close link criterion was irrational, or that it was irrational to introduce the birth link criterion to demonstrate a close link to the UK. Their lordships concluded that different criteria could have been devised to demonstrate the close connection: for example, one way would have been to follow the example of the Australian Government, whose equivalent scheme requires claimants to have been domiciled in Australia immediately prior to internment. In this country in the 1950s, only those British civilians who were "normally resident in the UK" before captivity and who had taken up residence in the UK after their release were eligible to receive compensation payments made in connection with the San Francisco peace treaty.
  For the present scheme, the Government chose to apply a more generous criterion than those used for the administration of the 1950s scheme by adopting the birth link criterion. Their lordships dismissed the argument that the chosen criterion was irrational because it ignored the close links that some former internees had developed with the UK since the war. Government policy was to pay only those who had close links with the UK at the time of that internment, and that policy was held to be rational.
  The birth link requirement was designed to give scope to the original intention of the scheme. As my right hon. Friend the Prime Minister confirmed in May 2002, in a letter to my hon. Friend the Member for Great Grimsby (Mr. Mitchell),
  "It was never the Government's intention to extend the Scheme to civilian internees without a close link to the UK at their time of internment."
  Mr. Gale: The Minister is hiding behind legality. Will he tell the House why the people in question were interned by the Japanese?
  Mr. Caplin: If the hon. Gentleman will forgive me, let me point out that tonight's debate is about the
  698
  Government scheme for civilians who were interned. I am taking this first opportunity to lay out the whole process that has occurred in the past four years. I hope that by the end of my speech, which is very technical and legal in nature, he will accept that our reasons are obvious.
  I have mentioned the legal challenge concerning former Gurkha prisoners of war. The House will be aware that following a successful legal challenge, the ex gratia payment scheme has been extended to include those former Gurkha soldiers held prisoners of war by the Japanese who were Nepalese citizens at the time of the negotiation of the peace treaty with Japan in the early 1950s.
  My hon. Friend the Member for Hendon referred to article 26 of the 1951 peace treaty concluded between the allied powers, including the United Kingdom, and Japan. It has been suggested that the Government seek to reopen the peace treaty under article 26 on the issue of compensation, as a means of obtaining payments for those former civilian internees who do not qualify for the ex gratia payment scheme. Many hon. Members have written to me about that matter. It is claimed that the Government's decision not to seek to reopen the treaty in the 1950s deprived former civilian internees of compensation from the Japanese.
  As my hon. Friend said, the matter has been considered. In 1998, the Government's position was made clear: we did not believe that there were viable legal grounds on which to seek to reopen the 1951 peace treaty. Officials from the Ministry of Defence and the Foreign and Commonwealth Office have looked again at the matter, but we still hold to that view. When negotiating the peace treaty, the Government of the day, as one of the allied powers party to the process, were negotiating as a sovereign state about its claims against Japan under international law. Exceptionally, the peace treaty made specific provision under article 16 to indemnify those members of the armed forces who had been prisoners of war, but no such provision was made for other individual citizens of the belligerent powers. However, payments were made to former civilian internees in the 1950s by the British Government using the Japanese assets that they received under article 14 of the treaty, which, it should be remembered, were for them to use as they decided.
  The question of who might have benefited, and how, if the British Government had tried to re-open the peace treaty is purely speculative. Article 26 speaks of greater advantage being received by any state under a subsequent agreement, but does not provide for a comparison to be made between sums paid to individuals. The agreement that Japan subsequently reached with Burma was negotiated along the lines of article 14, but it went further by agreeing that Japan would provide products as well as services to Burma. The agreement made with the Swiss Government covered a different category of damage that was not explicitly covered by the peace treaty, and of course Switzerland, a neutral country, was not one of the allied powers.
  The comparison sometimes made between the amount of money paid to individual Swiss citizens and the amount received by civilians paid by the British Government is, I have to say, not valid. Britain's decision to make payments to former civilian internees

  699
  did not arise from an express provision in the peace treaty. It was the British Government's decision, and the amounts available to be paid to individuals were in direct relationship to the value of the Japanese assets held that were available to be liquidated and the number of those eligible for payment under the scheme that was established. Former prisoners of war received a payment under article 16 of the treaty, which was overseen by the International Committee of the Red Cross, and a further payment from the sale of the Burma-Siam railway. When the British Government decided to use the money that it received under article 14 to make payments to individuals, it divided it to make additional payments to former prisoners of war and also to former civilian internees. The eligibility criteria for the civilian internees covered British adults—initially only the head of the family, but subsequently both parents, if both were interned—who were normally resident in this country before internment and who returned here after their release. Children who had been interned were not eligible to receive such payments.
  That is why we made the right and proper decision to establish the ex gratia payment scheme. It recognised the unique circumstances of those detained by the Japanese and that the schemes set up in connection with the peace treaty in the 1950s provided a good and effective model for our scheme. In the case of civilian internees, the eligibility criteria of the current scheme were set wider than those of the 1950s scheme so that, unlike then, those interned as children were included and normal residence in this country before internment, and return to this country afterwards, was not required, as it was in the 1950s.
  There are many people who are not eligible for payments under the scheme for a number of quite different reasons. My predecessor and I have said many times that their strong feelings and disappointment are appreciated and understood. Any scheme of this nature, however, must have boundaries, and, wherever those boundaries are set, those just outside them will feel that they have not been recognised. The Government have, however, set what we feel to be reasonable and fair boundaries for the scheme and, as I said earlier, nearly 24,000 people have already benefited from it.
  I know that the House is always interested in detailed statistics about the number of payments made to specific categories of civilian claimants and the numbers of claims that have been rejected. My hon. Friend has shown specific concern about issues connected with residence in this country since the war and the date by which claims were made, and my hon. Friend the Member for Great Grimsby also referred to that. I also
  700
  know that there is concern that we have not always been able to supply the figures that hon. Members have sought. I confirm that where the figures are available, we have provided them, and I refer the House to replies to several parliamentary questions that were answered on 8 April 2003, 26 January 2004 and 1 July 2004. However, in some instances, the information sought is not available without checking many thousands of claim forms.
  Many claims come from the surviving widow or widower or the person held by the Japanese. In the statistics held, claims from surviving spouses are listed together for all groups and not broken down according to the category of the person imprisoned. Requests for statistics on former civilian internees cannot always be broken down. In other instances, the information now asked for was not required as part of the process of validating the claim and was not sought from claimants, so it is not held by the Department.
  I appreciate the concern of my hon. Friend the Member for Hendon and the arguments that he advanced about why and how some people should and could be included in the scheme. I understand his view that the number of people he seeks to include in the scheme could be relatively small. I am afraid, however, that the introduction of new criteria such as those that he suggested this evening would leave us open to complaints of unfairness from former civilian internees who still fell outside the scheme because they met neither the existing nor the new criteria. It would also leave us open to complaints from other groups who would like new eligibility criteria to be introduced for the scheme so that they, too, could be included. Ultimately, the result would be to call into question the integrity of the whole scheme, and I do not believe that that is the House's intention.
  I said earlier that I would of course examine new issues that any Member of the House wishes to raise. I noted the points made by my hon. Friend the Member for Eltham (Clive Efford) and I will certainly study the detailed points made by my hon. Friends the Members for Hendon and for Great Grimsby to see whether a further response would be appropriate.
  Richard Younger-Ross rose—
  Mr. Caplin: I am afraid that I will not give way.
  In conclusion, I am afraid that I cannot consider any suggestions that effectively seek to reopen issues that have been settled by the judicial processes of the United Kingdom.
  Question put and agreed to.
  Adjourned accordingly at twenty-two minutes past Nine o'clock.