Sitting of 17 March 2004

Preamble
The House met at half-past Eleven o'clock
PRAYERS
[MR. SPEAKER in the Chair]
Orders of the Day
  WAYS AND MEANS
    Financial Statement
    Mr. Deputy Speaker (Sir Alan Haselhurst): Before I call the Chancellor of the Exchequer, it may be for the convenience of hon. Members if I remind them that, at the end of the Chancellor's speech, copies of the Budget resolutions will be available in the Vote Office.

INTRODUCTION
12.32 pm
The Chancellor of the Exchequer (Mr. Gordon Brown): The purpose of this Budget is to lock in for Great Britain the economic stability that can and will endure.
And it is a sign of the stability that Britain has already achieved and a tribute to the dynamism and hard work of the British people that, even after the creation of 1.8 million jobs since 1997—1.3 million in the private sector—and over 100,000 extra businesses, today and every working day in our country, 600 new businesses are starting up, 25,000 men and women each and every day are finding new jobs, and an additional 10,000 new vacancies are each day being advertised, with new jobs being created at three times the rate of the 1970s, 1980s and early 1990s.
For decades after 1945, Britain repeatedly relapsed into recession, moving from boom to bust. But I can report to the House that since 1997 Britain has sustained growth, not just through one economic cycle but through two economic cycles, without suffering the old British disease of stop-go. Overall growth since 2000 has in Britain been almost twice that of the euro area and higher even than that of the United States.
Indeed, in the pre-Budget report, I told the House that Britain was enjoying the longest period of sustained economic growth for more than 100 years. I have to apologise to the House. Having asked the Treasury to investigate in greater historical detail, I can now report that Britain is enjoying its longest period of sustained economic growth for more than 200 years—the longest period of sustained growth since the beginning of the industrial revolution.
And with Britain not only more stable but better off than seven years ago, it is time for us, facing new global economic challenges, to combine a new British confidence about our economic potential with a new resolve to make the right long-term decisions and reforms to achieve excellence in education, science and enterprise. No industrial national can ignore those challenges, where other nations are moving forward and in which I want Britain to lead.
Our advantages as an island nation are a global reach wider than that of almost every other country, a historical record of scientific achievement that is longer than that of almost any other country, and a foundation of political and now economic stability that goes deeper than that of almost any other country.
322
And this Budget's judgment is that to be a world economic leader in this new global era, we must now make the necessary investments in our science, education and enterprise.
Last year we forecast growth for 2003 of between two and two and a half per cent. When I made that forecast a year ago, the Leader of the Opposition said that it was not just incautious and wrong but—I quote—"a deliberate misrepresentation" of Britain's economic prospects, and said that not to meet it "destroyed credibility".
I can report to the country that our growth in 2003 has indeed met our forecast. The British economy grew in 2003 by 2.3 per cent.
And it is because of Bank of England independence, new fiscal rules, a symmetrical inflation target, the sanctions of the new deal, and the reduction of national debt—it is because Britain had the strength to take these long-term decisions—that, over the last four years, while economic growth in Germany has averaged less than 1 per cent., Japan 1.4 per cent., Italy 1.4 per cent., France 1.8 per cent., the euro area 1.6 per cent., the United States 2.4 per cent., growth here in Britain in these years has averaged 2.5 per cent. And it is growth combined with, consistently, the lowest inflation for 30 years, the lowest interest rates for 40 years and the highest levels of employment in our history.
In the past, Britain has been first in, worst hit and last out of world recessions. But in recent years, by contrast with the two previous world downturns in both the early '80s and the early '90s, employment, which fell by 1.3 million in the early '80s and by 1.5 million in the early '90s downturn this time has not fallen but risen, and as today's employment figures confirm, claimant-count unemployment is just 2.9 per cent., which is the lowest since November 1973, and Britain is closer to full employment today than for a generation. Inflation, which rose to 20 per cent. in the early '80s, and to almost 10 per cent. in the downturn of the early '90s, has this time averaged just 2.4 per cent. Interest rates, which peaked at 16 per cent. in the '80s and at 15 per cent. in the '90s downturn, are today 4 per cent. And mortgage rates, which rose to around 15 per cent. in both the early '80s and early '90s are 5 per cent. today, and still the lowest for 40 years.
And now having come through this world downturn and as trade strengthens—rising this year by seven and three quarters per cent. according to our forecast—the challenge for British industry is to make the most of the new opportunities of the world upturn.
We expect domestic demand to grow by three and a half per cent. this year and three and a quarter per cent. next year as consumer spending moderates and growth becomes more balanced.
And our belief is that British manufacturing and service industries will rise to the challenge. Fixed investment, which has fallen round the world, is expected to grow in Britain by more than 5 per cent. this year and more than 6 per cent. next year. Business investment is expected to grow by just under 4 per cent. this year and 6 per cent. in 2005.
Manufacturing output, which was most affected by the global slowdown, has grown in four successive quarters and is now expected to grow in Britain by just

323
under 2 per cent. this year and over 2 per cent. next year. And imports and exports are both expected to grow by more than 5 per cent. this year.
So, overall, I can report a British economy strengthening throughout 2004.
And while always vigilant to the risks, growth in 2004 is expected to be: 1.7 per cent. in France, Germany and the euro area; around 2.8 per cent. in Japan; but between three and three and a half per cent. this year in Britain; with, of the G7 countries, Britain and America again growing the fastest.
And I can confirm that under our new inflation target, inflation is expected to be just 1.75 per cent. this year, and 2 per cent. next year and the year after.
Our long-term stability and strength depend on avoiding the two great economic mistakes of the past; so there must be no weakening of anti-inflation discipline and there must be no neglect of investment in our wealth-creating base.
And based on sound fundamentals, monetary and fiscal discipline, and making the right decisions at the right time in the cycle to invest in education, science and our enterprise—based on these sound fundamentals, I would forecast growth in Britain in 2005 to be three to three and a half per cent. and in 2006 to be two and a half to three per cent. as the economy returns to trend.
Looking forward, while vigilant to the global economic cycle, the challenge is to strengthen the British model for stability, and our objective must be to lock in that stability—not just for a year or two, or for an economic cycle, but for a generation. So a year ago, I initiated a series of studies to examine how we can tackle potential inflationary pressures in housing, and potential bottlenecks and deficiencies in the supply side of the economy; how we can deal with potential fiscal pressures from ageing, health care and the costs of unemployment; and what the most appropriate fiscal rules for the long term are.
Last week, Professor David Miles reported and recommended a more transparent and competitive market in mortgage finance, a set of recommendations that will now be considered by us and the Financial Services Authority. The report by Ms Kate Barker published today concludes that the supply of new homes consistently lags behind demand and that the number of houses built in Britain—currently 175,000 a year—must rise substantially if we are to reduce house price inflation and increase the number of affordable homes for people wishing to buy and rent.
The Government today accept the Barker recommendations for the new British real estate investment trusts that would improve the supply of rented property; for the release of more public sector land; for, in each region, one body responsible for housing and planning; and, in principle, for extending the contaminated land tax credit in brownfield areas. The Deputy Prime Minister will now consult on how we can increase the supply and affordability of housing, and what goals we should set, while striking the right balance between the economic and social case for development, and environmental and social needs.
While the business rate sets a tax on developed properties, Ms Barker's report states that there is none on the unearned increment in land values when
324
undeveloped land is granted planning permission. Because this is a long-term issue for both the future of housing and for stability, the way forward is not only to consult widely on this proposal but to see whether a long-term consensus can be agreed. So I hope that over the next year all parties will study the Barker proposal, and it must be in the interests of the whole country to see whether we can forge a shared approach that would safeguard our environment, lead to more affordable housing, and at the same time keep interest rates as low as possible and contribute to the greater stability of Britain.
Last year we identified the housing market, housing finance and other inflexibilities in capital, product and labour markets as major barriers to meeting two of our five tests for euro membership. Today we are publishing, alongside the Budget, a detailed report on flexibilities in Britain and Europe, and I can inform the House today that while the Government do not propose that a euro assessment be initiated at the time of this Budget, the Treasury will again review progress at Budget time next year and report to the House.
Fiscal discipline is and must be at the heart of our strategy for long-term stability. While vigilant on personal debt, we have studied the three main sources of fiscal pressure in the advanced industrial economies: the costs of unemployment; pension costs in Europe, with state pensions costing, by 2050, up to 15 per cent. of national income; and the rising cost of public sector subsidy for private health care, as in the United States of America. We have concluded that it is prudent for Britain to take further steps to move the unemployed from welfare to work and reduce the costs of unemployment, and that we are right also to maintain a rising level of pension credit, rather than link pensions to earnings, and right to avoid uncapped public sector liabilities from subsidies to private health care.
I have also studied proposals for alternative approaches to the fiscal framework, and I am today publishing a paper comparing our British framework with the rules of the European Union's stability and growth pact and examining the principles, based on our experience, which should guide the evolution of fiscal policy in the future.
The conclusions of our study are that, first, the flexibility to take the right monetary and fiscal decisions at the right time to sustain stability and growth requires countries to take tough decisions to achieve low levels of long-term national debt. The second principle identified by our study is that, based on low levels of public debt, fiscal policy can and must take account of the economic cycle, supporting monetary policy by allowing borrowing to rise when the economy grows below trend, and reducing borrowing when the economy is above trend. The third principle identified by the study is that it makes sound economic sense for low debt countries such as ours to borrow for investment.
Rigidly balancing the budget year on year means that fiscal policy could not support monetary policy over the cycle and, even in low debt countries, the debt to GDP ratio would fall year on year even when it is obvious that more investment is important to the long-term strength of the economy.
Our fiscal rules—to keep the debt to GDP ratio low and stable while balancing the current budget over the economic cycle—allow us to borrow for investment

325
every year of the cycle and these rules have been tested and have succeeded at every stage of the last two economic cycles.
So, it was in the national interest, first, to follow rules on debt and to cut debt in the late 1990s; it was in the national interest to enable fiscal policy during the recent world downturn to support monetary policy; and now and in the future, it is in the national interest, on the basis of low public debt, to borrow for investment to strengthen our economic fundamentals.
So, I will not neglect the need for long-term investment in our country and I will not impose a balanced budget rule, which would cut spending regardless of the debt level or the economic cycle. Such a policy—whether imposed by a future Government or by a rigid interpretation of the European stability and growth pact—would, in fact, be an exact replica of the mistakes of Britain's stop-go past and would put at risk Britain's stability and growth.
I welcome the support for our monetary policy framework that I have received—of late—from Opposition parties.
But the experience of the past few years is that stability requires support for both pillars of our British macro-economic framework—monetary and fiscal policy working together.
So let me set out today's detailed fiscal figures.
Our projections are based on assumptions audited by the National Audit Office which include, for public finance purposes, trend growth at 2½ per cent. rather than 2¾ per cent.; and do not take full account of the expected gains to the public finances from lower unemployment, compliance and VAT receipts.
But after all the decisions announced today, our current budget figures for 2003–04—and for the years to 2008–09—are, in billions, minus £21.3 falling to minus £11, minus £5 and zero, then rising to plus £4 and plus £9.
Our first fiscal rule is that over the cycle we balance the current budget.
Having accumulated surpluses at the start of the economic cycle, we meet our fiscal rule—the golden rule. Indeed we have an average annual surplus over the whole cycle—an overall margin or surplus of £11 billion.
I have also tested the golden rule against not just our cautious assumptions but a more cautious case and again the current budget moves back to balance by the end of the forecast period.
The average current budget for the first four years of the next cycle is not just in balance but in surplus. So having met our rule in this cycle, we are also on track to meet it in the next.
Our second rule is our sustainable investment rule, demonstrating our ability to borrow for investment.
I can report that debt this year is just 33 per cent. of national income. Our rule is that debt should be kept below 40 per cent. of national income and in future years it will be 34, 35, 36, 36 and 36 per cent. compared with debt of 44 per cent. in 1997 when we came to power. So we meet our second rule over the cycle in every year and by a margin in excess of £50 billion.
I turn therefore to net borrowing. Compared with 8 per cent. 10 years ago, and an average of 6 per cent. net borrowing over the early 1990s, net borrowing this year
326
and in future years to 2008—09 is, as a percentage of GDP, 3.4, 2.8, 2.5, 2.1, 1.9 and 1.6 per cent. of GDP, with, for this and for future years, the cash figures £37.5 billion, £33 billion then £31 billion, £27 billion and £27 billion, falling to £23 billion.
Net borrowing adjusted for the economic cycle is just 2.4 per cent. this year and in future years 2.1, 2.3, 2.1, 1.9 and 1.6 per cent. of GDP.
A decade ago after the end of the last world recession the British deficit was the equivalent of £90 billion, around two and a half times higher than it is today.
In fact, our deficit is now lower than all our major competitors of the industrialised world. As a percentage of GDP, the deficit in 2004 is: nearly 4 per cent. in Germany and France; 6 per cent. in Japan; 5 per cent. in America; but the comparable British figure is just 2.8 per cent.
Net debt is now 45 per cent. of national income in France, in America it is 50 per cent., in Germany it is 55 per cent., in Japan it has risen to 86 per cent., in Italy it is 94 per cent., but this year in Britain it is just 34 per cent.
So with our deficits lower than our competitors, lower than in past decades, with our debt lower than our competitors and lower than in past decades, we meet both our fiscal rules.
And it is because of this that I am now able in this Budget, at one and the same time: to afford all our existing commitments, including our ongoing and additional commitments in Iraq, Afghanistan and in the fight against terrorism, amounting in total to £6 billion; to be able to set aside as a prudent margin £1 billion next year and £2 billion in future years as a reserve for annually managed expenditure; and to have in addition the flexibility and freedom in this year's Budget and in the coming spending review to release extra resources for the nation's priorities.
Unemployment is now costing us £3 billion a year less than in 1997, and debt interest payments are costing us £7 billion less than in 1997—a total of £10 billion less this year, part of the dividend from difficult decisions that we made in 1997. And stability and growth themselves have yielded even greater gains, and give us a clear Budget choice as to whether to cut taxes, invest more or cut borrowing.
So I am able in this Budget—with a strengthening economy and the strong and sustained monetary and fiscal position—to set out the Government's choice on how to allocate these extra resources.
And I have had a number of Budget representations about priorities for tax and spending.
The debate that we now have about the nation's priorities and the choices that we make will help to determine the economic strength of Britain and the fairness of our country far into the future.
And I hope that the whole House can agree that given Britain's position today and the challenges ahead, the priorities for our country are: first, not to endanger but to entrench the stability and growth that we have achieved; secondly, not to imperil but, in supporting our armed forces, police and security services, to ensure and enhance our national security; and thirdly, I believe that the whole House would also want to ensure that all our citizens are fully prepared to meet the challenges of a

327
global economy and to ensure also that the coming generation start from a position not of weakness but of strength.
As we make our judgments for the Budget and spending review, one option—having secured in recent years the gain from cutting unemployment and cutting debt and from stability and sustained growth—would be to cut borrowing or taxes. But on borrowing, as I have told the House, both debt and deficits are lower than our major competitors, much lower than in the past and well within our fiscal rules.
And on tax, while I have raised national insurance to pay for the national health service, I have cut long-term capital gains tax for business assets from 40p to 10p, introduced a 10p starting rate for income tax, and in previous Budgets since 1997 cut the basic rates of income tax, corporation tax and small business tax.
So let me now set out the Budget's decisions on tax.
I have examined rates of corporation tax and capital gains tax. I have no need to raise them so I propose to freeze rates.
On air passenger duty, on insurance premium tax, and on vehicle excise duties for cars and lorries, I propose to freeze rates.
On the climate change levy, I will freeze rates and at the same time extend the numbers of businesses who can benefit from 80 per cent. discounts.
On the aggregates levy, I will freeze rates, and in Northern Ireland, extend the reliefs to cover all aggregates.
On betting duties, I will freeze rates, and I will review the tax treatment of betting exchanges and their clients.
On stamp duty, I will freeze stamp duty.
On inheritance tax, I will not only freeze rates but I will exempt more estates from inheritance tax, raising the starting point of tax to £263,000—95 per cent. of estates will pay no inheritance tax at all.
For this Budget's other tax decisions, my priorities are: the needs of enterprise; ensuring fairness to families and pensioners; and the environment.
My priority for enterprise at this stage of the economic cycle is to encourage rising levels of investment.
Venture capital is the seed bed of future enterprise and so for the next two years, venture capital trusts will secure tax relief for investments at a higher level—now up to £200,000 a year—and not at the lower rate of tax, 20p, but at the higher rate of 40p. From 1 April, firms with turnovers under £58,000 will not have to register for VAT, and that is the most generous VAT threshold in Europe. From 1 April, an additional 13,000 businesses will benefit from simplified VAT accounting. From next year, in 2,000 enterprise areas, we will further increase the tax incentives available for firms to invest.
The Government are determined to achieve our goal of balanced economic growth to the benefit of every region and every nation of the United Kingdom. So today, the Government are accepting and will implement the Lyons review for the relocation of civil service jobs. We will relocate out of Whitehall a total of
328
20,000 public sector jobs, creating new employment opportunities in the regions and nations of the United Kingdom.
And today, to further assist regions and local communities, I can announce the full details of the new local authority incentive under which local authorities that help create more local businesses will share the additional business rate income. For local councils in all parts of the country, I am able to allocate for the next three years a total of £;1 billion extra—money available for local services.
In the last seven years, we have raised over £4 billion a year through the sale of surplus assets and land, and for the years until 2006 we now expect the sale of surplus assets to raise over £5 billion a year for new investment.
We will also be selling off the last of the remaining Government shareholdings in the utilities.
When we announced deregulatory measures in December, I said that we would be working with business to identify further reforms both in Britain and in Europe. The Secretary of State for Trade and Industry is announcing that she will devolve Business Link services to the regions; we will review the burden of inspection and the overlap between enforcement regimes; sector by sector, we will tackle unnecessary regulation starting with chemical, construction and retail industries; and having accepted the case for the Inland Revenue to pay the working tax credit directly to employees, we will consult now with employers on detailed implementation. And we have submitted today to the European Union our detailed proposals for tackling regulation in the European Union.
I would like to do even more to encourage new and growing businesses to invest and expand.
I can only do so if we close a loophole under which some have, without changing their economic activity, used our zero tax rate for small business not to invest and grow but simply to avoid tax and national insurance by reclassifying their income as dividends.
There are those who have proposed that to tackle this avoidance we should abolish the zero and reduced rates altogether.
Instead, I propose to retain the zero rate and also the reduced rates for retained profit, and indeed do more for investment. But I will close the loophole by taxing distributed profits at 19 per cent., bringing the tax on distributed profits for those small companies into line with other companies.
And to do more for investment, I will increase, initially for one year, investment allowances for the smallest businesses from 40 per cent. to 50 per cent.
So, overall, a small company making pre-tax profits of £25,000 and investing £10,000 in plant and machinery, which paid over £5,000 in tax in 1997, will pay £2,375 in tax—almost £3,000 less—as we maintain and improve the incentives for small company investment.
Since 1997, support for the British film industry has been worth £2 billion and the numbers of films that have been made here in Britain have doubled in that time. I now propose to transfer the available reliefs for British-made films with budgets below £15 million from the third parties, a minority of whom have abused these

329
reliefs, and to pay reliefs directly to the filmmakers themselves. The new relief will be set at a new and higher level of 20 per cent.
It has been put to me that we should now introduce a general anti-avoidance rule. I do not at this stage intend to introduce this but I will today close loopholes in partnerships, finance leasing and VAT, and I will make it a requirement—as in the United States of America—that accountancy firms and those promoting these schemes register them with the tax authorities: the Inland Revenue.
I turn now to the environment. I am pleased to report that as a result of the incentive announced last year, the fuel industry is ready, from 1 September this year, to move to the more environmentally friendly sulphur-free fuel. This fuel will be available throughout the country by September, so I will delay for the second year running the annual rise in fuel duty for nearly six months. And while the duty rise for low-sulphur fuel will be 1.9p per litre, the duty rise for the new and soon to be standard sulphur-free fuel will be, from 1 September, just 1.4p, in line with inflation. I will also raise red diesel, fuel oil and liquid petroleum gas by 2.4p a litre. Duty for fuel oil will still be just 6.24p a litre, duty for red diesel 6.64p a litre, and duty for liquid petroleum gas 7.82p a litre.
To encourage cleaner fuels, I will give the same incentives to bioethanol from 1 January next year as I am extending to biodiesel: until at least 2007, a 20p per litre reduction in duty compared to petrol and diesel. And for the same environmental reasons I set out last year, I will go ahead with the changes that have already been announced in landfill duty. Enhanced capital allowances will also be available now for energy-efficient technologies.
From next Monday I will implement the normal annual inflation rise of 1p on a pint of beer and 4p on a bottle of wine. But I will freeze duties on cider and sparkling wine. And for small breweries, I will not only continue the successful tax relief scheme but extend it further, and double the volume of beer production that is eligible for relief.
I announced in the pre-Budget report that—owing to continued high levels of spirits duty fraud—we would legislate to implement the Roques report recommendation to stamp spirit bottles unless a workable alternative could be found. In making my decision today that stamps are necessary to tackle fraud, I will help the trade with cash flow costs and defer payment for tax stamps, and I will assist firms with their capital investment. I have also decided—for the seventh Budget in a row—to freeze spirits duty. And I will do so for the remainder of this Parliament. This will be the longest freeze on duty in nearly half a century
My decision on cigarettes is, for public health reasons, to go ahead with a rise, but only the annual inflation rise of 8p a packet.
At a cost of £165 million by 2008, I will replace the eight existing tax schemes for pensions with a single lifetime allowance. I will set the allowance at £1.5 million for the first year of the scheme, from April 2006, and will set the allowance now for the years until 2010 when the figure will be £1.8 million.
Gift aid is now worth £2.3 billion a year to charities and voluntary organisations which are at the heart of British civic life. I propose a cash incentive to encourage
330
small and medium-sized firms to set up their own payroll giving schemes. With 2005 the British Year of the Volunteer, the Home Secretary and I will consider, in the spending review, new resources for two volunteering initiatives: first to encourage and extend mentoring in the United Kingdom, and second to encourage national community service by young people.
Churches and sacred places of worship are not just an essential part of our religious life, but an important part of the history and the fabric of our country. Before 2000, Churches paid 17½ per cent. VAT on all church repairs. Since 2000, grants we introduced have covered 12½ per cent. of the VAT bill. I can now announce that until March 2006, churches and sacred places will be able to reclaim not 12½ per cent. but all 17½ per cent. of VAT. This will wipe out their liability in full.
The year 2005 is also the year in which, as the Prime Minister has said, the needs of Africa will be the focus of the UK's G7 presidency as a presidency for development. I can tell the House that in the spending review this Government will not freeze or cut international development aid, but we will increase it. Today I can announce matched funding for a year for the Commonwealth Education Fund, which supports the objective that by 2015 every child everywhere has primary education, and there will be matching funding also for the Sport Relief charity, which will work with Comic Relief in tackling AIDS and poverty in Africa.
Following these decisions on tax and tax reliefs, the normal Budget tables, published in the Red Book, confirm for the three-year period ahead that these Budget measures are fiscally neutral. And the fiscal stance is unchanged from the pre-Budget report.
In making my Budget judgment I had a clear choice. Falling unemployment and low debt interest have themselves yielded an extra £10 billion this year over 1997. Stability and sustained growth are yielding additional revenues. The choice in this Budget was whether to cut tax rates or to continue our programme of rising public investment in order to meet the priorities of delivering stability, security and economic strength.
We know, Mr Deputy Speaker, the scale of the threats we as a nation face to our security at home and abroad, and the obligations we owe and the investment we need to support our police, security services and armed forces. And while our schools have 20,000 more teachers and 80,000 classroom assistants and our hospitals 50,000 more nurses and 15,000 more doctors, this Government hold firm to the belief that sustained investment is necessary to sustain world-class public services.
We know also the scale of the economic challenge we as a nation face from global competition, and I have no doubt that the nations that will succeed long term will be the nations that make the long-term choice to invest in the drivers of future prosperity—education, science and enterprise.
And I hope that all Members of this House would agree that if the long-term case for investment in the pursuit of excellence in education, science and enterprise is made, it is our duty in the interests of the whole nation to put short-term considerations second to ensuring that Britain is fully equipped for the future to compete.

331
And because it is also our duty when we consider public investment to do everything to secure value for money, last year the Prime Minister and I decided to review the future of the Inland Revenue and Customs; and for rural services, the Secretary of State for Environment, Food and Rural Affairs set up the Haskins review; and to prepare for our decisions of the 2004 spending review, in the Budget of 2003, here in this House a year ago, we set up the efficiency review. We asked Sir Peter Gershon to work with us to identify how new technology, changing work practices and better procurement could free up resources in departmental budgets that we could allocate in the years ahead to front-line services.
Alongside work-force reforms—in which the cooperation of public servants has been much appreciated—we are investing over £6 billion in modern technology, creating the potential for greater economies in back office and transactional services.
I will report in the spending review on individual departmental plans, but I can announce three decisions today.
The Department for Work and Pensions—building on the merger of benefit offices and jobcentres, and the investment of £2 billion in new technology—is able to unlock savings in back office administration, and at the same time move resources to the front line so that we can expand our successful service of personal advisers.
While improving front-line services, the Secretary of State for Work and Pensions and I have agreed, by 2008, a reduction in the DWP budget of in excess of 5 per cent. in real terms. And the Secretary for Work and Pensions is announcing today for his Department a gross reduction of 40,000 staff posts, a redeployment of 10,000 posts to new priorities, and thus an overall reduction over four years of 30,000 posts. Staff numbers will fall from 130,000 now to—by 2008—100,000.
We are also announcing that as a result of the O'Donnell review, we will merge Her Majesty's Customs and Excise and the Inland Revenue. Whereas in the past business had to deal both with the Revenue and Customs, business will now deal with a single tax service, which, because of the investments we have made in the new technology, can make large savings in back office costs.
While improving front office services, I have decided in the spending review on a budget reduction by 2008 of in excess of 5 per cent. in real terms.
The Inland Revenue and Customs and Excise are announcing today a gross reduction of 14,000 staff posts, a redeployment of three and a half thousand, and thus an overall reduction by 2008 of ten and a half thousand staff posts.
In these two Departments covering 40 per cent. of the civil service, there will be a gross reduction by 2008 of 54,000 posts, and after redeployment, an overall reduction of 40,500 staff.
And the Government have also decided that in the spending review all Departments will cut their administration budgets by at least 5 per cent. in real terms by 2008, and as part of his efficiency programme, the Secretary of State for Education and Skills is today
332
announcing a 31 per cent. reduction in headquarters staff by 2008, which will enable him to direct more funds straight to schools and spend more cash per pupil in the classroom.
By cutting in real terms the administrative budgets of Departments, by reforming procurement both nationally and locally, by unlocking productivity gains from technology and work force improvements, Departments are to achieve—in the spending review period—annual efficiency savings of 2½ per cent. a year, boosting effective front-line service delivery by £20 billion a year by 2008.
Planned administration costs, which were an average of 5 per cent. of total spending in the 1980s and rose to 5.7 per cent. in the early 1990s, will fall to 4 per cent. and then to 3.7 per cent. by 2008—the lowest level since the running costs regime was introduced.
Having made these reforms, I can now set the guidelines for overall spending and investment to 2008. I have already allocated money for 2005–06, and I propose to confirm that allocation. I have also allocated funds to the national health service through to 2008. The Secretary of State for Health is reporting today that since 1997 there has been a 20 per cent. rise in elective admissions; a 66 per cent. rise in MRI scans and a 50 per cent. rise in CT scans; a 50 per cent. rise in the number of heart operations; that 99 per cent. of cancer patients are now seen within two weeks of urgent referral; and that of the 114 new hospital developments commissioned since 1997, more than 40 have now opened.
To support the Health Secretary's plans for greater flexibility, diversity and local accountability, I can now confirm that, as previously announced, the NHS will receive, each year to 2008, a 10 per cent. cash rise—a 7.2 per cent. rise each year in real terms.
Having made these allocations, I am still able to release substantial resources while meeting all our fiscal rules. Current spending will rise in the years 2006 to 2008 by 2½ per cent., in line with our cautious view of the trend growth of the economy, and investment will rise to 2¼ per cent. of gross domestic product, as we make up the backlog of investment while meeting our fiscal rules. Let me set out the figures.
Total managed expenditure will rise from £459 billion this year and £488 billion next year. to £520 billion in 2005–06, £549 billion in 2006–07 and £579 billion in 2007–08. This means that we have in 2006–07, for departmental and annually managed expenditure, after our health allocations, additional resources available of £20 billion, rising by 2007–08 to an extra £40 billion a year as a result of gains from growth, falling unemployment and low debt interest. In this Budget, and later in the spending review, I will allocate these resources.
When the allocation of additional resources was made 10 years ago, 75 per cent. had to go to pay debt interest and the rising costs of unemployment, and only 25 per cent. was left for priority services, but debt interest payments are now and will remain around 2 per cent. of national income—less than at any time since 1915—and unemployment costs are falling.
Let me summarise. I have shown how the British model for monetary and fiscal policy is locking in stability for the future, with lower debt and lower

333
deficits than our competitors; I have shown the dividend from stability and growth that allows rising investment to meet our priorities of delivering stability, security and economic strength; and I have now shown how the investments we make are not only affordable but fully financed and linked to reform.
I will set the total amount for departmental spending and allocations at the time of the spending review, when I will also publish forecasts for annually managed expenditure, including debt interest and social security costs. The growth rate of both overall spending and departmental spending will be lower in this spending review than in the last, but with administrative costs cut and with wider efficiency improvements, we will be able to deliver substantial further increases in resources direct to the front line—to patients, pupils and users.
As I consider what these allocations should be, I have had a number of representations about the path and priorities for public spending in the years ahead. Full announcements will be made in the spending review in July, but I can confirm the following decisions.
It has been put to me that we freeze the defence budget and cut it in real terms. At a time when our armed forces are now serving in Iraq, Afghanistan and Kosovo as well as in Northern Ireland and elsewhere—I applaud their dedication to the work of this country—such a course would be irresponsible, contrary to the national interest, and I reject it. In the last spending review, we allocated the largest spending increase in 20 years to defence, and I can tell the House that I propose real terms increases in defence spending in the coming round.
There have also been representations to freeze the Home Office budget and to cut it in real terms. I have agreed with the Home Secretary that, having increased the numbers of police, this would be exactly the wrong time, and contrary to the national interest, to freeze expenditure on the Home Office.
I have also received representations that we should freeze the transport budget, cutting it in real terms. I have consulted the CBI and business organisations, and they feel that it is critical to the economy to press ahead with investments in our infrastructure, and that we should not return to the old stop-go in spending, which left under the last Government hundreds of road projects planned but never completed, so the spending review will provide not for cuts but for real terms growth in transport in our country.
I have also rejected representations to freeze spending on housing, local government, and services to children and the elderly.
I have received proposals to cut the science budget and the skills budget and to abolish the new deal, but instead of cutting these budgets, I believe it essential that, as skills, knowledge and technology become more central to our future prosperity, now is exactly the right time to invest in British science and British education. This is our Budget choice, because we cannot be a strong economy if we are weak in education and science. We will work with the scientific community and our science-based companies, so that in this spending period we can raise the level of science funding as a share of national
334
income, with one purpose: to make Britain the best and the most attractive location for science and innovation in the world.
Today, the Government are also announcing a 10-year framework for medical science. Our health budget is what we spend not just on the national health service but on medical research that is bringing new treatments and cures. Modelled on the successful National Cancer Research Institute, the Health Secretary's 10-year plan will fund specialist research institutes for other diseases, and a new British national clinical research network that brings together public and private sectors and medical charities. I can confirm today that the combined budget for medical research and research and development within the NHS will rise, and by 2008 it will approach £1.2 billion a year.
From 1997, the new deal has helped 1 million men and women move from unemployment to employment. As we upskill our economy, the next challenge, the challenge for every advanced industrial nation, is to equip people to move from low-skilled work to higher-skilled work, so we will now constitute a new deal for skills that will offer in jobcentres, for the unemployed and the employed, a one-stop service advising on skills, with access to personal skills advisers and training.
In line with our policy of matching rights with responsibilities, not only will jobseekers be required to undergo a skills check but new incentives will be piloted to encourage lone parents, incapacity benefit claimants and partners of the unemployed also to gain new skills.
The new deal for skills will mean a guarantee of opportunity for every adult to gain level 2 skills. Building on the successful first phase of employer training pilots, I can announce their extension, working with employers, to the north-east, Lancashire, the black country, Devon and Cornwall, Cambridgeshire and West Yorkshire.
The new guarantee to adults will be matched by a guarantee to the young: with new junior apprenticeships and pre-apprenticeship courses, allied to improvements that I am announcing today in benefit rules for young people, every teenager will have the offer of training or education until age 18.
Having, in the last spending round, tackled under-investment in schools and in teaching staff, the primary focus of this spending round must be on excellence and improving standards for all, by supporting strong leadership in schools and diversity of provision throughout education. The aim is that we use modern technology and teaching to offer our pupils tuition and learning tailored to their needs, and so move Britain to the top of the world league for results and standards in education.
Matching our new investment to reform, the Education Secretary is announcing today the next stage of his modernisation of primary and secondary education. Building on previous reforms to raise standards—the literacy and numeracy hours; excellence in cities; the new deal for schools; reform of the teaching profession—he is designating up to 1,000 more specialist schools alongside more city academies; offering greater

335
autonomy and flexibility for schools that are succeeding; providing more discretion for head teachers over school budgets; training more teachers and assistants for coaching and learning matched to individual pupil needs, with wider options for their curriculum; encouraging new partnerships between schools and within communities; extending school hours with additional classes and services; and thus empowering our nation's schools to raise standards for all pupils.
And to advance these modernisation plans, the overall capital investment budget for English in education, which was just £1 billion a year in 1997, will be £6 billion next year, rising to £8.1 billion a year by 2008. Similar announcements will be made for Scotland, Wales and Northern Ireland. And our capital investment allocations will ensure for every constituency in the country that by 2015, every secondary school can be refurbished or rebuilt with world-class technology in every school, and the best state-of-the-art learning support in every classroom.
In line with our commitment to get resources to the front line, the settlement for education that the Secretary of State is announcing today will ensure that more money goes direct to the school and the head teacher, to spend on his school's priorities. And for the year 2005–06, we can announce that there will be a payment in the typical primary school direct to the head teacher of over £55,000, and in the typical secondary school a payment direct to the head teacher of £180,000.
It has been put to us that our guarantee of increased educational investment should be limited only to schools, and that in the years to 2008 we should freeze cash spending and cut it in real terms for universities, further education colleges, apprenticeships, adult skills and lifelong learning, as well as for nursery education, day care, and child care for the under-fives. But this cannot be the right decision when we know that chances in life are determined as much before the age of five as after, and when we know also that 8 million adults do not yet have basic skills for a modern economy.
Sure Start is tackling child poverty. Early years education and child care are vital to parents and to child development, so the Secretary of State for Education is announcing today that funds for Sure Start, early education and child care will not be cut, but will rise from 2004–05 to 2007–08 by £669 million—an average annual real-terms rise of 17 per cent. And the Secretary of State is also announcing that by 2008, there will be a total of 1,700 children's centres—one in each of the country's 20 per cent. most disadvantaged wards—as we advance towards our goal of a children's centre for every community.
The Secretary of State for Education is also announcing that our university and student finance reforms will be matched by rising real-terms funding, to progress towards the 50 per cent. target for students in higher education that would give thousands more students with qualifications the opportunities that they deserve. The settlement will maintain the level of real-terms student funding per head, and ensure that universities receive in full the benefit of additional revenue from the Government's higher education reforms.
336
So to fund our further school reforms and a rising number of teaching assistants and teachers, I can announce for England the educational settlement in full for the three years to 2008: that compared to growth of 1.4 per cent. a year in the 18 years to 1997, there will be a real-terms rise averaging, after inflation, 4.4 per cent. a year. In 1997, when we came to government, England spent just £2,500 per pupil per year; today that figure is already £4,500. By 2007–08, it will be £5,500—twice the 1997 figure and £1,000 more per pupil between now and 2007–08. So the education budget for England, which was £29 billion in 1996–97, will rise from £49 billion this year and £52 billion next year, to £60 billion in 2006–07 and £64 billion by 2007–08. And the education budget for the United Kingdom, which was £37 billion in 1996–97, will rise from £59 billion this year and £63 billion next year, to £72 billion in 2006–07 and £77 billion by 2007–08.
So with our new announcements today, for UK education there is an additional £8.5 billion in 2007–08 compared to 2005–06. That is £8.5 billion extra that is not only affordable, but fully funded and linked to standards and reform; the gains from stability and economic success; the dividend from the strength to take hard decisions about priorities every year from 1997; and at all times meeting our fiscal rules. UK education expenditure, which was just 4.7 per cent. of national income in 1997, will rise to 5.6 per cent. in 2007–08—from one of the lowest in the industrialised world in 1997 to among the best in 2007–08.

And I have one final announcement. This summer, the review of local government finance will report. But I do understand the difficulties today faced by older pensioners on fixed incomes, especially the over-70s. The evidence shows that their council tax bills take a higher share of their income than the rest of the population. So for this year, for those over 70, on top of the winter fuel payment, we will pay an additional £100 to each household. Together with the winter fuel payment, pensioners aged over 70 will this year receive a total of £300, and pensioners aged over 80 a total of £400. I hope that Members on both sides of the House will welcome the extra support for pensioners.
Our foundation: economic stability. Our achievement: sustained growth. Our choice: more investment, not less, now and into the next Parliament. Our prudence is for a purpose. I commend this Budget to the House

PROVISIONAL COLLECTION OF TAXES
Motion made, and Question,
That, pursuant to section 5 of the Provisional Collection of Taxes Act 1968, provisional statutory effect shall be given to the following motions:—

Rates of tobacco products duty (motion No. 2);

Rate of duty on beer (motion No. 3);

Rates of duty on wine and made-wine (motion No. 4);

Amusement machine licence duty (rates) (motion No. 17).—[ Mr. Gordon Brown]

put forthwith, pursuant to Standing Order No. 51 ( Ways and means motions), and agreed to.

Budget Resolutions

  AMENDMENT OF THE LAW
  Motion made, and Question proposed,

  That it is expedient to amend the law with respect to the National Debt and the public revenue and to make further provision in connection with finance.

  This Resolution does not extend to the making of any amendment with respect to value added tax so as to provide—

  for zero-rating or exempting a supply, acquisition or importation;

  for refunding an amount of tax;

  for any relief, other than a relief that—

  so far as it is applicable to goods, applies to goods of every description, and

  so far as it is applicable to services, applies to services of every description.—[Mr. Gordon Brown.]

  1.27 pm
  Mr. Michael Howard(Con): May I congratulate the Chancellor on the delivery of his Budget? He has chosen to deliver his Budget on St. Patrick's day. St. Patrick famously described himself as "the most humble-minded man". That is not an accolade for which the Chancellor is a contender. His Budget begged the central question that goes to the heart of his performance: if everything is going so well, why does he have to borrow so much?
  The Chancellor made great play of the fact that the Budget controls the growth of spending and borrowing, but let us look in some detail at what he means by that. Three years ago, in his 2001 Budget, he forecast borrowing over five years at £30 billion. By 2002—just a year later—that forecast had risen to £72 billion. Today, he is predicting borrowing of over £140 billion, and he is on course to borrow this year alone almost four times as much as he forecast at the time of the last election—and this at a time when he claims that the economy is doing well! How much would this Chancellor be borrowing if the economy went into a downturn? That is the response to all his rigmarole about balanced Budgets.
  The truth is that this is a credit-card Budget from a credit-card Chancellor; and a "borrow now, tax later" Budget from a "borrow now, tax later" Chancellor. If he has his way, the country will pay for it later in Labour's third-term tax rises.
  Under this Chancellor, we know the importance of looking at the small print. Page 232 of the Red Book, just published, shows that the amount people save has fallen from 10 per cent. of their income in 1997 to just 5 per cent. this year—and that from a party that promised a savings culture. As a senior manager at one of Britain's biggest investment companies said only two weeks ago:
  "The Government's policy on savings is a mess and it will take years to repair the damage."
  The Chancellor talked about enterprise, as he does every year. Page 225 of the Red Book shows, however, that business investment has fallen for two years in a row. Page 237 shows that our trade deficit is at the highest level since the 17th century; and page 240 makes it clear that manufacturing output, in common with manufacturing investment, is lower than it was in 1997
  338
  and that the number of people employed in manufacturing is falling by 6,000 a month. All that from a Chancellor who promised
  "an industrial policy so that our manufacturing industries can grow again".
  There are, of course, some things in the Budget that we welcome. We welcome, as I am sure does the whole House, the fact that the Chancellor is increasing the resources available to combat terrorism. We also welcome the potential savings that could arise from merging the Inland Revenue with Customs and Excise, but can the Chancellor guarantee that there will be no political interference in the enforcement of tax law? After the debacle that followed the transfer of responsibility for tax credits to the Inland Revenue, can he assure us that disruption on a similar scale is not likely to happen again?
  The Chancellor has also published the Barker report into housing supply, and we shall scrutinise with care the implications of the proposals for that sector. So far, all that the Government have achieved is to hold the record for the lowest number of new houses built in peacetime since 1924.
  We welcome the announcement of increases for pensioners over 70, but those pensioners should be warned: what this Chancellor gives, this Chancellor takes away.
  We particularly welcome the Chancellor's announcement that Britain will not be joining the euro—though to save the blushes of his right hon. Friend the Prime Minister, he did not put it quite like that. So much for his claim in June that there has been "significant progress" in achieving "cyclical convergence"! Last year, he promised that we were "within the Maastricht criteria" on deficits. We now know that he failed to keep that promise: he was not within the criteria then, and he is certainly not within them now. He has broken the rules and he has not even joined the club.
  It would be churlish not to congratulate the Chancellor on getting one growth forecast right, but the growth is fuelled by a public sector boom paid for by a public sector Chancellor—and, of course, growth forecasts were not the only forecasts that he made. In last year's Budget, his forecasts for revenue were wrong; his forecasts for the deficit were wrong; and his forecasts for borrowing were wrong. None of the Chancellor's bluster can disguise the fact that this Government have increased taxes and increased borrowing, and the borrowing that he announced today is simply unsustainable.
  This Budget has made it clear that if Labour gets a third term, tax rises are inevitable. When in opposition, the Prime Minister said that he had no plans to increase tax at all. At the weekend, the former Paymaster General, the hon. Member for Coventry, North-West (Mr. Robinson), told us why. They did discuss tax rises privately two years before the election, but, as he explained:
  "It's very difficult to win an election if you go out there saying "look, if you elect me I promise you I'm going to absolutely smash you with taxes you've never heard of".
  So they said that they had no plans to increase tax at all, and ever since then they have indeed been smashing people with taxes that they had never heard of. There

  339
  have been more than 60 tax rises, and we are paying half as much tax again as in 1997. Last year, the real value of people's take-home pay actually fell, and after another inflation-busting rise in council tax, average bills have now risen by 70 per cent. since 1997.
  Business is paying more tax, too. The Chancellor has burdened it with £15 billion a year in extra taxes and red tape. As the chief executive of Tesco told the Chancellor at one of his intimate gatherings:
  "Like a tide the level of taxes seems to be forever rising. The water is now above our waist".
  As David Frost, director general of the British Chambers of Commerce, says:
  "British business cannot compete with a £30 billion millstone around its neck".
  Yet despite all those taxes, the Chancellor still has to borrow more and more. This is a Chancellor who said in 1996 that we could not build
  "the new Jerusalem on a mountain of debt".
  A mountain of debt is exactly what he is creating today.
  That is why independent commentators say that third-term tax rises are inevitable under Labour. The ITEM Club, which uses use the Treasury's own model, says that the public finances "continue to deteriorate alarmingly". The Organisation for Economic Cooperation and Development warns of a possible "sizeable structural deficit". The Financial Times says that the Chancellor should be preparing options for a tax rise after the election. After today's Budget, that black hole is still there. That is what happens if you have a "borrow now, tax later" Budget from a "borrow now, tax later" Chancellor.
  It is not as though the money that the Chancellor has borrowed to spend has been spent wisely. After all the years when the Government said that they were spending our money really well, we now learn that their own adviser has revealed £15 billion a year of waste. This is the Chancellor who said that not "one penny more" would be spent on the health service until he secured the changes to allow the reforms necessary to "carry out the modernisation" that it needs. This is the Chancellor who said that extra money spent on public services was dependent on the release of efficiency savings. He said that in his 1998 spending review, in his 2000 spending review, in his 2002 spending review—and he is saying it again today. This is the Chancellor who said that he was "determined to get value" for "every penny we spend" to give people the public services that they want. He makes that promise every time, and he breaks it every time.
  The annual cost of running central Government is up by nearly £7 billion under the Chancellor's stewardship. An extra 511 civil servants were hired every week last year, and now we discover from the Gershon report that the Government secretly plan to hire more than 300,000 extra public sector workers over the next three years—after taking into account the reductions that the Chancellor has announced today.
  What has really been achieved? The number of children playing truant is up by 22 per cent.—[Interruption.] I should have thought that Government Members might be a little worried about the number of
  340
  children playing truant from our schools. What hope is there for the future if, under the present Government, children do not even go to school?
  NHS waiting times are getting longer and violent crime is at its highest level ever. A 37 per cent. increase in spending on the NHS has led to only a 5 per cent. rise in the number of hospital treatments. The OECD says:
  "In the health sector there are few indicators showing unambiguous improvements in outcomes over and above trend improvements that were already apparent before the surge in spending".
  It goes on to say—[Interruption.] The Chancellor is fond of quoting the OECD, so he should listen to this. It states that, in some areas,
  "such as numbers of patients treated and average waiting times, performance has actually deteriorated".
  As the Minister for Energy, E-Commerce and Postal Services told a conference in America, in a speech mysteriously missing from the Government website:
  "Too often a lot of money has been spent but very little seems to have been achieved … In a year or so we're going to have an election in the UK, when people will say, 'We've paid a lot of taxes, but what has really been achieved with all that money?'"
  He was telling the truth. I am afraid that his prospects of survival in this Government cannot be high.
  A year before he became Chancellor, the right hon. Gentleman said:
  "I want our Labour Government to be remembered not as a big spender but as a wise spender."
  However, it was not long before the tax and spending habit kicked in.
  Very soon, the nation will face a choice. We on this side of the House want to give patients, parents and professionals more control. We want to bring in real reform. That is the way to end the cycle of tax and spend and fail. This Government will never deliver real reform of the public services. All they offer is more of the same: higher spending, higher borrowing, and higher taxes.
  This Budget will go down in history as the "borrow now, tax later" Budget, the Chancellor will go down in history as the "borrow now, tax later" Chancellor, and the Government will go into oblivion as the "borrow now, tax later" Government. And the sooner they go, the better it will be for our country.
  1.41 pm
  Dr. Vincent Cable(LD): As I did when I responded to the pre-Budget report, I shall start by acknowledging the positive things about the economy and the Budget.
  There has been greater economic stability than before 1997; the employment and unemployment statistics are enviable; inflation is low; and the relationship between debt and gross domestic product is fundamentally healthy. All those things are positive. However, the Chancellor's finest hour came in his first week in office in 1997, when he made the Bank of England independent. Many of the problems now evident have been building up ever since. The big decision in this Budget was not to tackle them until after the general election.
  Let me list some of the problems that we face. First, there is growing evidence of a very serious imbalance in the economy, based on very high levels of consumer debt

  341
  and inflated house prices. That has exposed many families to financial disaster if interest rates rise and house prices fall.
  I raised this matter with the Chancellor six months ago on the Floor of the House. He rather derided the matter as some personal eccentricity of mine but, as he may have been too busy to see it, let me point out what the Monetary Policy Committee said only this morning. In its minutes issued today, it notes that household financial positions could well become unsustainable and so increase the probability of an eventual abrupt adjustment process.
  The problem stems from a remarkable boom in house prices, which even the International Monetary Fund says has led to an overvaluation of between 30 and 35 per cent. The Chancellor mentioned the very useful reports from Miles and Barker. I welcome the practical suggestions that they make. I was amused that, after decades of Liberal Democrats promoting the idea of site value taxation, the notion at last seems to have taken root on the Treasury Bench. However, the technical improvements that Barker and Miles point to do not even begin to address the problem of the speculative bubble that lies behind the housing market, which supports household debt worth a trillion pounds. That bubble could well collapse, with disastrous consequences.
  The other side of the imbalance is what is happening to the productive sector of the economy. The Chancellor talked about his projections for manufacturing investment, but he failed to mention that it had fallen by a third over the past three years. His 200-year history of the British economy did not point out that there was an all-time record trade deficit of £4.6 billion in January.
  My second point has to do specifically with the Budget. I disagree with the Leader of the Opposition: I do not believe that there is a fiscal crisis, but there is a fiscal deficit problem that needs to be addressed. The Chancellor slipped into his speech an acknowledgement that the fiscal deficit will be £6 billion higher than estimated in the pre-Budget report. He has gone some way towards acknowledging what we believe: that the growth in public spending must slow down until it is comparable to the growth of the British economy as a whole. My party does not favour the extreme measures apparently adopted by the Conservatives.
  The Chancellor listed the submissions from the Conservatives, but it was interesting that he did not mention their proposal on local government finance, which would raise council tax by 10 per cent. I suspect that he did not mention it because nowhere in his Budget speech did he give his own estimate of what council tax rises are likely to be next year. That is a matter of absolutely critical importance, because it lies at the heart of our disagreement with the Government about taxation policy. The disagreement is not about the aggregate level of taxation, but about its fairness. The Chancellor has a legitimate record of concern for social justice, but he should be most ashamed that the bottom 20 per cent. of the population, in terms of income, pay a higher percentage of their income in tax than the top 20 per cent.
  The major reason for that disparity is the system of council taxation, which the Government inherited from the previous Conservative Government but which they
  342
  have done nothing fundamentally to reform. I hope—and sense—that our argument for local income tax is beginning to win the day. A Government spokesman said only the other day that the Government recognised that local income tax was a "realistic option" and a "strong, sustainable source" of funding for local services. We repeat our belief that ability to pay must underpin all direct taxation. It does not underpin local income tax. We know that the Prime Minister is hostile to the reform, and the Chancellor has wisely kept mum about it.
  The Chancellor introduced some welcome top-ups for older pensioners—an idea that we have promoted consistently over the years, as it targets help on those who need it most. However, he will apply it not in its own right, but as a sticking plaster for the injustice created by local income tax.
  Another disagreement in terms of tax policy, which the Chancellor did not touch on today, has to do with marginal rates of tax. We accept that very high earners—people earning more than £100,000 a year—should pay a marginal tax rate of 50 per cent. The Government have condemned that proposal, but they have never acknowledged that their own proposals incorporate marginal tax rates of 50 per cent. or more for several key groups. As a result of the change in provision for students, people earning more than £35,000 a year, when they pay their graduate tax, will be paying a marginal rate of 50 per cent.
  The Chancellor slipped in a quiet reference to the lifetime cap on pensions. He said that he had increased it a little, but he did not acknowledge that the marginal rate of tax on the pension pots applicable to people such as airline pilots, for example, will be not the horrendous rate of 50 per cent. associated with the Liberal Democrats, but 55 per cent. So much for the Government's concern about high tax rates.
  Thirdly, I turn to the issue of tax simplicity. When I first raised this matter, I made an analogy with the gentleman who has earned the nickname "Tinkerman"—Mr. Ranieri at Chelsea. As the Chelsea team is progressing rapidly through the Champions league, I should perhaps look for a less successful analogy, but my point remains valid. The Government and the Chancellor have introduced an endless succession of gizmos, wheezes and gimmicks, and we had more today. They have complicated the tax system, without improving it in any way.
  One matter mentioned briefly by the Chancellor was the failure of his attempt to introduce an incentive last year for incorporated businesses. I should be grateful for clarification of the passage in the Red Book that states that the proposed reform will raise an extra £490 million in one year. Effectively, that will penalise all those businesses that, in perfectly good faith, went to the expense and trouble of shilling to incorporation.
  Over the years, the Liberal Democrat view on public spending has been clear and transparent. We argued for an increase in investment in public services and for the taxes to pay for that, and we campaigned on that basis at the last general election. The Government have delivered the investment, which we voted for and supported. Unfortunately, they did not deliver it openly and honestly, which has contributed to the general public's cynicism about the tax system.

  343
  The Government face tough choices on public spending, and today the Chancellor has hinted where he proposes to make some economies—we fully support the implementation of the Gershon report, which is entirely sensible. What is missing is an indication of the tough choices that must be made. Neither the Government nor the Conservatives can get away with arguing that the only way to rein in public expenditure is to cut waste, and tough choices are needed.
  Some Departments—for example, the Department of Trade and Industry and the Department for Environment, Food and Rural Affairs—are grossly overstaffed and, moreover, do far too many things that should be stopped. The Government are introducing low priority proposals that are wasteful. The Chancellor referred to the need to maintain the Home Office budget, and we agree with that. But he did not point out that up to £3 billion will be taken out of the Home Office budget and spent on identity cards. His Department is responsible for introducing the baby bonds scheme, which is a superficially attractive but extremely inefficient, ill-thought-out way to use hundreds of millions of pounds that could be better used on early-years education.
  Today, the Chancellor has introduced what sound like radical proposals for civil service relocation—we are totally in favour of the Lyons report. He did not point out, however, that fewer than one in 10 civil servants located in London and the south-east of England will be affected. For example, the Treasury will reduce its London staff from 1,152 to 1,134. Eighteen officials—fewer than one in 100—will be moved, which is not leading by example.
  The Iraq war is one important reason why public expenditure has grown faster than expected. The cost of the Iraq war is approaching £3 billion, and it is rising by an extra £200 million a month. It is not appropriate to rehearse the political arguments in this debate, save to point out one crucial point: this country has been to war before in the middle east—in the early 1990s—as part of a genuine multilateral campaign, as a consequence of which the international community paid 80 per cent. of the costs. Because of the Government's approach to the recent conflict, the British taxpayer must pay every single penny.
  On the euro, the Chancellor raised his usual annual laugh by kicking the issue ever further into the grass. The euro is obviously the biggest single economic issue confronting this country. A decision must be made sooner or later, and the Chancellor should be honest and state that costs are being incurred as a consequence of not making it. For the past seven years, British manufacturing has traded at a competitive disadvantage of around 30 per cent. as a result of the appreciation of the real exchange rate.
  The collapse of Britain's share in foreign direct investment from 27 per cent. in 1998 to 7 per cent. in 2002 is a clear sign that international business is moving to the eurozone. Had we held on to our 1998 share, an extra £80 billion would have been ploughed into productive investment in parts of Britain such as the north-west and Wales. That real cost has been paid as a result of fudging and repeatedly postponing the
  344
  decision. The Budget simply avoids the key decisions that must be made for the long-term future of the economy.
  1.54 pm
  Mr. John McFall(Lab/Co-op): I welcome the Budget, which emphasises stability, growth and productivity, employment and public services. We do not want to return to the times when savings were wiped out every few years by bursts of double-digit inflation.
  I welcome the Chancellor's assertion that the trend rate for growth—the best engine for delivering sustainable returns for savers and those in work—will be 2.5 per cent. until 2008. I agree with him that we must invest for the long term. The need for long-term investment is urgent, so it makes sound economic sense for low-debt countries to borrow to invest and not to impose balanced budget rules. I welcome the latest unemployment figures and the Chancellor's statement that employment is up by 1.3 million compared with the 1980s and by 1.5 million compared with the 1990s.
  The hon. Member for Twickenham (Dr. Cable) discussed the euro. A housing market reform programme has been implemented, the inflation target has been changed, fiscal stabilisation has been achieved and the flexibility of the UK markets has been enhanced, and we must now follow through on those changes.
  I remind the House of what the Prime Minister said in Tokyo last July:
  "Treasury studies have established that over the long term monetary union is in the national interest … We are not looking for completion of the impact of reform in all areas before recommending entry, and neither are we keen to reduce the hurdle through one of a mere balance of probabilities. A clear and unambiguous decision requires sufficient material change to give us real confidence that we will benefit from entry. But it is the aggregate nature of the changes that matters."
  The Government must get on the euro caravan, which, as the hon. Member for Twickenham says, will be of vast economic importance to us over the next few years.
  I welcome the Chancellor's announcement on tax avoidance. I have been asking for an examination of the issue because the top four accountancy firms made £1.5 billion in fee income from tax work in 2002–03, and experts say that those profits have risen rapidly since 1997. Schemes offered by the most respected firms of accountants and their partners include concerted attempts to avoid tax by manipulating the gilts markets.
  Tax avoidance thrives on concealment. I recognise that the issue is international and that the choice is between following the Australian route by implementing a general tax avoidance measure, or the American route or requiring accountancy firms to disclose the schemes they sell to companies. I am glad that the Chancellor is taking up that issue, because, as Deloittes recently stated, up to 40 per cent. of avoidance schemes are successfully hidden. The Government have acted in every Budget since 1997 to close tax loopholes, but they have not had great success. They have not clearly defined tax avoidance or introduced a clear mechanism for ruling whether schemes are legitimate or illegitimate, and they should get on with such definitions as quickly as possible.
  I welcome the Government's adoption of the recommendations of the Barker report, in which Kate Barker particularly emphasised social housing. The

  345
  number of social houses built in the UK has fallen from about 42,700 per year in 1994–95 to about 21,000 in 2002–03. Expenditure on social housing has increased from £800 million in 2001–02 to more than £1.4 billion in 2003–04, but the rate of supply has continued to decline. Over the next 10 years, it is estimated that the number of social and affordable houses must increase by at least 17,000 per year, which will require annual investment of about £1.2 billion to meet the flow of new needy households. The lack of social housing has been a scandal for many years, but the Government now need to pay the issue urgent attention.
  The central focus of my right hon. Friend's approach to his Budget has been productivity. I welcome the 10-year strategy for science spending, under which Government support for research will rise annually by at least 2.75 per cent. above inflation. I also welcome the consultative document published on the eve of the Budget, which invites business leaders, research councils, charities and scientists to advise on how the new money should be spent.
  Two weeks ago, colleagues on the Treasury Committee and I visited Germany as part of our inquiry into productivity. We visited Berlin and former East German areas, including Jena. We examined the role of the research institutes, which help regions to develop their research and development. The research institutes are spread around the regions. One institute, the Fraunhofer, has links in every region of Germany. In Saxony, I pointed out to a businessman that if we developed a similar system people would say that it is for individual companies, not research institutes, to develop their research and development. He said, from a right-wing perspective, that he could not have developed his business if it had not been for the help of research institutes. There is a pressing need for a regional approach to research institutes in this country to improve competitiveness and innovation. I hope that the Government will consider that issue.
  At the risk of being parochial, I must express my dismay at my right hon. Friend's imposition of tax stamps on the Scotch whisky industry. I took the Economic Secretary to my constituency and we toured the Allied Distillers plant. I put a hard hat on him and took him round the production lines. He saw for himself the effect that such an imposition would have on competitiveness and productivity. Sadly, when he went back to the Treasury, he failed in his mission, but I learn from my pager that he will meet me at 3 o'clock to discuss the issue. I warn the Government that productivity and competitiveness are extremely important to the Scotch whisky industry. It is a £2 billion industry, and we need to support it. Manufacturing has been declining year after year, and the Government should not engage in any activity that will affect productivity and competitiveness. I put the Government on warning that we will be back, week after week, to ensure that my right hon. Friend the Chancellor's rhetoric on innovation and assisting businesses is translated into action on the ground.
  Mr. Alan Reid(LD): I wholeheartedly back the hon. Gentleman's support for the Scotch whisky industry. When he meets the Chancellor later, will he draw his attention to the fact that he has promised the industry only £3 million in
  346
  capital investment assistance? The hon. Gentleman will know that that is nowhere near enough—the cost to the industry will be far greater.
  Mr. McFall: I have great respect for the hon. Gentleman, but I always like to have Liberal Democrat statistics checked. When I have done so, I will discuss the issue with my right hon. Friend the Chancellor. However, I pay tribute to the hon. Gentleman for the work that he and other colleagues have done with me on the all-party Scotch whisky group.
  The Treasury Committee is concerned about credit cards and debt. Much has been made of the issue, but we approach it from the point of view of transparency and competitiveness. We look to the industry to improve the situation because, at present, consumers are left in the dark. They do not understand how annual percentage rates are calculated, because there are two definitions of them; nor do they understand how interest rates are calculated, because there are 10 different ways of doing it. That deceives the consumer, and the sooner the credit card industry realises that, the better. It is making record profits on the back of consumers' ignorance. I tell the industry that the Treasury Committee will bear down on it and that if it does not do anything over the next few months its representatives will have to reappear before the Committee, in June or July, to go through the whole rigmarole again.
  We need a victory for the consumer. Last week, we heard of the tragic case of Mrs. Lewis, whom I had the opportunity to meet. When her husband died, he had 19 credit cards and excessive debt of more than £65.000. The industry does not share information about credit history. I have had some lively exchanges—all very positive—with the managing director of MBNA in this country, General Chuck Krulak, a four-star Purple Heart Vietnam veteran. He cannot understand why our industry does not adopt the open system that operates in the US: if the US has it, why cannot we have it? An information-sharing system would reduce the opportunities for people such as Mrs. Lewis's husband to get into unmanageable debt. It is important that the credit card industry ensures that that happens.
  The Financial Secretary knows that the Treasury Committee is conducting an inquiry into long-term savings. Last week was a terrible one for the retail savings industry, starting on Monday with Lord Penrose's report. On Thursday, the Treasury Committee published its endowment mortgage report, which showed that the saver has no confidence in the savings integrity of the life assurance industries. Until that confidence is re-established, it will be bad news for the savers and for society. Paul Myners and Ron Sandler appeared before our Committee. Ron Sandler said that the insurance industry was trusted less than local supermarkets. That trust must be re-established, and the Government must look at the issue.
  I hope that the Financial Secretary will think about reaching out to the less affluent, because the insurance industry has not tackled that issue. The less affluent are gradually being priced out of the savings and pension market. Not only has the old industrial branch, which collected premiums by making monthly home calls, disappeared, but most direct sales forces have been wound down. With the best will in the world,

  347
  independent financial advisers will not make a living concentrating on the poor. The result is that long-term saving is increasingly becoming a middle class pastime. The Government and the industry need to have a long, hard look at how we might get financial advice and financial services to the less affluent.
  The Committee will take evidence from several groups that are interested in the issue. It is curious, however, that the UK industry seems happy to ignore a slice of the population that others here and overseas have found to be a profitable and growing market if it is approached innovatively. Sandler products might well provide an ideal platform for selling via the workplace—regulated products with a lightly regulated sales process—but the industry's generally negative response to them has been telling.
  The industry has focused on commission, but the investigation of endowment mortgages convinced the Treasury Committee that the sales-driven approach to upfront commission ensures that when the sale is made the relationship between the provider and the customer is severed. As Paul Myners said when he appeared before the Committee, there is no duty of care for the insurance and savings industry towards the saver. When the industry comes knocking on the Financial Secretary's door saying that a cap of 1 per cent. is not enough, I advise caution, because we have to address what those sales are for. Are they merely to provide upfront commission or are they to ensure that we have a well-regulated suite of low-cost products in which the consumer has confidence and that a long-term relationship is established between the industry and the consumer?
  The focus should be not on selling but on what is provided over the long term. The mixture should be selling, investment performance and after-sales care. Those three ingredients are important to restore confidence in long-term savings. The Treasury Committee is looking for a much more intelligent debate within the industry, which is why my colleagues and I will meet industry representatives to ask them to come up with ideas that go beyond their complaint about a 1 per cent. cap on commission. If a product, such as a pension, is sold to an individual over a 50-year period on 1 per cent. commission, the probable cost to the customer over that period would be 30 per cent; in other words, a third of that contribution comes from the customer. That is not a bad deal.
  The Financial Secretary must ensure that the industry lays out exactly what its approach to the customer will be, and after-sales care must be at the heart of that approach. The Committee is asking the industry to come up with initiatives and, over the coming weeks, we shall question it about restoring confidence in long-term savings. We shall also invite my hon. Friend to tell the Committee about her links with the industry and to confirm that new, positive measures will be put in place.
  Savings are extremely important. As I said, I do not want us to go back to the days of double-digit inflation, because if we do the people who will lose out are the elderly and ordinary, low-paid individuals. A stable economy is essential and I wish the Government well in
  348
  that respect, but I also want them to take cognisance of the points that we have made so that the stable economy is married to a fair environment.
  2.12 pm
  Mr. Peter Lilley(Con): I am a supporter of annual Budgets, with all the drama that we associate with them. However, one of the dangers of Budgets is that they give the illusion that economic performance is primarily the result of short-term decisions—that performance in the current year has been largely the result of decisions taken in last year's Budget, and that performance in the coming year will be largely the consequence of decisions taken in this one. That is nonsense. In fact, economic performance is primarily the result of the cumulative impact of budgetary, tax, spending, regulatory and other policies, which ideally move only in the direction of improving performance, although, in other circumstances, sadly, they may move in the other direction and cumulatively undermine performance.
  I was one of those involved in developing and subsequently implementing the reforms introduced in the 1980s and early 1990s. I learned two things that I did not expect from that experience. The first was that the cumulative impact of those reforms exceeded our expectations; they did more to transform the performance of the British economy than we had dared hope. However, the second was that they took rather longer to have that impact than we had expected. The cumulative impact of reforms of trade unions, taxation, nationalised industry, the competitive environment and the regulatory framework took longer than we had expected to feed through to an improvement in our performance relative to that of other countries. We should thus bear in mind the fact that policy is long term and cumulative when we assess the Chancellor's performance in this and previous Budgets.
  The Chancellor undoubtedly deserves his share of credit for the relatively strong performance of the British economy in recent years. However, I submit that that share of credit is relatively small. The strong performance is largely due to the fact that, unlike his predecessors, the Chancellor has not rapidly undermined the reforms and the strength of the economy that he inherited. None the less, he should also be held to account in due course for the long-term changes that will, as they already are, cumulatively undermining the long-term performance of the economy. They may take longer to feed through than some people anticipate but they will steadily and surely, as night follows day, reduce the performance of our economy relative to what it could have been.
  The greatest single change that we made in the relative advantage of doing business in this country compared with other countries was the reduction of our tax burden relative to that of other countries. Before I spoke to the French equivalent of the CBI recently, I looked up the figures for the tax burden as a share of national income in this country since 1979 compared with that in our continental EU partners. In 1979, the share of national income going to tax and public expenditure was almost the same for all of us; at the beginning of the 1980s, it was marginally higher in the UK than on the continent. By 1997, however, partly because we had somewhat

  349
  reduced its share of national income at a time when other countries had seen that share rise substantially, the gap between the share of our national income going to tax and that of our continental competitors had risen to nearly eight percentage points of gross domestic product. That was a substantial relative advantage for businesses working in this country. It meant that our cost burden was lower, so people's incentives to work, invest, save and take risks were higher, and the size of the competitive economy relative to the less competitive public sector was improved.
  I have delivered a series of speeches on that topic in France, as it is of much concern there and, sadly, each time I speak the gap between us and our continental partners, in terms of the share of GDP going to taxation, seems to diminish. There are two reasons for that. In part, it is because the Chancellor has reverted to tax and spend and, in recent years, has increased expenditure taken in taxation faster than national income, after pausing for the first couple of years when he implemented the savings plans that he had inherited from us. However, it is also because other countries have followed our example of the 1980s and early 1990s and begun to reduce the share of their national income taken in tax, and done so without destroying their public services. Indeed, they have continued to improve their public services by adopting the time-old Dickensian recipe of increasing their public expenditure marginally less than their national income so that they can reduce tax rates, while we have been increasing our public expenditure somewhat faster than national income and have thus had to increase the tax burden. Public expenditure has increased on both sides of the channel, but the moderation of the increase on the continent has enabled those countries to reduce the share of national income going into taxes, thereby somewhat eroding our relative advantage. Sadly, this Budget continues the damage.
  Mr. James Plaskitt(Lab): If the right hon. Gentleman is preaching the virtue of the French approach to taxation as a share of income, can he explain why our economy has been growing so much faster than the French economy and why unemployment is falling in the UK but rising in France?
  Mr. Lilley: I am sorry that the hon. Gentleman clearly was not listening to the early part of my speech. The consequences of tax, regulatory and policy changes do not follow immediately, in the same year or the next year; there is a cumulative impact. Just as the changes that we made in the early 1980s did not show their full fruits until the early 1990s, one would not expect changes made in the UK or France to show up as an immediate impact on economic performance in the same year, or even necessarily in the same half of the decade. That is a lesson that we need to learn. We must start thinking long term instead of the short-term manipulation of each Budget for a quick headline, despite the damage that that may do in the longer term.
  The Government were originally elected on a pledge that they would improve public services without increasing the burden of taxation. Instead, they have increased the burden of taxation without substantially improving public services. I shall explain how they have
  350
  achieved that and how we can have better services without increasing tax rates, and in due course reduce them.
  How is it that Labour is spending more and getting less? In terms of the NHS, the Organisation for Economic Co-operation and Development's recent report clearly spelled out the situation. I recommend that right hon. and hon. Members on both sides of the House read it. The report states that, since 1999, when the Chancellor took his foot of the brake and put it on the accelerator—expenditure has been increasing rapidly in health and other public services—we have seen a slow-down in the rate of improvement in those services compared with the previous 10 years when there was growth, but it was moderate and within the capacity of the economy to provide it and for services to absorb it and respond to it.
  In the 10 years up to 1999, when my right hon. Friend the Member for Charnwood (Mr. Dorrell), among others, was responsible for the NHS—he did a very good job—we saw an increase in the number of operations performed of 2.9 per cent. every year, on average. Since 1999, when the brakes have been off and expenditure has been pouring in, the increase has slowed to only 1.9 per cent. per annum.
  The Government say that that relates to operations and that they have shifted the emphasis to day care. Figures for day care come from the same source, the OECD. They show that in the 10 years up to 1999, the number of treatments on a day-care basis was rising by 3.9 per cent. per annum. That growth has slowed even more since 1999 to an increase of only 2.4 per cent. per annum. It will not do for the Prime Minister to say that this has gone up and that has gone up. It has been going up since time immemorial. The point is that the rate of improvement has slowed, and the concerns of patients have increased.
  The Prime Minister hopes that he can appeal to personal experience and the public perception. I tried that during the 1980s. Whenever I had a public meeting, I would ask everyone who grumbled about the health service whether anyone present had had any experience first hand or second hand through their families or friends of the health service. Many hands would go up. I would then ask how many of them thought that the experience was good. Exactly the same number of hands would go up. My next question would be, "Why do you all think that it is getting worse?" The answer would be, "We read in the newspapers that it is getting worse."[Interruption.] That was during the 1980s.
  If we read the complaints that are registered now by patients—not just those in newspapers—we see that the numbers are increasing. Expressions of concern about cleanliness in hospitals are rising. Is that merely a perception? No. According to the EU, the problem of infections in hospitals is greater in this country than elsewhere. Nearly one in 10 patients have an infection in hospital that they did not have when they entered. Nearly 10 per cent. of beds are occupied by people who got their ailment in hospital. That demands a huge share of our resources. The rate is higher in the UK than any other country in western Europe, and it is getting worse faster than in any other country in western Europe.
  Mr. Barry Gardiner(Lab): Does the right hon. Gentleman appreciate that the privatisation of cleaning services in hospitals, which his Government introduced, precipitated the crisis, which, as he said, has a long-term tail on policy?
  Mr. Lilley: We are talking about a problem that kills between 5,000 and 20,000 people a year. It is not the sort of problem about which we should make party political points. If the cause were what the hon. Gentleman suggests, I would support any change that would solve the problem and thereby cure it. However, the Government have decided that that is not the cause, and they have been in power for seven years. Why is that? Ministers go to other countries, as the Conservative Government's Front-Bench health team did, accompanied by the BBC. They went to Germany and saw sparkling, pristine hospitals. They said, "I bet you don't contract out your health care to private cleaners." They replied, "Of course we do. We want specialists involved in cleaning while we specialise in health."
  The BBC journalist said, "We have had privatisation and all the unions say that that is the cause of all our problems. They say that the contractors do not keep things properly clean." The German official replied, "Why don't you change the contractors?" The benefit of the process is that, if it is not good enough, an improvement can be made, which would be more difficult if the system were run in-house.
  If that analysis is mistaken and the hon. Gentleman is correct, let us all agree to change the system, but let us not make silly party political points when lives are at stake. It must be a silly party political point; otherwise he would have raised it with his right hon. and hon. Friends and urged them to make changes, and condemned them for tolerating something for seven years that he thinks is the cause of 5,000 people dying each year.
  Mr. Stephen Dorrell(Con): I entirely agree with every word that my right hon. Friend has said in response to the point made by the hon. Member for Brent, North (Mr. Gardiner).
  Is not the fundamental argument that my right hon. Friend is advancing that our health structures are not as efficient as they need to be to deliver the services that patients require and that taxpayers are entitled to see for their money? Is not that argument exactly the one that the Chancellor made two or three years ago, when he said that the extra money that he intended to provide for the health service must be conditional on fundamental reform of the delivery mechanism? The basic point to be made against the Government is that they have made the money available but forgotten about the conditionality that the Chancellor understood at the beginning of the process was fundamental for success.
  Mr. Lilley: My right hon. Friend is absolutely right, and I shall address that point. Undoubtedly, the Government have increased the level of spending more rapidly than happened on a sustained basis under the previous Government, but they have seen a slow-down in performance improvement, and deterioration in some key areas. That is partly because they have intensified the central problem that the NHS and other public services face in achieving improvements: centralisation.
  352
  We know that centralisation does not work. We have seen its failure on a massive scale in the Soviet Union, in the former eastern bloc and in centralised services in this country. We have seen it even in centralised companies in the private sector. An attempt to run a large organisation from the centre, top down, with command and control does not work. The resources that are thrown in never seem to filter through to the sharp end. Mr. Gorbachev, a well-intentioned man. thought that he could transform the Soviet Union without changing its fundamental structure just by setting targets, urging people to do better and sacking them if they did not.
  The Prime Minister is perhaps Gorbachev's last remaining disciple on earth, because the Government have made centralisation worse. Though they have given up socialism, their belief in it has been replaced by a belief in spin and press manipulation. The whole public sector is run for good headlines. If a Government are trying to get good headlines about the health service, there must be centralised initiatives announced from Downing street that determine how money is spent. Ultimately, that means that decisions about how money is being spent that should be taken by individual hospitals or by people who are aware of clinical priorities are taken by Alastair Campbell or someone who is aware only of newspaper priorities.
  Centralisation in the health service has been intensified in all respects because the Government want to take credit at the centre for everything that the NHS does that is good and for any initiative that they can think up that will win the next day's headlines. When I visited a hospital, I was told that the Government had set a waiting list target, which made a good headline. They then announced, to get another good headline, that they were appointing a waiting list manager in every hospital, which was duly done. Finally, they announced that they were going to set a centrally allocated waiting list budget for every hospital. In the hospital that I visited, the waiting list manager, to meet his waiting list target, had used his waiting list budget, ring-fenced from everything else, to introduce operations on a Sunday performed by locum consultants. That was more expensive but, in theory, should have reduced the waiting lists. However, the hospital did not employ extra sterilisation teams, so by the end of Sunday all the equipment had to be sterilised and no operations could take place on Monday. However, money to deal with that came out of the hospital's general budget, which was not ring-fenced. There was therefore an absurd procedure that resulted in no net improvement in the number of operations but an increase in cost.
  That is just a micro-example of the consequences of centralised decision making. The other problem that we face in the health service, which my party is working to remedy, is the fact that the NHS and other public services tend to lack the dynamic forces that drive up quality and efficiency in most areas where choice prevails. If the user of a service can choose between providers, those providers must compete to be at least as good and efficient as the alternative, and that dynamic force of choice determines where resources go. Providers get the extra resources only if they satisfy more customers or users leading to a constant dynamic to improve quality and efficiency.

  353
  We therefore need three things in the NHS. First, patients need to be given choice again. We should not forget that one of the early decisions that the Government made for the first time in the history of the health service was to remove the right of patients referred by their GP to go to the hospital of their choice. They can no longer do so, except under the reintroduction of patient choice, whereby they must go through an incredibly bureaucratic procedure with appointed choice advisers. The Government have removed that choice, and we must restore it. Secondly, we must make taxpayers' money follow that choice. In the NHS, if a patient goes to hospital A rather than hospital B, hospital A should get the extra money to provide the resources to treat that patient and reward it for doing so. If hospital B is not getting enough patients, it must take action to remedy the situation. That does not mean closing down or starting a spiral of decline—indeed, there is usually a pattern of improvement. If a hospital realises that people are not coming because, for example, it has a reputation for dirty wards, it will clean those wards. If it has a reputation for not washing hands between operations, it will remedy that practice.
  Those things do not cost any extra money. A hospital's consultants may not be performing as well as they should, and may need to be retired and replaced by new consultants. It may cost less to employ a relatively young but extremely able consultant instead of a senior consultant who is past his prime. Those things do not cost extra money, but they drive up quality if we have choice and the taxpayer's money follows that choice. Thirdly, patients must have the information on which to make informed choices if that dynamic is be reintroduced in the health service.
  The same applies to schools and elsewhere. The Government deserve some credit for not undermining the long-term benefits that began with the reforms of the 1980s, and for introducing improvements such as the independence of the Bank of England and so on. However, they have started a policy of tax and spend that will undermine our relative advantage and, in due course, our economic performance. It is already undermining our productivity. I remind the House of an issue that I raised in the Budget debate last year. The Chancellor claims credit for a growth rate of 2.3 per cent. this year. Growth is made up of two things—growth per head of those employed and the number of people employed. The number of employed people is rising quite rapidly, partly because we are continuing to reduce unemployment, which is excellent and to the great credit of all those policies that brought it about. The big increase, however, stems from net immigration. I have asked the Chancellor what share of our growth rate is due to net immigration—it is 0.4 per cent. of that 2.3 per cent. Without net immigration, the growth per head of the indigenous or resident population is less than 2 per cent.
  We should recognise that it is only if output per head rises that income per head will rise, along with our well-being and the standard of living throughout the economy. The Chancellor should not pretend that growth that comes from increasing our population will necessarily increase net wealth per head. Indeed, it can create problems, which show up on the other side of the equation—housing problems, congestion and increased use of all the public services, to which people who come
  354
  to work here naturally have the right of access. That does not show up in the Chancellor's figures, but it shows up in the demands on his Budget. The Government have therefore pursued policies that reduce productivity growth per head, and unless and until those policies are changed, there will not be an improvement in the average wealth or the growth of wealth per head, which everyone in this country wants.
  2.36 pm
  Denzil Davies(Lab): Unlike the right hon. Member for Hitchin and Harpenden (Mr. Lilley), I welcome the Budget. I congratulate the Chancellor on his eighth Budget and, more importantly, on a remarkable seven to eight years of stability in the British economy, with good rates of growth and low inflation and unemployment. Before I turn to the Budget itself, I should like to refer to the Chancellor's announcement about the Barker report on the supply of land for building. I was not going to mention it, but I changed my mind when the hon. Member for Twickenham (Dr. Cable) said that the Liberal Democrats favoured site value taxation. As a Minister I introduced such taxation.
  Rob Morris(Lab): It was development land tax.
  Denzil Davies: My hon. Friend is right—we did not call it site value taxation but development land tax. If my right hon. Friend the Chief Secretary to the Treasury and, indeed, the hon. Member for Twickenham wish to have the benefit of my experience, I am prepared to pass it on—obviously, in private.
  To return to the Budget, my right hon. Friend the Chancellor announced that next year the growth rate would increase to 3 to 3.5 per cent. He also announced—the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) made something of this—that borrowing on the Maastricht criteria would be 3.4 per cent. this year, but would go down in future years. I have not seen this year's Red Book, but previous Red Books suggest that despite the reasonable growth that we have experienced in Britain—it is better than most countries, with the possible exception of the United States—the yield from the two main taxes, VAT on goods and income tax on wages and employment, does not appear to have met the Treasury's expectations. That may change in the next few years with increased growth, but I suspect that it will not. I believe that the United States has the same problem. There are many causes, including what the Chancellor described as the new global economic challenge. Some people call that globalisation, some globalism and others global capitalism. However, goods and money can travel quickly and almost unhindered around the globe, and developing countries can speedily acquire technology, expertise and skills that in the past were the preserve of the western democratic countries.
  I recently tabled a question requesting from the Treasury the figures for the yield from import VAT in the past three years—the VAT charged on imported goods. The figures were quite surprising. For 2000–01 the yield was £17 billion. For the next year, 2001–02, the yield was £16.194 billion. For 2002–03 the yield was £15. 523 billion. I thought the figures might be the wrong way

  355
  round. Clearly, the reduction in yield cannot be due to the increase in the volume of imports. There probably has been an increase in the volume of imports—our trade deficit seems to imply that. The reduction in yield might be because of the strength of the pound. Over that period, the pound being relatively strong, the price of imports was reduced.
  I suggest that another reason may be the pressure of globalisation. Because countries, especially in the far east, are trying to acquire a greater share of the UK domestic market, they are prepared to reduce their prices, and in fact prices are lower. Of course, if the prices of imported goods go down, the amount of VAT at 17.5 per cent. also goes down.[Interruption.] Does the right hon. Member for Charnwood (Mr. Dorrell) wish to intervene?
  Mr. Dorrell: I am grateful to the right hon. Gentleman. I was simply saying—to myself, mainly—"What's wrong with that?"
  Denzil Davies: It is not a question of wrong or right. It is a statement of fairly clear fact that if prices go down—including the price of domestic goods, because if domestic manufacturers have to compete with lower-priced imported goods, they have to try to reduce their prices—that must reduce the yield from VAT, unless the volume is sufficient to carry that reduction and VAT stays at 17.5 per cent. That is not a great or a grand point, or even a philosophical point.
  Having been surprised by the answer to that question, I tried a similar question to the Inland Revenue in relation to yield from wages and income tax, but all I got was a reference to a website somewhere. I am not sure where the website is; I still cannot find it. I understand that if one looks at the yield from income tax over the past two or three years, and if one subtracts from that yield last year's increase in national insurance, the same phenomenon appears. Despite the growth in the economy, the yield from income tax is not as great as the Treasury hoped. That may well be putting pressure on public expenditure. Unless other taxes are found to make up for it, we are likely to have a greater deficit on the public accounts.
  It could be said that globalisation has the effect of depressing wages, and if wages are depressed, the income tax yield is depressed, and another tax or taxes will have to be found. If the House will bear with me, I shall give a constituency example that, in a minuscule way, reflects my argument. I have a car component factory in Llanelli. It has been there for a long time and is under pressure, as most car component factories are. It has had to announce the outsourcing—that is the vogue word—of some 90 jobs to eastern Europe or, probably, to Asia.
  We hope that we can save the jobs, but given the fairly buoyant state of the economy, I would expect—especially with the unemployment figures announced today—that a majority of those 90 workers will find other employment, possibly locally, if their jobs go. In my experience, the wages they will be paid in their new employment are likely to be lower than the wages that
  356
  they now receive from the car component factory. So again, presumably, they will pay a little less in income tax. For some of them, their wages may be driven down so far that if they are family men or women they may have to claim working tax credit, or top-ups as they are called on the other side of the Atlantic. That must involve some kind of public expenditure. If they do not get jobs at all, they will have to be paid jobseeker's allowance, unemployment benefit, or whatever income support is called these days. Again, on a small scale, because of outsourcing and the pressures of globalisation, wages are going down and, as a result, the yield from income tax is falling.
  Outsourcing in manufacturing is nothing new. We have seen it over the years. We are now seeing outsourcing in the service sector as well. It would be dishonest of me to pretend that there is an easy answer to the problems. I was surprised when my right hon. Friend the Secretary of State for Trade and Industry, and the Leader of the House, my right hon. Friend the Member for Neath (Mr. Hain), whose constituency is not far from mine, seemed to say that outsourcing was good for the British economy. Somehow, the argument is that outsourcing enables us to create better quality jobs. What is to stop those better quality jobs in turn being outsourced, I do not know. However, it seems to be the general view that outsourcing is good for the British economy.
  I have some candidates for outsourcing, but I shall not go through the whole list. I am sure there are some economic think-tanks around Whitehall that could easily be outsourced, to the benefit of the British economy. I am probably the only Member left in the House who does not believe that central bankers have contributed much to the lower rate of inflation. I believe that that has been caused by globalisation, which has driven down prices and interest rates. The Chancellor was rightly waxing lyrical about the amount of money saved because of debt interest. That has gone down because inflation has gone down. My view is that inflation has gone down towards the realms of deflation because of the global economy.
  Be that as it may, there are those of us who do not believe that central bankers have made much contribution. Perhaps we could outsource the Monetary Policy Committee. I am sure the Indians could do the job very well. They are good mathematicians, which means that they could probably be good economists, and they speak English well. We must be careful when we argue that outsourcing is good for the British economy.
  The economic and political establishments in Britain are united in the view that globalisation is a universal absolute good and that we must all worship at its altar. Curiously, in that most capitalist of countries, the United States, the view seems to be changing. I know one should not take the views of the United States from primary elections, but it is remarkable how much attention has been visited upon the problems of outsourcing in the primary presidential elections and, I suspect the same will be true in the presidential election in November. US politicians are clearly concerned about outsourcing. It is not just those at the bottom of the wage chain who are concerned. A poll published in The Wall Street Journal recently showed that most concern in the US at outsourcing was felt by people who

  357
  earned $100,000 or more every year. So outsourcing is gradually moving up the wage chain, and that will present a serious problem.
  The classical economic theorists in the United States, as in Britain, say that globalisation is an absolute good and we must not question it in any way. They give a number of reasons why it is good. First, they tell us that globalisation creates more jobs: it certainly has not so far in the United States, as far as I can see. There is a terrible scramble going on in the Bush Administration, aided by the most right-wing chairman of the Federal Reserve the United States has had for some time, with taxes being cut, a huge budget deficit and interest rates at I per cent.—in fact, if we take inflation into account, minus 1 per cent.; a huge effort is being made and no jobs, certainly in the private sector, are being created.
  People wonder why. The answer, of course, is that jobs are being created in China and various other places. When it is pointed out that the United States has an enormous trade deficit, the classical economists say, "Well, that's all right. It doesn't matter. The Chinese merely reinvest the money in Treasury paper and lend the money back to the United States, so that the United States can buy more goods from China." Fine. I remember the aftermath of the Yom Kippur war in 1972 or 1973 when all the money that was obtained by the Arab countries from selling oil at $70 a barrel, or whatever it was then, had to be reinvested in London and Washington because the Arabs did not have a currency. They do not have a country, therefore they do not have a currency. But the Chinese have a currency. Well, yes, only the Chinese currency, but one of these days the Chinese will reform their financial system. The Chinese currency will become a proper currency and the Chinese will then decide to use the money to buy their own currency or spend it within their own country, taking it away from Treasury assets. Again, the classical economic theory that somehow this huge trade deficit is good, eventually will not work.
  Finally, the economists say, "There is nothing new about globalisation, so what is all the fuss about? It is the 20th century that is the aberration." Of course there was globalisation before the first world war. Goods could move freely, perhaps even more freely than now; money could move freely; and certainly persons could move more freely—although not with the speed with which goods, persons and money move today. Yes, indeed there was globalisation before the first world war and for centuries previously, but the real difference is that that globalisation was our globalisation. Western countries were in charge of it. Western empires controlled it. When America became a strong country, America controlled it. The difference with today's globalisation is that it ain't ours. There are new kids on the block, and they are growing and learning fast. The biggest capitalist country on earth is now extremely worried.
  Was it Trotsky who said, "You cannot have socialism in one country"?[Interruption.] I am told by my hon. Friend the Member for Middlesbrough (Sir Stuart Bell) that it was Lenin. Perhaps we cannot have socialism in one country. We have globalisation, global capitalism, and the United States, the most capitalistic country of all. It will come to western Europe as well. The Liberals tell us that if we join the euro, somehow everything will
  358
  be fine and we will get all the investment into Europe. Europe has not started to feel the real pressures that come from globalisation.
  Alan Simpson(Lab): Would my right hon. Friend also acknowledge that one of the big changes in the last 20 years is in the nature of capital itself? Those of us who may have no particular affection for capitalism at least recognise that in previous eras the capital was either the ownership of land or of production, and in that context, the owners of that capital also identified themselves with the country that they were in. In the last 20 or 25 years, capital has become finance capital, moved offshore, and its owners have become uninterested in the countries in which they earn their moneys and reluctant to pay tax into anyone's economy.
  Denzil Davies: That is absolutely right, and the movement is much more rapid.
  To digress, I am reminded of something that I read some time ago about Karl Marx. Apparently, his mother, who was not a disciple of his theories, wrote to him and said, "Karl, you have talked a lot about capital. Why don't you now try to make some?" I apologise for that digression.
  My hon. Friend may be right, but there is now a challenge to western economies. We may not want to believe that, but we will have to look at the classical economic rules governing free trade and the movement of capital because at the end of day democratic Governments—we are seeing some of it in the United States—will have to protect the employment of their people, their electorate; they will have to try to preserve the tax base, which is becoming increasingly difficult; and they will also need to safeguard their public services.
  Most hon. Members will not agree with me, but during the past 10 or 15 years I have seen democratic Governments in Britain and elsewhere transferring power over the economy to so-called independent or semi-independent bodies—for example, monetary power to central bankers. Fiscal policy is very often entrenched in these rules, and I am glad that the Chancellor has managed to stay within his own golden rule; and we have the rules of international trade as well. With the pressure of globalisation, Governments will have to look at those rules again and, in the interests of their economies and their own electors, will have to do something about it.
  The best way to deal with the problem is to recognise it. Then, perhaps, we can come to some kind of mutual international arrangement where the benefits of free trade—because there are benefits—can be adapted and modified to preserve jobs, the tax base and our public services.
  2.56 pm
  Mr. Stephen Dorrell(Con): I begin by declaring an interest as a director and shareholder of a manufacturing business, which means that, as always, I listen with interest to what the Chancellor has to say in Budgets. I always listen to what the right hon. Member for Llanelli (Denzil Davies) has to say about globalisation, but on this occasion, if he will forgive me, I do not propose to follow him down that path.

  359
  Whenever a Chancellor speaks with such rapid-fire delivery as this Chancellor does for virtually an hour, there is always something in what he says that can be welcomed, so I should like to begin with that. Both sides of the House welcomed his announcements concerning the efficiency of the Government machine—the first fruits of the Gershon process. If I may say so, my right hon. and learned Friend the Leader of the Opposition is entitled to a share of the credit for that. It is an example of more effective opposition starting to put the Government on their mettle. The fact that my right hon. and learned Friend set up the David James process to shadow the Government's efficiency review is part of what good opposition is about, and I enjoy the fact that we can claim some credit for improving the Government's performance. I hope that the Chief Secretary will be gracious enough to welcome my welcome for the Chancellor's announcement.
  I do not think that even my right hon. and learned Friend would claim credit for another of the Chancellor's announcements, which I certainly welcome: that he accepts Kate Barker's recommendation that we establish real estate investment trusts in this country. Where that structure has been established elsewhere in the world it has a proven track record for making the property market more efficient and I warmly welcome the Chancellor's indication that we will go down that road. However, while I welcome that aspect of what Kate Barker had to say, I have much less time for some other aspects on which the Chancellor commented. He appeared to say—I hope that I am wrong—that he was attracted to the idea of regional housing plans as a way of enhancing house building and improving supply and demand in the housing market. If Kate Barker and the Chancellor are two people who think that regional housing plans will improve the efficiency of the housing market, I hope that there are not too many more, because the weight of experience is against the proposition that introducing yet another bureaucratic planning process into the housing market will improve the flow of land and houses on to the market.
  The idea that introducing a development land tax will improve the flow of development land on to the market goes to an even greater extent against the weight of experience, including that of the right hon. Member for Llanelli. It is a perfect example of not needing to look into the crystal ball, but simply reading the book. We have been there and had a development tax. It impeded the efficient operation of the development land market and I can envisage no arguments that would support a return to that policy. I therefore hope that the Chancellor's words on that subject were designed to kick the proposal firmly into the long grass.
  The Budget was extraordinary for several other reasons. It is the first time in my experience that a Chancellor, in announcing his stance on individual taxes for the following year, chose to say every time a tax was not changed that it was frozen, as if there were an expectation that tax rates would go up. Indeed, there is such an expectation and the Chancellor did nothing to knock it on the head. He appeared to want to claim credit for the fact that the majority of tax rates would not increase. He wanted us to cheer the fact that they
  360
  were, in his word, "frozen". It is not only because I am old fashioned that I prefer a world where it is assumed that tax rates do not change unless a Chancellor announces that they will, rather than one where it is assumed that they will change unless he announces that they are frozen.
  I do not believe that I exaggerate when I say that the Chancellor appeared to spend 20 minutes of his hour-long speech replying to a speech that my right hon. Friend the Member for West Dorset (Mr. Letwin) made two or three weeks ago. That is eloquent testimony to the extent to which the shadow Chancellor determines the terms of debate. The Chancellor devoted 20 minutes of a speech that lasted an hour to commenting on proposals that my right hon. Friend is solely responsible for putting on the table. I strnngly support those proposals.
  On previous occasions, the Chancellor has chosen, with great theatre, to dress in the clothing of productivity. Numerous initiatives of the sort that he dearly loves are announced, and we are asked to believe that they are designed to improve the productivity of the British economy. I am open to correction, but I do not remember the word "productivity" being used today. I shall explain why that omission may have been wise in the context of the Chancellor's policy package.
  Mr. Michael Jack(Con): Has my right hon. Friend noticed that the Chancellor is fond of fiddling with the economy at a micro level to achieve the objectives that he has just presented, but that we never have feedback about whether the initiatives have any measurable success?
  Mr. Dorrell: My right hon. Friend is right. Whenever the Chancellor announces periods within which his policies will be assessed, the timetable is always x plus one, where x equals the remaining years of the Parliament. My right hon. Friend is therefore right to point to the Chancellor's predilection for micro-fiddling. To be fair to the right hon. Gentleman, there was slightly less of that this year than in previous years, perhaps because he was trying to avert our eyes from productivity, to which I wish to revert.
  The central problem that faced the Chancellor in preparing the Budget—he did not ignore it, but spent much time trying to persuade us that it did not exist—was the sustainability of his budget deficit and borrowing requirement. He should have addressed that key issue when he prepared the Budget. He announced, with a great flourish, that borrowing for the year that is finishing will be, as he predicted in December, £37 billion. It is a commentary on our position that the Chancellor can say, almost with a sigh of relief, that this year's borrowing requirement is "only" £37 billion. It is worth remembering that, at the beginning of the Parliament, he was running a budget surplus of £16 billion and that, at the time of the previous election, he predicted for this year a budget deficit, through the operation of the normal stabilisers, of £10 billion.
  The prediction of a budget deficit of £10 billion for this year has been revised repeatedly—I shall not weary hon. Members with an account of every occasion when it has been revised—until it reached £37 billion, which is the outcome in the last month of the year. Against the

  361
  background of that track record, the central message of the Chancellor's Budget was that the borrowing was okay and we did not need to worry about it. I shall revert to that judgment shortly.
  The Chancellor tried to substantiate his assertion that the borrowing was okay by saying that, in the current cycle, the borrowing requirement satisfied his golden rule. I am prepared to believe that that is broadly arithmetically true within the margins of error. However, the analysis ignores a sharply deteriorating trend through the life of the cycle. If the golden rule is fulfilled in the cycle, it will be only through surpluses that were built up at its beginning and resulted from the spending plans that the Chancellor inherited from the previous Conservative Government and did not change. The Chief Secretary shakes his head, yet he is responsible for controlling—or failing to control—public expenditure.
  The deteriorating trend in public finances has been corrected throughout the cycle's lifetime. I shall repeat figures about which the Chief Secretary should go to bed worrying. In the Parliament, on the Chancellor's projections, gross domestic product will increase by approximately 25 per cent. and total managed expenditure will rise by 33 per cent. One does not need a degree in mathematics or economics to work out that a trend over five years whereby growth increases by 25 per cent. and managed expenditure rises by 33 per cent. is not sustainable. That is why the Chancellor has a problem when he tries to persuade us that borrowing is under control.
  The right hon. Gentleman's answer is that he can sell gilts and finance the debt throughout the lifetime of the Parliament. I agree—there is no obvious problem with the ability to finance the debt in the short term. However, he said two more things with which I fundamentally disagree. First, he said that we should not worry if the borrowing is required to pay for investment—"investment" is a much loved word of the Chancellor's. Unlike "productivity", "investment" appears repeatedly in today's Budget, as it does in all his other speeches. It refers to a variety of expenditure. The Chancellor is fond of saying that he will invest in health or education. While we can all understand the desire to make expenditure on those objects a priority, making something a priority is not the same as properly defining money spent on it as investment. The Chancellor appears to believe that as long as he attaches the label "investment" to a particular spending proposal, that in itself will make it financeable, as debt-financed expenditure that can be outside the operation of the golden rule.
  A further inadequacy of that principle is that merely saying that something is investment, even if it is properly described as such in economic terms, is not the same as saying that it is good investment. For example, we have seen substantial sums of money put into the transport infrastructure, with sharply declining rates of return. We must ask whether that investment policy aids or undermines the Chancellor's oft-stated—although not today—commitment to productivity. His desire, expressed in good faith on other occasions, to see the productivity of the British economy improve is not
  362
  assisted by an approach to investment that simply says that if an item of expenditure is investment, it is all right and we can afford to borrow to finance it.
  The Chancellor also said of his current borrowing requirements that no tax increases will be required to finance them, either now or in the future. I have to say that I, in common with most observers, regard that as simply implausible. The Chancellor came quite close to arguing that it was implausible, saying more than once that he had a Budget choice to make: whether he, as Chancellor, should use his judgment to reduce expenditure, to trim his spending plans, to trim borrowing or to cut tax. That was how he saw the choice. That is very close to saying that unless he does one of those things, some time beyond the next election there will be tax increases round the corner. As my right hon. and learned Friend the Leader of the Opposition made clear in his speech, there is no need to look into a crystal ball because we have been here before and can read the book. In the same way as before the 1997 and 2001 elections, the spending plans cannot be supported without tax increases.
  In the Budget, the Chancellor is averting his eyes from his commitment to productivity enhancement and from an emerging deficit problem, on the basis of what he hopes to be able to do after the next election. Without having to face up to difficult spending decisions—the Chief Secretary would clearly prefer not to address those with his colleagues, or disappoint their possible expectations—the Chancellor hopes that it will be possible to resolve all the problems after the next election with another round of tax increases. I believe that there is a near certainty of tax increases from a re-elected Labour Government.
  I have mentioned the effect of the Chancellor's stance on productivity. My right hon. Friend the Member for Fylde (Mr. Jack) who, like the rest of us on this Bench—my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) and I—is a former Financial Secretary to the Treasury, referred to the Chancellor's long track record of obsessive micro-regulation of the economy. That has the effect of imposing costs on the economy. One of the great deceptions of being a Minister is to believe that we can require other people to do things, and that that is free. It is too easy to think that, because we in the Treasury, or in our Department, do not have to pick up the tab and are obscured from any resource implications, we can therefore make a decision without having to find the resources with which to implement it. In fact, regulation costs money. It imposes a cost, and unless it enhances output it also imposes reduced productivity on people elsewhere in the economy.
  This Chancellor has a track record, over the whole of his chancellorship, of imposing extra costs—as have the Government more generally. Many of those costs are not huge but, as my right hon. Friend the Member for Hitchin and Harpenden stressed, incrementally over a long period they have the effect of increasing the cost burden, and so reducing the productivity, of the private sector of the economy. Despite the fact that the Chancellor enjoys talking about being the productivity Chancellor, he has on previous occasions marched resolutely in the wrong direction on that matter. Today he had an opportunity to start to reverse that trend, but he did not take it where the private sector is concerned.

  363
  I see that the Chief Secretary is holding up one page of the Budget—[Interruption.] Perhaps it is 30 pages, but that is out of several hundred published today. I suspect that that is simply another lot of micro-regulation that the Chancellor neglected to report to the House when giving his Budget speech.
  If it is true for the private sector that the Government's record on securing output for their expenditure input is truly appalling, it is true in spades for the public sector. A core criticism that will be made of the Chancellor's tenure—as I said in an intervention that my right hon. Friend the Member for Hitchin and Harpenden was gracious enough to take—is that although he has unleashed barrel-loads of money on key public services, the priority of which is not in dispute between the two sides of the House, he has totally forgotten about the conditionality that he said at the beginning of this phase of his Chancellorship would be a precondition to that money's being made available.
  My right hon. Friend the Member for Hitchin and Harpenden gave some telling figures for the national health service, which I myself had noted down to cite. A 37 per cent. increase in expenditure on the NHS since 1999 has produced an increase of a fraction under 5 per cent. in the number of completed consultant episodes. Despite that huge increase in expenditure, average mean or median waiting times in the NHS have been extended. I shall not spend a long time talking about the NHS today, but a key reason for those problems—quite apart from the cost and salary issues in the service itself—is the Government's unwillingness to face up to the crisis in the residential care sector, which is backing up into hospitals and manifesting itself in the NHS as blocked beds. There are 13 per cent. fewer beds for residential care of the elderly available in the UK today than there were in 1997. We do not need detailed knowledge of that subject to know that demand is rising for that aspect of care. However, under the Government's watch, the availability of such care has been reduced by 13 per cent.
  Those examples are aspects of a much bigger problem with the efficiency of public sector operations. The inefficient use of money in the public sector is a problem in itself, because it undermines the quality of services. It is also a problem for the wider economy, because it ties up in the inefficient delivery of core public services—whose importance we all understand—resources that could otherwise be used to assist the general productivity of the economy and deliver improved living standards to all.
  That is why the shadow Chancellor, in the speech that the Chancellor took 20 minutes to reply to today, stressed that the Conservative priority is now to ensure that, in the core public services of schools and the NHS, we provide space and political support for the reform that the Prime Minister and the Chancellor say they recognise is needed but for which they have lost the political will. The reality is that the Government will not deliver world-class public services. Furthermore, by failing to do so, they will undermine the productivity of our wider economy. They will go on doing that until they address the need for real reform and real productivity enhancement within the public services.
  364
  The central message of this Budget is that Labour will deliver more spending. The Chancellor made that crystal clear. That is lesson one. Lesson two is that Labour has lost interest in reform. There are two consequences of that: more tax and poor public services. I am pleased to say that my party is now starting to evolve a real alternative, which involves real reform and, critically, better-funded public services. We offer better public services and an end to Labour tax increases, and that will come not a moment too soon.
  3.21 pm
  Sir Stuart Bell(Lab): I welcome the opportunity to participate in this debate and to follow the right hon. Member for Charnwood (Mr. Dorrell). I listened to his speech with great interest. As he said, we have among us today a number of former Financial Secretaries—talk about yesterday's men from yesterday's century! We have the hon. Members for Sevenoaks (Mr. Fallon), for Sutton Coldfield (Mr. Mitchell), for North-West Norfolk (Mr. Bellingham) and for West Derbyshire (Mr. McLoughlin), and the right hon. Member for Fylde (Mr. Jack). Of course, I exempt from the term "yesterday's men" my right hon. Friend the Member for Llanelli (Denzil Davies).
  Interesting though the speech of the right hon. Member for Charnwood was, he was a little curmudgeonly in his summary. When he mentioned the surplus that we had of about £16 billion, which is now a deficit of £37 billion, the Chief Secretary reminded him that in 1997 the Conservatives left us with a £51 billion deficit, which reminded me of Joseph and his coat of many colours. I think that it is perfectly legitimate for the Second Church Estates Commissioner to refer to that. Joseph interpreted the dream of the pharaoh, who had dreamt of seven fat cows and seven lean cows. Joseph told him that that meant that we have seven prosperous years, when the economic cycle is in our favour, and seven lean years when the economic cycle turns the other way, and that we must save in the good years for the bad years. The fact that the Chancellor of the Exchequer had a £16 billion surplus and that we are now able, as a nation, to live quite comfortably with a £37 billion deficit within the framework of the Budget is something that I shall be happy to delineate later.
  Mr. Jack: Does the hon. Gentleman acknowledge that, by the time the 1997 general election came round, the controls that we had imposed on public expenditure were biting, that tax receipts were rising and that our monetary policy—as witnessed after the first year of the Labour Government—enabled the United Kingdom to hit its inflation target spot on?
  Sir Stuart Bell: I remind the right hon. Gentleman that the Chancellor of the Exchequer at the time of that election stated that he had laid a series of elephant traps for the future Labour Government. That is precisely what he did with his toughening of public expenditure. Many Labour Members regretted that we stayed with that framework, as it did not help the economy. What did help the economy, by reducing the inflation rate, was the independence of the Bank of England, which the present Chancellor brought about.
  The right hon. Member for Charnwood made a good point about freezing tax rates, but we know what the Conservatives are building up to at the next general

  365
  election. It was Franklin D. Roosevelt who said, "We have nothing to fear but fear itself", and the Conservative Opposition are going to try to terrify the British public by telling them that the Labour Government have hidden tax proposals and that there will be a price to pay. I remind the right hon. Gentleman of two promises. The first was made by the then Conservative Opposition before the general election in 1979, when they said that they would not increase VAT. After the election, it went up from 8 per cent. to 15 per cent. The present Prime Minister made the second promise when he was Leader of the Opposition, and it was that a Labour Government would not increase direct taxes. In their seven years in office, our Government have not done so.
  Mr. Dorrell: What about national insurance?
  Sir Stuart Bell: I am always grateful for a sedentary intervention. I was Parliamentary Private Secretary to Lord Hattersley when he was deputy Leader of the Opposition. We cleverly put a question to the former Prime Minister, Lady Thatcher, to ask whether there was a difference between national insurance contributions and taxation, and of course she said no. I give the same response to the right hon. Gentleman.
  Mr. Dorrell: The hon. Gentleman is citing no less a person than the former Prime Minister, Lady Thatcher, to confirm that he was wrong to say that there had been no increase in direct taxation.
  Sir Stuart Bell: Lady Thatcher made the point, and I am not going to try to contradict what she said in her years of office.
  I shall turn to the speech made by my right hon. Friend the Member for Llanelli, who has quietly left the Chamber. That is one of the facts of life in this place. He stated that Leon Trotsky had said that socialism was not for one country but for all, and I pointed out that actually Vladimir Ilyich Lenin had said that. I am sure that someone out there in the country who reads Hansard will write to me, giving me chapter and verse and referring me to the precise page on which Leon Trotsky made that statement. Anyway, it was part of the communist dogma at the time that communism—rather than socialism—was universal and should be exported. I have to say with some regret that it was exported, which created misery and havoc for some 80 years. That is not to say that communism and enlightened socialism are the same thing—they are not.
  My right hon. Friend the Member for Llanelli mentioned the pressures of globalisation, but that part of his speech was more fitting to the last century than to this one. However we look at the world economy, globalisation is here to stay. The Chancellor's speech addressed that fact by addressing the challenges in relation to monetary and fiscal policy priorities. I was interested that the right hon. Member for Charnwood referred to Aneurin Bevan and the crystal ball. Aneurin Bevan also said that the language of socialism was the language of priorities, and today we have seen the Chancellor prioritising education and health in the interest of our country and of trying to steer our economy in the right direction to deal with the globalised threats and challenges that we face.
  366
  I am glad that the right hon. Member for Hitchin and Harpenden (Mr. Lilley) is still with us. He will remember, as a former Secretary of State, that we had many an intelligent debate, especially on a Friday, on economic matters, when I was on the Opposition Benches and he sat over here. I enjoyed those debates and I enjoyed his speech today. He made an important statement when he said that short-term decisions do not create the right climate for the economy; that is achieved through long-term decisions all coming together. He was right about that. He was also right to say that delivery is a matter for politicians, statesmen and Ministers, because policy and delivery are not necessarily the same thing. He recognised the fact that the delivery of a policy can take some time, and we have to recognise it as well.
  I know that the right hon. Gentleman has a house in France. I congratulate him on that, as someone who lived there for 20 years. I admire his taste; to live in France is an excellent thing to do. Some of his comments about France, however, did not reflect my understanding of the French economy. He talked about the growth gap, but France has lower growth than we have.
  He talked about VAT, which is 19.5 per cent. in France. He also talked about employment, social charges and the tax burden. Employers in France tell me that for every 100 they pay to a salaried worker, there are 46 of social charges, so 46 per cent. is added to the wage bill because of France's health, social insurance and taxation structure.
  Mr. Lilley: I am grateful to the hon. Gentleman for giving way and, in the spirit of constructive debate in which he is speaking, may I make it clear that I was not speaking about the performance of France? I was referring to the average of all other countries on the continent relative to us. I suggested not that France is superior to us, but that it is moving in the right direction—in due course, that will have beneficial effects on its poor performance—while we are moving in the wrong direction, which will damage our good performance. I hope that I have made things clearer, if I did not make them clear before.
  Sir Stuart Bell: I am grateful for the right hon. Gentleman's intervention. He is right in the sense that France is seeking to move in a particular direction. He mentions the average of all the various figures, but the fact is that growth rates in France are lower, unemployment is higher and it has severe administrative burdens and severe problems. All of France's scientists have decided to go on strike because there is not enough funding for them, and every day French newspapers report mayhem somewhere or other. Although I might be a Francophile, I am not enthusiastic about comparing the French economy with ours.
  The right hon. Gentleman mentioned a report by the Organisation for Economic Co-operation and Development, which I am happy to look at, but he is wrong to say that Government investment over seven years has not yielded any improvement in public services. He also spoke of perception over reality. The other day, I visited the James Cook university hospital in my constituency, where waiting lists are coming down. We are also tackling the question of illness and disease in the hospital.

  367
  The right hon. Gentleman referred to a point made by my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt). We have to make this point, which I remember well: a Conservative Government began to dismantle hospital cleaning services and introduced contracting out. Whether it was right to do those things or not, the fact is that they began at that time. If I may say so, the problems that we face relate, with some longitude and latitude, to the past.
  I would not want to make a political point—not even to encourage my right hon. and hon. Friends—but listening to the debate and the speech of the Leader of the Opposition I realised that the Conservative party is not yet a party of the 21st century. It still has not come to terms with the global economy, the changed nature of our society or the view, which my right hon. Friend the Chancellor expounded, that monetary and fiscal policy must be brought together.
  The Conservatives see things in isolation, not in the round, and they seem to denigrate the fact that we have placed so much emphasis on education. Again, I come back to my constituency. My hon. Friend the Member for Middlesbrough, South and Cleveland, East (Dr. Kumar) referred to the Prime Minister's visit to his constituency 10 days ago to open a city academy. The Prime Minister also came to my constituency to open a new wing of the university. When I was our parliamentary candidate in Middlesbrough in 1983, we could not even get 6,000 students at our polytechnic. We now have about 21,000 students at our university. The centre of our town has been changed. We have a town campus with the university at the centre of it all.
  When I visit the schools in my constituency, I see the computer equipment that they have, the money that they have been given—directly by our Government—and the improvements in standards. I would say that the quality of life has changed in my constituency and there is an improvement in public services. We cannot use what I call the wildebeest theory: in Africa, a herd of 100 wildebeest run towards the river, but two decide to skip off and are eaten by lions. We cannot spend our time, rather than praising our public services, taking the isolated case of a trolley in a corridor and saying, "That is our health service." That is not our health service.
  We must consider the question of choice, which was mentioned by the right hon. Member for Hitchin and Harpenden. My hospital in Middlesbrough is now one of the finest heart centres in the country and we have patients coming from Newcastle. Early on in my time, patients went from Middlesbrough to Newcastle for heart operations. People come the other way now; they have choice.
  We now have a spinal unit in our town, which is the centre for the whole north-east, so there is choice in our health service. We are not complaining about the health service—I have never met anyone in my constituency who has left hospital complaining.
  I also want to refer to lifting aspirations. There is not only a concrete improvement in the services, hospitals and education system in our town, but a lifting of aspiration. People in my constituency think that they can achieve things—it can be done. That is one of the lasting gifts of our Labour Government. The hon.
  368
  Member for Twickenham (Dr. Cable), who spoke for the Liberals, claimed that the euro is the most important aspect of our economy. I am a great fan of the European single currency. I believe that we should join and that we will do so at some point, but, as St. Francis said, "Make me pure, but not yet."
  Mr. Lilley: It was St. Augustine.
  Sir Stuart Bell:I am grateful to the right hon. Gentleman.Hansard may have had me wrong had it not been for that correction. I say, yes, we should join the single currency, but of course we should wait until the conditions are right. When they are right, it will be appropriate to join.
  My right hon. Friend the Chancellor went to great lengths today to talk about stability and growth. He brought stability and growth together. Japan had stability for many years, but no growth. There can be stability without growth, but my right hon. Friend is saying that we can bring the two together, as one. That is part of his long-term plan.
  One thing that strikes me about my right hon. Friend is that he has a vision. When I used to go to Sunday school, a Methodist preacher would stand up—my right hon. Friend the Chief Secretary will understand this with his religious background—and say, "Where are the men of vision?" Well, there was a man of vision at the Dispatch Box today.
  My right hon. Friend the Chancellor has a vision for the global economy, stability, growth and priorities such as health and education. His vision means that he will not freeze, to use the word employed by the right hon. Member for Charnwood, the increase in expenditure on these important matters. The Budget is excellent, and I say that modestly, non-politically and objectively as one who follows the global economy and the changes that are necessary.
  You will not believe this, Madam Deputy Speaker, although possibly you will, but I am on my feet as Second Church Estates Commissioner. Today, the Chancellor extended the listed places of worship grants scheme until 2006. He knows, as does the House, that the Church has had many discussions on a permanent arrangement for reducing VAT on church repairs. Those have involved the Economic Secretary, my right hon. Friend the Chancellor himself and Mr. Frits Bolkestein, the European Commissioner in charge of VAT affairs.
  The Church of England VAT group, and, ecumenically, the Churches Main Committee under the chairmanship of the Bishop of Derby have been persistent in keeping the issue at the forefront of economic and national debate, for which I thank them. Parishes have also campaigned vigorously. Right hon. and hon. Members have been particularly assiduous, and I am particularly grateful to the hon. Member for Vale of York (Miss McIntosh) for keeping this flame burning.
  In his Budget of 2000, the Chancellor graciously introduced a grants scheme that reduced VAT on church repairs to listed buildings from 17.5 per cent. to 5 per cent. Today, he extended the scheme, in terms not only of time but of money. VAT has effectively been reduced to zero per cent., which is welcome news for

  369
  those within the Church who are seeking to restore listed places of worship. I urge parish churches to come forward with their schemes so that the Chancellor's new arrangements can be fully taken up.
  As the House knows, our churches play an inherent part in our national life and in our communities. They support charity work and their influence may be found in national and local government and in industry. Our church services, of whatever religion, are not an adjunct to reading the Sunday newspapers or watching football on television. Religion is not an oddity within society in the face of what is now becoming an aggressive and belligerent secularity. It is a deep and abiding influence throughout national life.
  It is, of course, not possible to anticipate a time when all church repairs will be completed—the painting and repainting of the Forth bridge is as nothing compared with the consistent work in upholding our national heritage. Even the best materials will need to be replaced over time. With 13,000 listed churches within the Church of England, and some 20,000 listed churches in total, the cycle of repair and renewal will be ongoing, but will be greatly aided by the Chancellor's announcement today.
  To put the scale of repair in perspective, parochial returns show that the Church of England spent £86 million on major repairs in 2001. A report has identified a repair need of some £110 million per annum. Given the scale of the problem, the Church greatly appreciates the fact that the Chancellor has not looked on the grants scheme solely in financial terms, but has understood its importance to our national heritage and our national life. The scheme offers congregations, all of whom depend on their own voluntary organisational and fundraising abilities, a much-needed incentive to carry out works and repairs in a way that benefits those who regularly visit churches. We are thankful for the Chancellor's statement today. It is a great gift to the Church and a great act of generosity on his part. The extension of the scheme is, as he declared, in the national as well as the Church interest and it is welcomed and appreciated within the Church of England and other Churches.
  3.42 pm
  Mr. Michael Jack: Listening to the hon. Member for Middlesbrough (Sir Stuart Bell), I thought that he was about to rewrite the first line of a well-known hymn to read, "All things Brown and beautiful". I share his delight at the announcement on VAT changes in respect of church refurbishment. I look with renewed optimism at the prospect that the refurbishment of St. John's in Lytham, which I attend at 8 o'clock on Sunday mornings, will eventually benefit from that.
  I and my right hon. and hon. Friends have clocked up many Budgets, and having sat though a Budget speech, it is an interesting first challenge to say, "Well, what did you think of it?" Some Budgets are full of whiz-bang excitement. Everybody charges out to the media to make great statements about how the world will be a much better place because the Chancellor has done X, Y and Z. I do not think that there are any fireworks in this Budget. In fact, the Chancellor made a virtue out of announcing little by way of significant change in how
  370
  the UK tax structure will operate. He seemed, however, to complete the public expenditure round in allocating at least half the money to health, education and defence. If those are the beneficiaries, I would not like to be in the Departments that remain to have their moneys allocated.
  I suspect that this Budget will be seen as a bit like one of those Chinese meals in which one seems to get an awful lot, but the next day one wakes up and cannot quite remember what one ate the night before. The Chancellor's speech required a lot of padding to reach an hour in length. In terms of novelty and benefit for the British economy, however, the message was simply, "Steady as we go." It is interesting to couple one of the answers that the Prime Minister gave to a question from my right hon. and learned Friend the Leader of the Opposition in Prime Minister's Question Time with the words uttered by the Chancellor.
  The Prime Minister went on at length to point out that he remained pledged effectively to no change in the main marginal rates of our tax system. We now know that the main standard rate of tax will not be changed, and indeed the higher rate will not be changed. That rules out any changes in personal taxes. I am sure that Treasury Ministers will be only too happy to say that they want to run a competitive corporation and company tax system, so another possibility is ruled out. I therefore conclude that when the Chancellor must look for new resources—as is inevitable, for reasons that I will explain shortly—it is likely that other taxes will be raised in due course, or alternatively that new taxes will be devised.
  None of that should surprise us. Over the period covered by the "Financial Statement and Budget Report", tax receipts again constitute a rising share of gross domestic product. The share increases from the 2002–03 outturn figure of 35.6 per cent. of GDP to the figure projected for 2008–09 of 38.3 per cent. We can safely say that the tax burden under Labour is increasing. To an extent, that too is not surprising. As others have pointed out, there is a fragility in the receipts structure faced by the Chancellor. The right hon. Member for Llanelli (Denzil Davies) put his finger on it when he drew attention to leaks in both VAT and, as we know, other revenue receipts. They have made it more difficult for the Chancellor to generate the extra moneys that he needs to sustain his substantial and ambitious spending programmes.
  I question the assumptions that underpin some of the numbers in the Red Book. We are consistently told that those numbers are the subject of National Audit Office scrutiny and audit. I shall choose just one year's statistics from the various publications produced by the Treasury over the past couple of years—the projections made in "Budget 2002" for the financial year 2004–05, on which we are about to embark. On the basis of all the auditing assumptions, net borrowing was projected at £13 billion. The same auditing exercise meant that in "Budget 2003" the figure for the same year had risen to £24 billion. The document published today shows that the same exercise—the same validation of the Chancellor's assumptions, numbers and calculations—has raised the figure to £31 billion.

  371
  I begin to question whether the exercise of validation is actually capable of producing valid numbers. As Treasury Ministers know, a certain amount of horse trading is inevitably involved in the construction of a Budget. A Chancellor may well be audited for some of his assumptions, but it is clear that his judgments are still down to him.
  In the context of accurate data to justify what the Chancellor has presented to us, the figures that I have taken from past Red Books and the pre-Budget report bring the validity of the numbers that he gave into sharp focus. If receipts are fragile, as evidence suggests they are, the time has come for the Treasury to be a deal more transparent in publishing the models and methodology according to which they calculate the UK's tax receipts. It is very happy to put the Treasury model into the public domain, as has been the practice of Governments for some time, so that people can understand how the economy in total works; but when pressed Treasury Ministers say, "It has not been published before, and we do not need to publish it." There is now a case for publication of the data and modelling that determine our tax receipts. If we are to be able to track the progress of the economy, that is the kind of detail that we need.
  I welcome some elements of the Budget. I am glad that the Chancellor is going to study possible sources of inflationary pressure. He is right to concentrate on that and ensure that, when problems can be predicted, action is taken to tackle them.
  I also welcome the change in venture capital trusts, which have been the Cinderella of new investment, and I am pleased that the Chancellor has given a boost to investment in small and medium-sized companies through that mechanism.
  To return to tax, while the Chancellor was at pains to stress the areas that he was freezing, he tried to make a great virtue of the fact that he was raising the inheritance tax threshold to £263,000. It is little wonder that people spend so much money trying to find legitimate schemes to avoid paying inheritance tax when they realise that, in many cases, their single biggest asset—their domestic residence—is likely to be heavily taxed. Those houses have been bought and paid for out of earned income, and many people have an innate wish to leave something to the next generation. Inheritance tax threatens that, and I personally believe that it has had its time and should go, especially if 95 per cent. of estates, as the Chancellor says, are not affected by it. There may be characteristics of the other estates that could be taxed in other ways, leaving the 95 per cent. to pass on the wealth without having to find ways of avoiding inheritance tax.
  Rob Marris: The right hon. Gentleman has just suggested that the Government forgo a considerable source of revenue. He and his colleagues have suggested that the Government do not have enough revenue, so will he say how much the abolition of inheritance tax would cost in the next financial year?
  Mr. Jack: I apologise for not having declared my business interests as a company director at the outset—the omission was a discourtesy, but I now correct it on the record.
  372
  In response to the hon. Gentleman's question, I have the luxury of being able to say what I would like to see. If I had access to the data that I used to have as a Treasury Minister, I might well be able to give him chapter and verse on how the missing billions could be made up, but there comes a time when we have to look at taxes in principle and see whether they are still doing the job that they were designed to do. Inheritance tax was brought in when we did not have the current range of taxes on income, investments and other resources. I would not dispute that the £4.5 billion involved is a significant sum, but it is not so significant that it could not be recovered by some other mechanism. That is my personal view. It does not bind my party, which has its own views.
  Rob Marris: I believe that the figure for the forgone taxation for next year would be £2.8 billion, which is a considerable sum. It is no good the right hon. Gentleman just saying, "Well, I'm in opposition, so I needn't make any positive proposals." That does not help public debate.
  Mr. Jack: With great respect, that is not what I said. I said that I had the luxury of being able to give a personal view.[Interruption.] My right hon. Friend the Member for Charnwood (Mr. Dorrell) informs me that inheritance tax amounted to £2.5 billion, which is less than I had thought. Given the resources that I formerly had, I am sure that I could find ways of recovering some of that money.
  The Chancellor, who was seduced by the film luvvies, has now realised what a waste of money it was to plough resources into film finance, and he is now having to change and restrict the mechanisms. He probably blew far more on one year's profligacy on the film industry than my modest change, which would be of great benefit to so many people with modest means, would cost. He tried to make a virtue of those changes, but it was he who created the problem in the first place.
  The Chancellor said that he hoped to recover some of the missing tax billions through new anti-avoidance procedures. But with due respect to him and the Paymaster General—she is in her place on the Front Bench—part of the reason why people have such fun with the tax system devising complex avoidance schemes is that the tax law itself has not been written well enough, or with sufficient perceptiveness in terms of what the real world would make of such proposals.
  It is all right asking people to self-report to the Treasury any new tax avoidance scheme, so that the Inland Revenue can immediately leap into action and close tax loopholes, but the Revenue and the Treasury would be better advised to use some resources to carry on with the tax law rewrite exercise and expand its scope and scale. Plain English could thus be employed as rapidly as possible on the rest of the tax code so that people could with greater clarity understand the vulnerabilities of the tax system and rules that in many cases were devised for a world different from today's financial and accounting regime. Avoidance exists only because people look at the wording of the tax statute and take a view of its applicability that differs from that of the original authors, whose words we enshrine into law yearly through the Finance Bill.

  373
  One intriguing thing about the process of closing tax loopholes, as described in the Inland Revenue's press notice 5, is that there is absolutely no prediction or measurement of effectiveness. No target is set and we have no idea what the successes will be. Having listened to the Inland Revenue when I was in the Treasury, I know that its major company inspection exercises reveal threats to the tax system. Very large sums of money are presented to the Minister with responsibility for the tax system with a view to protecting it, and measures are introduced. But if the Chancellor is investing a great deal in avoidance, he will already know what kind of avoidance schemes have been discovered. There is no mention of how much money has been identified by the work to date, and there is no target for the future. I am beginning to think that this is a last-ditch pre-Budget effort to say, "I am shoring up tax revenues, but I am not quite certain what kind of fishing expedition I am on."
  Mr. David Laws: In fact, the right hon. Gentleman is being kind to the Chancellor. The largest item of tax avoidance that the Chancellor has identified is the loophole that he himself opened two years ago when he introduced a 0 per cent. corporation tax rate, which caused so many businesses to incorporate. By closing that loophole, he will take £850 million of yield over the next three years.
  Mr. Jack: I am most grateful to the hon. Gentleman for reinforcing my argument. Perhaps this lack of awareness of what is going on in the real world of tax accounts for the figures in table C of the Red Book, which is entitled, "Changes in current receipts by tax since Budget 2003 and the 2003 Pre-Budget Report". The table shows that net taxes and social security contributions for 2003–04 are down by £4.7 billion, and down by £5.5 billion for 2004–05. There is a haemorrhaging of tax receipts, which, for the reasons that I gave earlier, brings into question the validity of the receipts line in today's Red Book. By definition, that also brings into question the amount of borrowing that the Government have put before the House today.
  My right hon. Friend the Member for Charnwood challenged the Chief Secretary to the Treasury by saying that "productivity", like "prudence" and "savings", was a word that seemed to be absent from the Chancellor's speech. I do not know which table the Chief Secretary subsequently waved at my right hon. Friend, but I draw his attention to box 3.1, on page 49 of the Red Book, which points out the historical problem of productivity in the United Kingdom. It confirms that
  "workers in the US are still just under 30 per cent more productive than UK workers."
  It goes on to point out that, although there was a little growth in productivity in this country between 1997 and 2001, we are still struggling. That is despite the fact that the Chancellor has made a huge virtue out of all the micro-measures—fiddling in the general activity of the economy—that he has taken to deal with productivity. I believe that there is severe doubt about whether the current Budget proposals will have any measurable effect on the serious problem of productivity and performance in this country.
  Mr. Plaskitt: The right hon. Gentleman cites box 3.1 in the Red Book, so why does he not quote what is stated above the table—that the new data show
  "that since 1997, UK productivity has grown faster than its main competitors."?
  Mr. Jack: That intervention shows that it may have grown faster, but my God it is still lagging behind and still has a lot of running to do to catch up. It is the trick of statistics. A really good position on percentage increases will depend on how low the base that a country starts from is. I am surprised that the hon. Gentleman quotes that figure, when the long-term data show that, since the Government came into office, despite all their protestations, they have done little properly to deal with the problem of productivity.
  I shall now move on to environmental taxes. I must say how disappointed I am that in this Budget the Chancellor has sustained the duty reduction on biodiesel at 20p per litre. I suggested after last year's Budget—and, indeed, in debates over the Finance Bill and during the course of the Environment, Food and Rural Affairs Committee inquiry into biofuels—a wholly cost-free method whereby the Treasury could have its cake and eat it. Users could pay the increased costs of the biofuels and the Treasury would not be troubled to increase the dispensation on duty to the 30p currently required by the industry. If we simply applied the principles of the renewables obligation from the field of electricity to biofuels, we could have our incorporation at between 2 and 5 per cent. and meet the European target with no cost to the Treasury—yet the way of achieving that has not even been acknowledged. If we are serious about CO2 reductions, that matter must be attended to.
  The Chancellor made great play in the Budget speech of his efforts to reduce the size of the civil service. In due course, I hope that more details will be published, particularly regarding parts of the world outside London, where there is also a high dependency on civil service work. In that context, I think particularly of my part of the north-west of England. We are now well into the second term of a Labour Government, who have to employ outside people to identify the waste that sheer profligacy and expenditure on public services actually causes. That shows the lack of careful monitoring of how public moneys have been used. The public will view what the Chancellor said with a degree of scepticism. They know that, since the Government came to power, the average household has had to pay an additional £5,000 in tax burden. Some of that money has simply been squandered in additional waste by Departments, which now have to be cleaned up by the so-called Gershon inquiry.
  I want to conclude my remarks with two points: one about expenditure, the other about savings. On expenditure, I was pleased to hear the Chancellor say that the defence budget would not be the subject of cuts. If he really wants to contribute to manufacturing industry in the north-west of England, will he ensure that his defence colleagues come to a conclusion quickly on the second tranche of the Eurofighter Typhoon? About 40,000 aerospace jobs depend on that order being concluded. The Government say that they want the aircraft and that they remain committed to the 232 Eurofighter Typhoons, so will they kindly make their minds up, sign up and get on with buying them?

  375
  I conclude with some observations on savings. The Chancellor did not touch on that area of economic policy. As has been mentioned, the savings ratio has effectively halved, having from fallen from 10 to roughly 5 per cent. under this Government. Personal savings have been bashed as a result of the failure of endowment policies, the ending of tax credits and personal equity plans and the cuts in benefits from individual savings accounts that will soon come in. What on earth is the Government's savings policy?
  The new children's tax fund announced by the Chancellor may be a gain, but it does not address the need to help and encourage people to save in the way that the Government believe to be necessary. For example, endowment policies have failed to deliver the funds needed to pay off mortgages. So far, in the wake of the Penrose report, the Government have turned their face against compensation. Surely, the Government should have used the tax system to encourage people to save for all the contingencies that they face? Instead, they have done nothing. That is a dereliction of duty by the Chancellor, who has missed a Budget opportunity.
  Opposition Members have pointed out the good bits and the bad bits in the Budget. The Chancellor has much to do to make credible the numbers that he has put forward today. One certainty is that new and increased tax revenues will have to be found somewhere if the Chancellor is to meet his spending obligations.
  4.6 pm
  Mr. Barry Gardiner: I want to share two secrets with the House. The first is what my hon. Friend the Member for Nuneaton (Mr. Olner) told me earlier. Since he gave up smoking, he said, Budget debates have not been as exciting as they used to be. I suspect that even he, though, did not anticipate the effect of the response to the Budget by the Leader of the Opposition, because my second secret is that the Home Secretary's dog aroused severe mirth among the occupants of the Treasury Bench. Opposition Members did not understand why there was so much laughter, but what happened was that, while the right hon. and learned Member for Folkestone and Hythe (Mr. Howard) was speaking, the dog groaned, rolled over on her back and put her rigid legs straight up in the air. Although I do not think that the right hon. and learned Gentleman's remarks had killed the dog, they may have killed off enthusiasm among Opposition Back Benchers.
  It is never easy to respond to the Chancellor of the Exchequer, but the job cannot have been made any easier for the Leader of the Opposition by the Office for National Statistics press release of 25 February. It showed that economic growth in 2003 had been revised upwards. from 2.1 per cent. to 2.3 per cent. That was exactly in line with the Chancellor's Budget prediction last year, and contrary to every prediction made by the Opposition.
  It is worth surveying the economic landscape if we want to understand the challenges that my right hon. Friend the Chancellor has faced. At an international level, there has been continuing economic depression and currency instability, yet the Chancellor has
  376
  managed to keep the British economy on a steady course while at the same time delivering historically high levels of investment to our public services.
  My right hon. Friend the Chancellor's stewardship has ensured that business has faith in the long-term governance of the economy. The upturn in the world economy will allow British business, and our economy, to grow further. Lately, chief executives have exhibited increased optimism, while company balances look healthier and mergers and acquisitions are increasing. That, of course, is just the view of the Confederation of British Industry.
  I remind Opposition Members that they presided over not one but two recessions while they were supposed to be in control of the economy, and that support for the Chancellor has not come from Labour Members alone. Praise has come from some unlikely quarters. After the pre-Budget statement, the director general of the CBI, Digby Jones, said:
  "The Chancellor is right to raise borrowing rather than go for spending cuts or tax increases at this stage."
  Despite external economic factors, the UK economy continues to be insulated from what appears to be happening across the rest of Europe.
  The speeches by the right hon. Members for Hitchin and Harpenden (Mr. Lilley) and for Charnwood (Mr. Dorrell) were interesting. The right hon. Member for Charnwood is unfortunately no longer in his place, but he made some particularly interesting remarks about Government debt. If one compares the £37.5 billion cash figure for debt this year with the situation a decade ago at the end of the last world recession, when the deficit in this country was equivalent to £90 billion, or around two-and-a-half times higher than it is today, one understands Conservative Members' crocodile tears and mock outrage about current Government borrowing. Net borrowing adjusted for the economic cycle is just 2.4 per cent. this year and will decrease over the next five years to 1.6 per cent. of GDP.
  Sir Stuart Bell: Since my hon. Friend has referred to the speech by the right hon. Member for Charnwood (Mr. Dorrell), will he comment on the section about the housing market that seemed to pour cold water on the Chancellor's proposal to have regional house building programmes? Does he agree that the Chancellor's course of action in seeking to liberate more housing on the market to attack price inflation is better than interfering with the mortgage market?
  Mr. Gardiner: My hon. Friend makes an important point about the need to spread productivity throughout the regions in a sensitive way, which is exactly what the Chancellor is doing. The Barker report, which is welcome, will be critical to the measures that the Government take in order to get the housing market right.
  Returning to my theme, there will be a close call on the golden rule, but all economic commentators now agree that the Chancellor will hit the target. The Treasury says that the margin will be £11 billion, and even the Institute for Fiscal Studies predicts that it will be spot on. When Conservative Members seek to decry the fact that the golden rule will just be met, that view must be contrasted with their claims of a year or more

  377
  ago when they discussed a possible excess of £100 billion. The argument was that that money would have been taken but not utilised—in other words, the Government would have set up a slush fund rather than use the money productively in the economy. It is important to compare Conservative Members' remarks on Budget day with the comments they made six months before at the time of the pre-Budget statement and a year before when last year's Budget was announced, because their remarks are invariably inconsistent.
  Mr. Jack: The hon. Gentleman has just used the word "inconsistent". Will he accept that we have a right to question today's numbers in the Red Book given that only two years ago we were told that borrowing would be £11 billion, whereas today's figure is £37 billion? We have every right to question the validity of those numbers given the Chancellor's benchmarking about prudence.
  Mr. Gardiner: I have no cause to say that the right hon. Gentleman should not examine the figures—indeed, it is incumbent on all hon. Members to examine them carefully. When he examines the figures, he will find that the cash figures are £37.5 billion this year, £33 billion next year, £31 billion the year after, £27 billion the year after that and £23 billion the year after that. He should compare those figures with his record in government, but I warn him that that comparison will not be favourable.
  The end of year report by the International Monetary Fund on the UK economy states:
  "The macroeconomic policy and financial supervision frameworks remain at the forefront internationally and are consistent with Fund recommendations."
  It continues:
  "Directors commended the continued strong performance of the United Kingdom's economy."
  As some Opposition Members acknowledged, the Budget will lock in stability to the economy for the long term, and that is exactly what is required.
  However, my constituents like my right hon. Friend the Chancellor not because of his ability to deliver macroeconomic targets or because he looks set to fulfil his promise to maintain the golden rule but because he is good at delivering on the bread-and-butter issues. It is thanks to my right hon. Friend that 1,565 fewer people in my constituency are unemployed and can share in the prosperity of this country. That is a 42 per cent. reduction in unemployment claimants since 1997 in my constituency, and it mirrors figures across the country that are a testament to Britain's lowest unemployment level for three decades. Many of my constituents also take comfort from this week's announcement on the uprating of the minimum wage. Those constituents will be among the 100,000 people in London who will see an increase in their pay packets when the minimum wage rises to £4.85 in October.
  When the minimum wage was first put forward, the Opposition said that it would cost 2 million jobs, but we are now living with the highest level of employment that this country has ever seen. When Opposition Members claimed that the Government had not been instrumental in managing the economy to achieve its present stability and that one needed to look back before 1997—God
  378
  help us!—to see the policies responsible for that stability, they should remember that they opposed every successful intervention in the economy by this Government. That included independence for the Bank of England and the dramatic introduction of the minimum wage. The Opposition opposed those policies tooth and nail. They voted against them, saying that they would have disastrous consequences for our economy. None of their predictions of doom has come true. The Government gave us the first minimum wage in the UK and continue to deliver on their commitment to social justice by ensuring that new entrants to the work force will be paid fairly. My younger constituents—aged 16 and 17—will also benefit from the new minimum wage.
  Another bread-and-butter issue is school investment. In my constituency, we can see the results of the money that my right hon. Friend the Chancellor has consistently put into education. For example, £3 million has been invested in Wembley high technology college, and a further £3 million has been spent on new buildings at Kingsbury Green primary school. The same has been spent on Roe Green junior school. People in my constituency can see the tangible effect of Government policy in their environment and their children's schools. They can walk into new school buildings.
  The same investment is apparent in Northwick Park hospital. The accident and emergency ward has been completely refurbished, with double the capacity. Consequently, waiting times have fallen. Before 1997—and after—they were among the worst in the country, but they have now fallen so much that they are compliant with the standard of within four hours, in all but 2 or 3 per cent. of cases. That is how my constituents see the real benefits of the Chancellor's fiscal and economic prudence.
  The Chancellor who brought such stability to the UK economy has also been taking great care to address the structural economic problems that have dogged our economy for decades, such as the housing market—to which my hon. Friend the Member for Middlesbrough (Sir Stuart Bell) alluded in his intervention—and productivity, but, above all, investment in human capital and research and development. The assessment and work being conducted by the Treasury in all those sectors is to be welcomed if our current short-term economic successes are to be developed into a longterm model. The Chancellor's commitment to improving the UK's human capital through increased funding for education, and improvements in research and development, will create a step change in our economy.
  In his statement, the Chancellor made a commitment to 4.4 per cent. year-on-year real-terms growth in education and skills, and an £8.5 billion commitment to education and skills in 2007. That is exactly the commitment we need to address some of the points made earlier by my right hon. Friend the Member for Llanelli (Denzil Davies). He talked about outsourcing and about the way in which call centres and other jobs in this country were moving not only to eastern Europe but also to India and elsewhere in the far east.
  Two nights ago, I chaired a meeting in the Attlee suite of Labour Friends of India where there were more than 200 business leaders involved in foreign direct

  379
  investment, both from the UK to India and vice versa. We discussed outsourcing and, of course, call centres. We faced up to the real challenge of an Indian economy that is growing at between 6 and 8 per cent. a year, with a huge population—1 billion people—and a huge pool of skilled and highly educated young people who are prepared, willing and able to offer services that reflect those skills.
  One of the most interesting speeches made at the seminar was from Dinesh Dhamija, the chief executive of ebookers, the famous online travel company. He made the point that in the after-shock of 11 September—when sales of tickets for air travel dried up—his business in this country was faced with an almighty crisis. The only way in which he could appropriately respond was to cut his costs, to use offshoring and to outsource his call centres to India. By doing so, he saved 546 UK jobs and the entire business, thereby saving the contribution that the business makes to the UK economy.
  It is nonsense to think that this country or any other country can insulate itself against globalisation. Globalisation is to be neither welcomed nor denigrated; it has to be accepted as a fact and we need businesses that can respond to that global challenge. The only way for them to do so is by upskilling—by ensuring that we have skills in this country. However, that means that we increasingly move up the value curve as jobs in this country reflect our standard of living, so we cannot compete simply on labour costs; that is impossible in a global economy.
  Sir Stuart Bell: My hon. Friend refers to globalisation, which was the theme of my right hon. Friend the Member for Llanelli (Denzil Davies). My right hon. Friend made a great deal of outsourcing and of the movement of jobs from his constituency. I am glad to see the hon. Member for Strangford (Mrs. Robinson) in her place because she may have a similar problem in her constituency, to which no doubt she would allude if she were to catch Mr. Deputy Speaker's eye. Is it not a fact of life—we all have to live with it in the north-east—that global outsourcing takes place? We have lost Samsung, and areas in Northern Ireland have lost jobs? Is it not up to the Government. with the sort of Budget that was announced today, to seek to confront these problems and remedy them?
  Mr. Gardiner: My hon. Friend is absolutely right. Putting a 4.4 per cent. real-terms increase into education committing £8.5 billion in 2007 to education is intended precisely to increase the skills level, which means that our work force move up the value curve, which means in turn that they are capable of sustaining challenges. We cannot simply bemoan the loss of jobs at the lower end of the market. We must create an economy in which we are competitive internationally and are able to survive and thrive within that international market by having the skills base to do so. It is precisely in that area that there will be investment.
  The IMF has welcomed the Government's commitment to addressing the long-term issue—
  Mrs. Iris Robinson: I take up the issue that was raised by the hon. Member for
  380
  Middlesbrough (Sir Stuart Bell) a few moments ago. We are talking of about 5,000 job losses in my constituency over 18 months. These are skilled jobs. The only prospects that those who are involved in the process have at present are taxiing or call centres. What do we do with their skills?
  Mr. Gardiner: I do not know precisely to which jobs the hon. Lady is referring within her constituency. Similarly, I do not know the structure of the labour market there.
  Mrs. Robinson: I am referring to jobs in the textile industry and also jobs in TKECC, a company that makes belts for cars.
  Mr. Gardiner: The loss of any jobs is a great problem and a source of sorrow for all those concerned, particularly for the Member of Parliament who is responsible for delivering the best for his or her constituents.
  I am sure that the hon. Lady would agree with me that for a Government to stand back and say, "There is nothing that we can do about this" if jobs are lost is to send out exactly the wrong message. Today, the Government have said, "We must respond to the challenges that the global market brings. We must respond to that competition." That is not done by subsidising labour in some way to try to keep jobs in one place or another. We must respond by enabling workers who lose their jobs to acquire the skills that will enable us to compete in other areas at a higher value level. I am sure that that is what the hon. Lady wants for her constituents, which is what my right hon. Friend the Chancellor suggested this afternoon for the whole economy.
  The Pensions Bill has been designed to address some of the problems that lie with the provision of pensions. There are still concerns that Britain is not setting aside nearly as much as it should in retirement. That has been alluded to this afternoon. Some sections of society come out worse than others. Typically, older women find themselves in the worst situation. For that reason, I support the calls that are being made by the TUC for the Government to encourage women over the age of 60 to continue to make national insurance payments so that they continue adding to their own pension provision. The cost to the Exchequer of doing that would be minimal, but the economic benefits to the women concerned could be quite considerable. It would mean increased general economic activity and reduced pensioner poverty, as well as an attack on age discrimination in the workplace. I urge the Treasury seriously to consider that issue. I welcome the announcement this afternoon of an extra £100 for pensioners for the winter payment. I echo the remarks of my hon. Friend the Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Committee, about information sharing in the credit card industry to combat the unsustainable credit levels that are being run up. I commend the admirable work that he and the Treasury Committee have done on that problem.
  Our discussions today are obviously only half the picture. Many hon. Members are preparing for the spending review in July, and I should like to make a

  381
  special plea for extra investment in London's transport infrastructure. Funding for Transport for London is to set to fall by £200 million in 2005–06 after record increases, I acknowledge, in recent years. The impact on my constituents and London's ability to sell itself as a world-class city will be considerable, and the effects will be felt beyond London, because if it does not receive inward investment Britain as a whole will not do so either. London's population is set to increase by 800,000—equivalent to a city the size of Sheffield—by 2016, so there will be significant extra demands on an already stretched transport system. No Government would consider building a new town with a population of 800,000 and not equipping it with a proper transport infrastructure. We should not allow London's population to grow to that extent without equipping it to cope with the increase.
  The case for extra investment is clear. Better transport links would help to reduce inequality in inner-city London, an area that has the highest deprivation indices in the country. Investment would also bring new money into London and the British economy as a whole. As London is the dynamo of the British economy it is essential that investment in its infrastructure continue at the recent increased rates after decades of neglect. London's productivity levels are 25 per cent. higher than the national figure, and it makes a net contribution to the Exchequer of £10 billion to £20 billion a year. However, it cannot go on supporting the British economy without proper investment. We must reduce the £230 million annual losses caused by failures and delays on London's transport system, and must reap the benefits of proper investment. The plain fact is that this is not a national competition—it is an international one. The case for London is the case for Britain, and unless the transport infrastructure receives extra funding we will begin to lose our competitive edge against cities such as New York and Paris. I therefore urge the Treasury team to consider the impact on the economy as a whole if London's infrastructure problems become a disincentive to invest in the UK.
  Next year, we face, as the Chancellor said, stark economic choices. The electorate must choose between a Chancellor who has an impeccable economic record, who promises more and has a record to back it up, and a party with an economic record that left scars on our society with two recessions, 3 million unemployed and huge economic and social inequalities. The Opposition clearly have no shame, because now they are offering the electorate the choice of more cuts—£18 billion-worth in total, which would mean cuts in everyday services, local government, crime prevention and transport. They mocked when the Chancellor spoke about freezing levels of investment and input, but they have proposed £18 billion-worth of cuts in services, and must account for that.
  Hon. Members often speak about the Budget speech as though it were simply an economic event. It is, of course, a political event as well, and today's Budget was a deeply political event because the Opposition committed themselves to matching our spending on health at 7.2 per cent. in real terms every year to 2008—a 50 per cent. rise in our total spending on health since 1997. In education there is a 4.4 per cent. annual rise and an extra £8.5 billion in 2007. Now the Opposition have a political choice to make. While matching the spending
  382
  and the growth levels that are being maintained by the Chancellor in every area of Government, can they commit themselves to matching our increase in health spending and in education and skills spending? If they cannot, they are denying the country the opportunity to grow and develop in the future.
  It is precisely such investment in skills and education that represents the choice that every Government and every people must make. They must decide whether to consume for themselves or to invest in their children's future. If those on the Opposition Treasury Bench cannot match our commitment in that area, they will show that they are more interested in individual present consumption for greed than in investment in the country's future and our children.
  4.36 pm
  Mr. Michael Fallon: I begin by declaring the interests recorded in the register.
  If the hon. Member for Brent, North (Mr. Gardiner) will forgive me, I shall not follow him, partly because he spoke for so long and partly because he and the hon. Member for Middlesbrough (Sir Stuart Bell), if he will forgive me for saying so, both appear to belong to the creationist school of the Labour party, as I would characterise it, which believes that almost everything in this country started to get better only in 1997. That was not the case in Brent, and it certainly was not the case in Middlesbrough.
  I am sure that, on reflection, the hon. Member for Middlesbrough will concede that although it is great to see Middlesbrough doing well now, that recovery did not start in 1997. As my right hon. Friend the Member for Hitchin and Harpenden (Mr. Lilley) reminded us, these things take a long time. It was back in 1987 that Lady Thatcher walked in the wilderness on Teesside and began the process of regeneration. Teesside university, which the hon. Gentleman mentioned, was set up by the last Conservative Government, not by the present Government. I am delighted that things are going well on Teesside, but the hon. Gentleman must not pretend to the House that it all started on 1 May 1997.
  Sir Stuart Bell: When the hon. Gentleman was the Member of Parliament for Darlington, we used to go up on the train together and we had many a philosophical and economic discussion. From the Opposition Benches I welcomed the creation of both the urban development corporation and Teesside university. Will the hon. Gentleman accept that I am not part of the creationist school that believes it all began in 1997? The former Conservative Government greatly helped our area. That goes back to Lord Hailsham's visit in 1962.
  Mr. Fallon: I am glad the hon. Gentleman has corrected what he implied earlier. Let us end this little exchange, which I fear may be diverted into regional policy going back over a long period, by agreeing that improvements such as those on Teesside, which I welcome, take a long time.
  I also welcome the economic growth that the Chancellor announced today. Of course it is good news that he was more correct than some of the forecasters a year ago. However, I have two worries about that

  383
  economic growth. The first is the concern to which my right hon. Friend the Member for Hitchin and Harpenden alluded: that we have yet to see the increases in productivity that we would expect to see given all the governmental activity over the past seven years. My right hon. Friend pointed out the proportion of that growth that could be attributed simply to the increase in the working population. The United States has had a similar increase in its working population, but its productivity gains have been much greater and sustained over a longer period.
  Like my right hon. Friend the Member for Charnwood (Mr. Dorrell), I found little mention of productivity in the Chancellor's speech. Usually in the blizzard of documents that accompany the Budget, there is at least one special document on productivity. This time there is not. On the contrary, there are documents on flexibility and devolved decision-making. Productivity seems to be confined to a table—a box—in the Red Book.
  It is worth re-reading to the House the sentence that my right hon. Friend the Member for Fylde (Mr. Jack) quoted from the Red Book:
  "workers in the US are still just under 30 per cent more productive than UK workers."
  We are still not getting the increase in productivity that we need. I should have liked to have heard far more from the Chancellor about why he thinks that that is not so and what he is really doing to increase the productivity that we would have expected from the new investment in capital and new technology and the various skills and educational changes that he has introduced since 1997.

  My second fear is that the growth that we have achieved is remarkably lopsided. It would have been nice to have had some acknowledgement from Labour Members today of just how crucial consumer spending and household debt has been to the growth that has been achieved. That worries me because there will come a time when that begins to end, when private debt begins to be curbed and paid off and when home owners slowly but surely begin to realise that the principal sums that they have invested in their homes will no longer be magicked away by high inflation, but will remain there for ever and have to be paid off. The over-reliance on consumer spending and home owner debt leaves our economy dangerously exposed.
  At the same time, we have had a massive increase in public spending and we still seem to have a structural problem with tax revenues that leaves the economy even more vulnerable. Instead of curing or examining the structural issues, the Government are simply borrowing more and taxing more. Borrowing, as my right hon. Friends who have spoken before me have said, has gone up and up. It was supposed to be less than £20 billion; now it is £37 billion. In fact, having squandered all the receipts from the third generation licences, the Chancellor is back borrowing where he started. The figures that he has given the House today of how that borrowing, having reached the dizzy heights of £37 billion, is now planned slowly to reduce during the next three, four or five years, wholly depend on him achieving the efficiency savings that are set out and increasing the tax compliance by the various measures that he has outlined.
  384
  I have to take issue with my right hon. Friend the Member for Charnwood on one point. He said that he welcomed the fruits of the efficiency saving. They are, however, only fruits—they may be low-hanging fruits, but they are not yet realised. In welcoming his successor's arrival today at the Office of Government Commerce, Sir Peter Gershon described the 2.5 per cent. efficiency gain that is to be applied right across the public services as challenging but achievable. I think that it is extremely challenging, and the Government are in effect spending money that they have not yet saved. We cannot yet be sure that those efficiency gains will materialise.
  Mr. Plaskitt: The hon. Gentleman describes a level of borrowing that equates to 3 per cent. of GDP as "dizzy". What adjective would he use to describe a borrowing level that was 8 per cent. of GDP under his Government?
  Mr. Fallon: What is important when we are describing borrowing is to get our forecasts right. I am not the Chancellor. The Chancellor is in charge of the economy and his credibility is undermined if he tells us one year that borrowing will be £10 billion, then suddenly it turns out to be £20 billion, then £30 billion, and by the end of the year in question it reaches £37 billion. That is what makes the rest of us question his economic competence.
  When it comes to borrowing, the Chancellor cannot be sure that those efficiency savings will be locked in. To give a specific example, we have been told that 20,000 jobs will be relocated, so there will be savings. Of course there will be savings, but anyone in business knows that those savings are always further down the track than one thinks, and they are never quite as great as one originally planned. The people concerned have to be relocated and there are costs involved in all that. It is far too easy simply to say. "We'll move 20,000 jobs out of London, get rid of 40,000 people and savings will be realised immediately."
  When Chancellors, of whatever party, are in difficulties over their fiscal stance, they say that they will crack down on tax avoidance and put more resources into Customs and Excise or the Inland Revenue to increase tax compliance. Again, those are targets, not givens. It is unwise of the Chancellor to assume that efficiency gains and additional revenue will automatically result from the measures that he announced.
  Whether or not we like the phrase "freezing rates", it is clear that the overall burden of taxation has been increasing and will continue to hurt. The Chancellor paid little attention to where the burden is beginning to bite. I shall give three examples. First, more and more people, especially public sector workers, are being sucked into the higher band. A generation ago, it would have been inconceivable to consider police inspectors or ward sisters as the rich, having to pay the same tax rate as the richest people in our society. Now, almost 3 million people have to pay the higher rate of tax. That needs to be reconsidered.
  Secondly, too many people low down the income scale pay too much tax. As soon as people earn only a few thousand pounds a year, they pay too much tax, and the tax for the relevant band has been increased today

  385
  by £60. People who earn £10,000, £12,000 or £15,000 a year should not have to hand over a third to the Government. We need to reconsider the tax burden imposed on the lower paid. All the tax credits and the attendant additional complexities do not compensate for the fact that we make people pay more lower down the scale than do many of the more successful economies.
  Mr. Jack: Does my hon. Friend know about the Centre for Policy Studies research, which shows that the poorest fifth of the population pays an average of 42 per cent. of their income in tax?
  Mr. Fallon: I am aware of it now. That is an important point and I should like to have heard more about that from the Chancellor, who simply brushed aside the 10 per cent. rate.
  Thirdly, pensioners pay too much tax. Of course, £100 here or there to redress the enormous increases in council tax imposed mainly by central Government or Labour councils may be welcome, but pensioners' savings are too harshly taxed. People are taxed throughout their lives on their earnings, and they are taxed yet again at the end of their lives on what they have managed to save.
  The tax burden should be reformed and reduced because it has become too great and too complex. We need to continue to simplify it. We have had a stop-go system, whereby the Government introduced reliefs and suddenly shut them down.
  Previous speakers mentioned the film tax relief, which was introduced in the late 1990s and has suddenly been withdrawn, leaving British film makers in the lurch. Let us consider the incorporation changes that were introduced in finance legislation a couple of years ago. In this year's pre-Budget report, the Chancellor states that
  "the Government is concerned that the longstanding differences"
  might "distort business strategies". In a sense, it is good—but almost ironic—that the Chancellor has finally got the message. We, like the world outside, have complained that the tax reliefs distort business strategy and suddenly the Chancellor complains about his own policy in his pre-Budget report and tinkers in the Budget with a relief that he introduced.
  Let us consider spending. The Chancellor has announced again today additional spending all over the place, with no real emphasis on control. It is clear from the various points made by my right hon. Friend the Member for Hitchin and Harpenden that far too little expenditure is getting through to the front end and resulting in real increases in output and performance in the public sector. To see that, we have only to turn to a Wednesday edition of The Guardian, whose "Society" supplement shows how much bureaucracy of para-government—advisers, co-ordinators, liaison workers and taskforces—have been created at the expense of those who work at the sharp end in our hospitals, on division in our police areas and in our classrooms. The record is one of dismal failure. As my right hon. Friend the Member for Charnwood said, we have had seven years of talk about public service reform, but little real reform.
  386
  Instead of action, we have had a book. I hope that you, too, Mr. Deputy Speaker, received last week a copy of the Treasury's new 438-page book entitled "Microeconomic Reform in Britain"; I believe that it was sent to most colleagues. Like everything else that the Government produce, it has no price on it. but it contains a lengthy foreword from the Chancellor and is vanity publishing at its best. Almost at the end of the 438 pages, we are finally told the answer to micro-economic reform, after passing references to last year's fad: progressive universalism. Under that wondrous new system, the Government have spent £18 billion on child trust funds, half of which goes to those who do not need it so that those who do need it get a little extra. Progressive universalism is a way of chickening out of some of the more important political choices by continuing to pay a benefit to everyone, then simply deciding to pay more of it to those who need it most. That was last year's fad.
  This year's fad in micro-economic reform is—I quote from the conclusion of this masterwork—the constrained discretion model. It is the new answer to public service reform and means, apparently, the Government setting out the objective and then—wait for it—the
  "devolution of operational responsibility to front-line agents".
  After seven years, we now have the answer. However, I think that it will raise a pretty hollow laugh in staffrooms, for example of schools that enjoyed grant-maintained status but then had the operational responsibility of front-line agents removed from them by the Government. It will raise a pretty hollow laugh among those who have to manage hospital trusts and those who have to drive forward policing, who are still hamstrung by national regulation, centralised pay-and-condition bargaining and by dictatorial political guidance from the centre.
  If the Government are serious about devolving decision making, and about taking their constrained discretion model and making a reality of it, they must tackle the regulatory burden that they themselves have imposed on our economy and public services. When we talk to business and public service managers—Ministers do not do that often enough—we hear that their principal complaint is now the burden of regulation imposed on them. I find very little indication in the Red Book that the Government are serious about reducing that burden.
  I do not pretend that reducing the regulatory burden is easy. Our deregulation taskforce, of which I was a member, attempted that; the Government now have their Better Regulation Task Force. I am intrigued to see that the chapter on regulation in the Red Book is—finally—entitled "Reforming and reducing regulation". However, when we look at paragraphs 3.59 and 3.60 of that chapter to see what is actually going to be reduced, we see just three specific proposals.
  First, after the hundreds of thousands of pages that the Government have imposed on businesses and the public services over the last seven years, they now tell us that they will consult the construction, chemical and retail sectors on an "early warning" system, whereby those industries could discuss
  "emerging policy and regulatory proposals".

  387
  That does not seem to be reducing regulation. Secondly, the Government will discuss some of the payment delays in the construction industry relating to housing grants and construction schemes. That does not seem to be cutting regulation either.
  Perhaps we shall get there, however, because after a two-year review, the third proposal is that the Government will make it easier for citizens advice bureaux to advise their clients without being subject to Financial Services Authority regulation. So, that is good news. After seven years, we finally have a specific proposal for deregulation. The Government must start to get serious about this matter.
  The Treasury Committee is conducting an inquiry into the compliance costs of tax and regulation, and I should like to share with the House the fruits of part of that inquiry. We went to Holland, which has a programme of reducing regulation and legislation. In the Dutch Finance Ministry, we met the "director of legislative burden", who had a staff of 17 people and a mandate from his Government to reduce the burden by 25 per cent. over four years. That is a Government who would appear to be serious about reducing the regulatory burden. As I have emphasised, that burden applies as much to the public sector as to the business sector.
  We have had seven years of regulating, spending, borrowing and taxing, and the Chancellor has come almost to a full stop. He has spent more without getting real reform, he has borrowed more without securing real improvements in our infrastructure, and he has taxed more without making our public services more efficient. This is a dead-end Budget from a dead-end Chancellor.
  4.57 pm
  Mr. James Plaskitt: The real and important background to the Budget is that we start from the position of being better placed than any other economy in the G7. The International Monetary Fund delivered that verdict in its article 4 report, which states that the United Kingdom has
  "weathered the global slowdown well".
  There are two fundamental reasons why we start in that favourable position, one of which is the growth in our economy. The Chancellor's forecasts, given at the time of the last Budget and much derided by the then Leader of the Opposition, turned out to be exactly correct. Not only are we enjoying growth of more than 2 per cent. this year, but the Chancellor is adhering to his forecast of growth of between 3 and 3.5 per cent. in each of the next two years. We are therefore in a stronger position than any other G7 country in respect of the rate of growth.
  The second factor that contributes to our strong starting position is the degree of stability in the economy. Between 1997 and 2004, the growth range has been between 1.7 and 3.7 per cent.—in other words, a range of no more than two percentage points. That contrasts sharply with the years between 1989 and 1997, under the previous Administration, when the growth rate fluctuated from -1.4 to 5 per cent.—a six percentage point growth range. We are now seeing more balanced growth in the economy, which is a key contributor to
  388
  our current stability. One of the fruits of that is the recovery in manufacturing output. We also have a strong construction sector, and service sector growth is steadier. In fact, the overall profile of growth looks much more stable than it has for some years.
  Such stability is also evident in employment. Again, our situation contrasts very favourably with that in other G7 countries. We have the lowest unemployment for 30 years and 1.8 million new jobs have been created—1.3 million in the private sector. We have a healthy level of new business creation as well as sharp growth in self-employment.
  We also see stability reflected in inflation. Since 1997, inflation has not moved outside its target, set by the Chancellor way back then, of one percentage point variation either way. It has never got to the limits of that target. Contrast that with the variation in inflation rates over the previous eight years under the previous Government, when the range was seven percentage points. There was no sign of stability in the economy then. Moreover, we now enjoy interest rate stability, with a range since 1997 of four percentage points. Contrast that with a range of six and a half percentage points under the previous Administration: not only is the range smaller, but the trend is steadily downwards.
  What matters now—this is how we have to assess the Budget—is the extent to which that stability is confirmed and secured going forward. Since 1997, we have moved from having the highest unemployment in Europe, under the previous Administration, to having the lowest, and we have the longest period of continuous economic growth in over two centuries. The prize is to lock that in to banish the boom-and-bust failure of the past, but are there any risks to the growth and the stability that have been secured?
  The Opposition think, apparently, that there are some risks. The first that they emphasised—certainly, the Leader of the Opposition did so in his reply to my right hon. Friend the Chancellor—is the public finances. I am interested to see the Opposition much excited about whether the Chancellor will meet the golden rule. That is an interesting preoccupation for the party that doubled the national debt while in office and that in one year alone clocked up a deficit equivalent to 8 per cent. of GDP.
  Of course, the Conservatives never had a golden rule. That is just as well, because they would have come nowhere near meeting it. They remind me of drivers who have been caught doing 100 mph. They have had their licence taken away and been banned, which is why they are sitting on the other side of the Chamber, but now they are greatly excited because we have been caught doing 31 mph in a 30 mph limit.
  The first part of the golden rule requires that net debt be held under 40 per cent. of GDP. I should remind the Opposition that we inherited net debt of 43.7 per cent. It is down to 33 per cent., thanks to our disciplined approach to handling the Government's finances. It is forecast to grow from that, rising to 36.4 per cent. in 2009, but that is still substantially below what we inherited. As the Institute for Fiscal Studies said in its green budget:
  "The government's debt remains modest by international and historic standards."
  That provides the context for the second aspect of the golden rule—balancing the figures across the cycle. As has been said many times during the debate, borrowing

  389
  is higher than originally predicted. As a percentage of GDP, it has gone just beyond the 3 per cent. margin, but I think that every Member would acknowledge that forecasting those figures is tricky as it involves the difference between two very large numbers.
  A small variation in performance can have a big impact on the bottom line and just a 1 per cent. change either way in the spending or income figures has a £12 billion consequence. It has always been difficult to forecast those figures with complete accuracy; it was difficult under the previous Administration, whose borrowing and spending forecasts also often ended up way off their original mark.
  The right hon. Member for Charnwood (Mr. Dorrell) reminded us that we can look back over Red Books and see a forecast total surplus over the cycle of £100 billion, which of course is now down to the much lower figure of £14 billion. That, too, has caused a fair degree of excitement among Opposition Members. Again, they need to bear in mind what the Institute for Fiscal Studies said:
  "Aiming to overachieve the golden rule by a large amount early in the cycle might be regarded as prudent, given the considerable uncertainties in forecasting the path of public finances over a number of years."
  It continued:
  "It is reasonable that the forecast overachievement should decline as the end of the cycle draws nearer."
  Therefore, the fact is that both aspects of the golden rule will be met in the present cycle and in the next. I would therefore dismiss the Conservative party's concern about the "closeness" of meeting the golden rule, because had it been wise enough to impose such a constraint on itself, it would have had no chance whatever of meeting it.
  The second issue that has been suggested as posing a possible threat to this hard-won stability is debt. The hon. Member for Sevenoaks (Mr. Fallon) made that a feature of his speech a few moments ago, when he drew our attention to household debt. It is easy enough to find initial information that fuels lurid headlines, such as an annual rise in household debt of 14 per cent. and a ratio of household debt to income of 130 per cent. It is easy to infer from those figures that there might be a real issue. It is important to go further than those headline figures, however. The figures are largely a story of what has been happening to house prices. The fact is that the value of household net wealth has increased by 50 per cent. since 1997. That is the other side of the household debt story about which we keep hearing. In fact, the ratio of household debt to total wealth since 1997 has been absolutely stable. It is true that mortgage equity withdrawal is up—it is now 7 per cent. of post-tax income—but that is exactly the level that it reached in 1989–90, which was the last time house price inflation peaked. Untapped equity in houses is now 75 per cent. of total housing wealth. Low and permanently low interest rates mean that debt servicing costs have fallen, so it is no surprise that the total stock of debt has risen to balance that.
  Back in 1990, 27 per cent. of disposable income was going to finance mortgages. The figure now is 16 per cent. Similarly, back in 1990. the proportion of disposable income going on debt servicing was 15 per cent., whereas now it is 7 per cent. Furthermore, most
  390
  consumer borrowing is secured, which is where growth has risen to 14 per cent. The rate of growth of unsecured debt over the same period, however, has slowed from 16 per cent. to 13 per cent., and unsecured debt is only 18 per cent. of the total.
  I do not therefore think that there is a consumer debt crisis. Most homeowners are actually acting quite rationally and prudently. The risk of instability, about which the hon. Member for Sevenoaks was concerned, would be present were there a risk of a sharp downward correction in house prices. I suggest to him and other Members, however, that a soft landing is far more likely, precisely because of the stability in the monetary climate and lower interest rates.
  Nor do I accept the argument put by the Leader of the Opposition when he replied to my right hon. Friend the Chancellor that there is a savings crisis. Many Conservative Members who have spoken this afternoon have made great play of the fact that the savings ratio stands at 5 or 6 per cent. That, too, needs to be set against the net household wealth picture, which, as I just indicated, is very healthy. The savings ratio also moves in relation to inflation, and it has been at exactly this same level during previous periods of sustained low inflation. It responds to house prices. and in that regard is doing exactly the same as it did in the 1980s. When house price inflation last reached 20 per cent., the savings ratio declined to 6 per cent. While there are undoubtedly some individual horror stories about debt—including some particularly tragic ones recently—it would be an exaggeration to infer from them that there is an overall debt crisis in the economy.
  The Conservatives have also suggested that a threat may be posed to our hard-won stability by the tax burden. Many of them have made much of the fact that the Chancellor's revenue stream has increased by 50 per cent. since 1997. They should bear it in mind that during their 18 years in government their revenue stream increased by 300 per cent.
  There is another way of measuring the tax burden. It currently stands at 35.9 per cent. of GDP, which is lower than the level achieved during most of the 1980s. I remind Conservative Members that it averaged 36 per cent. throughout their 18 years of office. In one year, 1984–85, it was as high as 39 per cent. It is projected—in the Red Book—to rise, but only to 38 per cent. It is also worth bearing it in mind that the level is four percentage points lower here than the average across the Organisation for Economic Co-operation and Development.
  There is a further way of measuring the burden. The Office for National Statistics assesses it as a percentage of gross income. Back in 1996–97, direct taxes were equivalent to 20 per cent. of household gross income. Today's figure is the same. In 1996–97, the indirect tax burden was 16 per cent. of household gross income; it is now 15 per cent.
  There is yet another way of looking at the burden. I refer Members to the excellent tables produced by our Library relating to hypothetical households. Back in 1996–97, a household on 75 per cent. of median earnings with two children paid 10 per cent. of its earnings in direct tax. Today the figure is minus 6 per cent.
  Mr. Laws: I can confirm those figures in the round, but the same tables—showing how the total tax burden

  391
  has changed since 1996–97—reveal that the two groups who have lost out particularly, in terms of paying more tax, are the poorest two deciles. That is because the Government have tended to raise indirect taxes, which are more aggressive than direct taxes.
  Mr. Plaskitt: The hon. Gentleman should also look at the tables that show the impact of direct tax changes, and the introduction of tax credit in particular. He will then see that the distribution of benefit resulting from my right hon. Friend's eight Budgets has been more advantageous to the lower deciles than to any other group.
  Back in 1996–97, a family on exactly median earnings with two children paid 17.8 per cent. of their income in direct tax. That has fallen to 12.9 per cent. Even for those on double average earnings, the figure was 24.6 per cent. That figure remains the same.
  Despite all those different ways of assessing the tax burden, it is very difficult to produce evidence that it has increased as much as the Conservatives suggest.
  Public services benefit most from the economic stability that the Government have secured. Here we see the stability dividend—the chance, at last, to invest properly in our public services and to sustain that investment.
  The national indicators on the NHS show what we are getting for the 7 per cent. a year real terms growth in investment: a record hospital-building programme; NHS Direct; improved heart and cancer care; an increase of 20 per cent. in admissions; 50 per cent. more heart operations; 200,000 people off the hospital waiting lists; and those waiting more than a year down from 30,000 to just 36.
  That is also borne out locally in my constituency. Maximum waiting times in my local district hospital in Warwick have come down from 18 months to nine, and are on course to be six months next year. Average waiting times are already down to three months, and outpatient average waiting times down from 39 to 17 weeks. That has all been achieved by the additional investment that has given us 169 more nurses and 47 more doctors and consultants, and a 39 per cent. increase in activity levels.
  The same is true in education. Again, the national picture is confirmed locally. We now have 3,000 more nursery places in Warwickshire than back in 1997, with improved results at every key stage throughout the county. Five good GCSEs were achieved by 45 per cent. in Warwickshire in 1997. The figure is now 54 per cent. In my constituency alone, £10 million has been invested in our local schools over the past seven years. Spending per pupil in Warwickshire has risen from £1,770 to £2,840.
  That is all evidence of the stability dividend. We now have one of the best economies in the world, steadily rising living standards and the means to invest in improving public services. All of that can happen only because we have a platform of economic stability, sound finances, low inflation and sensible fiscal and monetary rules. The Chancellor has strengthened that platform today, and I commend the Budget to the House.
  5.17 pm
  Mr. Andrew Mitchell: It is a pleasure to follow the hon. Member for Warwick and Leamington (Mr. Plaskitt), whose constituency is at least in the same region as mine. It is also a pleasure to catch your eye, Mr. Deputy Speaker, on the first day of the Budget debate. I was fortunate enough to do so last year, and I see waiting to catch your eye two other habitual contributors on the first day, the hon. Members for Wolverhampton, South-West (Rob Marris) and for Nottingham, South (Alan Simpson). I am sure that they will make original contributions, which will be a refreshing change from the hon. Member for Brent, North (Mr. Gardiner), who did his traditional imitation of a Government Whips Office glove puppet.
  On this first day, we have the opportunity to consider the Budget before we have studied the small print. With this Chancellor, it is always advisable to examine that in great detail, because it normally changes the way in which the Budget is perceived within 24 hours.
  In the interests of unity, let me list the points on which I agree with the Budget, which is a good one in a number of limited respects, but before I do so, I draw attention to my entry in the Register of Members' Interests.
  What the Chancellor continues to do in respect of third-world poverty and debt relief is advantageous and important. He is always good enough to make it clear that he is continuing a tradition started by one of his predecessors, John Major. The Government have done laudable work in that respect.
  It may not come as a surprise to the hon. Member for Wolverhampton, South-West that I praise the fact of the limit of £1.5 million for the lifetime amount going into a pension and the increase to £1.8 million. That is a good thing. In most areas, I have nothing but horror to register at the Government's pensions policy, but on this specific matter, they have found an elegant way of cutting through the appalling complexity governing pension arrangements for people who increasingly change jobs during their lifetime of work. In that regard, the Government's decision was a very good one indeed. The making of direct payments to schools is also an extremely good idea. Such an approach should be more beneficial to schools than the previous arrangements.
  Some of my hon. Friends may be surprised to discover that I want to register my support for what the Chancellor said about tax avoidance. He is absolutely right on this issue, and I want to explain why. It is clearly the right of all citizens to organise their affairs in a tax-efficient way, and I hope that none of us would quibble with that. But in recent years, certain obscene schemes that should not be allowed have been peddled, by Ernst and Young, for example. Indeed, I tabled some questions to the Prime Minister on this issue last year. I hope that today's announcement by the Chancellor will presage an end to such schemes.
  One such scheme, which was peddled around a number of banks in the City, was designed to avoid paying any employer's national insurance, and to enable employees to reduce their level of taxation from 40 to 25 per cent. It is disgraceful that anyone should try to perpetrate such a scheme. These people should pay the right amount of employer's national insurance. Individuals from other parts of the world who earn their

  393
  living in London and who may need to use our emergency services—if they are unfortunate enough to have a heart attack, for example—should pay national insurance and tax at the same rate as others. The peddling of such schemes is morally corrosive, and one effect is that if one or two institutions accept them, great pressure is put on other, competitor institutions to go down the same route. We all have hard-working doctors and lawyers, for example, in our constituencies who pay their 40 per cent. tax on the nail. It is wrong that others should get away with not doing so.
  Other developments are also welcome, as some hon. Members have pointed out. I listened with great care and interest to what was said about Kate Barker's report on the housing market, and I was pleased to learn that the Deputy Prime Minister will consult on the issue. However, I was alarmed to discover that each region will have a body responsible for planning, and I hope that we can tease out the details during the consultation. This is an extremely important issue to my constituents, because a place such as Sutton Coldfield depends greatly on the quality of its local environment and its attractive features. People aspire to live there, and once they have arrived they want to stay.
  There has, however, been a distressing trend in recent years. When widows or widowers, for example, move from large houses with mature gardens, developers buy such properties and blocks of flats are put up in their place. Technically, such developments take place on brownfield land. None of us would regard a delightful house with a mature garden as a property on brownfield land, but such houses do fall within that definition. Indeed, blocks of 32 or more flats are being built where only one house stood before. Such developments might not have a significant impact individually, but Members will realise their effect when taken together: one wakes up one morning to discover that the whole area has changed. The impact on the footfall to doctors' surgeries and schools, and on parking and the number of cars, can change such an area out of all recognition.
  The Government's view that we should increase the number of houses being built each year from the current figure of 175,000 is admirable, but I hope that we will proceed with the greatest possible care. Areas such as mine are peculiarly vulnerable to a development and planning system that does not recognise the need for much more significant input from local residents in order to stop vexatious developments.
  Mr. David Drew: I concur with the hon. Gentleman that the Government must be very careful about how they define brownfield land, but does he agree that part of the problem is that we are now getting unbalanced development? The market towns in semi-rural areas such as mine are the areas where the real pressure is coming from. We need much more balanced development across the country, and we must make the developers more accountable to the local population. That is where the biggest problems lie.
  Mr. Mitchell: I agree with the hon. Gentleman that we must make the planning system more accountable to local people living in an area who are most affected by planning decisions. I hope that we can make some progress on that. He is also right that we need a more careful series of developments across the country, and I
  394
  hope that the consultation process will allow for that. I have asked the Minister for Housing and Planning to come with me on a journey from Sutton Coldfield to the middle of Birmingham. If he does, he will see what we regard as brownfield sites, which should not be confused with the areas that I described earlier.
  I want to make some specific points about the Budget. I thought that one of the most revealing statements made by the Chancellor today was when he said that the success of some of his policies had been the result of "difficult decisions" that were taken in 1997. That is indeed a revealing statement, because one of those difficult decisions was to stand by the spending plans of the previous Chancellor, my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke).
  Many Conservative Members would say that if the present Chancellor had stuck to those spending plans and other measures put in place by my right hon. and learned Friend, we would not need to divide up his chancellorship—as so many of us do—between the first two or three years and the rest. In the earlier period, his very sensible achievements included granting independence to the Bank of England Monetary Policy Committee to fix interest rates, controlling public expenditure and the degree of prudence—a word of which the Chancellor remains fond—that he displayed. Sadly, in the following three or four years, the position has been very different.
  I judge today's Budget against the background of a business survey that I carried out in my constituency—as other hon. Members do—to find out what local business people think. My extensive survey was widely responded to and the most important finding was the strong and rising resentment of tax increases in Sutton Coldfield. It is also strongly felt that the money raised is not being well spent. That shows the generous spirit of my constituents who do not necessarily mind the increases so long as the money is well spent, but they do not believe that it is. There is an increasing feeling that they are overtaxed and they worry about the growth of regulation. That is what emerged from my survey and I agree with those responses. Having listened to the Budget speech today, it seems to me that they remain the most important areas of concern.
  I am pleased at the growing trend towards companies publishing in their report and accounts the full extent of the tax that they pay. When the Royal Bank of Scotland announced its very significant profits, it made clear the extent to which they have been earned overseas. It published exactly how much tax it had paid—through its employees' PAYE and as a company—and it was possible to see the contribution that that enormous amount of tax had made towards the building of hospitals and the funding of education. It is right that people can see the massive contribution that such companies make.
  As some of my hon. Friends have already observed, the extent of the tax rises is truly extraordinary. The figures speak for themselves. In 2002, tax receipts at £350 billion were up £90 billion from 1997 levels, and represented a rate of £1,500 for every man, woman and child in the country. More and more people are being drawn into tax, as has been noted already. There has been an increase in national insurance contributions, and a massive rise of about 60 per cent. for band D council tax payers.

  395
  The hon. Member for Twickenham (Dr. Cable) was quick to criticise the council tax system, yet the problem is not the structure of local tax but the increasing burdens that central Government impose on local government. Those burdens are not covered by central Government subvention. No local government tax will ever be popular or easy, and the present structure is probably as good as we are going to get. However, it clearly creaks at the seams when the amount that people have to pay rises as much as has been the case under this Government.
  The Government have reached the point where everything that can be taxed is taxed. They do not focus on how little they can take away from hard-working families, but on how much they can get away with as they fund inflexible and ever rising expenditure totals. I understand that tax freedom day will fall on 7 June this year: next year, it will fall on 9 June.
  The counterpart to high taxation is the level of borrowing, which has been much discussed this afternoon. As my right hon. and learned Friend the Leader of the Opposition said, we started off with a target of £30 billion. That has risen to £72 billion, and then to £140 billion—five times as much as the Chancellor originally forecast. The figures underline our lack of confidence in his forecasts.
  Mr. Fallon: The Chancellor keeps getting them wrong.
  Mr. Mitchell: As my hon. Friend says, the Chancellor keeps getting them wrong.
  Given the ferocious increase in the amount of tax taken, what do we get for the subsequent expenditure? In Sutton Coldfield, only 4 per cent. of those who responded to my business survey considered that their taxes were being spent well. That figure was substantially lower than was the case last year, when the figures also showed a decrease on the year before.
  We have heard today that an expenditure increase of around 40 per cent. in the NHS has been matched by an increase in patient episodes of only 5 per cent. The Government often talk the right language about reforming the NHS, but what happened with the Bill to introduce foundation hospitals is typical. To win the support of Back-Bench Labour Members, it had to be watered down so much that many of the potential gains that it promised have not been realised. The same thing has happened with other legislative proposals and, as a result, the original purpose has not been achieved.
  I do not oppose the principle of tax credits. I think that John Nott was going to introduce them during the 1970 to 1974 Conservative Government, but I warn the Government that the pension credit, with its massive increase in means-testing, will come back to haunt them. Soon, nearly 80 per cent. of pensioners will be means-tested, yet recent figures from the Department for Work and Pensions show that the pension credit is not getting through to anything like enough of the poorest pensioners—that is, those who account for the bottom 20 per cent. in income terms. The pension credit is proving to be a very inefficient way of dealing with poverty.
  396
  I turn now to savings. I had hoped that the Budget would make a real contribution in that regard, but I was staggered when the hon. Member for Warwick and Leamington (Mr. Plaskitt) said that there was no savings crisis in this country. The newspapers every day show just how big that crisis is. The savings ratio has halved since 1997, but private saving levels and the privately funded pensions sector have also both declined.
  Although raids on the sector of £5 billion per annum have not helped, the situation has been made worse by the fact that the Government have not made it a priority to ensure the stability that allows independent financial advisers to give good advice. I cannot imagine how an independent financial adviser can advise someone on average wages on how they should save for their old age. I was amazed that there was nothing in the Budget about ISAs or stakeholder pensions to give further encouragement to an area to which, sadly, the Government pay lip service but on which they do not deliver. It would have been easy to reverse the reduction to £5,000 per annum for ISAs that will take effect from April next year, but the Government did not even announce that, let alone an improvement to stakeholder pensions.
  I want to say a word or two about red tape and regulations. Small businesses are the engine of our economy and do not have the capacity to handle extra red tape and regulation. Nothing could more clearly demonstrate the lip service that the Government pay to enterprise than the Chancellor of the Exchequer's belief that if one sets up a conference on enterprise one is somehow doing something to help. An enterprise conference with loads of waffle from well-meaning people about the importance of fostering enterprise is not the way to foster enterprise. Enterprise is fostered by low tax and minimal regulation.
  I was interested to see that The Sunday Times business section asked a cross-section of business men how they thought that the Government were doing on regulation and, more generally, in supporting business. One of the respondents stated:
  "Far from making life easier for entrepreneurs, Brown has been strangling enterprise."

  Revealingly, another businessman said:
  "My company employs 120 people and we have had to add the equivalent of one full-time person to deal with the plethora of demands for reports, returns, health and safety issues and so on."
  These measures were identified as being among the worst that the Government have introduced: the working time regulations, which cost business £1.1 billion between 1999 and 2004: the data protection rules, which cost business £4.6 billion over the same period; IR35, which is blamed for many IT specialists either heading off overseas or having their services hired from overseas; the cost to business of administering the provisions of the Tax Credits Act 1999; the cost of setting up stakeholder pensions, which most employees have not taken up; and the flexible working regulations. All those individual regulations may of themselves have something to commend them, but when the Government bring them to bear on business, the effect is to smother business and enterprise and to make life enormously difficult for our small business sector.
  The result is that we are now prejudicing many of the supply side reforms and gains of the Thatcher years. In 2003 alone, there were 4,000 new regulations. During

  397
  the six years of this Labour Government, there have been nearly 23,500 new regulations at a cost of around £30 billion. The British Chambers of Commerce summed up the situation very well, saying:
  "The bottom line is that the sheer quantity of red tape on business is damaging our economy and stifling enterprise, job creation and economic growth."
  The Budget will increase tax burdens, and there will be further rapid growth in public spending and a developing black hole in public finances that must be paid for. I fear that it presages the continuation of the inefficient use of resources and means that public services continue to deliver below their potential. Alas, we have heard nothing to suggest that our constituents can expect any real change before the next election.
  5.38 pm
  Rob Marris: I shall begin by counterpoising the phrases used by my right hon. Friend the Chancellor and the Leader of the Opposition—they both used their catch phrases twice. The Chancellor of the Exchequer referred to "a Budget for excellence in education, science and enterprise". The Leader of the Opposition characterised the Budget in what he obviously thought would be a suitable soundbite—I have not seen the media, so perhaps he succeeded—as "a borrow now, tax later Budget from a borrow now, tax later Chancellor". What a negative way to look at things. One can counterpoise the positive approach of the Chancellor and the negative approach of the Leader of the Opposition. Since the Molineux stadium in Wolverhampton became all-seater, I have attended football matches there on a season ticket. Before that I just used to go along with my mates. A gang of us all sit together, but some of them are like Opposition Members. On those rare occasions when Wolves go ahead in a Premiership match—
  Alan Simpson: Very rare.
  Rob Marris: Well, it's not so bad at home. On those rare occasions, I think, "Oh great, we are 1-0 up, we can win this." Some of the other supporters are in fits of gloom. They think, "Oh dear, now we have something to lose." When we go two ahead, it is even worse for them. It is extraordinary to me, but many football fans are like that, and that is the attitude of several Conservative Members who have spoken today. They characterise the economic performance of my right hon. Friend the Chancellor and the Government as football fans would. They say, "Things can't be so good. We must look for the holes in the Budget." I appreciate that the role of the Opposition is to look for the negative as well as the positive, and indeed some of the remarks from the hon. Member for Sutton Coldfield (Mr. Mitchell) were positive. He balanced his speech by mentioning some of the positive aspects before he went on to the negative aspects. That is a mature way in which to conduct a public debate about our economy. It is also how he and I used to conduct debate when we were on the Work and Pensions Committee together, and we had an enjoyable time before he was elevated and had to leave the Committee.
  Attitudes to any Chancellor or Government should be like attitudes to the stock market—informed by warnings that past performance does not guarantee
  398
  future results. Although there is no crystal ball, past performance does provide some indication. I shall try not to fill my speech with statistics because I am not an economist. I picked up an economics A-level many years ago, although I did not do very well—and those who know me well will understand why. Statistics can be very dry. They are important for our country, but for politicians like me economics and the Budget are about people. Some of the borrowing statistics none the less repay examination.
  The Leader of the Opposition talked about a borrow now, tax later Budget. But what was the performance of the Conservative Government in their 18 years in office? They doubled the national debt. It went up to 44 per cent. of GDP, and that was a poor performance. They now criticise my right hon. Friend the Chancellor for the national debt rising somewhat over a few years. However, the economic cycle is balanced and even. On my right hon. Friend's figures, the national debt will not be more than 36 per cent. of GDP. Borrowing by this Government will, for one year, go above 3.4 per cent. on the forecast between now and 2008–09. By then it will be 1.6 per cent. It is not only the Chancellor who says so. Barclays' economic briefing gives a handy little graph, in which all the big bits above the line were under the Tories and the bits under the line—showing the public finances in surplus—were under a Labour Government. The briefing states:
  "However, public borrowing was much higher in the last cycle ... we are not facing a crisis."
  Its predictions up to 2008–09 for the deficit as a percentage of GDP are below my right hon. Friend's. Commentators outside the House do not, therefore, uniformly take issue with my right hon. Friend on where the economy is going.
  I do not wish to get bogged down in statistics because for me the Budget is about people, and one of its themes was education. The amount spent per pupil in schools in England—the figures for Scotland, Wales and Northern Ireland are issued separately—for the 11-year period between 1997 and 2008 will go up from £2,500 per annum to £5,500. Some of that increase needs to be adjusted for inflation, but that is a massive increase. It is also a massive increase in the quality of people's lives, not only while they are still at school but in their whole life experience, because they have had a better start in life. For me, that is what economics and figures are about.
  The Chancellor announced support for a new deal for skills. It is vital that we continue to upskill, not only for economic performance, important as it is—no one in this country should be starving and people should have a good standard of living—but also for quality of life. Whether people exercise their skills to make a living or as a hobby, having skills will enhance the quality of life for many of them. Investing in skills is certainly vital for the economy, but it is also vital for the quality of life in our society; it is a people thing.
  The arguments are similar on science. The amount for NHS-associated research and development will be £1.2 billion. That is important not only in economic terms, but because the NHS has an effect on the quality of life; for some people, NHS research and development or the new medical research funding announced in the Budget will affect whether they live or die. That is not just dry economics.

  399
  I referred earlier to what commentators are saying about the state of the economy and its relationship to past performance, and I want to quote from some of those outside observers to discuss where the initiatives on enterprise announced by the Chancellor are likely to take us. In February, NTC Research, an economics research outfit based in Henley, stated that its leading indicator, which provides a pointer to growth over the next nine months, rose in January 2004 to its highest level since March 1997. That is pretty positive. That indicator had enjoyed its fourth successive monthly improvement.
  Kate Barker has understandably been cited today in relation to the housing report. She has also been a member of the Bank of England Monetary Policy Committee for the past three years. When the housing report was announced, she said that the last time there had been as much optimism on economic outlook was in 1995.
  In January, the CBI's quarterly distributive trades survey of retailers reported that business was above average for that time of year. The CBI's chief economic adviser said that consumer spending remained resilient. That is not just dry economic statistics; people with the traditional pound in their pocket are spending it on goods that they can use, and although that will not necessarily increase the quality of their lives, it is likely to do so.
  Earlier this month, the Chartered Institute of Purchasing and Supply said that its activity index was a substantial 59.5 in February, marginally lower than the 59.8 of a month earlier. Any reading over 50 indicates growth. Those figures are well above 50, so that indicates optimism about growth in the economy. Thirty per cent. of the institute's survey panel had experienced an increase in business activity: "Panel firms … remain optimistic".
  The economy is buoyant in many sectors, but, as was said earlier, there are difficulties for productivity—again, it is a people thing. I think the right hon. Member for Fylde (Mr. Jack) quoted from box 3.1 on page 49 of the Red Book; uncharacteristically, from my experience of the right hon. Gentleman in the last two Finance Bill Committees, he was quoting somewhat selectively from that section of the Red Book—a point on which my hon. Friend the Member for Warwick and Leamington (Mr. Plaskitt) picked him up.
  You will tell me if I go too far, Mr. Deputy Speaker, but with your indulgence I shall quote some of the points about productivity from the Red Book, because of the people angle. It notes that
  "UK workers on average produce as much as German workers, and the productivity gap with France has fallen by seven percentage points".
  Some of the figures are good and some are bad; it all depends on the country with which we are comparing the United Kingdom. The box on page 49 also includes a chart showing the output per person of working age. That is vital, because economics should not be merely about growth figures and who is making a profit, but about the quality of people's lives. As for the output per person of working age, the UK is ahead of France and Germany and behind the US. Box 3.1 states:
  400
  "This measure indicates how effectively an economy includes all of its potential workers in productive employment. It shows that UK performance is significantly better than Germany, at a similar level to France, and around 25 per cent behind the US."
  That is important, but not only in terms of the dry statistics and the dry economics. It is to do with people's lives. It relates to 1.8 million more people having a job than had a job when the Government took office in 1997. From memory, I believe that 1.3 million of those jobs are in the private sector. There has not simply been huge growth in the public sector.
  These statistics are important because of the quality of people's lives. In my experience, most people—I would not say everybody; indeed I could not say that—are happier when they have a job. I accept that that is not always the position. For example, some people may have a job that they do not like. However, employment is to do with dignity, self-respect and looking after one's family. Most people tend to be happier in those circumstances. It is a significant achievement that the Government, led in this area by my right hon. Friend the Chancellor and the Treasury team, have enabled so many more people to be in work.
  We forget at our peril that there were 3 million, 4 million and, on some measures, 5 million people unemployed under the previous Conservative Government. We should not forget the human misery that that led to for those involved—regardless of whether it was the fault of the Conservative Government or the result of a macro-economic global cycle. Personally, I think the Conservative Government had much to answer for, but I leave those politics aside. There was a great deal of misery, and there is less misery now. That is a significant advance for our society. My right hon. Friend the Chancellor deserves quite a bit of credit for that. It was not just a happenstance. It was not serendipitous. It happened because of tough economic decisions, taken by the Chancellor, that led to 1.8 million more people being in employment. We are talking of record numbers of people in employment.
  I think the hon. Member for Sevenoaks (Mr. Fallon) talked about the report on NHS productivity. Again, this is a people thing. By getting bogged down in dry statistics, there is a tendency to overlook the quality-of-life argument—the people argument. If, for example, a GP decides that he or she will spend eight minutes with each patient instead of six minutes, on the face of it productivity will decrease by 25 per cent. However, many Members, particularly Labour Members, would see it as it a good thing if a doctor could do that.
  If hard-pressed workers in the NHS did not have to rush as much and nurses and auxiliary nurses, for example—they do a wonderful job—could spend a bit more time with patients to reassure them, and so on, it could be said that on a scale productivity would be shown to have decreased. The nurses would not be looking after so many patients. However, the quality of life of those patients—the public service offered—might well have increased. There may be dry economic-type figures about what has happened to productivity in the NHS, and we should not overlook them. We need to be aware of the figures and they must be monitored, but they do not tell the whole story about the bang for the buck that the taxpayer is getting in terms of the money that is going into the NHS. We must have regard to the experience of the individual who needs NHS treatment and help. Those factors must come into the equation.

  401
  Like the hon. Member for Sutton Coldfield (Mr. Mitchell), I am a west midlands Member. Manufacturing is the lifeblood of the west midlands. Indeed, it represents 30 per cent. of the economy in the region, as against 18 or 19 per cent. in the rest of the United Kingdom.
  We have a real difficulty with manufacturing. If we were all to be honest on both sides of the House, I think that we would find that no one knows what to do about manufacturing. I certainly do not. We should pay more attention to manufacturing, and it is to the Government's credit that in the past two or three years they have started to do so. That was a bit of a long time coming. Manufacturing is a huge problem in the western world, but the problem is greater in the United Kingdom because of what has happened in terms of our export markets, for example. For all the criticisms about regulations and the European Union, for example, and for all the alleged rigidities and inflexibilities of manufacturing in Germany, Italy or France, the manufacturing sectors of those economies trade at a surplus whereas ours do not.
  I am a member of the Transport and General Workers Union, which is affiliated to the TUC. I am grateful for the pre-Budget briefing provided by the TUC, in which it points out that in
  "the past year … investment across engineering fell by 36 per cent. in real terms."
  If we interpret the 1999 figure for manufacturing investment as 100 on an index of 100, in the third quarter of 2003 that index stood at 67.4, which is a huge drop. The net return on capital in the same period dropped from 9.4 per cent. to 7.4 per cent. I do not want to get sucked into the statistics, but there is a significant problem in manufacturing in the United Kingdom. I am not sure, however, that people know what to do about it.
  One difficulty is persuading people with capital to invest in manufacturing on the basis that they will get an adequate return. Historically, that is a long-term problem in the United Kingdom, and has not just developed under this Government or the previous one. A number of world-beating inventions have originated in the United Kingdom, but we have not been able to develop innovations such as fibre optics or magnetic resonance imaging scanners, which were invented in Leicester. We cannot market them profitably, so people in other countries start to do so and make money from them. We have a great background of science and invention. The hon. Member for Sutton Coldfield will be interested to learn that, a few years ago, I read that the majority of patents in the United Kingdom are taken out by people with an address within a 35-mile radius of Birmingham city centre, which covers both our constituencies.
  The west midlands is arguably the centre of innovation in the United Kingdom, but we are not as good at getting the stuff to market. I am not sure that, despite all the help that the Chancellor has offered in this Budget and previous Budgets with research and development tax credits—initially incentives such as the 125 per cent. write-off applied to small businesses but were extended to larger businesses last year—we have done as much as we can to bolster manufacturing and encourage investment. The Department of Trade and Industry has just produced a report on innovation, and
  402
  I went to a talk on the subject yesterday, but it did not address the problem of how to move from innovation to the marketplace. I am not suggesting that we always fail to tackle the issue. The bloke who invented Dyson vacuum cleaners, for example, also invented the little wheelbarrow with the ball on the front instead of a wheel—the Financial Secretary is too young to remember that, but perhaps you do, Mr. Deputy Speaker. Dyson made a fortune out of that invention when he was based in Corsham near Bath. There are people who have brought their inventions to market in the United Kingdom and made money out of them, but in general the Government need to do more to encourage investment in manufacturing.
  Positive steps have been taken in the past two years, both by the DTI and the Chancellor, but no one is sure what else to do about manufacturing, which leaves me wringing my hands in frustration. As a Member of Parliament I might be described as self-opinionated—if I was not, I would not stand for election—but I often have bright ideas that may be completely wrong. I do not have many bright ideas about manufacturing, and do not encounter many people who do or who say, "If only we did this there would be a revival in British manufacturing and we could stop the haemorrhaging of jobs, restore investment and get innovations to market. We would all be making more money and we would all be happier." Above all, we should be careful in economics not to overlook people and their happiness.
  5.59 pm
  Mr. Nick Gibb: It is a pleasure to follow the hon. Member for Wolverhampton, South-West (Rob Marris), who seems to have the right approach to the conduct of political debate. However, he overestimates the problem with manufacturing.
  Britain is a huge overseas investor. British entrepreneurs have billions of pounds of manufacturing assets around the world. The hon. Gentleman mentioned one of those entrepreneurs, Mr. Dyson, who has moved his factory to the far east. That is not necessarily a devastating decision, because the profits from those factories will come to the UK, the entrepreneurial activity will take place in the UK, and the design of new products will take place in the UK, so many metal-bashing jobs will be replaced by warm, comfortable, higher paid jobs in offices and design studios. The figures from the TUC that the hon. Gentleman quotes will not include the masses of manufacturing that takes place under the aegis of British entrepreneurs all around the world.
  The hon. Gentleman underestimates the problem with Government borrowing. The debt figures, to which many of my hon. Friends have referred, have been revised a number of times. In last year's Red Book, for example, the net borrowing for 2004–05 was set at £24 billion. In the pre-Budget report, the figure was revised upwards to £31 billion, and today the Chancellor revised the figure yet again to £33 billion. He did not mention in his speech the inexorable upward shift of private finance initiative commitments, which now stand at about £6.5 billion every year. Those are like credit card payments, which we must pay, and £6.5 billion a year is the minimum payment. It is the

  403
  Government's hidden debt. It would represent a huge quantum of debt if one could turn it into the actual capital figure that was spent.
  I shall concentrate my remarks on tax avoidance. I am one of the few Members on the Conservative Benches who is not a former Financial Secretary, but I spent 13 years of my career, prior to entering the House, as a tax adviser in one of the big four accounting firms, so I have a real concern about corporate tax avoidance. I have a particular concern—I share the view of my hon. Friend the Member for Sutton Coldfield (Mr. Mitchell) on this—about aggressive corporate tax avoidance schemes, but I am still against a general anti-avoidance rule. I welcome the fact that the Chancellor has, for the moment, ruled out the introduction of such a rule.
  I welcome the public and open move by Gus O'Donnell to call in the heads of tax of the big four accounting firms to tell them to stop marketing aggressive tax avoidance schemes. Those outrageous schemes are designed to use loopholes in the tax code to reduce a company's or a wealthy individual's tax bill—loopholes that were not designed to give that tax relief—for example, paying a City trader his bonus by lending him a substantial sum in the currency of an inflation-wracked country. The trader takes the currency and converts it immediately to sterling. A year later, once the foreign currency has substantially declined in value against sterling, he converts back into the foreign currency enough sterling to repay the debt. Of course, it requires significantly less sterling to repay the debt, and that gain, which is a foreign currency gain, is essentially tax-free. That loophole has been closed, but the question I ask—which my hon. Friend also asked, in a sense—is why the banks that used the scheme thought it was right for a City trader to receive his bonus in that tax-efficient way.
  For most people, every penny they earn is taxed. In my judgment, it is taxed too highly. Even £10 of interest on a non-ISA building society account is taxed. Why does it become acceptable for some people with very large incomes not to pay tax on every penny of their income? What I find particularly galling about large companies that buy and demand aggressive tax avoidance schemes from their accountants—incidentally, it is only the large corporations that can afford to buy and implement those schemes, because they are very expensive—is that while they exploit those tax schemes, they continually lobby and complain about the increasing complexity of tax legislation that has become complex simply because the Inland Revenue is trying to close the loopholes that those companies have prised open.
  Mr. Laws: I have a great deal of sympathy with the points the hon. Gentleman is making. Does he agree that many tax loopholes—for example, the film industry tax relief and the 0 per cent. corporation tax rate that caused so many businesses to incorporate—have been opened by the Government, not simply exploited by business?
  Mr. Gibb: I do not regard those as loopholes. They are specific tax incentives introduced by the Government in order to encourage certain investment or activity. I find
  404
  nothing wrong with companies or businesses deliberately deciding to take advantage of such concessions and therefore investing in films or incorporating small businesses into corporations to take advantage of the 0 per cent. rate. However, I do find it irritating that companies will try to exploit tax loopholes that do not have such objectives.
  The large corporations that take advantage of those loopholes trumpet their involvement in corporate responsibility activities. They put people on the Cadbury and Greenbury committees looking into corporate governance, while complaining at board meetings about the high tax charge in the accounts and asking why the finance director has not done more to reduce it. They send employees off to inner cities to engage in worthy pro bono activities, while avoiding millions of pounds in tax that they should be paying, the shortfall from which has to be made up by ordinary taxpayers or from public spending in those very inner cities.
  That all gives the impression that corporate responsibility is just a veneer. If a company genuinely believes in corporate responsibility, it should pay the tax that Parliament has decided it should pay. It should honour the spirit of the law, not just the wording, particularly if the legislation has been poorly drafted, which increasingly it tends to be.
  Mr. Andrew Mitchell: Does my hon. Friend agree that companies should be encouraged to make it much clearer in their annual report and accounts how much tax they, and in particular their employees through PAYE, pay? First, it would demonstrate the important contribution that business and companies make to building hospitals, funding schools, and so on, and, secondly, where they do not make payments because they indulge in these schemes, it would be clear to all of us.
  Mr. Gibb: I am grateful to my hon. Friend for making that point. It is a point that he made in his speech with regard to the Royal Bank of Scotland trumpeting the fact that it had paid huge sums of tax that was being used to fund hospitals and schools. He is right in the comment that he makes. We are talking about a minority of plcs that are engaged in such activities, so it would be useful for shareholders and others to try to expose companies that are not being corporately responsible and fulfilling their obligations to society.
  Let us not forget that the companies that use such schemes are not fledgling, struggling businesses, with the owners' homes on the line because of the money that they owe the banks; nor are we in an era of 98 per cent. tax rates, as we were in the 1970s when tax avoidance was almost inevitable, and almost understandable because of the very high corporate and income tax rates. We are talking about plcs, well-known household names, some of which are headed by multi-millionaires.
  I raise this because it is part of a wider issue. It is about people in positions of responsibility asking "Is this right?" Corporate responsibility is not just about asking "Is this legal?" or "Is this within the wording of the legislation?"; it is about asking "Is this right?" That question should dominate board meetings. Large businesses cannot have it both ways. They cannot

  405
  complain about increasing amounts of legislation if all they do when assessing a proposition is to ask "Is this legal?" If morality extends only up to ensuring that an activity is within the law, it becomes the responsibility of the legislators to ask "Is this right?", to fill the moral vacuum and to create new laws to cover every eventuality and new development.
  If the view of some of those who run the major corporate enterprises of this country is that any activity is justified provided that it is within the law and that they have no responsibility beyond that, and no responsibility to ask whether something is right even though it is legal, they cannot complain when the laws are continually extended. Make Warburton, of the accounting firm Grant Thornton, summed up that corporate view when he said:
  "Tax advisers have a duty to minimise their clients' tax. Indeed they can be sued for not doing so."
  Of course accountants should advise their clients on all the legitimate tax concessions that Parliament has introduced, but that does not extend to schemes designed to exploit the tax code in ways that were not intended.
  As a Conservative, I abhor increasing amounts of regulation and laws. They are costly to enforce, read and understand and they distort and hamper free enterprise. However, if we want, as I do, to live in a low regulated society, it is imperative that its leading members take upon themselves a sense of responsibility so that they behave responsibly without the need for such rules and regulations. In essence, they must ask the question, "Is this right?" If the answer is no, they should not proceed.
  Was it right for Merrill Lynch to advise unsuspecting savers to invest in companies that it knew to be junk? Did someone on the board in New York ask, "Is this right?" Was it right in the 1980s for companies to borrow off balance sheet to deceive bondholders or circumvent their rights? Was it right for Rank Xerox to boost its profit figures in its accounts by recognising now profits to be earned in future years? Did the advisers to Enron ask whether it was right to deceive investors and creditors by pushing swathes of debt off balance sheet in special purpose vehicles?
  The problem with the position that we have reached is that it has been spawned partly by excessive regulations. The more burdensome and extensive the regulation, the more people feel that complying with it somehow fulfils their moral obligations. That is similar to high taxes. The higher the tax, the more people feel that their responsibility to others is fulfilled when they sign the cheque to the Inland Revenue.
  Rob Morris: The hon. Gentleman is making an extremely thoughtful speech. He posed what was al most a chicken-and-egg question about whether regulation led to a decline in moral standards, to use my words, or vice versa. It strikes me that a series of outrageous manoeuvres—he has referred to some of them; another is Chester Street Holdings, formerly Iron Trades Holdings, which was an insurance scam that was legal under employers' liability legislation—led to regulation rather than regulation spawning the manoeuvres. Of course, a vicious circle ensues.
  Mr. Gibb: The hon. Gentleman is partly right, but there are other incentives and motivations for
  406
  Governments to introduce regulation. Political ideology, sometimes inegalitarian ideology, often determines such matters. The working time directive is an example of that. It adds to regulation. In opposing legislation on corporate responsibility, the Cadbury report stated:
  "Statutory measures would impose a minimum standard and there would be a greater risk of boards complying with the letter, rather than the spirit of their requirements."
  That is the essence of the issue. The more rules that exist, the more people believe that any amount of underhand behaviour is permissible provided that there is no rule against it.
  How do we break out of that vicious cycle? The onus must be on those in senior positions in society to accept a wider responsibility. The Government, too, can play a role in ending the vicious cycle by engaging seriously in simplifying the tax systems. My right hon. Friend the Member for Fylde (Mr. Jack) also called for that. Complexity provides scope for the sort of schemes that we are considering. Complexity and consequent lack of transparency appear to lend acceptability to measures that are designed to avoid the scope of the tax system. A simpler, more transparent tax system would reinforce responsibility and enable people to have faith in its integrity.
  Some critics will say that that is all naïve nonsense, but I do not believe that it is. In this information age, people want—and will ultimately get—authenticity and truth. Reputation for honesty and integrity in business is becoming the most valuable of a company's intangible assets. A company that neglects such an asset is destined to go the way of Arthur Andersen, whoever that was.
  As Onora O'Neill said in her Reith lecture on trust in 2002:
  "Citizens, it is said, no longer trust governments, or politicians, or Ministers, or the police, or the courts, or the prison service. Consumers, it is said, no longer trust business, especially big business, or their products. None of us, it is said, trusts banks, or insurers, or pension providers. Patients no longer trust doctors and in particular no longer trust hospitals or hospital consultants."
  It is therefore in the self-interest of business, politicians and political parties to protect and nurture their reputations for scrupulous adherence to truth and authenticity. Consumers do not want to be ripped off by business, and the public do not want to be conned by politicians. That is not a naïve view, but a statement of the obvious.
  I am against a general anti-avoidance rule, and I am grateful that the Chancellor has ruled it out for the moment. It would be a cumbersome and costly mechanism, and it would create uncertainty. We already have extensive anti-avoidance case law, but to introduce a general legislative anti-avoidance provision would hand to the Inland Revenue too much discretionary power to tax in a way that would be capricious and non-rules based. However, it is up to those in senior positions in business to convince the public by their behaviour that no such rule will ultimately become necessary.
  6.15 pm
  Alan Simpson: I am very pleased to be called to speak on the first day of the Budget debate, and I begin by paying a couple of

  407
  tributes, the first of which is to the hon. Member for Bognor Regis and Littlehampton (Mr. Gibb) for an extremely principled analysis and denunciation of tax avoidance, and where it takes us as a society. I urge Members not currently in the Chamber to read his remarks carefully and reflect on them.
  I also pay tribute to the hon. Member for Sutton Coldfield (Mr. Mitchell), who made extremely thoughtful and honest comments on the pensions dilemma, and on some of the ways in which we shall have to address problems of housing provision in the years ahead. He pointed out the real difficulties of removing regulation to the point at which developers not only are allowed to determine housing density on land on which they have freedom and permission to develop, but leave behind social consequences in the communities that contain the developments, once they have left with the moneys that they have made out of them. Again, it would be helpful for us all to reflect on his comments.
  I welcome the generous comments that the hon. Member for Sutton Coldfield made on the Budget's good points, and I wish only that the Leader of the Opposition had not been so disparaging in his comments. It was extremely disappointing that he was unable to recognise and comment positively on the stability and economic growth that this Chancellor has delivered, and which was always out of the reach of the Conservatives when they were in government. It is unhelpful to retreat into a knocking copy analysis that is waylaid by arguments that any taxation is bad taxation, and that less taxation must be good. That in no way engages with the nature and challenges of the society in which we live.
  The same may be said of commitments to knock the Chancellor's decisions on when in the economic cycle to borrow, and for what purposes. Anyone who runs on claims that their only commitments are to reduce taxation and borrowing is left with fairly spurious spending promises that are impossible to deliver. A further issue is the duplicity of the positions taken on debt. I have not heard Members in the House denounce households' decisions to take on mortgages. Those decisions to take on family debt are seen as responsible, because the family make them in the knowledge that they will get a solid, secure asset that will have lasting and, they hope, increasing value. However, when some Members discuss Government decisions to borrow for infrastructure investment, although that also involves assets that will accrue in value, they suddenly call those decisions morally reprehensible, and denounce the Government for making them. That duplicity and inconsistency does no credit to the debates that must be held in the House.
  I want to focus on three issues. They are observations on, rather than criticisms of, how the Chancellor has brought us to this point, but they involve challenges that we have yet properly to address. My plea to the House is for a grown-up discussion of the difficult issues that lie ahead of us, and I want to focus on three of them. They are: first, what we should do about pensions; secondly, how we should deal with infrastructure investment; and, thirdly, the question of the environment.
  408
  Whatever party is in power, we must recognise that it is a biological rather than a political reality that, as we live longer and expect to spend less of our lives in work and more in retirement, we shall have to ask ourselves how we are to pay for that change in the balance of our live. The only way to pay for it properly is to recognise that we shall have to pay more in our working years for the length and quality of our retirement years. That is not a politically contentious thing to say; it is simply a biological fact of life. The real debate that needs to take place is on how we can best do that, rather than on whet her we do it at all.
  We are told that we are not saving enough. This weekend, Sandy Crombie, the chief executive of Standard Life, wrote a useful summary in The Observer. In the opening paragraph of his article, he said:
  "This country is facing an enormous challenge. People are living longer and the trend has been for them to spend less of their lifetime working. They need to save more, but they are not. The Government estimates that 3 million workers are not saving for retirement at all, and another 5 million to 10 million are not saving enough. According to some estimates, half of all UK workers are saving less than they should."
  What can we do about this? If we try to take this message out to young people, we learn the salutary lesson that we have virtually lost the argument before we start. Many young people say, "Save for retirement? You're mad! You must be absolutely stark staring bonkers! Look at the people we are working alongside. Many of them have saved throughout their entire working lives in works pension schemes, yet they are being told that all the savings that have gone into those schemes are now worthless. The company schemes have gone bust, the money has disappeared, and what people thought of as their savings for retirement have been frittered away somewhere. The system is not going to safeguard the money that I put into it; it's going to run off with it. The money will disappear. Do you think that's what I want to do? Absolutely not!" This crisis of confidence for those people who would not even dream of putting money into a pension scheme has to be addressed.
  I would like the Government to recognise that we have to come up with measures to address the restoration of pension entitlements to those who have saved throughout their working lives and who believe that their pensions have been stolen from them. I would have liked to see such measures in today's Budget, but they will be welcome whenever they are introduced. No amount of new pensions provision will be credible if it does not address the theft of the pension entitlements of those who have been told that their pensions have now gone.
  In other debates in the House, Members have drawn attention to the amounts that are currently sitting in various pots in what are called orphan funds, held by banks, solicitors and different sections of the financial services industry. Estimates of the amount in those fund are as much as £50 billion. The highest estimate of what it would cost to meet the needs of the 60,000 pensioners who have been told that they have lost the value of their pension savings ranges up to a maximum figure of £450 million a year. If the Government were to require the industry to put that £50 billion aside, we could comfortably pay that £450 million a year simply out of the interest that would be earned on it. The

  409
  important thing, however, is that we honour a debt—a contract entered into honestly by workers who, through their lives, contributed to their works pension schemes.
  In part, the credibility of the schemes and exhortations that come from the Government must be considered in the sense in which we honour the commitments made by those generations. It does not have to be the Chancellor who puts his hand in his pocket, or other people's pockets, but he does have to say to the financial services industry, "Those orphaned funds are not your money anyway. This is still other people's money that you're sitting on, and every now and again you have a little scoop out of that pot." That is to meet the company's needs, not the needs of those whose pension entitlements have been taken from them.
  If we were to go down that path we would go a long way towards restoring the credibility of exhortations to save for the pension years, but it would not be enough. We also must reflect on the obsession, which the Labour Government inherited, with the desire to go in for means-testing. I will not go through this in detail, but I urge Members of the House to read the document recently produced by the Pensions Policy Institute entitled "Citizen's Pension: Lessons from New Zealand".
  The institute's approach turns its back on the obsession with means-testing. It goes in for a much simpler system, which is to deliver a flat-rate universal pension payable to all people over the age of 65. It is popularly referred to as the "65 at 65" pension, because the pensioner couple will receive between them 65 per cent. of the average wage at the point at which they retire. This is a generous pension that provides a platform beyond which people can have their works or second pension and their other income streams, all of which should be subject to normal rules of taxation. However, it removes the sense of contradiction in an increasingly complex means-tested system.
  The reality, as everyone who has looked at pensions will say, is that it is always the contradictions at the margin that are greatest and most unfair. The clawback on those at the margins of eligibility is where the greatest sense of unfairness appears to lie. This approach is a helpful way out on an important issue that this and subsequent Parliaments will have to face.
  The Pensions Policy Institute paper is modest, as it makes proposals that would deliver a citizen's pension in the UK of about 22 to 25 per cent. of national average earnings. It states:
  "This level of benefits is not generous, but it would mean that hardly any pensioners need to be means-tested for their basic income."
  We must be willing to go down that path if we are to try to make all other pension savings exhortations credible, because many of those in work are saying to us on the doorstep, "We must have been daft to have been putting money aside." Those who have put savings aside through their working lives find themselves in a means-tested system and being penalised in terms of their eligibilities while those who have put nothing aside get the full benefit of provision. We have to look at ways of removing those disincentives within the system.
  In relation to second pensions, however, I would make a further point. If we had doubled the savings rate rather than halved it, and if that money had gone
  410
  substantially as an increase in pension funds, whether works or occupational, would that have made today's position any easier? The answer is no, because the crash was driven by an excess of capital in pursuit of shares whose value was being driven speculatively through the roof. All that we would have done is to have thrown twice the amount of money at the same number of shares, share values would have rocketed, and the crash would have been even more dramatic.
  A year ago, I did some work with two other people that attempted to examine a different approach to pensions, which I make no apologies for commending to the House. Richard Murphy, Colin Hines and I wrote a document entitled "People's Pensions", which looked at the fact that the £250 billion that had been wiped off the value of UK pension fund holdings in the previous year largely reflected the change in balance of where pension fund contributions were going. Forty years ago, more than half of pension fund savings were going into Government bonds, which were by and large focused on infrastructure investments and assets that were not going to disappear. In the last year for which we could get figures, however, 71 per cent. of pension fund contributions went into shares, and only 17 per cent. into Government bonds. That was backed up by public sector investment that was increasingly driven by dependence on private finance initiative schemes and the approach to off-balance-sheet accounting that seems to be in vogue at the moment.
  When we considered a different approach to pension funds and pension schemes, one of the most obvious issues was that hospitals, schools and local authorities involved in PFI schemes were being charged an interest rate of 16.6 per cent. Local hospital trusts are already hitting budgeting crises as the annual repayment costs of PFI schemes start to cut into the costs of other direct patient services. We pointed out that if no more than half the £50 billion a year that workers currently put into their pension schemes were channelled through the people's pensions vehicles that we proposed into direct public infrastructure investments, even at a rate of 5 per cent. to 6 per cent., that would be a quarter of the rate being charged by PFI providers. It would also deliver tangible assets that provided real improvements in quality of life and the access to services on which people relied—we would get an improvement in service, a tangible asset and something that would not disappear in the bursting of a dotcom bubble.
  The challenge facing us is how to break from a fascination with an approach to financing the future that is driven by the short-term demands and requirements of the financial services industry. We must set down different ethical or legal requirements for the way in which that sector of the economy works in relation to the needs of the whole economy.
  The House needs to reflect on where our current infrastructure dependence on PFI schemes is taking us. If we consider tables C16, C17, C18 and C19 in the Red Book, we see that if we put together the signed bid and preferred bidder stages of PFI schemes, we are currently looking at getting about £7.3 billion a year as income. We are having to support PFI contracts with payments averaging £6 billion a year, for the next 12 to 15 years. Even if that is matched by the direct Government investment to which the Chancellor referred, great

  411
  chunks of the investment will have to he underpinned by the asset sales he mentioned—also running at £6 billion a year—if fresh investment is to be made.
  All that leaves us with real problems to do with the assets that we no longer own and the liabilities that we shall still have to honour. I can think of so many better ways in which we as a society, and we as a Labour Government, could try to safeguard the contributions that people are currently making to their pension schemes, and direct them more effectively into the public infrastructure investments that society needs so badly. We must go further, however. We have got into the habit of making freedom to invest publicly conditional on a willingness to dispose of public assets. If we want a level playing field, we should argue for open and accountable democracy. If local government wants to invest in the improvement of its housing stock, let it borrow in the way that we say we are making it free to borrow, but not on the basis that it can sell out one set of council tenants to meet the housing needs of another set. Trading in people—trading in people's lives—is not an activity for which a Labour Government will be thanked.
  I welcome the Chancellor's specific references to the environment, but I feel that an opportunity has been missed. He came up with some useful proposals for incentives to make people shift towards less polluting fuels, but the right hon. Member for Fylde (Mr. Jack) was right about biofuels. The Environment, Food and Rural Affairs Committee received numerous representations from the energy industry, describing the various levels of financial incentive that would enable the industry to act ethically and produce non-polluting fuels. Increasingly, members of the Committee responded by asking, "Why don't we just give you an obligation to do that?" If the cost were spread across all fuel types and fuel sales, the consumer would experience minimal change.
  Why should the Government try to find cash incentives to pay the industry to act in a less polluting way? Surely it is much more sensible to tell the industry that that is its duty. If the costs are absorbed within the industry as a whole, as long as we specify the rate at which we want polluting fuels to be replaced by less polluting fuels, let the industry get on with it.
  Another opportunity was sadly missed when no duty was imposed on aviation fuel. Like every other Member, no doubt, I take advantage of the low-cost flights that are currently available. Can I justify that on environmental grounds? Absolutely not.
  If we are considering the real challenges and choices, we should not say that we must support a proposal because we are locked irrevocably into a globalised economy. The real challenge is, in fact, the other way round. Like Joseph Stiglitz, a former member of the World Bank board, I am a disbeliever in globlisation: I think it is rapidly reaching its sell-by date. The one thing that is here to stay for the rest of our lives is the reality of climate change, which will turn everything upside down. We will have to revise the whole way in which we think about sustainable international economics if we are to survive the century in a civilised fashion.
  412
  I want the Chancellor—I know that he can do it—to come up with a new raft of policies that promote a sustainable environment rather than an exploited one, promoting sustainable trade rather than a global free-for-all, and favouring the reduction of product miles rather than the explosion of pollution costs that comes front goods in global transit. Other countries in Europe haw policies that tax-favour the restoration of localised and regionalised economic systems. That is low-impact economics that will be in the interests of all and provide employment and sustainable lifestyles for all. That is the challenge that every Government in this country will face for the entirety of my lifetime.
  We have to meet our Kyoto targets. One way of doing that relates to an issue that I have droned on about in the House more than I should have: ending fuel poverty. The Chancellor mentioned the commitment to new social house building. That is important, but we must recognise that the majority of families will live in the housing stock that is available today. The reality for those who are fuel-poor today is that they will live in the housing that is fuel-poor tomorrow. We must focus our attention on that housing stock.
  Through the Fuel Poverty Advisory Committee, the Government were given a stark warning about a fortnight ago that we simply will not meet our legal undertakings to end fuel poverty unless there is a 50 per cent increase in the Budget commitment to eradicate fuel poverty in social housing alone. That does not even take us into the challenges of how we do so in private rented houses, and especially houses in multiple occupation. We have to create a shift in the resources. I look forward to the day when the Chancellor introduces a framework of environmental commitments that will bring to an end the human and environmental misery of fuel poverty.
  This was a good Budget. It was not an election Budget. It was a Budget for education and science. It was a Budget to reassure, but not yet to inspire. I was disappointed that the Leader of the Opposition struggled to address the issues even of the last century. I hope that it will be within the grasp of a Labour Government—only a Labour Government will do this—to set out our stall to address the issues of the century that we have entered, rather than following the Opposition into the century that we have left.
  6.43 pm
  Mr. John Baron (: I congratulate the hon. Member for Nottingham, South (Alan Simpson) on a thoughtful contribution in relation to pensions. and my hon. Friend the Member for Bognor Regis and Littlehampton (Mr. Gibb) on his thoughts on tax avoidance.
  No Budget is all good or all bad. There are aspects of this Budget that I warmly welcome, including the increased spending on our armed forces and the tax incentives for investment in very small start-up businesses. However, it was said earlier that Budgets are essentially about people, and I want to concentrate on two key failings in the Budget that will directly affect my constituents. The first will impact on the small business community in my constituency. The Government will not be surprised to learn that a recent business survey clearly showed that small businesses in my constituency

  413
  were fed up to the back teeth with the amount of regulation and extra red tape that the Government have introduced in recent years.
  Independent analysis has shown that, on average, Just under 4,000 new regulations have been introduced each year since 1997. No one is arguing that regulations are new under this Government and that they did not occur before, but there has been an increase of more than 50 per cent. compared with the level under the previous Conservative Administration. Frankly, businesses are getting tired of this. It is no wonder that The Economist stated:
  "Labour is losing the battle for the hearts and minds of British business."
  Responses to my constituency survey revealed that businesses are spending a lot more time on red tape and regulation, and that these extra regulations serve only to slow growth or to make it harder to run businesses in general.
  We could talk in some detail about the increase in national insurance contributions. Understandably, many businesses consider it a tax on employment. It has led directly to redundancies, a slow-down in recruitment and a reduction in profits. To an extent, it has affected staff morale and made it more difficult to run businesses in general.

  Various independent statistics seem to confirm these findings. I shall not give a long list of figures, but I shall mention those provided by two independent bodies. The Institute of Chartered Accountants and the Institute of Directors both claim that the cost to UK businesses of implementing new legislation is running at an extra £6 billion a year. Those might be abstract figures but they illustrate a growing problem: we are suffering from decreasing competitiveness. This Government tend to forget that the burden of red tape always falls disproportionately on small firms, which is particularly worrying as they are often the lifeblood of our local economies. Small companies simply do not have the personnel to deal with an ever-increasing number of regulations. Figures from the Institute of Chartered Accountants confirm that the cost to small businesses of new legislation has more than doubled in recent years.
  It is often the entrepreneur who ends up dealing with this increase in paperwork, when he or she would be better employed running their business and creating wealth. For me, this is the central point. Budgets should be about trying to maximise the country's economic potential; that way, we are in a far better position to help those who need it. But that can be better brought about if we foster personal freedoms within the rule of law, encourage enterprise and allow businesses—particularly small businesses—to breathe and thrive. Such an approach, all things being equal, would lead to a more prosperous economy, from which the Government could take their rightful share in order to help the truly disadvantaged in society, and fund essential public services. That will not happen if they continue to pile regulation and red tape on to businesses. In the longer term, that will hinder enterprise and, in
  414
  turn, our ability to help those most in need. Yet since 1997, this Government have continued to make life difficult for entrepreneurs. This Budget does little to put that right.
  It is not just small businesses in my constituency that will be disappointed with this Budget; so will the many taxpayers who have seen tax increases under this Government, but very little in return. We all know that when in opposition in 1995, the current Prime Minister said:
  "We've no plans to increase tax at all".
  Most independent forecasters accept—and the general public certainly seem to—that we have had a welter of tax increases since 1997; indeed, some put the figure as high as 60. Some suggest that a typical couple on average full-time earnings is now paying an extra £500 a year or more in tax under this Government. It is no surprise that the Government's tax revenue has risen by some 50 per cent. since 1997.
  My constituents are asking these simple questions. Given that they have paid all these taxes, why is violent crime rising so fast, why are detection rates so low and why are there so few police on our streets? Patients in the constituency are asking why accident and emergency waiting times are so bad, why we are so short of GPs and why average waiting times have either not improved or are getting worse. Parents are rightly asking why teacher vacancies have increased so significantly under the Government and why it is so difficult to get their children into local schools. Commuters are asking why there has been so little investment in our roads, and residents are asking why the Government have done so little to combat the illegal development of our green belt and why so little progress has been made on waste recycling in comparison with our European neighbours.
  In short, my constituents are rightly concerned about why such a large increase in taxation has produced so few results. The conclusion can only be that a large element of Government spending has been wasted. What is doubly concerning about this Budget is that, with projected borrowing forecast to rise to about £140 billion over the next five years, further tax increases are inevitable, should Labour win a third term of office.
  In conclusion, Budgets should be about maximising the economic potential of the country to raise living standards for all, but this Budget does not achieve that goal. We have seen an increasing tendency for the Government to tax and spend—to tax the wealth creators in our society and then spend the proceeds in a way that, to this point at least, has had little effect. If anything, the Budget reinforces the view that "government knows best".
  There is no doubt that the vast majority of hon. Members, regardless of party, are here because they want to improve society. We differ on the method of achieving that goal. Conservative Members have greater faith in the individual than the state, believing that politicians can sometimes be the problem, not the solution. That is so whether we are talking about freeing entrepreneurs from stifling regulation or costs, allowing local communities to take their own decisions about

  415
  green belt development, giving local police forces more say in how they police their local communities, or allowing our local doctors and nurses and our governors and teachers more say in the running of their hospitals and schools. We must guard against an over-powerful Government who encroach on the personal rights and freedoms of individuals, and instead encourage individual initiative and enterprise, which will benefit society as a whole. We must also guard against Budgets that reinforce the centralist tendency. That is why I cannot support the Budget today.
  Debate adjourned.—[Joan Ryan.]
  Debate to be resumed tomorrow.

BUSINESS OF THE HOUSE
Ordered,
That, at the sitting on Wednesday 24th March,—

notwithstanding paragraph (2)(c)(i) of Standing Order No. 14 (Arrangement of public business), proceedings on opposition business shall lapse at Four o'clock or three hours after their commencement, whichever is the later, and

the Motion for the adjournment of the House relating to Equitable Life may be proceeded with, though opposed. until Seven o'clock or for three hours, whichever is the later, and shall then lapse.—[Joan Ryan.]

PETITIONS

  Sub-Regional Strategy (South Bedfordshire)
  6.53 pm
  Andrew Selous: I present a petition signed by 17,000 of my constituents in south Bedfordshire about the scale, nature and location of the Government's development plans for that region. It is a matter of enormous concern to my constituents.
  416
  The petition states:
  To the House of Commons
  The petition of the residents of South Bedfordshire concerning the Milton Keynes and South Midlands Sub-Regional Strategy whereby the residents of South Bedfordshire ask the House of Commons to ask the Deputy Prime Minister to amend fundamentally the Milton Keynes and South Midlands subregional strategy so that the Government ensures local housing is built for local people (including affordable housing) and does not use South Bedfordshire to house large numbers of people from outside the district; ensures that the concerns of local people and their local representatives are fully recognised; ensures that future housing development does not make worse the congestion on our roads or the overcrowding of our trains and notes in particular that the agreed extension of the A505 to the MI is to alleviate present congestion and that housebuilding on the proposed scale will make matters worse; ensures that any houses built are built close to and in proportion to any new jobs that are created; ensures that building on the South Bedfordshire green belt is kept to an absolute minimum; ensures that health, education, transport, police, shopping and other community facilities are built at the same time as any new homes.
  And the petitioners remain, etc.
  To lie upon the Table.

Parental Contact
6.55 pm
Mr. Ian Liddell-Grainger: I wish to present a petition signed by 100 residents of the Bridgwater constituency. It declares:
That parents, after they separate, should enjoy a legal presumption of frequent and continuing contact with their children, unless a child's safety would be put at risk.
The petitioners therefore request that the House of Commons amend the Children Act 1989 to replace the term "contact order" with "parenting time order", to provide for the making and enforcement of parenting time orders, and to ensure that parents and, where appropriate, grandparents enjoy a presumption of contact with their children and grandchildren.
And the Petitioners remain, etc.
To lie upon the Table.

Paediatric Doctors
Motion made, and Question proposed, That this House do now adjourn.—[Joan Ryan.]
6.56 pm
Tony BaldryPaediatrics is often in the media. No doubt the Minister's officials expected me to want to talk about the cases of Sally Clark, Trupti Patel and Angela Cannings, but I do not. To avoid confusion about the matters that I want to raise in the debate, I have given the Minister notice of what I intend to say. I want to raise the less familiar cases of three-year old Ian Luckett, a Bloxham boy who tragically died at Oxford's Radcliffe infirmary, and of the late Dr. Ian Watkins.
I shall begin with the tragic case of Ian Luckett. He is the reason why, a number of years ago, the Horton general hospital recruited paediatricians of the calibre of Dr. Bob Bell, who retired recently after many years of outstanding service to the community.
Ian Luckett died in 1974, after accidentally receiving a drug overdose. His father, Donald Luckett, told of how his son said, "Daddy, I want to sleep. My eyes won't stay open." That was just before he was discharged from the Houghton general hospital. The next day, Ian's father was unable to wake him: sadly, he never regained consciousness, and he died three days later at the Radcliffe infirmary.
There followed three inquiries into the tragic death of Ian Luckett. Two were private, internal inquires held by the then Oxford area health authority and the then district hospital management committee. After considerable lobbying by the boy's family and my predecessor as Member of Parliament for Banbury, Sir Neil Marten, a full public inquiry was held. It is that public inquiry, held some 30 years ago, that is relevant to the pressures facing paediatric services at the Horton hospital today.
The public inquiry was ordered by the then Secretary of State for Health and Social Security, Barbara Castle. Opening the inquiry, the chairman said:
"The reason there has been this third enquiry is because it is recognised by the Department … that there should be the fullest enquiry to ensure such a thing does not happen again."
I repeat that the aim was to ensure that "such a thing" did not happen again.
The evidence that the Luckett inquiry heard reinforced the need for an enhanced paediatric department, and for more trained paediatric staff at the Horton general hospital. Dr. Douglas Pickering, the consultant paediatrician at the Radcliffe infirmary, was reported by the Banbury Guardian of 6 June 1974 to have explained to the inquiry that he
"would like to see doctors at the Horton rotate at the Radcliffe for paediatric experience".
Local people want that rotation to be available today.
When I read the evidence to the Luckett inquiry, some 30 years after it was held, I was struck by how strong was the message that the Horton general hospital needed experienced paediatricians and comprehensive paediatric care, not least because of the distance to other hospitals in Oxford.
What did the inquiry find? The Luckett report began by observing that
418
"nursing and medical staff are devoted, but severely stretched",
and I suggest that the same is true today, particularly among paediatricians. It recommended that
"junior medical staff might be rotated",
and that recommendation is equally relevant today. It stressed that
"only severely ill children, fit to travel, should be admitted directly to Oxford hospitals."
In other words, as many children as possible should be treated in Banbury.
It being Seven o'clock, the motion for the Adjournment lapsed, without Question put.
Motion made and Question proposed, That this House do now adjourn—[Mr. Jim Murphy.]
Tony Baldry: My predecessor, Sir Neil Marten, rightly concluded that the Luckett inquiry
"highlights a number of matters that must be put right immediately. Nothing like this must be ever allowed to happen again".
There is now a danger that it may happen again.
Shortly afterwards, a number of paediatric consultants, including Dr. Bob Bell, were appointed at Horton general hospital, and no sick children had to travel to Oxford hospitals. In future, sick children will almost certainly have to travel to Oxford hospitals by night, when, by definition, it will be an emergency, if 24 hours a day, seven days a week paediatric care is withdrawn from the Horton.
The situation for paediatrics is grim even at the John Radcliffe hospital. My recent correspondence with the chairman and chief executive of the Oxford Radcliffe hospitals and the president of the Royal College of Paediatrics and Child Health has produced the same point time and again: there is a national shortage of paediatricians—simple as that. A parliamentary answer to my question about the matter states that just 15 new paediatricians are being trained over the coming year in England and Wales, although it goes on to say—using words very carefully—that
"an extra 155 National Training Numbers have been proposed for paediatrics through other initiatives."—[Official Report, 4 March 2004; Vol. 418, c. 1117W.]
It is part of the impenetrable jargon of the NHS that training is referred to as national training numbers.
Why are so few paediatricians—just 15—being trained? The Minister should not underestimate the impact that downgrading local paediatric services will have on the people of north Oxfordshire and south Northamptonshire. The public inquiry of 1974 resulted in 24 hours a day, seven days a week paediatric services for north Oxfordshire and south Northamptonshire, which has been the situation for 30 years. Local people have become used to the high calibre of consultants such as Dr. Bob Bell and Dr. Harvey Marcovitch, who is now at the Royal College of Paediatrics and Child Health.
When Dr. Bob Bell retired in July last year, he expressed in public his concerns over the future of the children's ward at the Horton general hospital. There is now just one of the necessary five middle grade doctors in paediatric posts at Horton general hospital. Why have five advertisements led to no appointment? It

419
seems that the number of trained doctors in the country is simply insufficient, and not enough of them are being trained.
Only Ministers can give us the complete answer, but surely part of the explanation is illustrated by the tragic death of Dr. Sid Watkins. The 44-year-old Dr. Watkins committed suicide last year and was a consultant paediatrician who had worked more than 100 hours in that week. The British Medical Association does not believe that his working week was unusual and calculates that almost 80 per cent. of consultants work more than 50 hours every week.The Independent, the only broadsheet to cover Dr. Watkins's death, quoted Harvey Marcovitch, by now working at the Royal College of Paediatrics and Child Health, who commented:
"there isn't anyone around anymore among the juniors who really knows what's going on with individual children day by day. They each see snippets and the consultants are left as the people responsible for keeping an eye on the whole of the child's hospital admission."
The answer must surely be to recruit more paediatricians, but NHS trusts cannot do so.The Independent did not mention the national shortage of paediatricians—it knew there was a shortage, but it did not know the numbers.
I know that the Royal College of Paediatrics and Child Health has conducted a survey and given the results to Ministers. I asked a parliamentary question about those results and—again, rather selectively—the answer was that Ministers were "considering" them. It would be interesting to know exactly what the Royal College of Paediatrics and Child Health said.
The parliamentary answer that I received on 4 March states:
"In 2004–05, a further 15 locally funded NTNs will be allocated."—[Official Report, 4 March 2004; Vol. 418, c. 1117W.]
It seems bizarre: fifteen for the whole of England and Wales; fifteen, when the president of the Royal College of Paediatrics and Child Health is telling Ministers that there is a serious shortage of trained paediatricians because of the European working time directive; fifteen, when two weeks ago I met the chairman and chief executive of the Oxford Radcliffe hospitals to be told that they are unable to recruit paediatricians; and fifteen next year actually means that 85 fewer paediatricians are being trained than last year when there is a severe shortage up and down the country.
Not only is there clearly a shortage of paediatricians but the working time directive is exacerbating existing difficulties. The Royal College of Paediatrics and Child Health, the British Medical Association, and the NHS Confederation in evidence to the Select Committee on Health have all made clear their concerns over the time left to implement the working time directive, which has hit paediatrics particularly hard. It has hit smaller general hospitals hardest, and I understand that Ministers have made funds available for rural areas such as Cornwall and Lincolnshire. I am under the impression that almost £46 million has been made
420
available to implement the working time directive over the next three years. The Minister will be aware that I have asked his Department whether any additional funding might be made available to help the Horton general hospital. The Minister of State responded on 6 January:
Turning specifically to the Horton, the recently announced strategic review explicitly sees a continuing and important role for the Horton in providing a range of hospital services. A paediatric task force is meeting to develop proposals for quality sustainable paediatric services at the Horton in response to difficulties in recruiting junior doctors."
Recruiting junior doctors is still difficult, and that must be elated to the working time directive. Indeed, almost everywhere else in England and Wales is experiencing problems with it, especially in relation to paediatrics, because it involves 24-hour service. I reiterate that I hope that Ministers will consider the Radcliffe hospitals NHS trust as part of his Department's £46 million budget to recruit junior doctors and registrars who will have to meet the working time directive, whether existing or new.
There is a further problem. The Oxford Radcliffe trust is under the misapprehension that the Horton general hospital is no longer accredited to train registrar Paediatricians. That is a serious concern. It is also seriously surprising because the president of the Royal College of Paediatricians tells me that the Horton is accredited; that there is no problem; and that, moreover, he would welcome more paediatricians working at the Horton general hospital.
Why does the trust say that it cannot train paediatricians at the Horton? There can be no doubt that that assumption was formed on the basis of poor advice given to the trust by others in the NHS. By way of example, a regional adviser in the NHS wrote on 9 January 2004:
"with … junior doctors hours being reduced progressively, it has been felt that the middle-grade posts currently available at the Horton Hospital are not of sufficiently high intensity for Specialist Registrar Training. My apologies to the Horton Hospital but, at prevent, we do not feel it is appropriate to allocate Specialist Registrar training there."
Such advice leaves the Horton general hospital in an invidious position. Without registrars, it is impossible to continue to have a 24-hour, seven-day paediatric department at the Horton general hospital with a children's ward with in-patient beds. The best that will be offered in future is a 9 to 6 service, five days a week, with any children requiring admission or more complex treatment being directed to Oxford.
On 1 March the chief executive of the Oxford Radcliffe hospitals NHS trust wrote to me. He said that
"the workload is not considered to be enough to provide appropriate experience to meet training requirement".
That is what the trust believes. However, the Minister should know that the advice being given by NHS officials to the trust is completely the opposite of the paediatric service seen as suitable by the Royal College to operate at the Horton.
As Dr. Harvey Marcovitch explained by letter to me on 19 January:
"the Royal College has not made any recent pronouncement re: Banbury …. they will not be raised again formally until the next inspection, whenever that will be."

421
The President of the Royal College, Professor Alan Craft, told me in a letter on 21 January that there is simply no reason why paediatric registrars cannot continue to work at the Horton general hospital if the trust so chooses, although staff shortages
"are enormous pressures on all hospitals at the moment because of the forthcoming Working Time Directive".
Furthermore, as the chief executive of the Royal College said in an email to me yesterday,
"the decision on the level of services is one that must be taken by the Trust in the light of demand and resources available."
He echoed the finding of the Luckett inquiry that services should be provided as closely as possible to children in Banbury. It is as simple as that.
I understand that the Horton general hospital had its status accredited at the last inspection. That status has not changed and will not change until another inspection, whenever that may be. I had that point confirmed by the chief executive of the Royal College of Paediatricians yesterday. He said:
"Training approval for paediatric Registrar posts at Horton General Hospital has never been sought by the relevant trust. There is, in principle, no reason why the Oxford Radcliffe Trust should not submit a training programme to the College that includes some time at the Horton. We must stress however that the current plan to reduce the level of paediatric services in Banbury is not a direct or indirect result of any ruling on the part of the College."
That utterly contradicts the advice that officials at the Department gave to the trust. Why have NHS officials given such inaccurate advice to the trust?
The chief executive of the Oxford Radcliffe hospitals NHS trust raises further concerns over the Horton general hospital not being accredited by the Royal College to take registrars. But the Oxford Radcliffe hospitals NHS trust has never asked the Royal College for such accreditation. It has not been told that it cannot train registrars, because no one has ever asked the question. There is no reason why registrars employed by the Oxford Radcliffe hospitals NHS trust should not undertake work in rotation in Oxford and Banbury at the Horton general hospital. Yet the trust tells me that it cannot even recruit paediatric doctors for the John Radcliffe. let alone for a smaller general hospital. Why? I hope that the Minister can give us an answer.
In a letter of 29 January, the president of the Royal College told me:
"I am not too sure what the problem is at the Radcliffe hospital in terms of attracting registrars. Paediatrics is still very popular, and for regular registrars … there is no shortage."
The Horton needs trained paediatricians. How many are needed? Five. How many are being trained this year? Only 15. Fifteen have been allocated for England and Wales, although we are told that some more have been proposed through other initiatives. Demand in larger cities and towns means that it would be difficult for one small general hospital in Oxfordshire to take a third of all the new paediatricians for the whole of England and Wales.
However, NHS advisers are not even giving the trust the opportunity to take on paediatricians and accrediting them to the trust but rotating them to its hospitals, including Horton—something recommended by a public inquiry set up by the then Secretary of State
422
about 30 years ago. That opportunity has unfairly been removed from the table for no good reason. The Minister must look into what his officials are saying to one another as there is evidently a serious communication problem. If he does not do so and his officials continue to base their work on somewhat false foundations, it will seriously impede the inquiry of the taskforce into which model of paediatric services would work best for Horton hospital. It is unacceptable for NHS officials to tell NHS trusts that they are not allowed paediatricians because they do not have the relevant status when in fact they do.
Not only is that manifestly unfair, but it will also put Horton general hospital at a severe disadvantage in respect of the findings of the paediatric taskforce, which will report shortly. The Minister will be aware that the taskforce is considering two ways forward for the Horton and paediatric services across Oxfordshire. The first is known as an ambulatory service, whereby I understand that Horton general hospital would provide a paediatric service from 9 am until 6 pm for five days a week. There would no longer be any paediatric beds at the Horton; patients would he seen, assessed and either treated there or sent to the John Radcliffe for more specialist treatment. In effect, there would no longer be 24-hour paediatric cover—no cover at nights and no cover at weekends.
There would inevitably be a detrimental impact on obstetrics at the Horton general hospital. At present, there is a special care baby unit and it is not clear whether it would be able to continue. There would most certainly be knock-on consequences for the accident and emergency department. It is unclear whether the A and E department would be happy to continue to give general 24-hour, seven-day-a-week cover if there were no longer any paediatric services at the Horton in the evenings, at night and at weekends. It is thus clear that the John Radcliffe would have to take on further cases from Banbury at a time when there is an acknowledged problem across Oxfordshire in recruiting trained paediatricians.
There is an alternative: more registrars. Paediatric registrars undertake a five-year training; the last three years are fairly specialist but the first two years are reasonably general. When the Horton general hospital merged with the John Radcliffe to form the Oxford Radcliffe hospitals NHS trust my understanding was that appointment would always be made to the trust, not to an individual hospital, so I see no reason why registrars based at the John Radcliffe should not also give cover and work at Horton general hospital.
However, the chief executive of the NHS trust has been advised to say that that is not possible because
"registrars are appointed to training posts that have been allocated to a trust by the Regional Training Advisory committee"
and it—
"cannot include any Horton based activity because the paediatric work available at the Horton is not considered by the committee to provide adequate training".
That was in a letter to me as recently as 3 March. Again, I can say only that such activity could be included. The Royal College says that it could, so why does the regional training advisory committee believe that the Horton cannot take registrars? One can assume that it is

423
only because NHS officials from the Minister's Department say that it cannot. Instead, Horton general hospital is left trying to fill vacancies for trained paediatrics when there are simply not enough trained paediatricians available.
The taskforce's terms of reference are ill balanced before it has even reported. It is receiving bad advice from the Minster's Department and has started off on false foundations. Clearly, the Minister needs to sort out the communication problems over the employment of registrars. There are two immediate problems that he must address. The first is that his Department's officials are telling the NHS trust that its registrars cannot work at Horton general hospital. But they could; the royal college says that the hospital is accredited. The Luckett report made that recommendation more than 30 years ago.
The second problem is that the Government have invested in too few new paediatricians for the whole of England and Wales. Neither Horton general hospital nor the John Radcliffe can fill their paediatric vacancies, so if paediatric services are not being provided at the Horton and they cannot be found at the John Radcliffe, where on earth in Oxfordshire will they be provided?
The answer lies in increasing the number of registrars accredited to the Oxford Radcliffe hospitals NHS trust; furthermore, the Minister's Department must stop telling the NHS trust that registrars cannot rotate between the Horton and the John Radcliffe; and, in any event, more funding must be found so that more paediatricians can be trained than the absurdly low number that the Department is funding.
The chairman and chief executive of the NHS trust and my hon. Friend the Member for Daventry ( Mr. Boswell) and I will shortly meet the president of the Royal College, so I should welcome a response from the Minister on those two crucial issues. The crisis in paediatric services at Horton general hospital needs to be set against the background of other services at the hospital. If the taskforce makes a recommendation on paediatric services that is based both on inaccurate information from the Minister's Department and on inadequate funding for paediatric numbers, the loss of 24-hour, seven-day-a-week paediatric services could undermine the A and E department at the Horton.I am not confident that sufficient time has been taken to assess the likely domino effect caused by the downgrading of paediatric services. It remains, however, a real possibility, to which every GP who responded to my letter on the future of services at Horton general hospital referred. It leaves the real possibility of Ministers overseeing a situation whereby 30 years later the lessons of the Luckett tragedy are ignored.
Ministers must surely understand that local people hear that billions of pounds are being pumped into the NHS, and are somewhat confused by that when they realise that their local general hospital's children's ward is under threat. People in north Oxfordshire and south Northamptonshire want the comprehensive paediatric services that they have enjoyed for the past 30 years to continue. That is a 24-hour, seven-day a week paediatric service at Horton general hospital.
7.15 pm.
Mr. Tim Boswell: I am grateful both to the Minister and to my hon. Friend the Member for Banbury (Tony Baldry), my constituency neighbour, for allowing me a few minutes of their time. I congratulate my hon. Friend on securing this important debate.
Although the debate is badged as being about paediatric services, and he has spoken on that matter with considerable expertise and great effect, there are major implications for the viability of Horton general hospital in Banbury. This is a significant interest for about 25,000 of my constituents in south-west Northamptonshire, including the town of Brackley. In turn, that amounts to about 20 per cent. of the total caseload at the Horton hospital. Incidentally, Miss Horton was from my constituency.
I have lived just inside my constituency boundary for more than 35 years, and during the whole of that time Horton hospital has been, for all practical purposes, my hospital. All three of my children were born there, and on one occasion I had every reason to be extremely grateful for the hospital's paediatric services in coping with an emergency, the response to which was led by Dr. Bob Bell, that involved a member of my family.
I recognise the real dilemma for health Ministers in balancing the changing requirements of modern practice standards against the need to offer convenient local services, including a rapid response to emergency situations, and doing so with limited trained manpower and other resources. However, I emphasise the difficulty that is posed by any withdrawal, in whole or in part, of paediatric services at the Horton, not only for the town of Banbury and its population, but for the scattered rural settlements around it in a number of counties and constituencies.
Some villages in my constituency are about 10 miles from Banbury and 25 miles from both Oxford and any other alternative service in Northampton, for example. I know also of the intensity of local feeling at the perceived danger of progressively withdrawing services that lead on from paediatrics to other services, with the ultimate fear that the entire hospital might become unviable. I associate myself with the concerns expressed by my hon. Friend and endorse his call for some constructive thinking in order to find a practical solution to this problem.
7.18 pm
The Parliamentary Under-Secretary of State for Health (Dr. Stephen Ladyman): I am grateful to the hon. Member for Banbury (Tony Baldry) for raising a subject on which he has been campaigning for some time, and I congratulate him on securing this debate. I am grateful that he gave me some notice of the issues that he was to raise. I also congratulate the hon. Member for Daventry (Mr. Boswell) on putting the case on behalf of his constituents.
The hon. Member for Banbury began his speech with the sad story of Ian Luckett. It was a tragedy that resulted from people being insufficiently experienced and working under pressure. The hon. Gentleman used the story to demonstrate why decisions were taken to establish children's health services in his local area and to support his view of how services should be shaped in

425
the future. Let me put that awful story back to him. Surely what it shows also is that clinical safety has to be a prime consideration when we design hospital services. Surely it shows also that when we configure services, we must take a strategic view that takes account of changing clinical practice, changing populations and changing circumstances.
The hon. Member for Daventry acknowledged that issue. The tragedy relayed by the hon. Member for Banbury happened in 1974, but the world has changed in the 30 years since. Technology, for example, has changed dramatically. When the tragedy happened, the personal computer had not even been invented, and many clinical tests and drugs that we employ today had not been dreamed of. Those changes alone required us to look critically at local service design. In 1974, junior doctors worked long and unsafe hours to accumulate the experience that they needed. Now we are driving down the hours that they work that so they can work more safely, but we still have to maintain the level of training that they receive. That means that we must change the way we work and look critically at the way in which hospital services are delivered. As for the working time directive, which imposes a tight time scale on those changes, we were not even in the European Union when that case was heard, never mind signed up to the type of change that we must plan for today.
I acknowledge the serious concerns expressed by the hon. Member for Banbury, and he is right to expert a certain level of service on behalf of his constituents. However, all I ask is that he keeps in mind the way the world changes, does not expect Banbury and Oxfordshire to be immune to those changes, and that he remains open minded about the way in which paediatric and other health services can best be delivered in his constituency, should change be proposed in the future. The Horton hospital, however, provides a substantial part of hospital care for patients in Oxfordshire. It copes with approximately 30,000 accident and emergency attendances a year out of the county total of 100,000. On average, 7,000 of those attendances are paediatric, and it delivers approximately 1,600 babies a year. Given that level of activity, the hospital's importance to the county is self-evident. I note, too, the comments of the hon. Member for Daventry about its importance to his constituents.
There has also been significant investment in Horton hospital over the past few years. The number of beds has risen from 200 in 1998 to 250 today, including 14 paediatric beds. The position of the primary care trusts—their view is shared by the Oxford Radcliffe hospitals NHS trust—is that the Horton is, and will remain, vital to the delivery of emergency and elective care in the county. The PCTs want locally based hospital care to continue and expand where appropriate, provided that the quality and safety of care are guaranteed. The NHS will continue to work to ensure that that happens and that necessary investment is made in the Horton. The chief executive of the Oxford Radcliffe hospitals NHS trust, in the letter of 3 March cited by the hon. Member for Banbury, explicitly states that
"paediatricians wish to see as much provided in Banbury as possible".
He also believes that the development of the children's hospital in Oxford is not a major influence.
426
The hon. Member for Banbury was right to express concern about the impact of the working time directive, although I detected slight signs of his trying to have it both ways. He cited the tragic case of Dr. Watkins, who died after a 100-hour week, implying that that was why the recruitment of paediatricians was proving difficult. In another part of his speech, he held up the working time directive as a barrier to the implementation of safe paediatric services. The aim of the working time directive and Government policies is to hammer down doctors' working hours to ensure that in future doctors do not work 100 hours a week and that recruitment is made easier. We do not underestimate the impact of the working time directive, but it presents the NHS with a marvellous opportunity to change outdated working practices that do doctors and patients no favours. By introducing innovative ways of working that take away routine tasks from doctors in training and, at the same time, reduce the hours that they work, we shall enhance doctors' working lives and improve the quality of service to patients.
We must have effective systems in place to share emerging good practice and learn from others. A number of national pilot sites are currently testing new ways of providing services so that we can learn lessons from their experience. Every NHS trust has been asked to prepare an action plan detailing how they will ensure that junior doctors comply with the law on working time, and every strategic health authority has been asked to work with trusts to agree their action plans and ensure that they are realistic and deliverable. The North Oxford Paediatric Task Force is assessing the best way forward for the local health community, with special emphasis on paediatrics. Oxford Radcliffe hospitals NHS trust is also conducting a broader strategic review, and the two PCTs—North East Oxfordshire and Cherwell Vale—are looking at the future shape of hospital, intermediate and mental health services in north Oxfordshire.
Implementing the working time directive locally is the responsibility of trusts, but there are things the Department of Health, the medical profession and others can do to support them, which is why we have set up a national working time directive expert group with the Academy of Medical Royal Colleges, the joint consultants committee of the British Medical Association, the Royal College of Nursing and other key stakeholders.
We have also set up a national delivery board of NHS managers to ensure that strategic health authorities and trusts deliver working time directive compliance on the ground. They will spearhead trust efforts and ensure that help is directed to trusts that need it most. Currently the Oxford Radcliffe hospitals trust is 70 per cent. compliant with the WTD and there is a trust-wide assessment going on to get compliance to 100 per cent.
The hon. Gentleman is, however, right to highlight the particular problems of paediatrics and obstetrics with respect to the working time directive. Those are two acute specialties that do not easily lend themselves to cross-cover, owing to the particular skills and competencies attached to them. We recognise that they require particular and different solutions to those required for general acute services, and that is why we are working closely with the Royal College of Paediatrics and Child Health and the Royal College of Obstetrics and Gynaecology to deliver those solutions.

427
The RCPCH has already produced some models in its document "Old Problems, New Solutions". They examine the provision of emergency assessment services without the use of in-patient beds, and increased care in the community with particular emphasis on community paediatric teams that prevent admission and enable earlier discharge. The RCPCH also considered staff being used in new and different ways—for example, the growing and effective use of nurse practitioners in paediatrics and neonatal care. Redesign is another of the key tools to help achieve a reduction in the hours worked by doctors in training, and has the potential to provide new ways of delivering services that avoid the need for reconfiguration.
At various points in his speech the hon. Gentleman referred to staff numbers with respect to children's health services. More staff, working differently summarises the Government's approach to growing the NHS work force. That means making the most of the whole team, not just doctors. There has been a 17 per cent. increase in paediatric nurses between 1997 and 2002, and a 19 per cent. jump in the number of allied health professionals, most of whom work with children. We have also increased training places. In the same five-year period, training places for children's nursing have increased by 55 per cent. and for allied health professionals by 73 per cent.
In paediatrics, that means nearly 600 more consultants are working in the NHS today than were working there in 1997, and there are 253 more specialist registrars, the consultants of the future. NHS trusts are willing to fund extra specialist registrar training places in paediatrics, and between 2003–04 and 2004–05 trusts have the opportunity to fund up to 115 additional posts. Implementation of this initiative is progressing steadily. Central funding has been provided for 10 additional
428
specialist registrar posts in paediatric cardiology. We have also announced that additional national training numbers will be made available, subject to obtaining the appropriate educational approval, where trust action planning has calculated that they are needed for WTD compliance. To date, we have received some 200 bids for paediatric posts from trusts. The Oxford Radcliffe hospitals trust has bid for five of those places.
On communications, I hear what the hon. Gentleman said about mixed messages. The decision about where training can take place is not a local NHS decision. Only the Royal College of Paediatrics and Child Health and the post-graduate deanery operating through regional specialist training committees can decide where such training can take place. I will, however, make sure that officials study his comments carefully and that they are passed to the local strategic health authority so that if any mixed messages have been given, they can be sorted out and appropriate advice taken before any decisions about service changes are made.
The developments that I have described are not just a numbers exercise. We are increasing staff. More importantly, outcomes are improving. The increased investment made by the Government has meant better care for patients, and that is as true in Banbury and Oxfordshire as everywhere else. The working time directive and paediatric recruitment are a serious challenge, but it is one that we do not underestimate and it is being met. I hope the hon. Gentleman will be at least partly reassured by what I have said, and by my undertaking to ensure that we reflect on his comments and that local service designers do likewise. If the hon. Gentlemen should wish to have further discussions with me at a later date as these matters progress, I should be happy to meet them.
Question put and agreed to.
Adjourned accordingly at twenty-nine minutes past Seven o'clock.

Preamble
[MR. FRANK COOK in the Chair]

National Offender Management Service
Motion made, and Question proposed, That the sitting be now adjourned—[Mr. Jim Murphy.]
9.30 am
Mr. Neil Gerrard: I am grateful to have the opportunity to introduce such an important debate. This is the first time that we have had the chance to discuss the new national offender management service. No one would disagree that improvements must be made to the way in which offenders are managed. That is not to say that some progress has not been made. In their response to the Carter report, the Government had a lot to say about improvements, such as the policies that have been adopted in prisons to deal with mental health and drug abuse. This year, 50,000 prisoners will be subject to clinical detoxification, which is an enormous improvement on what was happening a few years ago. As for education, I think that 50,000 prisoners will gain basic skills qualifications this year.
Significant improvements have been made. The percentage of prisoners who are in work or training compared with a few years ago has improved enormously. We all recognise that progress has been made but there are still some problems. We must bear in mind two key issues: first, the number of people in prison, which is far too high and is still rising and, secondly, the reoffending rates, which do not show any great signs of coming down.
Although there have been improvements, there have been worrying shortfalls in some parts of the country. I am thinking in particular of the probation service in London, which has significant resource problems, and the capability of the service to do the work that it should be doing. I shall cite a recent example. An offender was leaving prison after a fairly short sentence, but there were problems with completing his probation report. No one was available to undertake such necessary work.
Although we shall be discussing the structures of the service this morning, there are clearly resource implications. We must consider what resources are available. The services are overstretched and, if we do not examine resources, we will not solve the problem. In the past two or three years, there has been a tendency not to use the extra money that has been put into the service to fund front-line services. There have been large increases in bureaucracy at national level within the probation service but, as I said, money has not gone into front-line issues.
There are two stated aims of NOMS: first, to punish offenders appropriately and, secondly, to reduce reoffending. As for the structure that is proposed, Martin Narey has been appointed to head the service. There will be 10 regional offender managers. I am not clear why reorganisation is regarded as so important that it must be done quickly by June this year. The regional managers will be in place within the next year,
72WH
but it has only been three years since the probation service was last reorganised and some of that reorganisation has hardly had time to settle in. That is causing concern to many people who work in the probation service.
There was not any serious consultation with stakeholders prior to the publication of the Government's plans. Patrick Carter did not appear to carry out any consultations with stakeholders or trade unions. I was told in a written answer that he was conducting an independent review, so he was not expected necessarily to consult, and that the Government's response to "Reducing Crime—Changing Lives" would seek views from stakeholders on a number of issues. However, the paper was published on 6 January and the closing date for responses was 3 March, although the Cabinet Office guidelines recommend a standard 12-week period for consultation with key stakeholders. There seems to be a rush to get things through.
It would have been better if there had been consultation before, rather than after, announcements were made. That leaves us with a lot of uncertainty about how the new organisation will work, and I hope that the Minister will deal with that. We are told that one of the key aspects is that the reorganisation is about ensuring that individual offenders are managed right through the system. I cannot see how 10 regional managers will be able to deal with all the individuals concerned. I am unclear about what will happen on the ground. What will be the relationship between people in the Prison Service and people in the probation service? Where will decisions be made about what happens to an individual offender?
Mr. Andrew Turner: I apologise for the fact that I shall not be able to stay for the whole debate. Does the hon. Gentleman agree with representatives of the Prison Officers Association in my constituency that the consultation did not make it clear whether those who work in prisons will have the same training under the new system as they have under the existing system? If that training cannot be delivered, security in prisons cannot be delivered.
Mr. Gerrard: There is a serious issue about training. I attended a meeting yesterday evening that Martin Narey addressed. The hon. Member for Chesham and Amersham (Mrs. Gillan), who is on the Opposition Front Bench, and the hon. Member for Worthing, West (Peter Bottomley) were also at that meeting. Training was mentioned. There is not enough training in general for prison officers; there is a nine-week training period for prison officers. The training period for probation officers is much longer. I hope that that will be addressed. If we expect prison officers to be much more involved in rehabilitation, dealing with reoffending, education provision, drug testing schemes and so forth, there is a case for there to be much more training, regardless of what is happening with the restructuring of the organisation.
There is a lack of clarity about what the plans will mean for staff in other respects. There are issues to do with governance, employment status, collective bargaining and the Transfer of Undertakings (Protection of Employment) Regulations 1981. A part

73WH
of the proposals involves what is now called contestability. That is a new word that I had not come across before I studied these proposals; some of my hon. Friends might have something to say about what it means. That has serious implications for the employment status of current staff. Naturally, there are concerns about that in prisons—there are suggestions that groups of prisons will be put out to tender—and in other parts of the service.
I was struck by a comment by the Probation Boards Association about the impact on staff. It commented as an employers' organisation on the industrial relations issues that it would need to deal with, particularly during the transition period. It said:
"An agitated workforce, already threatening industrial action over workloads is in danger of becoming demoralised by the proposals to disband its service and jettison its name. Of equal concern is the likely loss of senior managers who, seeing no future in the new structure, may look for alternative employment at a time when they are most needed to deliver the changes."
Clearly, employers in the probation service believe that, if staff in the service do not receive the reassurance that they need, there may be serious consequences over the next year, before we reach the point at which the new structure should start to operate.
Mrs. Cheryl Gillan: The hon. Gentleman is introducing and laying out his case extremely well. Does he agree that one point made to us by representatives of prison officers is that pay is on average 24 to 32 per cent. lower for those employed in the private sector than for those employed in the Prison Service, and that pensions are between 10 and 13 per cent. more valuable in the public sector than in the private sector? There is real concern among prison officers and their families about the implications of what may be happening with so-called contestability and about the lack of consultation.
Mr. Gerrard: That is absolutely right. When considering pay levels in the different sectors, people will naturally be concerned about what may happen to them if the prison in which they work becomes part of a group of prisons that ends up in the private sector. I understand clearly the rationale for involvement of the not-for-profit sector when we are dealing with community-based sentences, but I am far less convinced by the case for putting large sections of the service out to tender. I remember being involved in such arguments in this place 10 or 12 years ago, when the then Government embarked on the privatisation of prisons.
Another issue on which we need to be clear is the need to create a level playing field, so that public sector bidders are not disadvantaged. The Probation Boards Association stated:
"The government will need to create a level playing for voluntary and not-for-profit organisations to … enable them to participate."
The association also made a rather technical point when it said that
"the current Home Office re-charge system for probation property would seriously disadvantage an 'in-house' bid in probation areas with low commercial property costs."
Those issues must be addressed, so that a level playing field is created.
74WH
Another point, which is not part of NOMS in a sense but is critical to its success, is what happens on sentencing. Martin Narey, as head of the service, will be an observer on the Sentencing Guidelines Council, which I think has had its first meeting in the past two or three weeks. However, he will not be a member of the council. If the council does not work and does not lead to changes in sentencing, we will face serious problems in the new structure—indeed, in any structure.
Perhaps the Minister will comment on what messages will be sent about sentencing, because that is the key to bringing prison numbers down. In particular, people should not be in prison doing short sentences that could be dealt with as community-based sentences. One message that came out in the meeting that some of us attended yesterday evening concerned the futility of many short sentences, because people going into prison for a short sentence do not get into drug treatment programmes, education programmes and so on. They end up doing very little while they are in prison. That message needs to be got across, particularly in magistrates courts, where there has been an enormous increase in the use of custodial sentences over the past few years.
David Taylor: I declare an interest as a member of the Magistrates Association. Does my hon. Friend agree that the Minister and his colleagues should consider carefully custodial sentences for offences such as shoplifting? The number of people in prison now compared with 10 years ago, when I was last sitting actively, has increased by a factor of 10. That is astonishing. Surely something needs to be done.
Mr. Gerrard: My hon. Friend is right. If I remember correctly, about 1,400 people are in prison for shoplifting, whereas a few years ago there were 100 and something; the numbers have increased by a factor of 10. That is not the only kind of offence that is relevant. Many people are in prison because of unpaid fines and motoring offences. We accept that there are some very serious motoring offences that should lead to a prison sentence, but whether everyone who is in prison for such offences should be there is another matter.
Peter Bottomley: The best kind of contestability may be to ask magistrates and judges whether they have seen any studies on whether the person they are considering sending to jail would be better disposed of in the community. The one thing that I suspect we all favour—it is one of the purposes for which NOMS was created—is seamless care and control of the person who has been convicted. We all have examples in which someone has come out of prison and the probation service has not managed to look after them. That is as big a concern as having people in prison who should not be there in the first place.
Mr. Gerrard: That is absolutely right. We also need to get the message across that community-based sentences are not necessarily soft touches. I am not sure whether that needs to be communicated to magistrates, but it certainly should be got across to the public. There is an image that, if people are given a community sentence, they are being let off, whereas such sentences can—and should in many cases—be fairly demanding to do.

75WH
I know that many hon. Members want to speak, so I will make my final points. With regard to parliamentary scrutiny of the process, it does not appear at all certain that legislation will he involved unless the role of probation boards changes substantially. Another area of uncertainty concerns what will happen to probation boards, which are currently the employers and managers of staff. There are some issues for us about how Parliament will examine the profound changes that are taking place in the rapid reorganisation. The lack of clarity about the detail is causing concern among a number of hon. Members. We do not want to repeat the mistakes that were made in other reorganisations.
As I said at the beginning of my contribution, we all want to see cuts in the number of people in prison and success in preventing people from reoffending. We want to be certain that the new structures being put in place will do that. We do not want to end up with confusion about responsibility, and over-centralisation of services such as the probation service that have been developing well at local level. I hope that the Minister will reassure us on those issues.
Several hon. Members rose—Several hon. Members rose—
Mr. Deputy Speaker: Order. It is advisable to remind hon. Members that, in these 90-minute Adjournment debates, it is customary to commence the first of the three winding-up speeches 30 minutes before conclusion. Five hon. Members have indicated to the Chair that they want to contribute to the debate, and another two have added themselves to the quest to catch my eye. That makes seven, and we have 41 minutes left. That means that, if I am to squeeze everyone in before 10.30, hon. Members will have to be very careful about the time that they take in making their contributions, and about allowing or responding to interventions. I ask all hon. Members to bear that carefully in mind.
While I am making announcements, I should say that I would be remiss in carrying out my duties if I did not remind the Chamber that, when any of the four senior Chairmen of the Chairmen's Panel occupies this seat, they are to be addressed as Mr. Deputy Speaker. That was the decision of Mr. Speaker.
9.50 am
Mr. Elfyn Llwyd: I speak as a great supporter of the probation service, who has 30 years' experience in the criminal law—not as an offender, I might add. The probation service and its independence should not be interfered with, because if it ain't broke, why fix it?
In these days of the big conversation, I cannot understand why there has been so little consultation on such a fundamentally important change. As was mentioned by the hon. Member for Walthamstow (Mr. Gerrard), whom I congratulate on securing the debate, the changes appear to breach the Government's own commitment on consultation in the Cabinet code on written consultation.
As the hon. Gentleman said, there does not appear to be a mechanism for any real parliamentary scrutiny of these wide-ranging changes. The National Association
76WH
of Probation Officers has been told that legislation will not be required unless the role of probation boards, which manage staff locally, alters substantially.
The changes are profound, and the role of probation boards will be altered. I understand that the new service will have the power to affect the professional livelihoods of all staff currently employed in both services. That is a fundamental question, worthy of full parliamentary consideration.
The other question that I have to ask is whether the open market is appropriate for administering punishment and justice. There is a long list of unanswered questions about the detail of NOMS, including whether the national probation directorate will continue to function and what role, if any, local probation areas will have. Of course, such detail is vital and should have been consulted on properly.
NAPO considers it totally unacceptable that there should be no information about what the new structures will mean for the employment status of staff: in other words, terms, conditions, collective bargaining, trade union rights and the implications of TUPE. Many believe that the reasoning behind NOMS is flawed. A key purpose, apparently, is to reduce the projected prison population for 2009 from 93,000 to 80,000. It is difficult to see how the new structures will do that.
I fully endorse what the hon. Gentleman said about non-custodial sentences being useful. Indeed, in many cases, they lead to less recidivism. They are not a soft option, but a labour-intensive option, which is, I suspect, why magistrates tend to send people to prison rather than impose further burdens on the probation service, which, as we all know, is overburdened as it is.
We are looking at a very difficult position. NOMS is to increase co-operation between prison and probation staff—nothing wrong with that. However, that might be better achieved by other means: for example, by an increase in targeted resources, sentence planning in and out of prison and an increase in support.
Many believe that the reorganisation is an effort to cut costs. It is obvious to all who know anything about criminal justice that the prison and probation services need more resources on the front line. The probation service is in financial crisis, with probation areas facing a compulsory 2 per cent. underspend for this financial year and a further real-terms standstill budget next year. Therefore, it is of great concern that those two under-resourced services should be asked to improve performance and to implement a further layer of bureaucracy without there being a commitment to additional funding.
As has been mentioned, the last restructuring was in April 2001. Many people do not think that the changes have had time to bed down properly. The first half of "Reducing Crime—Changing Lives" praises the work of both prison and probation services: Would it not be better to build on that expertise and encourage closer working relationships without including further layers of bureaucracy, which always drain resources from the front line? The progress made does not logically point to a need for the wholesale reorganisation of both services.
In "Reducing Crime—Changing Lives", there is a list of achievements. Considerable achievements have been made; it would be wrong to deny that. There has been an increase in literacy programmes for offenders, greater

77WH
enforcement of community orders, a reduction in the number of escapes from prison, the launch of the custody to work initiative, the effective roll-out of drug treatment and testing orders, effective assessment of need and of risk to the public, and the establishment of multi-agency public protection arrangements, to name but a few achievements.
"Reducing Crime—Changing Lives" does not refer to the fact that the probation service was substantially reorganised in April 2001, under the Criminal Justice and Court Services Act 2000. The number of services was reduced from 54 to 42, and a national service and directorate were created. Many of the new combined services, particularly the service in London, have not yet bedded down. As a consequence, the changes are yet to come through properly. The national probation directorate increased its number of employees from about 90 in 2001 to 460 in November 2003. In the same period, however, there was no commensurate increase in the number of field staff.
When the Children and Family Court Advisory and Support Service came into being, many of us warned that its introduction was rushed and not thought out properly. We have seen the result: it has been an absolute disaster. Much as I respect those who work in the field, they cannot be asked to do a 48-hour job in 24 hours. Many commentators assumed that the growth at the centre was a precursor to an increase in capacity in the field.
The conclusion that one draws is that there has been a failure adequately to resource prison and probation services. Both services are ill equipped to deal with yet another reorganisation and further layers of bureaucracy. The projected national offender management service could be an organisational disaster, compared to which the problems faced by the Criminal Records Bureau will pale into insignificance.
9.57 am
Mr. Austin Mitchell: I am grateful for the conveniently labelled plan before me, so that I know in what terms I should talk.
I want to concentrate on the speedy way in which the change has been brought in. It has been produced out of the blue and imposed without consultation. There has been far too much of that in Government policy in recent times. One of the Prime Minister's policy advisers gets a bright idea on, say, foundation hospitals or top-up fees and suddenly it becomes Government policy. We workers and peasants in the party—looking around, it seems it is the old lags in this case, and some young lags, too—are asked to vote it through without being convinced of it. That seems to be happening again in this case.
The Leader of the House has promised that we will not do that kind of thing any more, and has said that the Government will consult thoroughly before new policy initiatives are announced. However, here we have another policy initiative, again coming from the No. 10 policy unit and the Government's all-purpose privatiser, Mr. Carter. It was rushed through—the Government's response was announced on the same day that the report was published.
78WH
Looking at the document, I can see that there is no necessary link between the stated aim, which is to reduce the increase in the prison population, and the merger, at national and regional levels—and eventually totally—of the two services. Prison numbers, as hon. Members have said, are a response to the panic climate of the "bang'em up" culture, produced largely by the clamour of the Daily Mail, but responded to by Ministers and Departments. That culture says that the only way to deal with the increase in crime is to send more people to prison. We face a very retributionist mood. If that is the real cause of the increase in the prison population, I cannot see that the merger of the services will have any bearing on it. The hon. Member—I forget which constituency he represents now.
Peter Bottomley: Worthing, West.
Mr. Mitchell: I thank the hon. Gentleman. He said that we need a seamless service. However, carving out chunks of the service by privatisation will not produce that seamlessness. It will produce a fragmented service in which it is difficult, if not impossible, to follow things through. Therefore, merging the services will not produce anything that will reduce prison numbers, or achieve better treatment for prisoners. This is a question of more resources and more staff, particularly in the hard-pressed probation service, which is under considerable strain, as I can testify from representations that have come to me locally. It has just had a reorganisation, which has not quite settled down yet and has disturbed the service. It has been given tight financial targets and it is under-staffed and under-resourced. The answer to the problem is better staffing and better resources.
Mrs. Helen Clark: Would my hon. Friend suggest that Home Office policy is being dictated not by the needs of the nation but by the demands of certain national newspapers? That applies to the asylum issue as well.
Mr. Mitchell: That is exactly right. It is a panic situation, to which the Home Office feels it necessary to respond. The national press, particularly the Daily Mail—this also goes for The Sun and other Murdoch papers—experiences a hackneyed fear of crime. That produces a retributionist sentencing culture on the part of magistrates who are panicked into it. The way to deal with the matter is to staff the services better and to fight against that culture, rather than submitting to it by introducing this kind of proposal, which works against staffing improvement. It seems that there is a hidden agenda to cut costs and that is why there is talk of privatising chunks of the service.
My hon. Friend the Member for Walthamstow (Mr. Gerrard) made a point about contestability. I remember it in New Zealand in the 1980s under a Labour Government there. It is a contest that the public sector always loses, because its costs are inevitably higher. It is maintaining the system and along come people—the Minister has gone to America to try to interest prison providers there—who offer a much more glamorous and exciting prospect. They are often given contracts on preferential terms, or they have been in the Prison

79WH
Service, and in the glamour stakes they win. Therefore, it is not real contestability—it is a contest that is loaded against the public sector.
My basic point is that this is a question of money and resources and not one of this type of reorganisation, where so many questions have gone unanswered. I have a long list of questions, which I would like to put to my hon. Friend the Minister, but time is pressing. We do not know how many additional staff will be needed or what the role of the offender manager will be at area level. We do not know about the relationship between the local areas. A business case has not been presented to us. We do not know how the continuity of offender supervision will be maintained in the interim period. All those questions have been unanswered.
However, I cannot see any answer to the central question. The one principle of bad government is that, when things go wrong, order a reorganisation. Things are going wrong in terms of prison numbers and a reorganisation has been ordered. Perhaps the Minister can convince me with his charm and his honeyed words that this restructuring, merging of the services and opening to privatisation of chunks of the service will tackle the fundamental problem of reducing prison numbers. I do not know, but I always hope, in tense excitement, that I can be convinced.
10.5 am
John McDonnell(Lab): I will be brief. We have had compulsory competitive tendering, market testing, the public-private finance initiative, public-private partnerships, better value and now we have contestability. In reality, all paths lead to privatisation, so we may as well call it that. It is straightforward privatisation.
The origins of NOMS go back to November 2002, when the then Minister, my right hon. Friend the Member for Leeds, Central (Mr. Benn), announced a review of the correction services. Seminars were held in central London to discuss the wider functioning of the two services. As has been exemplified before, in February 2003, suddenly and without any consultation, the policy and the review were taken over by No. 10. Without any consultation with stakeholders, Patrick Carter was appointed to head the review. It became apparent what the review process was about: the answer to the problems of the probation service and the Prison Service was not increased investment but privatisation.
It is extremely worrying that the concept will not be the subject of legislation. We will never have the opportunity on the Floor of the House to debate any measure to implement the supposed reforms. Therefore, there will be no detailed parliamentary scrutiny. The probation service works increasingly closely with the police service and the Prison Service on public protection issues, and the House should, through the legislative process, not in Adjournment debates, properly discuss whether the market is the appropriate vehicle for delivering these services.
The Government envisage that the state of contestability should be achieved by 2009. Under that arrangement, national offender managers. supported by 10 regional offender managers, will purchase prison places and community supervision from a range of public, private and voluntary providers. I reiterate that
80WH
our concern is not necessarily with the voluntary providers. We understand the role that they can play, but we are worried that a market is being introduced, and it is difficult to envisage how it will work. Many tasks undertaken by the services are already multi-agency—for example, public protection panels—and could not be the subject of tendering in competition, as we have seen elsewhere.
The 101 hostels in England and Wales provide 2,500 residential places, primarily for ex-prisoners. More than 40 per cent. of the hostel places are taken up by sex offenders and others known to local multi-agency protection panels. If public confidence is to be maintained in the service, it is essential that the public sector, in conjunction with the police, monitors those ex-prisoners to minimise the risk to the public.
Let us look at the prison experience. The main sector from which non-public organisations could recruit would be the probation service, which is already understaffed and under-resourced. The unions feel that one consequence would be that wages would be depressed and service quality would suffer. The trade unions' experience of the market and of the public finance initiative in the justice system in the past decade differs starkly from what the Home Office has told us on successive occasions.
For example, prison officer pay is on average 24.6 to 32.4 per cent. lower in the private sector than in the Prison Service. Pensions are between 10.5 and 13.5 per cent. more valuable than pensions available to those employed by the private sector. The Prison Service offers between 5 and 28 per cent. more leave than the private sector and limited competition from the few firms bidding means that in many instances there has been only one bidder for the tender.
David Taylor: Will my hon. Friend comment on the recent merger between Group 4 and Securicor and the ability of the much vaunted market to respond in such circumstances?
John McDonnell: What is happening throughout the process is that cartels, or monopolies, are being formed, which reinforce their ability to drive down wages and suppress conditions. There is a general lack of transparency. Information is withheld, in particular from trade unions, on the ground that it is commercially confidential. Many of the questions tabled by MPs have been unable to elicit the information required to make a proper judgment of the process of privatisation at a prison or elsewhere. Consultations with the unions on the planning and procurement processes have been negligible.
Judging from recent experience, private sector involvement in the probation service has been pretty disastrous. In 2002, the national probation directorate privatised hostel facilities, including cooks, cleaners and maintenance staff. The contract was awarded to Morrison's and costs subsequently rose by 62 per cent. In 2003, the NPD decided to privatise the management and maintenance of probation premises. The increase in costs in that case was less—35 per cent.—but still outrageous.
The situation is becoming a comedy of errors, almost merging into a combination of "Fawlty Towers" and "Porridge". Staff in probation hostels have reported a

81WH
catalogue of problems bordering on the farcical. I will not detail the numerous examples with which we have been supplied but there have been several complaints about standards of hygiene in kitchens and environmental health officers have been called in. People have asked how many private contractors it takes to change a light bulb in a hostel—usually only one, but it will take about four days with consultation. One hostel in Sheffield has had no regular cleaners for 12 weeks. A London hostel needed its boiler switching on and Morrison's sent a carpenter from Portsmouth. Costs build up through the inefficiencies and incompetence of the private sector.
Is it still the case, as we believed in opposition, that profits should not be made from incarcerating people, or is that now the Government's policy? It is difficult to see how the market will improve offender supervision and how it will not have the same results as we have seen in prisons of demoralising staff and driving down conditions of employment and wages. There is a real fear that the purpose of centralisation and of the review is to act as a forerunner to the wholesale privatisation of the service. That would lead to fragmentation of the service, erosion of local accountability and the failure of quality standards.
Several hon. Members rose—Several hon. Members rose—
Mr. Deputy Speaker: Order. There are 18 minutes remaining and four hon. Members seeking to contribute. Please bear in mind the remarks that I have made.
10.12 am
Mr. David Drew: Mr. Deputy Speaker, I shall certainly bear in mind what you said and I shall not re-cover old ground.
I have been greatly influenced by my discussions with two probation officers in Gloucestershire, initially Gill Mackenzie, who went on to national prominence, and more recently John Carter. The fact that we do not know with who or what Mr. Carter will be replaced concerns me. I am meeting a representative of NAPO on Friday—I know that she will read the debate and will no doubt express her concerns to me.
I want to talk about something that has not yet been mentioned but is important, which is how the probation service interfaces with employment, housing and health authorities. I shall deal with the last of those three first. The Government are, according to their rhetoric, decentralising the health service, and I support that. There is an important element of discourse with the different health authorities, particularly primary care trusts, to try to get them to spend more money on caring for offenders, many of whom will have a drug problem.
However, while we appear to be decentralising the health service, we are nationalising the probation service and dividing it between a potentially more unaccountable set of bodies. I do not understand that logic. It would make sense to bed down some of the other changes, such as those to criminal justice boards, in which probation should play an important part. Unless I have understood incorrectly, those boards are
82WH
based along county lines. I asked a parliamentary question to elicit who would sit on my local board, and they were all worthy people from Gloucestershire, including the chief police officer and people from the county council. I do not understand why we are taking what appears to be a contradictory approach, and that might matter for the other side of probation community service. With the best will in the world, no national body will be able to find employment that people who are serving their sentences in the community need to have found for them.
I hope that my hon. Friend the Minister will assuage some of my fears. From all the evidence, including that from my friends in the probation service, I know that this is a period of uncertainty that comes on the back of another reorganisation, which has yet to bed down. I hope that the Minister will consider how we assess whether this reorganisation is the appropriate way forward. If we are to have a genuine national probation service, I want assurances that that will not be pushed into the market, or removed from local accountability.
10.16 am
Julie Morgan: I am pleased to speak in today's debate because I am a past member of the South Glamorgan probation committee, which preceded the present board; I was a local authority representative on that committee. As my background is as a social worker, I have worked closely with probation officers in south Wales and discussed this issue with them. I can confirm that there is anxiety and concern about the proposals.
I, too, am concerned about a change so soon after the previous change in 2001. In my area of Cardiff, three probation services came together in 2001—mid, south and west Glamorgan—to become the south Wales probation service, coterminous with the police and court boundaries. We supported those changes. However, this new change, along with the change in chief officer, has caused a great deal of uncertainty and worry. It is far too soon to launch another change so swiftly after other big changes. I will be interested to hear from my hon. Friend the Minister about the future role of probation boards. I hope that he will respond to that uncertainty.
I regret the probation service becoming even more of a correctional service than a social work service. That is a move in the wrong direction, and we cannot overemphasise the good that can be done with the traditional method of advising, assisting and befriending. The document entitled "Reducing Crime—Changing Lives" states:
"Believing that offenders in the community will reduce their re-offending through occasional interviews with probation officers is also naive."
That belittles what probation officers have managed to do with offenders over the years. They have been a great success, because they have been people whom the offender can turn to and trust.
The points raised by my hon. Friend the Member for Stroud (Mr. Drew) pertain especially to Wales, because the probation service will be moved away from all the agencies with which it should work closely, such as local government, social services, housing departments and drug and alcohol services. With the existence of the

83WH
National Assembly for Wales, another dimension causes difficulties. The probation service needs to be fully involved in the crime and disorder partnerships and the community first partnerships set up by the Assembly. It is difficult to get probation involved at the moment; certainly, prison is not involved at all. Things will become even more difficult when the service becomes national. When problems arise, it is important that young people in particular are seen as a part of the local community and that solutions are found in the community.
As my hon. Friend the Member for Stroud said, we are moving away from the Government's commitment to localism towards a more national structure. That is going in the opposite direction of the Children and Family Court Advisory and Support Service, which is being devolved to Wales. Can the Minister say whether Wales will be classed as one of the 10 regions? Will there be an all-Wales manager? I draw his attention to the response of the Probation Boards Association, which asked:
"In a regionalised structure would the NOMS function in Wales become the responsibility of the Welsh Assembly?"
I should be grateful if the Minister commented on the role of the Welsh Assembly, which is not being taken into account in these proposals. It is so important that probation services operate at a local level, for reasons of employment and links with the voluntary sector. If contestability happens in Wales, not many people will put their names forward because we do not have much of a private sector, although we have a voluntary sector. The proposals are not at all suitable for the climate in Wales.
The other issue to take into account is the Welsh language. It is already difficult to deliver a service in Welsh. How will the devolved service and the competition for jobs deal with that sensitively? I should be grateful if the Minister addressed those points in his response.
Mr. Deputy Speaker: Nine minutes and counting.
10.21 am
Jim Knight: I congratulate my hon. Friend the Member for Walthamstow (Mr. Gerrard) on securing this debate. I echo his opening comments on the improvements to the Prison Service under this Government, as well as many of his other comments. I should also make it clear that I see some benefits of joining up the prison and probation services. We need a clearer pathway from prison through rehabilitation to resettlement for prisoners to become law-abiding citizens again, and it is possible that the proposal to create NOMS will achieve that.
I represent three prisons, all on Portland, which has a residential population of about 12,000 voters, and a prison population of 1,500. Some 300 people are employed in those prisons. One of them, the young offenders institution, had a £3 million custody to work programme funded by the Government, which shows that reoffending can be reduced if accommodation and employment can be found for young offenders on release, so that they have a pathway to a decent and secure future outside. As for the problem of overcrowding, there are young offenders in that prison from as far away as Newcastle.
84WH
The notion that officers working in those prisons can develop relationships with local authorities all over the country is very difficult. That reflects the importance of developing a regional approach, so that there is a limit to the number of agencies with which prisons have to liaise in order to secure that pathway.
I obviously welcome the aim of reducing the prison population that is implicit in the proposals, but I must reflect the concerns put to me by the chair of the Dorset branch of NAPO, Avril Harris. The Minister must answer the main questions that have arisen from this debate. A number of good questions about contestability were articulated, particularly by my hon. Friend the Member for Hayes and Harlington (John McDonnell). If there is going to be a transfer to the private sector, we must secure the pay and conditions of all those officers working in the service on Portland. If their pay and conditions are cut to the extent that has been described in this debate, that will have a noticeable impact on the economy of the island. There are exceptionally valid questions about contestability. Why the hurry, and why the need for another reorganisation after 2001?
There is also the question of probation service funding. There is a potential vulnerability in merging the two services, especially if the Government were elected on the basis of "Prison works", rather than "Probation works". When I have had conversations about crime and antisocial behaviour in my constituency, my constituents tell me that they want to see tough community sentences, but they do not see necessarily that the answer is prison, which too often becomes a university of crime.
Problems have been created by the national probation directorate's £20 million overspend, which has been devolved to local probation services. In Dorset, it meant cuts in funding of 2 per cent. this year and 8 per cent. next year, and the 14 current job vacancies will become 14 job cuts. That is a serious diminution in the service.
I have taken note of your comments, Mr. Deputy Speaker, so I shall conclude. I am not instinctively against the proposals, but in the absence in particular of proper consultation, they raise too many questions at best and considerable opposition at worst. To echo the comments of my hon. Friend the Member for Great Grimsby (Mr. Mitchell), it is time that this Government learned not to impose new ideas or to bounce us into agreeing to new policies without proper consultation. They would have a much easier time if they relaxed, took their time and ensured that we all understood what they were doing before we had to agree to it.
Mr. Deputy Speaker: There are five minutes remaining for the hon. Member for Peterborough (Mrs. Clark).
10.25 am
Mrs. Helen Clark: I shall shed half my speech and be as prompt as I can.
I do not believe that the case has been made for a further reorganisation of prisons and probation, primarily because of the recent changes to the service and the achievements that the Government acknowledge have been made since 1997. Those

85WH
developments should be monitored, evaluated and built on rather than made the subject of further disruptive change—that that is my view about many other strands of current Government policy, particularly in the field of home affairs.
The substantial reorganisation of probation service structures implemented in April 2001 should have been monitored and independently evaluated prior to the introduction of yet further structural changes. If we had had such sensible and careful evaluation, we might have concluded that the creation of the national offender management service was not needed.
It is vital that the probation service is close to the community that it serves. I welcomed the 2001 reorganisation, which established coterminous boundaries for police, local authorities and the Crown Prosecution Service. That process is continuing, as the reorganised court structure will also be coterminous by spring 2005. Many hon. Members have praised probation, and it plays a key role in representing the local community, particular ethnic minority groups such as those in my constituency.
The Prime Minister talked about centralisation in his The Guardian lecture. He said:
"When central government becomes too big it sucks up resources that should be at the front line. It runs the risk that ministers and officials try to intervene even when there is little value they can add. We must create a centre that is streamlined and focused, developing strategic frameworks, for example the thinking the Home Office is doing on how different kinds of criminality—organised crime, repeat offending, anti-social behaviour—require different organisation and policy responses. A centre that acts as a resource for best practice, that sets and monitors minimum standards, that intervenes in the front line rarely but in the case of failure doing so swiftly and effectively."
I agree with that. I am not an advocate of change for the sake of change. We need to build on the foundations that we have to create public confidence in such essential services and home affairs policy in general.
10.28 am
Mr. David Heath: I congratulate the hon. Member for Walthamstow (Mr. Gerrard) on securing an important debate.
The Minister may leave this debate thinking that there is a measure of disquiet on the Government Benches about his proposals and that he needs to provide some reassurance. I share some of the concerns expressed. The key question on the issue of the service being correctional, or one that provides social assistance to offenders, is whether it protects the public and reduces reoffending. That is the test that needs to be applied to the reorganisation.
Any sensible person would argue that there is a case for better integration of the Prison Service and probation service. Inherent in some of the Government's other policies such as custody plus, which we have welcomed, is the aim of ensuring a seamless transition between different elements of sentencing policy. I accept the point made by the hon. Member for Walthamstow that there have been some improvements in the management of offenders in the present Prison Service and probation service. I sometimes think that those improvements are slightly over-advertised and
86WH
that there is an awful lot to do in terms of prison education, dealing with health—particularly mental health problems—and women in prison. Those are still real issues. Nevertheless, there have been improvements.
The major problem faced by the Prison Service is that we send too many people to prison and we have not got the accommodation to meet their needs. That problem will not go away as a result of a structural reorganisation of this kind. More consideration must be given to better fine management as an alternative and the use of the Sentencing Guidelines Council (Supplementary Provisions) Order 2004 to provide public confidence in the alternatives to prison and ways of sentencing offenders. That leads, incidentally, to much higher visibility for non-custodial sentences, so people feel that something is happening in their community to those who have offended against it.
I have the highest regard for the probation service, which comes from way back in the days when I was working with it as leader of a county council. The service is facing huge problems, as the hon. Member for South Dorset (Jim Knight) said. The problems of financing the probation service are becoming an almost unbearable burden on its effective operation. I have heard nothing from the Minister or his colleagues that suggests that that funding crisis is being addressed. We have a structural change, but the immediate problem of not being able to provide a sufficient number of officers in the probation service to do the job that we want them to do is not being dealt with. That has knock-on effects for the police, the court system and, of course, most immediately for offenders and their families.
The financial crisis in the probation service is made worse by an absurd system of target management, whereby fines are imposed on probation services for not meeting the targets that the Government have set. I understand—the Minister will correct me if I am wrong—that 37 of the 42 probation services have been fined a total of £4.3 million in the past year for failing to meet their targets. There is a correlation between a target-based approach and a failure of the service.
The reorganisation is yet another aspect of the restless change that is endemic in the Home Office. There is an almost permanent state of revolution in the area of home affairs, which, uniquely, is rallying to the standards raised by the leader writers of the Daily Mail. That is not an attractive aspect of the Government's programme. Hon. Members have already drawn attention to that. The hon. Member for Meirionnydd Nant Conwy (Mr. Llwyd) mentioned the analogy with CAFCASS and the fact that it was a mess because the Government did not take the time to get the measures right in the first instance, but rushed through a reform and repented at leisure. That must not happen again.
On looking at the parliamentary answers to questions asked about the national offender management service, I find all too often that the Minister says that it is too early to say what the answer is to a particular question. We must start getting those answers, and we need them quickly if the speed of change envisaged by the Government is to continue.
There is so much uncertainty occasioned by that vagueness on the final outcome that inevitably it causes concern among practitioners in the service, who simply want to be able to do their job more effectively. It is not

87WH
an easy change. As I said when it was first announced, we are melding two organisations with a different ethos and different ways of doing things. If anyone imagines that the transition will be effortless, they are wrong. Much careful thought needs to be applied to the process, and I have no confidence that that has yet been done. One of the greatest worries for all of us is that, in implementing the proposals, we will lose some of the essential elements of inter-agency working, which is so valuable in that area of work.
We know of the concerns that have been expressed by probation officers and prison officers. Some of those concerns have been have been raised in the debate by other hon. Members, so I shall not repeat them. Probation officers and prison officers look at the process, which has been rather grandly labelled "metamorphosis"—with a fine disregard for both Kafka and Ovid in its implications—and know that it follows on from a process that was, equally absurdly, labelled "a new choreography". They wonder at what point the new choreography becomes the metamorphosis, and how those processes overlap. They consider their terms and conditions, which are perfectly proper considerations for those working in the service, and wonder where the process is going. They also examine the new concept of contestability—I wonder how many more euphemisms Governments, whether it be this Government or the previous right-wing Government, will find for this essential process of privatisation. I think that it was the hon. Member for Hayes and Harlington (John McDonnell) who read out a list of terms that have been applied to what is essentially the same process. We now have a new term, contestability, and we must see how it works. There are benefits in the process for some aspects of the Prison Service—I will not take a rigid ideological view—but I wonder how it will be applied in any valuable way to the work of probation officers.
I seek an explanation from the Minister on the regional dimension. My hon. Friend the Member for Mid-Dorset and North Poole (Mrs. Brooke) tabled a written question about whether the national offender management service would work closely on a regional level with the complementary services, including the police. The Minister's reply was that the supervision of offenders
"is best managed at regional level where effective links can be forged and joint strategies developed with complementary services including police, health, education and employment."—[Official Report, 9 February 2004; Vol. 417, c. 1269W.]
Have I missed something there? We do not have regional police forces. Police forces are based on police authority areas, which are coterminous with the present probation boards. We do not have regional education services; we have local education authorities. Health is no longer organised on a regional basis; the trusts, which are not regional bodies, are now the prime operatives for health. What is the regional co-ordination that the Minister says will be improved by the new structure operating on a regional basis?
I am concerned that we will lose innovation at local level through seeking consistency, which may be of value in some cases, but too often will be a dumbing-down of the process. I am also concerned that there is insufficient parliamentary scrutiny of the process. I return to my initial point. The test is whether the
88WH
proposal will reduce reoffending and protect the public. The Minister must persuade his hon. Friends and the country at large that the changes will achieve that. Assertion will not do it. There must be a fully rounded strategy that demonstrates where the added value in the process lies.
10.39 am
Mrs. Cheryl Gillan: I congratulate the hon. Member for Walthamstow (Mr. Gerrard) on securing the debate. Many of us, having heard some of the comments about the NOMS proposals, decided to apply for such a debate, and I was glad that he led the charge on this occasion. Mr. Deputy Speaker, it is a pleasure to serve under your chairmanship. If there were contestability for the role of the speaking clock, I know whom I would back.
Rarely have I heard so much disquiet expressed by hon. Members on both sides of the Chamber about a Government proposal. I am sad to hear the concern expressed by all hon. Members this morning, not least because, in the short time that I have been speaking on prison matters for my party, I have seen some of the excellent work that is being carried out in our prisons and some first-class work that is being carried out by not-for-profit agencies. Many individuals in the probation service, the Prison Service and the voluntary sector do sterling work in this difficult and sensitive area. We should set our debate today against the background of that excellent work and the current chronic overcrowding in our prisons.
I appreciate that the Minister will have only 10 minutes in which to wind up and that he has another debate on prisoners this afternoon, but today's debate cannot pass without taking into account the fact that more than 75,000 prisoners are now in custody and there are fewer than 200 places available before we have meltdown in the service. I hope that the Minister will be able to comment on that. Can he confirm that women prisoners are being moved out of Winchester and Edmunds Hill to other accommodation? How many of our police forces are on standby for Operation Safeguard? We have a Prison Service that is in crisis as we debate this matter.
I want to congratulate the Government because I have rarely seen such speed. Patrick Carter presented his report to the Prime Minister on 11 December 2003. In the intervening period, we had Christmas but on 6 January the Government were able to produce "Reducing Crime—Changing Lives", their response to the Carter report. That breaks all records for a Government response. It is a miracle what can be achieved over the Christmas period when one sets one's mind to it.
When we see how rapidly the Government responded, all the alarm bells start ringing. We heard them today. The Home Secretary proudly declared that this was the next phase of the Government's strategy to improve the criminal justice system, a system that he acknowledged needed attention when he spoke of the deep disquiet about it. We never expected him to have a ready-made response on the drawing board before the Carter report was presented, so that it could be whipped out at the beginning of the year.

89WH
The debate has highlighted the concerns of the probation service, the Prison Service, the unions and politicians on both sides of the House. The Minister will have a difficult time answering the massive amount of questions that have been raised by hon. Members. I hope that he will not try to produce all the answers in his allotted 10 minutes but will write to each and every hon. Member who has participated, whether in an intervention or in a short speech. He has to start putting the flesh on the bones of these proposals and to come out with the detail.
Like many of the organisations that have been cited today, I was surprised that the proposed changes required no parliamentary scrutiny. I should be grateful if the Minister confirmed that he still does not plan to allow any parliamentary scrutiny at any stage other than through the medium of Adjournment debates or questions. Does he consider that adequate, bearing in mind that he is creating a completely new service that will take over the employment of thousands of people and responsibility for the entire downstream part of the criminal justice system? Victims of crime, offenders and people who work in the criminal justice system are concerned because, again, we appear to be seeing the creation of a centralised monolith, to say nothing of the budget that it will command. People need to see that there is parliamentary scrutiny and accountability.
The response of the probation boards to NOMS sums it up. They say that they are dismayed that the Home Office appears to have taken far-reaching decisions without public or parliamentary scrutiny. They raise further questions, reflecting the surprise that, after the major and costly reorganisation of the probation service less than three years ago, the Government now propose to dismantle the service with little or no evaluation of the effects of the original reorganisation. Can the Minister say why no business case or costings have been available on NOMS and, in particular, what the implications are for the investment that has already been made in the probation service's reorganisation? Is that an investment that the Government are now prepared to write off?
NAPO has registered fundamental concerns about the proposals. It does not hold back on the questions that it asks and the criticisms that it makes. It believes that the proposals have been hurriedly announced and that they appear to be ill thought out and lacking in detail. Following a meeting of NAPO's national executive committee on 29 January, representatives from its 37 branches unanimously passed a motion to oppose the introduction of NOMS as currently proposed. That took place some time ago, and I am sure that it has been communicated to the Minister.
I hope that the Minister will address the concerns that have been expressed and say how he will handle the obvious problem that is developing with the unions. They have concerns with the timetable, and they make the point that the Government's own code of practice requires a standard 12-week period of consultation, which does not appear to have taken place in the case of NOMS—they are disregarding the code on occasions. I want the Minister to explain why, or to announce that
90WH
he will reorganise the timetable, so that we have longer to consider the implications of these changes and the way in which they can be brought about.
Many speeches have reflected the high degree of uncertainty that probation staff and NAPO members have about their future. That will have serious consequences for recruitment and affect the functioning of the probation service. There are some alarming statistics on the numbers of prison officers who have joined and left the service over the past few years. During the past three financial years, 3,647 prison officers have left the service and only 2,245 have joined. The Minister must address the uncertainty among staff. That is also reflected in the figures that show the differences between remuneration packages in the private sector and in the Prison Service.
The logic behind the Minister's creation of NOMS escapes everybody. We all appreciate that changes need to be made to the service. I have been acquainted with this area a short time, but it seems that nothing much has changed since I started visiting prisons as an articled clerk just a few years ago. There still does not appear to be a seamless service between how offenders are treated in prison and how they are reintegrated into the community when they come out. People have been trying, but there has been continual failure. Everyone would support the proposals if NOMS could create that seamless service, so that we could reduce reoffending. However, it is difficult to understand how the reorganisation, as it is currently proposed, will help to achieve those aims.
Last night, the hon. Member for Walthamstow and I listened to Martin Narey. The hon. Member for Great Grimsby (Mr. Mitchell) will be interested to learn that Martin Narey made much of the fact that he is intending to save money over the period that he is in charge of the reorganisation and merger of these two sides of the criminal justice system. I would be interested to hear from the Minister how much money he is anticipating saving on those budgets, because the cat is out of the bag now and we need to know that.
There are 1 million questions, and I hope that the Minister is becoming familiar with them. The proposals will affect a large number of people. Many believe that they are panic proposals. That has been articulated today. There is little confidence in the process and a distinct absence of detail. We are looking to the Minister to provide us with an explanation and enlightenment on the handling, logic and uncertainty that exist around the creation of NOMS.
10.50 am
The Parliamentary Under-Secretary of State for the Home Department: Ten minutes is not a long time in which to respond to all the questions that have been asked. I will do my best in the time available, but I will write to all hon. Members who have participated in today's debate to ensure that they receive a full answer.
I congratulate my hon. Friend the Member for Walthamstow (Mr. Gerrard) on securing the debate and thank him for doing so. There was an opportunity to question my right hon. Friend the Home Secretary when he made his statement to the House in January, but this morning's debate has provided an opportunity for a

91WH
more thoughtful discussion, having had the chance to reflect on the document that was published at that time. This thoughtful debate is built on the tremendous amount of experience that all hon. Members who have participated in it have of the correctional services.
There are three key reasons why the proposals in "Reducing Crime—Changing Lives" are so important. First, there is the day-to-day experience of the people who operate our prison and probation services. We all know, because we talk to those people, that there are still many gaps in the service—too many cracks in the system—through which offenders can fall back into crime. Although I know full well from my visits to prisons and the probation service that there is a lot of anxiety about the impact of changes on individual members of staff, there is a recognition that joining the two services together as we intend will provide a more effective service.
Secondly, Patrick Carter provided a powerful assessment in the correctional services review. Hon. Members have had the opportunity to read the document. I shall refer to a number of key points that it contained, such as the sentencing drift. My hon. Friend the Member for North-West Leicestershire (David Taylor) referred to custodial sentences for shoplifting. The fact is that people are three times more likely to receive a custodial sentence in a magistrates court for that now than 10 years ago, and twice as likely in a Crown court. The prison population increased from 55,000 in 1996 to 66,000 in 2002, and is 75,000 today. That inexorable rise does not reflect an increase in criminality.
Patrick Carter identified regional disparities. For example, someone who is convicted of an assault in Lancashire has a one in 50 chance of going to prison, whereas in parts of London the chance can be as high as one in three. Patrick Carter's projections were that, if we did nothing to the correctional services, by 2009 there will be 93,000 people in our prisons and some 300,000 people on community sentences. He concluded that, even if we allowed that to happen, it would not be an effective way to reduce reoffending. Accordingly, he advocated greater use of financial penalties and called for a more effective use of community sentences, not least using electronic surveillance, which is increasingly available.
Patrick Carter called for a new role for the judiciary, particularly the Sentencing Guidelines Council—looking not just at what is an appropriate punishment but at what is effective. His conclusion was that, if we could rebalance the correctional system with more people out of short-term prison sentences and on to community sentences, and more people fined, rather than given probation, we could have a stable prison population of about 80,000 by the end of the decade. Such matters would all have to be underpinned by effective case management of individual offenders.
Thirdly, there is the Criminal Justice Act 2003, within which we are creating the new generic community sentence and, perhaps more important, new sentences of custody plus and a new arrangement whereby people on determinate sentences of more than 12 months will serve half their sentence in prison and half in the community under supervision. In other words, no longer will we have prison sentences for some and community sentences for others—we will have increasing numbers
92WH
of sentences that combine the two elements. Therefore, it is essential that we bring the prison and the probation services together.
My hon. Friend the Member for Great Grimsby (Mr. Mitchell) said that change occurs when there is chaos and when there is crisis. That is far from the case in respect of the matter under discussion. As hon. Members from all parties have said, much has been achieved in our prison and probation services in recent years, of which we should be proud. We are now spending £3.2 billion on prisons and probation. That is an increase of £900 million in real terms. There have been 11,000 additional members of staff, and some 5,000 of them have gone to the probation service over the past six years, so I do not recognise the description of that service as being denuded of staff.
Hon. Members have paid tribute to the achievements in terms of education, detoxification and drug treatment in the Prison Service. That there have been achievements is equally true of the probation service, which has been rebuilt, having dwindled under the previous Government, when no investment was made in training, and there was very little public commitment to it. That service is now putting new sentences into place, such as the drug treatment and testing order and the intensive control and change programme. That is real innovation, and provides the effective alternative to prison that so many hon. Members have called for.
Mention has been made of the speed of implementation. The correctional services review was announced in the "Justice for All" White Paper published in July 2002, so it was not a surprise that a review was taking place. "Reducing Crime—Changing Lives" is the Government's initial response to the Carter review, and gives an indication of the direction in which we go. It will take at least five years from the implementation of the national offender management service in 1 June for the new system to be fully operational.
I want the process of moving to that service to be inclusive for the staff delivering front-line services. I offer the Chamber an assurance that that is how I intend the reform to happen. For example, I want staff representation on the board of the national offender management service, so that there is interface and dialogue between the Home Office, Ministers and senior officials in the Department and those who provide front-line services.
Mention was made of training. There will be a continued commitment to appropriate training. The training offered to a prison officer in a high-security establishment will be different from that offered to a probation officer working with drug treatment and testing orders and responsible for the supervision that they involve.
The word "contestability" was used. We are talking about contestability, not privatisation. Contestability is about getting the best value out of the investment that the taxpayer makes. We have seen from the contestability applied to the Prison Service that there is much to be gained from it, certainly in terms of an improved service and better value for money. I tell my hon. Friend the Member for Great Grimsby that the public sector does not always lose. Blakenhurst and Buckley Hall, two prisons that were in the private sector,

93WH
are back in the public sector, providing better value than the private sector could offer. I want a contestability philosophy in correctional services that allows us to include the best of the public, private and not-for-profit or community sectors, the latter of which is so important.
On staffing issues, I understand that there will always be anxiety among members of staff when their service is to be reorganised in a way that may impact on them. I pledge, as I have done throughout, that there will be full negotiation with the relevant trade unions and staff if there are to be any changes to staff's terms and conditions.
I have been asked about parliamentary scrutiny. If there were to be a change to the employing body for probation officers and a change to the local area boards, that would be subject to legislative change, and there would be the usual parliamentary scrutiny associated with that. If the prison population is to be stable when it has increased by 5,000, and if probation officers are not just to provide intervention but to become the offender managers of the future, what with the additional capacity required to implement the Criminal Justice Act, there will be a role for every prison and probation officer in the service, and more besides. That is because we need to do more, with ever greater numbers.
My final point is that, in the end, the reorganisation is not just about rearranging the furniture; it is also about reducing reoffending. That has to be our overall objective.

Offshore Oil and Gas Industry
11 am
Mr. Bob Blizzard: It is five months since I last secured a debate on this topic. It could be argued that not a lot has changed, so why we are having another debate? The slow pace of progress is the main problem, and what is happening in the UK oil and gas industry—or, rather, what is not happening—is now clearer. We can now see that it is even more urgent for certain things to happen if we are to maximise opportunities and not witness the premature decline of our oil and gas industry.
I note that my right hon. Friend the Minister for Industry and the Regions will reply to this debate. I hope that she will take back today's central message to her Department and work with the Minister for Energy, E-Commerce and Postal Services on the issues that I raise. Those issues are important to regional economies and manufacturing in the UK—which are both in my right hon. Friend's portfolio, I believe—as well as to energy policy and Treasury revenues.
For any country, reserves of oil and gas are an extremely valuable asset. They represent a huge source of national wealthߞin our case from tax revenuesߞand a source of employment. More than 350,000 people used to be employed in the industry, although that is sadly not so today. Oil and gas reserves also provide a secure energy supply. On any of those counts, it is vital to maximise recovery of our oil and gas, and added together, they demonstrate that it would be irresponsible not to do everything to extract all the reserves that can be economically exploited. However, that is what we risk doing at a time when we need all the energy that we can getߞalthough we could do without last week's exaggerated scare from the BBC.
I intend to argue that, if the Government set the direction, the oil and gas industry could play a huge part in meeting our environmental policy commitments to reducing CO2emissions. However, I want first to speak about the Government's draft allocation plan for the emissions trading scheme. The emissions allowances for the offshore oil and gas sector must be incorrect, as they are not based on business as usual and involve reductions of 30 to 45 per cent. The natural characteristics of oil and gas reservoirs also mean that the pressure in the reservoir falls as the field matures, which results in the need for increasing amounts of power to extract hydrocarbons and deliver them to shore. There is a real problem in the draft plan that needs sorting out, and I hope that it will be.
Our oil and gas is not running out. The industry, the Government and experts such as Professor Alex Kemp of Aberdeen university agree that, as 33 billion barrels of oil equivalent have already been produced from the North sea, between 22 billion and 31 billion barrels are still left. That is enough for significant production to continue well beyond 2020ߞplus that which may yet be discovered. However, the activity survey published in January by the United Kingdom Offshore Operators Association and the Department of Trade and Industry paints a worrying picture. We are simply not on course to recover those amounts. Only 14 billion barrelsߞabout 50 per cent. of what is availableߞare even targeted, and only 70 per cent. of that will be produced by 2010 if all the planned work goes ahead.

95WH
Even more worrying is the question of whether the work will go ahead. There are low levels of new activity, even though the oil price is $33 a barrel and has been high for one of the longest sustained periods ever. If there are not higher levels of activity on the United Kingdom continental shelf in that scenario, one can only wonder what might happen if oil prices dropped back to the low $20s or below. The survey reports that forecasts for near-term oil and gas production continue to slip. It concludes:
"Urgent action by all stakeholders, including Government, is required to increase investment in marginally economic fields, maximise the recovery of reserves in producing (brown) fields and stimulate the exploration and appraisal activity that is essential for future production."
The most significant measure of activity that gives a pointer to the future is drilling, which was even lower in 2003 than the previous low levels of recent years. It was 10 per cent. down for exploration and appraisal wells in 2002, and 20 per cent. down for development wells. Historically, those are pitifully low levels. If we do not drill, we do not find, we do not produce and there is no tax revenue.
The supply chain industry is contracting; thousands of jobs have already been lost, as fabrication yards along the coast have closed or lie idle. The yard in my constituency has been virtually empty for months, although the company is actively pursuing contracts and wind turbines are being assembled there instead. Why is that happening? It is easy to call for tax breaks from the Government; fiscal incentives have a part to play, but we must consider the behaviour of oil companies.
Too often, the prevailing view is that the best that can be achieved is managed decline, but some companies want to explore, and others want to develop brownfields and in so doing invest significant proportions of their capital in new activity. New entrants that specialise in mature provinces are being attracted, and some well-established players want to do more. However, some companies appear to be harvestingߞderiving huge revenues from substantial production levels from existing fields, especially at the record high oil priceߞyet reinvesting only a tiny proportion of those revenues in the North sea, placing most of what is available for investment in other parts of the world to gain higher returns. That may be good business for those companies, but it is not so good for UK plc, although even such minor reinvestment adds up to a substantial amount and it is a large proportion of the reduced total of investment in the North sea. However, that is not a recipe for maximising recovery, tax revenue, employment and energy for UK plc.
A great deal of work has been done in the joint industry-Government body PILOT: excellent initiatives on fallow fields, undeveloped discoveries, progressing partnerships, and supply-chain efficiency. Unfortunately, the end result is as I described: the PILOT vision of maintaining production at 3 million barrels in 2010 will not be achieved if we carry on as we are.
The success rate of exploration drilling has been higher in recent years, but much less has been carried out and, sadly, too often the UK continental shelf is seen as a difficult, time-consuming and costly place to do business. What is wrong? Time and again, oil companies
96WH
that are keen to develop the field complain about access to infrastructure or high charges for use demanded by other, usually larger, companies.
There are complaints from companies that believe that they have a good prospect about access to assets and licences owned but not used by other companies. Sometimes, partnerships cannot be realigned because one company is reluctant. Such problems are not unique to the UK continental shelf, but it is unacceptable that it seems to take so long to reach agreement and negotiate the necessary deals. One executive told me recently that what takes 30 days to sort out in Canada or the Gulf of Mexico can take 30 months here.
The Government cannot let the UK's assets be wasted or not fully and efficiently exploited because of commercial interests or lack of interest. Our licensing and regulatory regime suited the earlier years of regular, substantial discoveries, but it is not so appropriate to today's circumstances. We have already had one voluntary code of practice on infrastructure access, which did not work, and another is being negotiated. Will the terms be tougher? Will they be adhered to? Will the new code be any better than its predecessor? Is it taking too long to draw up? It certainly is. New developments need to be taken forward before the existing infrastructure is decommissioned or shut down.
The point is that oil and gas is not running out, but time is. Those who do not use assets must give way to those who will use them, and the Department of Trade and Industry must use its powers to determine price disputes between companies. We must ensure that all assets are made available in one form or another to those best able and willing to invest in and make maximum use of them.
I will say something about fiscal measures; it is Budget day, after all. Last year, the Treasury undertook a major consultation on low levels of activity, involving unprecedented engagement with the industry. The problem was that it was difficult to get a unified view, except that what seemed to be on offer from the Treasury would not make a difference. Unsurprisingly, that view did not appear in the pre-Budget report.
There still does not appear to be much unity of view between companies investing a high proportion and those investing a low proportion of their returns in the North sea. However, we need a fiscal regime that encourages movement from so-called harvesting towards investment in exploration and development. Could that be done at no cost to the Treasury, and without unwanted consequences? I do not know. We have to accept that there are marginal fields that are not economic to develop under the present fiscal regime, but it is obvious that it will be difficult to persuade the Treasury to give anything away unless the industry changes the culture on non-fiscal matters that are preventing the maximisation of hydrocarbon recovery. We have only a two or three-year window to get this right; otherwise, we may enter a decline that it might not be easy to arrest.
There is another reason why we need to act quickly. Our oil and gas industries have an important role to play in wider energy policy relating to our obligation to meet targets on emissions of CO2: carbon capture and storage, and enhanced oil recovery. The idea is to capture the CO2 emitted from gas and coal-fired power

97WH
stations fitted with special equipment, pipe it under the sea and bury it by injecting it into oil reservoirs that are nearing the end of their lives. The effect of that will be to enhance the oil and squeeze out more of it—a new chapter in maximising the recovery of valuable assets.
We know that that is technically achievable, and I am grateful to Dr. John Gibbins of Imperial College for the information that he has provided. However, the bigger prize is near-zero emissions in electricity generation. The technology would provide the legal and lower-cost storage that we need for the first few decades, and could maintain and extend the necessary infrastructure for long-term storage for hundreds of years, using aquifers deep beneath the floor of the North sea.
Why do we need that? If we consider the electricity projections to 2020, we see a substantial rise in consumption. Even if we reach the target of 20 per cent. generation from renewables—and there must be some doubt about that—given the reduction in generation from retiring nuclear power stations, the overall projection is that zero-emission generation in the UK will not increase significantly between 2010 and 2020. Therefore, there will be insufficient reduction in CO2 to meet our stated targets, including the target of a 60 per cent. cut in carbon emissions by 2050.
Unless we go down the road of carbon capture and storage, the only answer will be to create another generation of nuclear power stations. Whatever one thinks of nuclear power, a new generation of such stations would present political problems. In any case, it would be sensible to have another option; we may need both. Carbon capture and storage is the only other option. That is why we must move forward with that and with enhanced oil recovery, as detailed in last year's energy White Paper, which recognised the strong case for both and set up a study.
I understand that the DTI is about to publish the report. I imagine that it will state that the market will not deliver carbon capture and storage and enhanced oil recovery, and that oil industry revenues will be too low and too long-term under simple market conditions to deliver them. Their delivery would therefore require some strategic priority from the Government, but so would nuclear build, and that might be even more expensive. If carbon capture and storage and enhanced oil recovery are to be an option, and because of the long lead-in times involved, we must move forward now. Even more crucially, if enhanced oil recovery is not started in the second decade of this century, oilfields will be closed and the opportunity lost for ever. Additional revenue from increased oil production will not then be available to offset carbon capture and storage electricity generation costs.
This is a great opportunity for the UK to take a global lead in these technologies, and to bring future economic success and jobs. The technology is also key to enabling developing countries to participate in CO2 emissions reduction while still using their own resources for the economic and social development that they need and from which they will riot want to turn away.
Time is of the essence. The key point that I want to make is that time is running out and that unless all stakeholders and the Government ensure that action is
98WH
taken now, those great opportunities to maximise the recovery of our oil and gas reserves and to pursue new environmentally beneficial technology will be lost, and, along with them, jobs in parts of the country that really need them and much needed tax revenues and energy.
11.15 am
The Minister for Industry and the Regions: I congratulate my hon. Friend the Member for Waveney (Mr. Blizzard) on initiating this debate, which is, as he said, a follow-up to the debate that was held last October and is part of his ongoing work to bring these issues to Parliament's attention, to put pressure—understandably—on Government, and to engage stakeholders more widely. He plays an important role in that. I hope that I can give him some encouragement not only about progress since October's debate, but about progress on initiatives that were instituted before then.
My hon. Friend is right that the energy White Paper, which was published just over a year ago, reaffirms our commitment to maintaining an active and successful oil and gas industry and to promoting the future development of the UK's oil and gas reserves. There are still huge quantities of oil and gas to be produced from under the North sea—potentially more than we have already produced. The Government are committed to working closely with industry, the oil companies and their supply chain to secure the best licensing, environmental and business frameworks to attract the investment activity that is needed to deliver that potential. We believe that, working together, we can explore and produce every economic drop of oil; but there is no room for complacency.
Through the PILOT process and the Government-industry oil and gas forum, we are making progress on providing the right incentives for continued and new investment from existing and new players. In particular, we are continuing enhancements to our licensing processes; considering ways to free up more fallow acreage; working to ensure third-party access to infrastructure on fair and reasonable terms; seeking continued improvement to commercial behaviours; pursuing further innovations; and working with industry to ensure that the UK supply chain remains competitive.
Mr. Stephen Byers: I know that the Minister is aware of the importance of the offshore industry to employment and the manufacturing sector not only in the United Kingdom generally, but in the north-east of England specifically. We were particularly worried about the failure of AMEC to win the contract for the Buzzard development. In the light of that experience, will her Department reconsider the licensing regime to identify the ways in which it can benefit the UK offshore industry and secure British jobs in British yards?
Jacqui Smith: As I said, we constantly update the licensing regime to ensure that it encourages activity. I understand my right hon. Friend's disappointment about the case of AMEC, although the Buzzard field is directly sustaining around 1,000 jobs between Hartlepool and Scotland in companies that won contracts. I assure him that we shall continue to do what we can to support the UK energy industry supply chain

99WH
companies such as AMEC to help to build up their competitiveness. That is a key role of the DTI's oil and gas industry development directorate, which works with regional partnersߞnot least in my right hon. Friend's constituency—to ensure that we are in the best possible position to take advantage of the activity that taking place.
The licensing regime must adapt to the changing commercial environment and bring about activity as quickly as possible. That is why, in the 21st offshore licensing round last year, we offered a new form of licence to attract new entrants. The promote licence was offered at a 10th of the cost of a traditional licence, and proved very popular. The response to that round was the best for years: 89 licences were awarded, including 53 promote licences. During last year's debate, my hon. Friend the Minister for Energy, E-Commerce and Postal Services mentioned the Prospect fair, which was a successful event that gave those awarded with promote licences an opportunity to inform industry and financiers of their plans for acreage and to attract investment. We are looking forward to seeing which of the promote licensees will be the first to deliver a firm drilling commitment. As regards progress since last October, earlier this month we announced the 22nd offshore licensing round, which makes available the largest number of blocks since the second round in 1965.
Mr. Frank Doran: My right hon. Friend rightly points to the positive measures that the Government are introducing to encourage activity in the North sea. My hon. Friend the Member for Waveney (Mr. Blizzard) made a powerful speech setting out the disincentives to activity, such as the difficulty in gaining access to infrastructure and the fact that several companies are holding on to acreage. Around 80 per cent. of explorable acreage in the North sea is held by just half a dozen companies, which are investing elsewhere in the world while queues of new entrants are desperate to get access to that acreage. Are the Government addressing that problem?
Jacqui Smith: My hon. Friend has made that case strongly before. The 22nd round adds to promote licences the new frontier licences, which allow companies to apply for relatively large amounts of acreage at reduced cost. That will allow more time for exploration arid development, reflecting the additional technical challenges, especially in the Atlantic margin west of the Shetland islands. The change in the licensing regime will help to promote the introduction of new entrants and activity that my hon. Friends the Member for Waveney and for Aberdeen, Central (Mr. Doran) have called for.
There is no doubt that we need to encourage more exploration activity. In 2003, there was a small increase in the number of exploration and appraisal wells drilled in the UK, although if one scans back over the past decade it is clear that the number is still relatively small. Nevertheless, there are some encouraging signs—for example, the recent drilling success of new entrant Oilexco on the Brenda prospect, where good quantities of oil appear to be present. That acreage was specifically identified by the DTI, and it was promoted and awarded in the 20th offshore licensing round in 2002. That is
100WH
good news for the UK continental shelf. It gives us confidence that there is sufficient untapped potential to encourage experienced players from overseas and that that can be done within two years.
Mr. Alex Salmond: Will the Minister give way?
Jacqui Smith: Yes, but hon. Members must recognise that giving way limits what I can say.
Mr. Salmond: The Minister said that good things are happening, and I accept that there are encouraging signs. I agree with the hon. Member for Waveney that there is huge untapped potential and little sign of firm action to release the substantial amount of fallow acreage. What more does the Department intend to do to secure the release of that fallow acreage and to get the exploration figures to a more reasonable level?
Jacqui Smith: I was coming to that. Early indications are that more exploration and appraisal wells need to be drilled in 2004 than last year. Certain fiscal measures, especially the tax change, are designed to stimulate exploration activity in the North sea by companies without current taxable income. The exploration expenditure supplement will increase the amount of exploration and appraisal expenditure that can be carried from one accounting period to the next for a maximum of six years. It is important to set the right climate for investment, and that is what we are doing.
Several hon. Members referred to fallow blocks. We have continued to push hard in dealing with that. For example, 151 fallow blocks are identified on the DTI's oil and gas website, including 109 blocks that were added to the list this January. They must have significant activity planned within one year of being put on the website, or be relinquished. In addition, there are 83 fallow discoveries, including 17 that were added to the list in January, for which a licensee or third party has two years from publication to come forward with plans for significant activity. That drives precisely the kind of emphasis on action on fallow blocks for which hon. Members have argued. In fact, since the PILOT process began in 2002, eight exploration or appraisal wells have been drilled on those blocks. As a result, three new fields are being developed and two other wells have been announced as discoveries. Since 2002, 10 discoveries are no longer fallow because they have had new dedicated seismic, and a further eight discoveries have had appraisal drilling. Thirteen discoveries are no longer fallow because they are included in development plans approved by the DTI or are part of fields now in production.
Despite those outcomes, there is no room for complacency. We will continue to work with the industry to push for even more acreage to be made available. We have taken action to ensure that there can be no more inactivity on licences. All new standard licences issued now have a shorter overall term to ensure that new acreage that is acquired but not worked on is handed back and made available for others to exploit.
On infrastructure, the key issues relate to perceptions about access and the time that it takes for some deals to go through on the UK continental shelf. I am pleased

101WH
that the industry has been fully engaged in discussions on that and has reached an agreement to take forward measures to allow the Government to intervene in cases in which commercial negotiations are stagnating. That is a response to concerns that were raised in the previous debate about the unwillingness of those suffering to come forward to complain; it establishes a process for such intervention. That consensus was reached last October, and detailed implementation of the infrastructure work group is progressing well.
In terms of commercial practices, last year the industry signed up to the master deed agreement. The commercial code of practice is also relevant. The DTI and the United Kingdom Offshore Operators Association—UKOOA—are pulling in the results of a code of practice survey for 2003 and intend to report to PILOT in the coming months on trends and industry performance. Action is therefore under way on ensuring access to infrastructure. Work is also being undertaken on the great potential for additional production in our brownfields. The PILOT brownfield work group published its second brownfield benchmarking studies in 2003.
We already have good examples of the industry's commitment not to miss out. UK independents are making significant investments. Those include Paladin; Energy North Sea's recent plans for the Montrose and Arbroath fields, where substantial drilling contracts have just been awarded; and Venture's acquisition, with Dana, of the Kittiwake fields.
More generally, at this stage in the life of the UKCS, a wide spectrum of companies—existing and new players, large, medium and small—must be involved if we are fully to exploit all the opportunities. I have explained how we are making progress through the licensing process and action on access to infrastructure.
102WH
My hon. Friend the Member for Waveney asked about CO2 capture and storage. We are aware of the benefits that carbon capture and storage could provide in contributing to our energy White Paper target. Indeed, we recently undertook two studies of the feasibilities of those technologies and concluded that, in time, they could assist us in meeting that target, although in the longer term—beyond 2020. The first study investigated the feasibility of carbon capture and storage; the second considered the possibility of using CO2 for enhancing the recovery of oil from our depleting oil fields as a lead-in to CO2 storage by enabling an infrastructure to be developed. We are about to publish that second report.
Meanwhile, we are developing a carbon abatement technology programme that will provide a basis for a strategy for the use of fossil fuels for power generation. We plan to publish that strategy towards the end of the year. We also have an ongoing research programme—the sustainable hydrocarbons additional recovery programme—that is specifically targeted at identifying areas in the North sea where improved oil recovery techniques might be applied.
There is still a great deal to do. Industry, too, recognises the need for change. Only recently, Alan Booth, Managing Director of EnCana (UK) Ltd., outlined a number of areas in which industry must quickly adopt new approaches if it is to ensure that it gets the full benefits of what the North sea has to offer. This year, PILOT and the Government will focus on concluding the new procedures that will improve third-party access to infrastructure and on finding ways to enhance oil and gas recovery from brownfields. We know that the production gap exists, but the UKCS is still thriving and we are committed to working with the industry to overcome production barriers and to find innovative solutions for the future.
11.30 am
Sitting suspended until Two o'clock.

Prisoners (Mental Health)
2 pm
Mrs. Annette L. Brooke: We are here to discuss an important subject this afternoon, notwithstanding the alternative attractions: some people are listening to the speeches on the Budget, and others are talking to the media. I particularly wanted to have this discussion following the annual report of Her Majesty's chief inspector of prisons for England and Wales for 2002–03. I tabled an early-day motion earlier this year welcoming the report, but also calling for an urgent review of how those with mental illnesses are treated.
Hon. Members will almost certainly have witnessed the sad results of girls self-harming in prison, and I have a tragic memory of visiting the special unit in Feltham young offenders institution for young men with severe mental health conditions. The dedication of the staff was impressive, but that memory stays with me. Prison suicides currently average two a week.
The chief inspector of prisons, Anne Owers, suggested that the most serious incidents of self-harm, as well as deaths in custody, should be the subject of official investigations. In her annual report she said that the inquiries should not only ensure that help is focused on suicidal inmates, but should identify inmates who are so mentally ill that they should not be in prison. She suggested that a new network of mental health units should be set up to provide support and treatment for hundreds of disturbed offenders who could be detained there instead of in prison, where overcrowding is having an insidious and chronic effect.
Today the prison population stands at more than 75,000. The vast majority of the men and women locked up in our jails have mental health problems. Recent research by the Office for National Statistics found that seven out of 10 prisoners suffer from two or more mental health disorders. In many cases those include problems with substance abuse. Therefore, as I speak, more than 50,000 people who are mentally ill are locked up in our jails. They are supported by staff who are dedicated, but are not always trained psychiatric nurses. Many are trying to do their best in very difficult circumstances. One prison officer recently told a national newspaper:
"We are no longer prison officers, we are mental health workers. We are enthusiastic, but we are only amateurs."
I do not like to call those people amateurs, because they are professionals, but they are not fully trained to deal with the full range of mental health problems.
First, there are the seriously and acutely mentally ill. Martin Narey, the head of the recently formed national offenders management service, which we were discussing this morning, says that at any one time there are some 5,000 prisoners who should be immediately transferred to secure psychiatric settings. It is difficult, verging on impossible, to provide the right kind of environment for those people in prisons. Prisons are not by their nature therapeutic environments, so they are not places where prisoners can be compulsorily treated. They deal with extremely disturbed people, and prison staff struggle, and do a terrific job, simply trying to contain the degree of illness and danger.
Compared with 10 or even five years ago, the transfer of prisoners who are sectioned under the Mental Health
104WH
Act 1983 to secure NHS facilities is improving. It is usually possible to do it within three months of diagnosis. Even in those three months, a prisoner's circumstances can deteriorate dramatically. The situation is not as good as it should be. The chief inspector of prisons pointed out:
"The arrival of mental health in-reach teams in many prisons has been of benefit both to prisoners and staff, enabling those with chronic mental disorder to be better managed on the wings."
I do not wish to undermine the improvements that have been made and the excellent ongoing work. Today's debate is about what more can and should be done in our prisons.
In parts of the country in which mental health trusts are unable to find room, deeply troubled prisoners can remain festering in prison for many months, locked up for many hours and remaining a danger to themselves and to other prisoners and staff. Many seriously mentally ill prisoners are not sectioned because, as they suffer from personality disorders, they are not considered to be treatable. A staggering 64 per cent. of male and 50 per cent. of female sentenced prisoners have a personality disorder. They are not always being accepted into mental health institutions, and those that are will sometimes be returned to prisons because they are too dangerous and difficult to deal with in special hospitals. Governors are reluctant to take those prisoners.
As is highlighted by Her Majesty's chief inspector of prisons, there is a policy in the Prison Service shockingly called "sale or return", whereby prisoners are sent by one governor to another on the understanding that if they misbehave, they will be returned. That is not the way in which we should deal with people who may be difficult but who have great needs and are usually damaged. A whole category of prisoners is on a merry-go-round, although "merry" is hardly the right word to use. They go from one prison to another for weeks at a time, usually to provide respite for prison staff. That does little to help them, but instead exacerbates their mental condition.
In a prison, disturbed men and women are often held away from the main wing, either in the health care unit or in special segregation units. As the independent monitoring board—the prison watchdog appointed by the Home Office—recently reported to the Home Secretary of Her Majesty's prison at High Down in Surrey:
"It is distressing to watch mentally ill men being shuttled between the segregation and health care units. Their condition is adversely affected by segregation, but their behaviour cannot be adequately managed in our standard prison health care unit."
There are also levels of mental disorder associated with substance abuse. I do not discount the advances made in recent years for prisoners with drug problems, but there is still a long way to go. The Government proudly tell us that more than 40,000 detoxifications take place across the Prison Service each year, but there are question marks over the quality of those detoxifications. How many of them took place in health care centres rather than on prison landings? How many detoxified prisoners received follow-up, and of what kind?

105WH
The Home Office also says that more than 40,000 initial assessments were made last year under the CARAT programme for prisoners with drug problems. But how many of those initial assessments led to the full process of counselling, assessment, referral, advice and through-care? I do not underestimate the extent of what I am identifying and I realise that it cannot be solved overnight, but it is right to outline the whole situation.
How many prisoners complete treatment and rehabilitation programmes? How many prisoners have access to treatment and support services on release, and with what delay? Is there any information about the number of prisoners with dual diagnosis, and what coordinated Prison Service provisions address their needs? Those questions are all being asked by prison reform groups such as the Prison Reform Trust, but the Home Office has not provided satisfactory answers—perhaps the Minister will be able to help today.
The situation is compounded by the severe overcrowding in jails across the country. According to the Prison Reform Trust, 85 of the 138 jails in England and Wales are overcrowded and more than 16,500 prisoners have to double up in cells designed for one person. The large local jails up and down the country have in effect become vast transit camps, where tens of thousands of prisoners are processed each year. There is a danger, because the system is so overstretched, that staff will fail to identify and monitor vulnerable and the mentally unstable prisoners.
We are already seeing the consequences of cramming mentally ill people into overcrowded jails. Incidents of self-harm among prisoners have increased fivefold since 1998. Last year, there were 17,300 such incidents recorded. Among female prisoners the level of self-harm is particularly alarming. A far higher proportion of women injure themselves repeatedly. Many of them will have suffered domestic violence and sexual abuse. For them, and for the many desperate men in our prisons, self-harm is a way to release their mental pain. As one former prisoner wrote in a recent report by the Prison Reform Trust:
"During the two-and-a-half years of my incarceration I was to discover the depths of despair one can fall into, believing I was losing my mind, believing I was dead, believing I was buried alive, believing I would never be free. I learnt about self-harm, physically and emotionally, I learnt how to survive, yet at the same time how it feels to want to die every day … Prison is not a place for the mentally ill and too many … are there already that should not be."
In her annual report, Anne Owers says:
"Women in prison are at ever greater risk of suicide and self-harm. There were 14 self-inflicted deaths this year, and six of them occurred within the first eight days in prison … This places local prisons, which receive women directly from the courts, in the front line. The key elements they need to have in place are effective strategies on self-harm and bullying, effective detoxification, proper mental health support and a sufficiently active regime. None of the three local prisons that we reported on this year met all these requirements; though between them they showed that it is possible to have effective practice in all these areas."
Although there were many worrying statements in the annual report, there was some light. There are those pockets of good practice—if only we could spread them more.
106WH
The chief inspector goes on to say:
"Proper detoxification is a key part of safer custody. Holloway had extremely good detoxification, which we say should be a model of good practice. But sadly it is not a model that is followed elsewhere. In our inspection of Styal, we found that inadequate detoxification severely affected women's physical and mental health and future chances. We noted that the Governor's two bids for additional resources for detoxification had been rejected. Our report was unequivocal: 'Our strongest recommendation is that drug detoxification programmes should be introduced immediately'. It is inexcusable, that, 18 months after our inspection, this was still not the case and, in the interim, six women drug users had died there within a month of admission … Styal had no proper detoxification unit. We describe women, in their early days there, fitting and vomiting in their cells, with staff unable to do more than observe and try to alleviate their distress. This had profound and damaging effects, both on women's safety and on their chance of effective education and training."
We have recently heard that the successful therapeutic project at Winchester is to be uprooted and transferred to Her Majesty's prison Send as part of emergency plans to find extra spaces and avoid holding male prisoners in police cells. That rushed plan is surely a symptom of the crisis in the Prison Service. It is difficult to imagine that those vulnerable women will not be affected by the move. The overcrowding crisis is now so great that the Government perpetually seem to be running behind the problems.
I welcome the strategy for women prisoners, which was announced on the same day as the announcement about moving the special unit at Winchester. It has long been argued that women prisoners need different treatment, and it is a sad reflection on society that the number of women prisoners has increased by 173 per cent. in the last 10 years. Their sentences may be short but the women are very vulnerable, and it is a problem for them to be located far away from their homes and families. About 50 per cent. of women are more than 50 miles from their families, and a quarter are more than 100 miles away. There are different circumstances, but it is worrying that women are receiving more severe sentences than they would have been given a decade ago for the same offences.
We must get the right message across about sentencing policy. I am not convinced that the Government always give clear signals to the justice system. There are many good schemes in the Criminal Justice Act 2003: more community service, custody plus, custody minus, and intermittent jail sentences. However, women are still going to prison when other settings would be more appropriate.
Research by Young Minds concludes that more than 1 million children have a mental disorder and half of all children who have been involved with the police have a mental disorder. That is not to say that all children with a mental disorder offend, but it is important to expand children's mental health services rapidly as a preventive strategy to help to such vulnerable children.
I welcome the fact that the Government have invested heavily in child and adolescent mental health services. We might speculate that some of the problems that we face might not be quite so desperate if that investment had been made earlier. In my former life as a councillor, I was frequently frustrated by the lack of money for children's mental health; although the Government have done an enormous amount, there is much more to be done. I am straying from Home Office to health

107WH
issues, but one reason why I wanted this debate was because we need joined-up thinking to tackle the issue from all sides.
Why have prisons become dumping grounds for the mentally ill? The answer is simple: according to the mental health charity Mind, 50,000 psychiatric beds have been lost over 20 years. There is nowhere for people to go when they have a mental breakdown, and that often leads to prison for people who commit minor offences. The courts are remanding increasing numbers of mentally ill offenders in custody to await pre-sentence psychiatric reports, because there are not sufficient places available in bail hostels.
In addition, there is a shortage of court diversion schemes so that offenders who are acutely ill or at risk of suicide can be given hospital places or the treatment they need. The solution in these tragic circumstances is not to turn prisons into treatment centres on the cheap; the solution lies outside the criminal justice system.
So much offending by mentally ill people is really a public health, rather than a criminal justice, issue. The problem will certainly not be solved by cramming more people into jails or by investing in another prison building programme, as it costs £36,500 a year to keep a person behind bars. The solution is to provide more services for mental health care, drug treatment, court diversion, and mental health support and supervision centres throughout the country. With that investment, surely we could find the money for the treatment that our mentally ill people need? Why should we continually throw so much money at our prison system, when the more prisons we build, the more demands to send people to jail fill the tabloids? Does the Minister accept that we must invest to save not only money but people, and their self-esteem?
The World Health Organisation has highlighted the link between access to physical education, work and the arts—all of which are restricted in prisons, especially at times of overcrowding—and mental health. We have had a lot of information about prisons in which the inmates are kept in their cells for up to 23 hours a day. That is all part of the crisis of a shortage of staff and space. We have a self-perpetuating crisis of overcrowded prisons, including the presence of prisoners with severe mental health conditions, who obviously absorb a lot of staff time; meanwhile, we are making the mental health conditions for other prisoners worse. That vicious circle must be broken.
I would like to see a clear strategy from the Government on mental health, because it is the biggest area that needs to be tackled to improve our Prison Service. We need genuine rehabilitation for those who offend, along with the punishment that is clearly needed for all offences—we accept that there must be longer prison sentences for those who have been involved in violent or sexual crimes. However, we also need good sense, because our prison system is not working. There might be small cuts here or there in reoffending, but I have not seen any figure of less than 50 per cent. for that, although there may have been large percentage reductions. There is a revolving-door phenomenon. When people go in through that door, those who may have entered without a mental health condition can develop one because of prison conditions. Worse still,
108WH
those who should have hope in their lives are not receiving the education or support that they need, and they are not engaging in rehabilitation activities.
There is so much to be done. For those with severe mental health conditions and drug addictions, it is important to invest to ensure that there is total through-care. I hope that the Minister will tell us about both the short-term plans, which I hope are not just quick fixes, and the long-term strategy, because we have a real crisis. There are already tragedies of suicide and violence in prisons, and it will not be much longer before there is a bigger tragedy. We need action and a long-term strategy that will address the problems that I have outlined today.
2.24 pm
Mr. Paul Marsden: I congratulate my hon. Friend the Member for Mid-Dorset and North Poole (Mrs. Brooke) on securing this debate. I realise that an interesting debate on the Budget is taking place in the main Chamber, but it is still disappointing that so few Members are present in this Chamber.
As my hon. Friend said, the problem of mental health in prisons is avoidable and can be resolved. We are talking about some of the most vulnerable people in our society. I have often found on my travels that people who have been in prison have also been homeless or have experienced all sorts of suffering in socially deprived areas. They are people with a lot of baggage. We need to find ways to help that hardcore group of people. They have problems—and, to be honest, many of them create problems, too. Mental health services have been neglected for many years, and it is to the Government's credit that they have put their money where their mouth is and begun to address the problem that they inherited.
There is a pitiful lack of resources for helping people with mental health problems inside prisons. I remember going to Shrewsbury prison, where excellent staff attention is given to looking out for the obvious problems of the prisoners who go quiet and do not express themselves, and for those with a background of mental health problems. It also has a good counselling room, where staff can try to talk to prisoners. However, the fact remains that there are too many people in prison who should not be there.
The statistics alone are worrying, and even they belie the real truth of the heartache—the details of the cases behind the numbers. None the less, they show that in 1992 there were 41 self-inflicted deaths in our prisons, and that by 1997 there were 68; the latest available annual figure is 94. The Minister will probably say that the number of people in prison has dramatically increased for a variety of reasons, and that is right; in 1992 there were 45,817 people in our prisons on average, and the latest figure is 74,960. However, if the proportion is worked out on a pro rata basis—per 100,000 prison population, let us say—there has still been an increase: the latest statistics say that 125 people per 100,000 in the prison population commit suicide, but in 1997 that figure was 111, and in 1992 it was 89. The trend is going up, over and above any increase in the prison population. People in British prisons are now 13 times more likely to commit suicide than people in the outside world.

109WH
Something is seriously wrong. There is a breakdown in the way in which our overstretched public services are dealing with this issue, because at the same time the statistics in the wider community are getting better. The Government and the Minister can rightly take credit for that. Extra resources are going into the wider mental health services and the suicide rate is decreasing; it has come down from almost 11 per 100,000 to about nine. That is good.
However, although resources are being spent and that is creating some success, not enough is being done. On 9 February,The Guardian reported:
"Incidents of self-harm among prisoners in England and Wales have increased fivefold since 1998".
Those new figures were revealed in response to a parliamentary question from Lord Lester, QC. The annual report of HM chief inspector of prisons for England and Wales 2002–03 states:
"Mental health continues to be a major problem in prisons, with a large number of prisoners who have either acute or chronic mental disorders. We have noticed some improvement in moving seriously mentally ill patients to NHS care".
The Government were right to do that. The report continues:
"Nevertheless, three months"—
the target time for assessment—
"is a long time for prisons to hold seriously ill, often potentially violent, prisoners that they cannot treat and who deteriorate visibly. The regimes available in healthcare centres rarely provided the support and stimulation that such patients need."
Likewise, on 9 February in The Birmingham Post, Professor David Wilson of the university of Central England said:
"Prisons seem to be for the homeless, people with social problems and the excluded. It is a disgrace to our nation. They are for locking people up, not treating people with mental problems, no matter how many times they offend."
He warned that if prisons continued to house the mentally ill they would lose the public's respect, and I think that he is right.
My hon. Friend mentioned problems at Styal prison in Cheshire. Five of the six women who died there last year were in the induction wing, which was found to be "isolating and forbidding". There was inadequate provision for mental health treatment and there were inadequate facilities for dealing with drug-dependent prisoners. I am sure that the Minister will say that action is being taken on that, and that there will be extra resources. Nevertheless, surely we have to change the procedures and expand capacity—possibly in the community, certainly in secure mental health hospitals—to make sure that such people, who should be treated, do not constantly go in and out of prison. That is counter-productive in every way.
The present situation produces many problems on the streets, as I saw recently when I spent an evening on patrol with special constables in Shrewsbury. I was with them between half-past 5 in the evening until half-past 11, when they finished the patrol, and the first four call-outs were all to deal with problems on the streets caused by people with mental health problems who were known to the police.
110WH
The policemen told me that in each case, all they could do was to calm the people down and move them on; there was simply no provision for getting mental health workers out in the evening. The police pointed out two individuals who had criminal records and who had previously been to prison. It is only right and proper that we make those responsible for crimes and for their actions to pay for their actions, but there are clearly too many people on our streets and in our prisons who are not necessarily responsible. Prison is the wrong place to send them.
Finally, the Prison Reform Trust has said:
"One in five men in prison, and nearly 40 per cent. of women, have attempted suicide at some time—rates that are much higher than in the general public. At some stage in their sentence most prisoners are going to experience personal distress, mental health problems, drug dependency or a lack of family support—all factors which increase the risk of suicide."
With almost two people a week now committing suicide in our prisons, it is time that this terrible tragedy came to an end.
2.33 pm
Mr. Mark Oaten: I, too, congratulate my hon. Friend the Member for Mid-Dorset and North Poole (Mrs. Brooke) on securing the debate. Often prisons and matters to do with mental health are seen as a Cinderella issue. However, this debate is not the only one we have had today; it follows the debate this morning on the soon-to-be-established national offenders management service. That debate set the background for the new structure that the Government are putting in place, and I hope that the Minister will make it clear that one urgent priority for that new system will be to address some of the issues that my hon. Friend has raised; the two subjects work closely alongside each other.
My hon. Friend was right to focus on some of the figures involved. There are 5,000 individuals with serious mental health issues in prison, whom all the professionals recognise should not be in prison. Beyond those 5,000, there are a considerable number—seven out of 10 prisoners—who have some form of mental illness. Those are damning figures indeed.
My hon. Friend mentioned what took place at Feltham some time ago. I visited Feltham a couple of weeks ago and I would like to put on record the enormous progress that has been made at that institution. I was extremely impressed with what I saw—the dedication of the staff and the way in which they have turned round an organisation that had the problems to which my hon. Friend referred. The institution—touch wood—now has a regime that has calmed things down and is making enormous progress. I was extremely impressed with the work that they do there.
My hon. Friend made a damning point about the cost of keeping individuals in prison: £350 a night. Imagine how that money could be invested in tackling mental health problems. It is a very large sum. If we could put all that into solving some of the problems that she mentioned, that would surely be better value for money.
I also thank my hon. Friend the Member for Shrewsbury and Atcham (Mr. Marsden) for his contribution, in which he made three or four telling

111WH
points. He drew attention to the increases in the prison population, and mentioned an extremely damning figure, which I had not heard before: people in prison are 13 times more likely to commit suicide than those outside. One would have thought that people would be less likely to commit suicide in a secure institution, and that they would be secured from that vulnerability and put into a system that would make them safer. It is an absolute disgrace that they are 13 times more likely to commit suicide.
I concur entirely with my hon. Friend about the experience of going out with the police on a Friday or Saturday night. I did that in my constituency too, and it was amazing how the police knew the names of all the individuals. Sometimes they even knew the medication that some of them should be taking, and were asking them whether they had taken it. On the streets on a Friday or Saturday night, the police were almost like mental health experts themselves. Without that knowledge, people can often misinterpret behaviour, not understanding that there is a mental health reason behind it. One can easily see how such disturbing behaviour can lead individuals into prison. My hon. Friend was right to raise that concern.
The background to this debate, as has been said, is the increasing prison population. I do not want to go into the issues behind that, other than to put on the record the fact that we are heading towards a crisis. We know that the Government are trying to juggle the figures every week, to avoid police cells having to be used to cope with the numbers involved. Something must be done in the system to tackle the growing numbers of folk in prison, as prison cannot do the job that we would all like it to do. The problem manifests itself in move away from the concept of a community prison to prisons that have no connection with the community in which the prisoners are held. Prisoners are always being moved up and down the country.
My hon. Friend the Member for Mid-Dorset and North Poole raised the case of my own constituency prison, Winchester, where the decision has recently been taken to close the women's prison and to move the therapeutic community experiment that was taking place there—the only experiment of its kind in Europe. I have visited it, and the concept of giving the prisoners some responsibility is exciting. They set their daily timetable and consider the prison's agenda and the tasks that take place there. Most importantly, individual prisoners start to have some responsibility for how their lives are run. Such issues are all too often taken out of their control when they go into an institution, and when they leave prison, not having had responsibility for themselves can cause great problems.
That is excellent work; I acknowledge that the Minister has been helpful in keeping me posted on the issue, and I do not criticise him for his communications. He has reassured me that the unit will move to a different location, and stay together as much as possible. He recognises, as I do, the importance of keeping as many of the women and staff that started the experiment together when they move. When he responds, perhaps he will be able to update me on negotiations with staff, as we obviously want to persuade the staff who are taking part in the experiment to relocate, at least in the short term, to keep it going. However, the point remains
112WH
that moving prisoners around the country like that cannot be good for the purposes that prison is supposed to serve.
The debate is not about prison and reoffending, but something is wrong with a system that allows 87 per cent. of 18 to 21-year-olds to reoffend. It is a national scandal that 87 per cent. of the individuals in that captive audience come out and commit a crime again. The figure is 57 per cent. for the rest of the prison population—something is clearly going wrong.
We cannot debate education and training today, but we must do more to ensure that individuals leave prison with the ability to read and write. and the skills to get a job. However, none of that can happen while the size of the prison population is going out of control and the staff are under increasing pressure. The prison officers to whom I speak about issues related to prisoners with mental health say, "Frankly, Mark, it's enough for us to be able to get through the day, to make sure the prison is secure and that we don't have riots or other serious incidents on our hands. Don't talk to us about prisoners with mental health or health problems, or about trying to get more education and training. That's an ideal that we could move towards, but we're trying to survive from day to day."
Others have rightly mentioned the chief inspector of prisons' report—the language used by the inspector is strong, and I am glad that she took some trouble to raise concerns about the mental health of prisoners. I will quote one example that the inspector gave in connection with my local prison. About mental health problems at Winchester prison, the report says:
"Patients had a very impoverished day, with very little activity: only out of their rooms for two to three hours at most on many days. Disturbed young men should have some space and human contact."
The conditions in which we hold ordinary prisoners—who often stay in their cells for 23 hours a day—are unacceptable, but those conditions are particularly acute for prisoners who have mental health problems. If someone is in that sort of environment without contact, without exercise or sport or anything purposeful to do, that will not help with the condition that they had when they entered prison. Indeed, it is likely to make that condition worse.
The inspector discussed some examples of good practice, and the mental health inreach teams that have been put in place in several prisons. Could the Minister give us an update on the progress in establishing those teams? How many are there, and what sort of progress is being made putting them into as many prisons as possible? Those teams have a role to play in solving the problem.
The inspector also raised the question of assessment, and the importance of ensuring that when someone arrives in prison an assessment takes place quickly. The target is that the assessment should take place within three months. As my hon. Friend the Member for Shrewsbury and Atcham said, that is not a particularly effective target, because someone in that condition should not have to go for three months without any proper assessment.
However, I want to draw the Minister's attention to an assessment that should happen even before that—the one that happens to a prisoner in the first five or six

113WH
hours after they arrive at the prison. I am extremely concerned that the assessment procedure for a prisoner who has just arrived remains inadequate. That is not necessarily the fault of the Prison Service; it may be the fault of the back-up system. If someone arrives at a prison, it is important that medical notes and any case history or doctor's evidence are made available as soon as possible. I know that in some of the cases of suicide that occur in prisons, which often happen in the first 24 hours, that crucial back-up information has not been made known to the prison. I hope that the Minister can tell us what can be done to improve not the three-month assessment of prisoners' mental health needs, which is more complicated, but the assessment within 24 hours, so that any indications on a medical note or a doctor's note that there could be mental health problems are spotted quickly. We know that those first 24 hours are critical.
My hon. Friend the Member for Mid-Dorset and North Poole mentioned the work of the children's charity Young Minds. In a briefing that Young Minds gave to a number of MPs a couple of days ago, it said that some 95 per cent. of young prisoners have a mental health disorder. It seems that among young prisoners and young offenders, problems with mental health are more acute. I hope that the Minister will acknowledge that and will see what can be done for those particularly vulnerable groups.
Both my hon. Friends mentioned suicide figures and self-harm, and I do not wish to rehearse those issues. However, there is another set of figures that I am concerned about: those to do with attempted suicide. The Minister gave me an answer to a question on that issue a couple of Mondays ago. We know that suicide and self-harm rates are increasing in prisons, but I was concerned to find that in 2002, some 154 prisoners were resuscitated. That means that they were in such a vulnerable state that they were trying to commit suicide. Last year, 211 prisoners were resuscitated. Those figures are alarming: they could so easily have added to the suicide rate.
Obviously, the good news is that those people were resuscitated. Fortunately, something happened in the system to prevent them from committing suicide when they were so close to doing so. The bad news is that we need to look at the self-harm, suicide and resuscitation figures as a whole, and they show that there is an increasing problem with suicides and the threat of suicides in prison. In response to my question, the Minister said that there was a three-year programme to develop policies and practices designed to reduce prisoner suicide and manage self-harm in prisons. He said that the results of that programme and research would inform future suicide prevention and self-harm management strategy. Will he let me know when that three-year programme is due to conclude, and what early indications he has received of the kind of programmes that the Government will put in place following that?
I have a final question about mental health in prison, relating to the practice of DNA testing people in prison. I understand that the Government's policy involved a prisoner DNA sampling exercise. That took place between February and September 2003. The aim was to
114WH
take a DNA sample from all convicted offenders held in prison or mental health establishments. I am slightly concerned, and wanted reassurance, about the way in which DNA tests are carried out on those with mental health problems. I understand that people held in mental hospitals who have been found unfit to plead or have been acquitted of an offence on grounds of insanity are also included in the DNA testing process. Will the Minister run the rationale for that past the House, and give us reassurance about exactly how the process takes place? Obviously, that is a sensitive issue, given that those concerned have been found unfit or insane.
What is the way forward? I think that we should start to recognise that prison is not like hospital. If a person is ill and has something wrong with them, and they go to hospital, something happens in hospital to put that right; they go into a bed, have drugs or an operation, and come out better. In contrast, if a person goes to prison, although something is wrong with them, nothing happens to them in prison to put it right. That is the opposite of the way in which the hospital service works. People stay in prison and do not come out—and when they do come out, unfortunately, a large majority of them are not better, and have to go straight back to prison.
Is it not our aim that the philosophy and principles that apply to the treatment of those going into hospital should also apply to those going into prison? That must be the overarching aim towards which the Government should move. However, they also need to recognise that prison may not be the most appropriate place to deal with those with mental health problems. That means moving towards more community prisons, so that those with mental health problems are near local services, and perhaps family back-up and support, which can be invaluable. That is better than family and relatives having to travel miles to visit such people. It also means reducing overcrowding in prisons, and giving prison staff responsibility and more space, so that they can look after those with mental health issues and get involved with those problems.
That approach means understanding why people with mental health problems are sentenced in such a way. Most importantly of all, it means understanding why those with mental health problems are committing the crimes that lead to sentencing. I accept that that goes way beyond the Minister's remit and involves general cross-cutting policy. Surely at the heart of the issue is the need to understand why people with such problems get into the crime culture in the first place. I am grateful to my hon. Friend the Member for Mid-Dorset and North Poole for raising this important issue, and I hope that the Minister can tackle some of the points raised and find a positive way forward.
2.50 pm
Mrs. Cheryl Gillan: I add my congratulations to the hon. Member for Mid-Dorset and North Poole (Mrs. Brooke) on raising this debate. The Minister and I have spent a considerable amount of time in this Chamber today. This is our second debate, this morning's having been on the national offender management service, and the two subjects are interrelated. Indeed, we could have run one debate into the other, which would have given us a welcome opportunity to consider all the relevant issues.

115WH
I, too, am sad that there is such a dearth of Members in this Chamber today, but as you know, Mr. Deputy Speaker, there are other attractions today in the main Chamber. Some of us have not even managed to have our lunch yet, as we have been running between the two Chambers. Sometimes I wonder whether Westminster Hall could not be re-timetabled to allow us to have some normality in our lives.
The subject chosen by the hon. Lady is not glamorous or often highlighted, as it almost seems taboo to discuss mental health. However, one in four people will suffer with mental health problems at some stage in their lives, so everyone in this Chamber will know someone—a friend, relative or colleague—who has had mental health problems, whether in their early or their later years.
Mental health issues cover a broad spectrum, from post-natal depression to psychotic behaviour and from Alzheimer's to schizophrenia, so we are talking about the full range of illness. Whatever incidence is found in society at large, it is concentrated in the prison population, and whereas once we hid our mentally ill in asylums, we now find them in our prisons.
The Minister will be familiar with the Prison Reform Trust, as it does such sterling work in this area. It provides us with some grim statistics, which possibly need some updating—I hope that Minister will be able to fill in the gaps. Most prisoners have significant mental health problems, and some 72 per cent. of male and 70 per cent. of female sentenced prisoners suffer from two or more mental health disorders. Neurotic and personality disorders are particularly prevalent: some 40 per cent. of male and 63 per cent. of female sentenced prisoners have a neurotic disorder, which is more than three times the general population. Some 64 per cent. of male and 50 per cent. of female sentenced prisoners have a personality disorder.
I want also to consider the position of older prisoners, as 85 per cent. of prisoners over 60 suffer from chronic illness, and I hope that the Minister can shed some light on how many prisoners currently in custody suffer from Alzheimer's or other debilitating diseases that generally affect people later in life. A significant number of prisoners suffer from a psychotic disorder—7 per cent. of male and 14 per cent. of female prisoners exhibit signs of one, which is 14 to 23 times the level in the general population.
Other hon. Members have spoken about the increase in reported incidents of self-harm among prisoners and the alarming statistics on prisoner suicides. I understand that there have been 27 suicides in our prison system already this year. I hope that the Minister will comment about the change in how suicides are investigated, as they will soon be investigated by the prisons ombudsman. It would be helpful to know whether, in the course of those investigations, the ombudsman will consider the mental health of the deceased and the treatment that they received, or did not receive, when they entered the prison system. That is a sensitive and painful subject for the families of those who have committed suicide, but we may be able to learn some lessons and adjust our practices and procedures in the prison system to ensure that more prisoners do not lose their lives.
116WH
A high proportion of prisoners have been treated in psychiatric hospitals. Some 20 per cent. of male and 15 per cent. of female sentenced prisoners have previously been admitted for in-patient psychiatric care. The Prison Reform Trust has done some work on the female prison population, and as many as 40 per cent. of the women whom they interviewed reported having received help or treatment for mental, nervous, or emotional problems in the year before going to prison. There must be some early indicators that we may be missing.
I hope that that sort of information will inform the way in which we handle women in the prison system. There is no doubt that there has been a vast increase in women going to prison. That must be considered closely, because if women are imprisoned there are tremendous social on-costs and implications, particularly if they have families. As we all know, if a woman in prison has a family, she loses her home and her children go into care, and a cycle is set up whereby the children, too, can end up in the criminal justice system. The Minister must reassure me, and others, that he will carefully consider the mental health issues as they apply to women.
There is another alarming statistic from the Prison Reform Trust, upon which I hope that the Minister will throw some light. Research suggests that people are twice as likely to be refused treatment for mental health problems in prison as outside. I understand that the Government's social exclusion unit concluded that mental health care in prisons was in significant need of improvement. That is an understatement, bearing in mind the number of prisoners who have been identified as suffering from significant mental health problems. If a high proportion—some 50 per cent.—are turned down when they ask for mental health treatment in prison, we have an even bigger problem than I thought.
There is a shortage of mental health professionals working in the prison system, as I think everybody would acknowledge. I acknowledge that progress is being made—certainly, that seems so from the answers to my questions to the Department of Health—and there are targets for increasing the number of mental health professionals in prisons, although I am not entirely convinced that those targets have been met, and that the numbers are fully up to the levels anticipated by the Department.
It is troubling to think that anyone who is mentally ill and has a brush with the law could find themselves in surroundings that are almost Dickensian and are certainly inadequate for the treatment that they require. I believe that I am right in saying that facilities often amount to little more than sick bays with limited primary care provision. The assessment of a prisoner on his or her arrival at prison typically takes just a few minutes, and is often conducted by a retired GP or a locum, who may not have specialist knowledge of mental health. The level of training of staff does not always match the complexity of the conditions with which prisoners present.
Earlier, I briefly met some of the representatives from the Salvation Army, which does some sterling work in this area. They look at a throughput of some 60,000 people and have identified the complexity of need. They

117WH
are finding that some of their methods are helping to deal with the complex needs of mentally ill ex-prisoners and people still in custody.
The report from John Reed, the medical inspector at Her Majesty's inspectorate of prisons, states:
"A period in prison should present an opportunity to detect, diagnose, and treat mental illness in a population … hard to engage with NHS services. This could bring major benefits not only to patients but to the wider community by ensuring continuity of care and reducing the risk of re-offending on release."
The fact that that opportunity is not grasped is an indictment of the current system. In Nursing Times in 2000, John Reed said something that strikes horror in all our hearts: that many prisoners
"are quietly mad behind their cell door and are not getting any treatment. Care for mentally disordered offenders in prison is a disgrace."
That was written in 2000, but we still need to reform many areas of the Prison Service as a matter of urgency. Research is still required to determine the impact that the prison environment, and in particular, overcrowding, to which I referred in this morning's debate, have on mental health. As we have the luxury of more time in this debate, I hope that the Minister will update us on the latest figures for the prison population, which exceeds 75,000. As the Prison Service is in crisis in terms of numbers, will he tell us what arrangements have been made and how many police forces are on standby for Operation Safeguard? As the hon. Member for Winchester (Mr. Oaten) noted, the police have to take the overflow from the system, and that worries all hon. Members.
I was also worried to read "Securing Our Future Health: Taking a Long-Term View", the interim report by Derek Wanless. Part of that dealt with the costs of mental illness and the savings that could be made by introducing a better system, and it says:
"It is difficult to estimate the exact value of potential savings, but it does not seem unreasonable to assume that there might be a 5 per cent. reduction in the costs of mental illness and a 2 per cent. reduction in the costs of crime … giving a net saving across government as a whole of some £3.1 billion a year."
That may be so if the nettle is grasped and the problem dealt with as Derek Wanless recommends. What will the potential savings be if the system is improved, perhaps along the lines that the Minister started to explain this morning, but did not quite finish?
I appreciate that some progress has been made. I spoke to Steve Gannon at Holloway prison, where he has made great strides in the treatment of mentally ill prisoners over a very short period. He told me, and I believe it, that the inreach teams have made a big impact, mostly because they came in with a little money. Having resources attached to the inreach teams works wonders.
However, there are still tremendous difficulties. For example, it is difficult to allocate key workers to a prisoner, because prisoners are often moved around the country. Will the Minister comment on the reports that women prisoners are being moved out of Winchester and Edmunds Hill as we speak, because of overcrowding, so that male prisoners can be accommodated? How will those individuals receive the
118WH
continuing support that is needed? If prisoners are moved around the country, they will be away from their home, friends and support systems. There is an obvious social dimension to mental illness, and if support systems are not accessible, the individuals involved are less likely to benefit from interventions, and the outcomes will be poorer.
I am also worried about the transfer of the responsibility for commissioning to primary care trusts. How will that fit in with the new structure of the national offender management service? Will that money be ring-fenced, or will it go to options that are more attractive to the PCTs than mental health in prisons? I hope that the Minister will reassure us about that, because I am thinking particularly about the pressure under which PCTs operate at the moment. Many of them are turning in deficit budgets. The transfer of responsibility and the dedication of that money is extremely important to improving the conditions of prisoners with mental health problems.
There appear to be limited resources to identify prisoners with learning difficulties. Those prisoners have a number of problems, and need to be identified at an early stage, not least for their own protection in some instances. What resources are available to identify them?
Starting a process is always difficult. I appreciate that there have been targets for the number of staff working in mental health teams in prisons, and a number of my questions have been answered. However, the nine-week basic training that prison officers receive is not only cursory, but almost wholly inadequate.
I am particularly worried about the lack of information on the treatment of mental health disorders in each prison establishment. I asked the Secretary of State for Health how many people were employed to treat such disorders in each prison establishment, but I was told:
"This information is not available."
The answer continued:
"By March 2004 we expect to meet the NHS Plan commitment for 300 additional staff to provide specialist community type mental health services to over 5,000 prisoners."—[Official Report, 23 February 2004; Vol. 418, c. 289W.]
If, however, we do not have the information on how many staff work in the area, I lack confidence in the way in which the Government are handling the prison system.
The enormous problem that we are discussing could well be exacerbated by the major reorganisation being carried out by the Government. Once again, we look to the Minister to reassure us that he is in charge of the situation—that he has the necessary information at his fingertips and an action plan to deal with it.
3.6 pm
The Parliamentary Under-Secretary of State for the Home Department: This is indeed the second time that some of us have attended a debate in Westminster Hall today, and the first debate was on similar issues. I admire the capacity of the hon. Member for Chesham and Amersham (Mrs. Gillan) not only to participate in debates, but to ask the Prime Minister a question, meet the Salvation Army, and, no doubt, table another half dozen questions to me for written answer. I pay tribute to her energy.

119WH
I compliment the hon. Member for Mid-Dorset and North Poole (Mrs. Brooke) on obtaining this very important debate. She spoke this afternoon as she always does, whether in Committee or on the Floor of the House—with great care, knowledge and concern. It does her great credit that she brings such issues to our attention in that way. She asked many questions, some of which I hope to be able to answer during this debate. On those that I do not answer, I will write to her, as I will to other hon. Members.
Behind some of the hon. Lady's factual questions lay deeper questions about how correctional services are organised, who prison is for, and how we can effect changes in sentencing so that people who need and deserve to be in prison are in prison, while people who can be dealt with in the community are in the community. Those issues were also at the heart of the debate that we had earlier about the national offender management service. The discussion will continue, and I want to encourage it. I want people to participate in it not only in Parliament but throughout the work force, because we must get the system right. Too many people who are in prison today should not be there, and could be dealt with more effectively in the community. Whether or not they have mental health problems, or are first-time offenders, or non-dangerous people, more of them should be in the community, and that is the direction in which the Government want to move.
A number of statistics were used about the prevalence of mental illness in prisons. I shall add two statistics that show the seriousness of the challenge that we face: 90 per cent. of prisoners have at least one significant mental health problem, and 20 per cent. have four of the five major mental health disorders. This is, therefore, a very serious issue, and not one that the Home Office or I, as the Minister responsible, seek to shy away from. We are facing the issue head on, and trying to devise solutions.
The overall aim of the programme to improve health services for prisoners, which we began in 2000, is to provide prisoners with access to the same range and quality of health services as the general public expect to receive from the NHS. There should be equality of access to health care whether one is in prison or in the community. Of course, ensuring that prisoners have access to good health care can improve their physical and mental health. In so doing, we increase the extent to which they can participate in education, work on offending behaviour, and other aspects of prison life. In turn, that improves the potential for their successful rehabilitation and resettlement in the community.
"Changing the Outlook", the Government's strategy for modernising mental health services in prisons, was published in December 2001. It set out a vision of where prison mental health care was expected to be in three to five years' time and identified the steps that would need to be taken if that vision were to be realised. "Changing the Outlook" was published against a widespread consensus that the care and treatment of prisoners with mental disorders was in need of drastic improvement. The hon. Member for Mid-Dorset and North Poole referred to the independent monitoring board for a particular prison. I receive reports from all the independent monitoring boards for prisons throughout the country, and they still regularly raise the issue of the mental health of the prisoners for whom they have responsibility.
120WH
It was also acknowledged in "Changing the Outlook" that the best way to achieve and maintain an improvement in prison health services in general is for prisons and the national health service to work ever closer together. I have been asked this afternoon about the move to the commissioning by primary care trusts of health services for our prisons. I am pleased to confirm that from April this year, 18 primary care trusts will be commissioning services for the prisons in their area. The commitment is clear that by 2006, all prisons will have health care commissioned by primary care trusts. I am sure that, not least because of additional investment, as well as the professionalism that is being developed, we will have better health care in general, as well as better mental health care, in our prisons as a result of the close partnership between the NHS and the Prison Service.
The Department of Health's NHS plan, which was published in 2000, included firm commitments that by 2004, the 5,000 or so prisoners who at any one time have a severe mental illness should be receiving more comprehensive mental health services in prison. If there is one matter over which I take issue with the hon. Lady, it is the description of 5,000 prisoners all needing to be in hospital. Those people with those severe mental health problems do not all need to be in hospital, any more than a member of the public with a severe mental health problem who lives at home in the community needs to be in hospital.
It is possible to provide appropriate primary and secondary care for people in the community and for those in prison, and that is what we strive to do for the 5,000 people whom we estimate have a severe mental health problem. The NHS plan also confirmed the Government's view that all prisoners with severe mental illness should be in receipt of treatment, and no prisoner with a serious mental illness would leave prison without a care plan. Indeed, there is a clear commitment within the new partnership between the NHS and the Prison Service that 300 additional staff will be employed in providing mental health services in prisons. I am pleased to confirm that we are on target to deliver on that promise, and that those 300 members of staff will be employed in our prisons.
The means by which the commitments in the NHS plan are being implemented is the prison mental health inreach project. The hon. Member for Winchester (Mr. Oaten) asked me for some updates on the project, which began in 2001. Dedicated funding has been made available to provide mental health services for prisoners along similar lines to the community mental health teams that already provide mental health services in the wider community. The inreach project began at 18 establishments in England and four in Wales in 2001–02, and was extended to another 26 sites during 2002–03. This year, a total of £10 million will be spent on NHS prison inreach services in England alone, as professional teams are developed in another 46 establishments. We can see that the investment is there and that the inreach work is extending ever further throughout the Prison Service.
Resources are also being made available to tackle the more specialised mental health needs of the small number of prisoners held in close supervision centres. Between March 2004 and March 2006, I expect NHS mental health inreach investment to double so that it reaches £20 million a year by 2005–06. That means that

121WH
within the next three years, the services will be available to every prison in England and Wales. The extra investment will also help many of the existing inreach teams to expand the services that they currently offer.
"Changing the Outlook" signalled the intention to establish a prison mental health collaborative to support and empower staff to modernise clinical services for prisoners with mental health problems. I am pleased to say that that collaborative action is now well under way, in partnership with the National Institute for Mental Health in England and the NHS modernisation agency. Its aim is to identify and share good practice, as well as to identify the training required as we try to modernise clinical services in our prisons. Central to that approach is the determination to empower staff, to bring about better peer group support and to improve satisfaction for service users.
There are two other developments in prison mental health care that I would like to draw to the attention of the Chamber. We know from research that prison reception screening processes were failing to identify up to three quarters of prisoners who had a severe mental illness. Several hon. Members referred to the fact that many of those people were missed at the point where they were received into prison custody. To rectify that, new triage-based reception health screening arrangements have been developed and successfully piloted. They focus on identifying and managing a prisoner's needs on first reception into prison custody. That work has been closely linked to the development of the Prison Service's suicide prevention strategy. Much comment has been made and many questions have been asked about that this afternoon, and I will return to the subject in a short while.
Four of the reception screening pilots form part of the Prison Service's "Safer Locals" programme, and as a result there has already been a substantial improvement in the identification of prisoners with severe mental illness. I am pleased to confirm that that new approach to reception health screening is now being phased in at all local prisons, in a programme that will be completed this year.
We remain firmly attached to the principle that prisoners who need in-patient treatment for their mental disorders should be transferred to hospital as soon as possible. The number of prisoners transferred to hospital as restricted patients under sections 47 and 48 of the Mental Health Act 1983 rose from 180 in 1987 to 785 in 1994. It then remained relatively stable, at an average of 745 each year, until 1999. In 2001, 635 prisoners were transferred to hospital. In 2002, the latest year for which we have figures, the number was 639.
Generally speaking, the arrangements for assessment and transfer work smoothly, and many mentally disordered prisoners can be transferred to hospital quite quickly. I was pleased that the hon. Member for Mid-Dorset and North Poole made a positive comment about that. Increasingly, we are able to identify and move people on more rapidly than we used to. I am the first to accept that delays still occur in individual cases. Some prisoners have to wait longer than we would ideally like before they can be transferred to hospital. At any one time, there are likely to be about 40 prisoners who have been waiting for three months before being
122WH
transferred to an NHS hospital. We appreciate that such delays can be enormously distressing for the prisoners concerned, the prisoners around them, the staff, and the prisoner's family and friends.
The prison health team and NHS regional commissioners of forensic mental health services have examined ways to reduce the time that prisoners might have to wait for a hospital place. Tighter regular monitoring has been introduced, together with a protocol that sets out the actions required of the Prison Service and the NHS when a prisoner reaches that three-month deadline. I emphasise that it is a three-month deadline, not a target. As I said, at any one time there could be 40 people who have reached that deadline. When someone reaches it, everything is done to ensure that they are moved as quickly as possible.
Following the publication of "Changing the Outlook", all prisons, in collaboration with their local NHS partners, undertook a detailed review of their mental health needs and developed action plans to fill any gaps in services that they identified. We do not underestimate the challenge—indeed, no participant in the debate has underestimated the challenge that we face, but we confidently expect that in the next three years or so there will be further progress. For example, fewer mentally disordered prisoners will be accommodated in prison health care centres, more resources will be deployed to provide day care and support on prison wings, and there will be a reduction in the average time that mentally disordered prisoners spend in the remaining prison health care beds. There will also be a more appropriate skill mix among those who provide mental health services in prisons, and quicker and more effective arrangements for transferring the most seriously ill prisoners to appropriate NHS hospitals and transferring them back when appropriate. I expect ever closer collaboration with NHS staff in the management of prisoners who are seriously mentally ill, including those who may be vulnerable to suicide or self-harm while they are in prison.
Several hon. Members raised the issue of population pressures. It is true that there are more than 75,000 people in prison—75,059, to be precise. We have plans in place to ensure that we can continue to expand prison capacity; we have added 14,700 places to the prison estate in the last six years and we will add another 2,500 this calendar year. We intend to ensure that we stay ahead of the undeniable pressure in the system.
Mr. Oaten: I understand the capacity problem, but can the Minister confirm that no cells will contain three people as a result of the attempt to maximise capacity?
Paul Goggins: No cell designed for one person will accommodate three people, as was the case not so very long ago. Cells designed for two people may accommodate three people, but the days of three people in a cell designed for one are, thankfully, over.
We will not be making routine use of police cells as part of Operation Safeguard, although it may be necessary to make occasional overnight use of a police cell, as is done now if there is a lockout, and when someone is held overnight prior to being moved to another region. It is not appropriate for prisoners to be

123WH
held in police cells, or for police officers' time to be tied up in looking after and supervising those prisoners. I am adamant that we will not make routine use of police cells as an extension of the prison estate.
Mrs. Gillan: Can the Minister confirm that he is moving women prisoners from the two prisons that I identified earlier? How many women prisoners are involved, and where will they be moved to?
Paul Goggins: Yes, I can confirm that there is a re-roll, as it is called, at Winchester prison, in the constituency of the hon. Member for Winchester, and at Edmunds Hill. It was a step that had to be taken in view of the rising population pressure on prisons. When there is a re-roll, staff must be informed; questions are asked and detailed discussions have to take place. I can confirm that the therapeutic community will go to the prison at Send, and we will try to maintain the momentum of that important work.
There is some good news: in June we shall open a new prison for women at Ashford, because of the projected increase in the population of women in prisons, which has risen dramatically in recent years, far outstripping the general increase in the prison population. The number of women going to prison is levelling off, which means that we can open the new prison and re-roll the existing women's prisons for men. We can therefore provide newer accommodation for women, and additional accommodation for male prisoners.
I am not running away from the fact that the prison population is under enormous pressure. I return to my previous point that we must rebalance the system so that those who need and deserve to be in prison are in prison, and those who can be dealt with and supervised in the community are in the community.
In opening the debate, the hon. Member for Mid-Dorset and North Poole forcefully drew attention to the serious and interrelated issues of suicide and self-harm in prisons. Of my many responsibilities, I regard that as of the highest importance. Too many people self-harm or take their lives in prisons, and we must do everything possible to drive that number down. There were 94 self-inflicted deaths last year, and 14 of those people were women; a disproportionately higher number of women than men took their own lives. There have been 26 self-inflicted deaths so far this year, and 24 deaths have occurred in prison for other reasons. Those figures are high. Every death in custody—I am notified immediately of every one—is deeply distressing, and a tragedy for the individual and their family, no matter what they have done to end up in prison.
It is sometimes suggested that overcrowding is a direct cause of suicides and self-harm. The prison population is a related matter, but more important is the degree of
124WH
movement in the system because of population pressures. People are moved around the system more quickly, and vulnerable people are more exposed to risk. That, rather than simply the numbers involved, is the problem. The prison population includes a large number of people who come into custody already struggling to cope with a wide range of problems including drug and alcohol abuse, difficult family backgrounds, histories of sexual and physical abuse, and the problems of mental ill health that we have discussed.
I have a couple of points to make in response to questions that were put to me. A question was asked about detoxification, and reference was made to the chief inspector's report on an inspection at Styal prison. I am happy to say that things have progressed substantially at Styal since that inspection. The detoxification programme is now in operation; the money was already there but the problem was in recruiting staff to run that programme. I visited the prison last July and was concerned that the detoxification programme was not up and running, but since September it has been operating. I visited again in January and was pleased to see and hear directly from the prisoners about the difference that the programme is making. Every woman who needs one is on a methadone programme, and the system is better than the previous one.
Mention was also made of the CARATs system and the staff who work on those programmes. I am sure that hon. Members visit prisons in their constituencies and elsewhere, and will be aware of the fantastic work done by CARATs workers. I was in Norwich prison last week and met some of the team. The work that they do with prisoners to try to keep them off drugs, and to follow them once they leave prison to ensure that they receive the necessary support in the community, is essential.
The role of the ombudsman was also raised in relation to Styal prison. I commissioned the ombudsman to undertake an investigation into the six deaths that occurred over 12 months at Styal to ascertain what similarities there might have been between those deaths. Stephen Shaw produced an excellent report, and has also produced one or two other reports. From 1 April, he will be responsible for investigating all deaths in custody. That is an important step because, despite the fact that there is an investigation into every death in custody, the greater independence of Stephen Shaw and his team will be invaluable. Tragic as every death in custody is, we must learn whatever lessons we can from each one.
I can confirm that last week, the women's offending reduction programme was published—
Mr. Deputy Speaker: Order. We must now move on to the next debate.

Police Funding (Southend)
3.30 pm
Mr. David Amess: For some time now, I have been concerned about what many people regard as inadequate police cover in my constituency. My mind really focused on the issue when I was called to an emergency meeting of Leigh crime prevention panel by Councillor John Lamb and Councillor Gwen Horrigan. That was when I learned first hand about the seriousness of the situation.
The Minister will be armed with facts and figures to knock me down after my speech. I am under no illusion about that, because that is the way it works here—the Minister has the last word. However, regardless of how often she says that there is more money, there are more police, and so on, the people whom I represent feel that the situation is serious and needs addressing. Leaving aside the facts and figures with which her brilliant civil servants will have armed her, I hope that she will reflect on the issues that I raise.
Members of the general public are overwhelmingly against crime, as are all Members of Parliament. There is nothing remarkable about that. If there were a magic solution for stopping crime, we can imagine how much money would be available for the health service, for education, and for fighting the terrible new threat of terrorism. Before he became Prime Minister in 1997, the leader of the Labour party made great play of his slogan,"Tough on crime, tough on the causes of crime." Yet there has been a huge increase of 800,000 in instances of recorded crime, violent crime has soared, robberies and muggings have increased, and fewer than one in four crimes is detected. No doubt the Minister will have reasons for all those increases. It is interesting, however, that we were told in the 1997 Labour party manifesto—its so-called contract with the people—that more police would be on the beat, not pushing paper, and that there would be a crackdown on petty crimes and neighbourhood disorder. In the 2001 manifesto, the rhetoric changed. We were told that the Labour party would ensure that all families were safe in their communities by tackling crime and its causes, but tackling crime was no longer described as a priority, but as an ambition.
Like many others, I am absolutely fed up with gesture politics. Never a day goes by without the Home Secretary waking up with a new idea. What on earth is the point of making more and more laws if there is no one to enforce them? I was shocked and alarmed when, in response to my parliamentary questions about drug-related offences, the Home Office said that the number of defendants proceeded against for drug offences has dropped significantly since 1998, although we all know that drug abuse is rising rapidly. Furthermore, violence and robberies have more than doubled in four years.
When the only independent councillor in Southend, Councillor Martin Terry, decided to go out on a night patrol with the chief superintendent, he came back with some shocking facts and figures. The class A drug culture in Southend is not being dealt with owing to the lack of police officers. I have many friends who work for police forces in various parts of the country. All hon. Members would agree that the police do a wonderful job and that they are overworked and underpaid. The
126WH
Government should be concerned about the fact that a great age gap has developed, because, for all sorts of reasons, too many older and more experienced policewomen and men take early retirement. Nice though it is to see young officers on the streets, there is a great need for more experience.
I make no complaint about the way in which motorists are treated. No one can complain about lack of enforcement of motoring laws—there are many speed cameras and traps and armies of officers detecting whether people have paid their car tax. However, the Minister will understand why the general public think it unfair that if they do something wrong as a motorist, they will be caught, but if they are burgled, attacked or have noisy neighbours, the situation will be somewhat different.
I recently spoke to Mr. and Mrs. Hawkins, who established the south Westcliff community group. They identified a number of problems in the constituency . Elsmere hotel has had to install closed circuit television cameras because youths are walking in from the street and helping themselves to property. Many residents are concerned about their safety around Westcliff station in the evening, but they sometimes have great difficulty in getting through to Southend police station unless they dial 999. Some people have waited more than 15 minutes to report a crime and given up on trying to get through. The Minister will have heard such complaints before. That must have something to do with the financial settlement for Southend—perhaps the amount of money that is allocated to our call centres. One of our local retail proprietors has had to put up with antisocial behaviour by youths. Recently, he reported that a group of five young people were drunk outside his shop; the police eventually came to see him three days later. That, too, must be something to do with funding. A common theme is emerging.
A local entrepreneur called Con Donovan runs the Choice discount store, which sells what are euphemistically called rejects of the Next retail outlet. Every customer needs a plastic carrier bag in which to take away their goods, and he decided to print on the bottom of his bags, "We support Crimestoppers" and a telephone number. That is a simple thing to do, and I am sure that the Minister would like to encourage similar activities.
All the community organisations with which I am in contact tell me that when they raise funding concerns, the police say that a lot of money is spent on CCTV. The feeling locally is that although CCTV is essential, it is not a sole deterrent. Funding a more visible police presence is the only way to deter the most hardened criminals.
I recently spoke to a local cab driver who told me that when a sum of money became available, the police issued cab drivers with a pager so that they could act as the eyes and ears of the local police. That appeared to be a good initiative—it had the support of the town's Cab Drivers Association—but drivers discovered that when they reported incidents, police assistance sometimes took up to 45 minutes to arrive. The initiative has now been abandoned.
When Councillor Martin Terry went out on his night patrol with the local chief superintendent to see what was going on, the funding situation was confirmed.

127WH
There is a long-held view that the police are mainly concentrated in Southend town centre. It is good to have police in town centres, but that is not necessarily the case in my constituency. The residents of Leigh-on-Sea and Eastwood say that they suffer huge neglect, particularly on Friday and Saturday evenings. The councillor wrote to me to say:
"When the Police are telephoned residents are often told that there is not anyone available and the Police have to prioritise resources."
Having experienced that on several occasions—which is worrying, given the increase in violent crime and class A drugs—he believes that some police stations have been downgraded. Leigh police station is now closed in the evening, Westcliff police station has been shut completely, and Eastwood police station is open only very infrequently. On Fridays and Saturdays, the police have to deal with 10,000 to 15,000 revellers coming into Southend from London and other parts of the area.
The Leigh Times has highlighted our local traders' concerns about funding—for example, Sue Jeffs, who runs Vanilla hairdressers, is particularly worried about crime levels in Leigh—and the Yellow Advertiser is doing all that it can to enter into the spirit of the Government's efforts to combat crime. The community wants to unite against what is unfortunately happening in the town, but people feel that we need more money.
The 2001 census data have been used as evidence that funding is satisfactory, but that model is flawed. It uses specific socio-demographic figures as the basis for estimating likely criminal activity, but the people concerned did not fill in the census forms. The Minister may not be aware of that matter, but we are pursuing it with various Government Departments.
I end with a plea. The Select Committee on Health, of which I am a member, is studying obesity. We recently visited Odense, where we were given a presentation in which we were told that the city has a successful car-free policy because nearly everyone rides bikes, especially the police. My hon. Friend the Member for West Chelmsford (Mr. Burns) and I were surprised about that, but Labour members of the Committee told us that it is happening in some parts of this country. It is certainly not happening in Essex. Last month, I wrote to the chief constable in the hope that he might consider adopting that policy in future.
The trouble is that cash is tight because of the terrible threat that we face from terrorism. I wish that we had an answer to that, but it is difficult for this or any Government to tackle the problem of terrorists who are prepared to take their own lives. If the general public saw more policewomen and men on bikes, as well as in cars, their support might help us in our fight against crime.
The Minister and I are united in our wish to defeat the criminals. Please, please, please can we have a little bit more financial help in Southend, West?
3.45 pm
The Minister for Crime Reduction, Policing and Community Safety: I am delighted to congratulate the hon. Member for Southend, West (Mr. Amess) on securing this debate, which has given us a good chance to air some issues of local concern that also
128WH
have a national impact. I am more than happy to give him the undertaking that he seeks. I will reflect on some of the matters that he raised. I will do so if he will get things in perspective.
I should like to lay out the funding situation nationally and, more relevantly, for Essex, in order to highlight some of the good practice in the county not just in the police but in crime reduction and prevention. The hon. Gentleman mentioned the role of his local councillors in that partnership, which is key to building safer communities. I should also like to highlight the work that we are doing on antisocial behaviour—those low-level issues that make people's lives a misery—which has not always been fully reflected in some of the national priorities, but is beginning to be so. I should like to give him some hope and optimism.
I am inevitably going to say to the hon. Gentleman that this Government are delivering on the various manifesto pledges that they made in 1997 and 2001. Since 1997, crime generally has fallen by about 25 per cent., burglary is down by 39 per cent., vehicle crime is down by 30 per cent., and robbery is down by 17 per cent. in the last year. Those are fully validated statistics. The hon. Gentleman has a point that, despite the fact that crime has decreased dramatically over the past six years, any polling reveals that two thirds of the public feel that crime is still increasing in their area. That is a serious issue, which I call the perception gap—the gap between reality and how people feel, either at home or in their working and social lives. One main reason for that gap is the antisocial behaviour in many of our communities. If people do not feel safe when they open their front door and walk down the street—when they see graffiti, fly-tipping and fly posting, broken bus shelters and groups of youths hanging about—and things are not addressed by the authorities, they do not have any sense that their community is safer.
I have a vested interest in trying to ensure that we tackle what have been called low-level incidents, but which I think are important to people. That is why we passed the Anti-social Behaviour Act 2003; why the Home Secretary, the Prime Minister and I launched the antisocial behaviour action plan in November; and why we have taken a different approach to the legislation—instead of as normal passing an Act, issuing a circular and a bit of guidance and perhaps leaving it at that. We knew that if we introduced a new range of powers, we would need to follow them up.
As well as the action plan, we have launched the "Together" campaign, which is trying to unite the police, local authorities and local businesses. I am delighted by the hon. Gentleman's example of the local entrepreneur and the Crimestoppers carrier bag. That is an excellent idea. Businesses have often been the empty seat at the table of partnerships. We must work harder to engage them. Local residents must also take action in the "Together" campaign.
We now have what we call the Together academy, which is a big training programme for all those involved on how to use the powers available. It is pointless the Government putting such powers on the statute book unless everybody is confident about how to use antisocial behaviour orders, acceptable behaviour contracts, the new housing powers, parenting orders, and powers for schools to get involved in combating truancy. The academy has been launched throughout

129WH
the country. There will be an event near the hon. Gentleman, which his local workers can attend. It will provide free training by expert practitioners. Instead of there being a top-down approach, the academy has people who work on such issues day to day.
We have just launched an action line so that people can get help at the end of a telephone if they have a crack house nearby. I know that there is an increasing problem of crack cocaine in Southend. I understand that there has been a big tactical operation and that some 30 arrests of crack dealers have been made in recent weeks. We now have new powers to close crack houses. They were first used in Eastbourne—down on the south coast. I was delighted about that; I expected the first place to be Hackney, but Eastbourne was ahead of the game. I hope that the new powers will be useful.
The hon. Gentleman will know that details of the police funding settlement were finalised on 5 February. We had a full debate on it in the House. I met various people from police authorities. I received written representations from Essex Members, which were taken into account when determining the settlement. Overall, we are providing grant that supports police spending of £10.1 billion for the coming year—an increase of £400 million, or 4.2 per cent. That builds on a £2.3 billion increase since 2000.
Resources provided for the police have gone up by about 30 per cent.—17 per cent. in real terms. That is a significant real-terms investment in the police. We now have record numbers of police officers—138,386 at the last count, as far as I can remember. Moreover, some 3,243 community support officers now patrol the streets full time, giving a high-visibility uniform presence, which, as the hon. Gentleman says, is what local people increasingly want to see in their communities.
Essex has also benefited from those extra police officers. There are 149 more police officers than in March 1997, and 483 extra staff doing some of the administrative tasks, freeing up the police to do much more work on the front line. There are 91 community support officers. I am delighted that Southend council has volunteered to part-fund some of the community support officers because it sees the value of their patrolling shopping areas and estates, and assuring people. We are encouraging other areas to take a similar attitude. So, well done Southend council for coming up with some of the match funding.
Essex also has 371 special constables. I am keen to encourage more people to volunteer to become members of the special constabulary. Local people do a fantastic job on neighbourhood watch, on home watch and increasingly on pub watch, farm watch and all kinds of volunteer activity. If we can get them to take that extra step and give us four hours a week of their time, we will give them excellent training. They will have full police powers and will make a real contribution to the community.
Essex has done extremely well this year in the funding that it has received compared with other forces. We had a pretty tight settlement and so we decided, exceptionally, to provide a 3.25 per cent. increase across the board. So, we did not apply the formula this year. The hon. Gentleman said that he takes issue with the
130WH
way in which the formula is calculated. He is in a minority because the formula has been subject to agreement by the Association of Chief Police Officers, the Association of Police Authorities and the Home Office. So, all the parties have been brought into the process.
The formula is pretty complex. It seeks to recognise not just socio-economic factors, but the number of temporary visitors to a place. It therefore takes tourists and temporary residents into account. It is supposed to direct funds to the areas of greatest need. We did not apply it this year because we did not have a huge amount to spend and we wanted to ensure that everyone got a settlement above inflation to meet the pay claims and other pressures in the system. If we had applied the formula to the Essex police force, it would have received £15 million less than it did. In comparison with some of the large metropolitan forces, the hon. Gentleman might feel that his force has been generously treated.
The Metropolitan police in London made a net contribution of £56 million, because we did not apply the formula; it has put £56 million back into the pot to support forces such as the hon. Gentleman's. The West Midlands police put nearly £27 million back into the pot, and so it feels very hard done by. My police force up in Greater Manchester put £6 million back into the pot to ensure that forces such as the hon. Gentleman's did not fall below the floor in the police formula settlement.
The hon. Gentleman should recognise that Essex has had a fairly generous settlement this year. As well as its general grant, it has received a range of specific grants: £6 million from the crime fighting fund, £500,000 from the rural policing fund, nearly £500,000 for the Airwave radio system and £1 million of basic command unit funding—£125,000 of that specifically for Southend. It also benefits from £2.5 million of south-east allowance payments, which recognise that police officers in the south-east have problems meeting high housing charges and that there are retention issues. We have tried to address that. It also receives a fair amount of capital provision; this year there has been a premises improvement programme to provide better facilities for vulnerable witnesses in the area, making sure that they can be interviewed in private and with dignity.
I am also aware that this year the police precept increase in Essex was 6.7 per cent.—the second lowest percentage increase in police precept across England and Wales, and equal to an extra 12p per week. I hope that the hon. Gentleman, as the local MP, and his constituents feel that paying for extra police officers and the community support officers and crime prevention measures is worth an extra 12p per week.
The distribution of those funds in the force area is a matter for the force. It has a resource allocation model. I am told that under that model, Southend gets the absolute maximum to which it is entitled. However, if the hon. Gentleman has issues about Leigh-on-Sea and other areas not being policed, particularly at the weekend, it is for him to take them up with the local chief constable and his borough commanders.
I am well seized of the problems in the night-time economy at the moment. On Monday, I launched the alcohol harm reduction strategy, which is designed to ensure that the police use their powers to prosecute

131WH
licensees who sell to under-age drinkers and people who are already drunk. We are encouraging the police to use antisocial behaviour orders, exclusion orders and the powers that they now have to close down disorderly night clubs and pubs. So, there is a big drive on enforcement.
However, the industry should also play its part. Many people make a significant amount of money from pubs and clubs. In the best partnerships—in Manchester, Cardiff, York, Leicester—the police, the local authority, licensing officers and the industry work together to try to make our night-time economy much safer. The best pubs and clubs are happy to do that; if they offer a safe night out, young people will go back week after week, enjoy themselves and contribute towards profits. So, it is a win-win for everyone.
The hon. Gentleman raised the issue of drugs, which are a huge driver for the acquisitive crime—the burglary, the robbery—that goes on in our society. We are massively increasing the money that we are spending on that: from £1 billion a couple of years ago to nearly £1.5 billion from next April. That has gone not just on prosecuting drug dealers, but on prevention work with young people and on getting many more of our serious drug users into drug treatment. If we can get them into treatment and break the link between drugs and crime, we should see a massive impact on the acquisitive crimes that make people's lives such a misery.

Through our criminal justice intervention programme we are using every bit of the criminal justice system to get people into treatment—from the point at which they are arrested, whether or not they are on a drug treatment order. We are also ensuring that we get them into education, training and housing afterwards. After they have given up the drugs, the big challenge is to change their lives for the long term and the future.
The hon. Gentleman also raised the issue of pensions. He is right; they can be a drain on police authority funds. Some years there is a large spike in the number of people retiring, which puts the budget under pressure. I have just issued a consultation document that considers pensions for the future in order to establish whether there is a way to encourage people with skills to stay in the force and not simply retire after 30 years. We want to keep their skills. The document should also establish whether we can take some of the pension responsibilities to the centre, and even out the pressures on police authorities.
I hope that I have addressed many of the issues that the hon. Gentleman has raised. As I said, I will reflect on what he said, provided that he acknowledges this year's extremely good comparative funding position for Essex. I am sure that he will work with his communities to make his neighbourhoods much safer and better places.

Rail Services (Weaver Vale)
3.59 pm
Mr. Mike Hall: I ask you, Mr. Deputy Speaker, to convey my thanks to Mr. Speaker for granting me this Adjournment debate. I have been pressing for it on and off since the summer recess, when I raised with the Deputy Leader of the House some of the points that I am going to raise now.
The first part of my contribution will be about Hartford railway station, which is on the west coast main line in the southern part of my constituency. There is often a misunderstanding: Hartford might be a village, but the station in fact serves a large catchment area of about 120,000 in Vale Royal as well as the Kelsall district of Chester and the Knutsford area of Macclesfield. It prospered until 2001. It had been an integral part of British Rail's 'west coast main line services, and in the late 1980s services were expanded from Hartford. There seemed to be a great opportunity for the railway station to do well and serve my constituents.
In the aftermath of the Hatfield crash, Virgin Rail had to consider the services that it provided, and in October 2000 it suspended services on the west coast main line from Hartford station. In May 2001, those services were stopped altogether. The reasons and mitigating circumstances cited by Virgin Rail were extraordinary. It said that it had to speed up train services from Liverpool and Preston to London and to increase track capacity to allow extra trains to run. The company also cited poor passenger figures for the west coast main line from Hartford—only 60 passengers a day. For me, that is a reasonable number of passengers using such a service, and it is a poor excuse for removing the services altogether.
There was a considerable campaign to get Virgin Rail to change its mind, but it steadfastly refused. The company has now said that it is investing £2 billion in the upgrading of services on the west coast main line and introducing Pendolino trains, which can run at 140 mph although they may run at 125 mph on that line. Virgin Rail has also said that when services improve and journey times from the north-west to London are reduced, it would be wrong to reinstate the services from Hartford because that would increase running times. When the line is upgraded, the company will miss a real opportunity to increase the number of passengers travelling on its services, and it is a shame that it is being so pig-headed about the decision, which it took it in the face of strong local opposition.
Another mitigating circumstance cited by Virgin Rail was the fact that people could use Hartford station to travel to Crewe, where they could board the west coast main line services to London, and that because there was a good local connection, that would be a good service. Virgin Rail also made the fair point that people travelling from Hartford to Crewe do so at no extra cost to those on the west coast main line services from Crewe to London.
That argument would have had more power if Virgin Rail had not stopped its local services from Hartford to Crewe in 2002. If commuters want to travel from Hartford via Crewe and arrive in London before 9 o'clock, they have to drive to Crewe station because

133WH
there is not a connecting service that allows them to board a train early enough. As such, my constituents and other commuters using the service now have either to pay the cost of leaving their car at Crewe, which is £5 an hour, or to take the alternative route of going to Manchester airport and flying. We need to look again at that service.
When the services changed, I wondered why passenger service requirements had not insisted that Hartford station was kept on the west coast main line route to London. The service had existed under British Rail and at the point of privatisation, and the passenger service requirements demand that services are maintained at the pre-privatisation levels. For some reason, the previous Administration—I do not blame my hon. Friend the Minister for this—decided not to include Hartford station in those requirements. If they had, I might not have been here this afternoon complaining about the activities of Virgin West Coast since privatisation.
One of the other improvements to which I draw my hon. Friend the Minister's attention is the service from Crewe to Hartford in the evening. The service from Hartford to Crewe in the morning is poor. As I said, there is no way to connect to the west coast main line service in order to arrive in London before 9 o'clock. We have a similar problem in the evening. If commuters coming back from London to Crewe arrive after 19.47, they have to wait two hours for a connecting service to Hartford. I have been pressing the Strategic Rail Authority and the rail service providers in the area to stop the Crewe to Winsford service at Hartford at half-past 8. I am pleased to say that that has now been agreed. That is a welcome improvement to the service, but we still need to look more closely at the services provided at Hartford station.
I pressed the SRA on its involvement in the matter, because I was under the impression that its job is to ensure that our railway systems serve the public, and that it follows the Government's view that we should try to get more people out of their cars and on to public transport. Its reason for the reduction of services at Hartford is a logistical one: it claims that there is a pinch point on the line between Crewe and Weaver junction, as there is only a double track along that section of the line. That is not accurate. It is, however, accurate to say that the 5-mile track around Hartford is double track. I have asked the SRA to insist that, as part of the west coast main line improvement, that section of track is improved, so that the pinch point is removed, allowing more and faster services on the line. Sadly, it has been unable to do that on what it calls "economic grounds".
The irony of all that—I draw my hon. Friend's attention to this particular problem—is that we are currently upgrading the west coast main line and introducing a new electricity supply at 400 kV. A network of substations and trackside feeder stations is being introduced along the whole west coast main line. The substation and feeder station in our area should be near Crewe. The national grid and Network Rail have been unable to find a site in the Crewe area, and have
134WH
come up with a site in Weaverham in my constituency, adjacent to the west coast main line. It will be a massive development. What the national grid did not tell people during consultations was that the development will be the size of three rugby pitches. It will be slap-bang in the middle of green belt, and will be a blot on the landscape.
The supreme irony of that is not lost on my constituents. Although we can no longer use the west coast main line services from Hartford, the improvements to the electricity supply, which will speed up the trains going from the north-west to London and vice versa, will be bang in the middle of our green belt. I am not opposed to the upgrading of the electricity supply to the west coast main line, but I am absolutely opposed to this location for the so-called substation and trackside feeder station. I believe that there are alternatives in the area, which the national grid has so far failed to explore.
Another service that Hartford might benefit from is that from Liverpool to Birmingham. I am delighted with the news that from September there will be a fast service travelling every hour. I have heard various accounts of whether that will stop at Hartford. I understand that the fast Liverpool to Birmingham train will stop there at peak times, but may not stop there off peak. If it can stop at peak times, there is absolutely no reason why it cannot stop there off peak. If my hon. Friend cannot give me an answer to that question this afternoon, we will have to see whether we can persuade the people providing the service that, if it is feasible to stop at peak times, it should be feasible to stop off peak.
There will also be a twice-hourly Liverpool to Crewe service. The passenger service requirement means that, in the gap between 17.00 and 18.00, there should be two services from Liverpool, Lime Street to Hartford. Currently, there is only one service. The SRA has allowed the railway operator to breach the passenger service requirement, and revised it in January. That again was a retrograde step. If the new trains are to travel from Liverpool to Crewe and can stop at Hartford, we may be bringing services closer to what they were before privatisation. The other good news is that, in 2005, there will be a Birmingham to Preston train. Will the Minister confirm that that will stop at Hartford, too? If so, gradual improvements will be made to the station that was once probably the jewel in the crown of rail services in the north-west.
I wish to raise with my hon. Friend the 7.09 service from Hartford to Stansted airport. It is run by Central Trains and is an absolute disgrace. It is often late and it is frequently cancelled. I am told that the rolling stock is old and dirty and that the travelling public are not receiving good value for their money. Several constituents have raised the matter with me. The operating record of Central Trains is not good. As a regional operator, its performance is the worst in the league table and it is third worst in overall performance. That is epitomised by the 7.09 service from Hartford station. It needs to be improved.
Perhaps we can take a leaf out of the book of the Midland Mainline service, which I understand from today's Ceefax has a novel way to improve train punctuality. It has issued its guards with ACME thunderer whistles. The guards blow the whistles and

135WH
that chivvies up the passengers to get on the trains more quickly, as a result of which the trains run on time. If that is all it takes to improve train services, I recommend it to my hon. Friend as an economic way to deal with problems of Central Trains, especially the 7.09 service.
My hon. Friend is aware of the Halton Curve. It is a stretch of railway line that connects the north Cheshire railway lines with the west coast main line, linking it to north Wales, Chester, Frodsham, Helsby and directly from Runcorn to Liverpool. It is called the parliamentary line in my neck of the woods because to close a railway line there must be an Act of Parliament. That is a statutory requirement. For that line not to be closed, a light service is run. During the summer on a Saturday morning, I am told that 18 passenger services run from Chester to Runcorn and do not return. The railway line is the missing piece of the jigsaw in the north-west. It would link the west coast main line with the new Liverpool-Allerton interchange; it would provide a direct link to Liverpool John Lennon airport; and it would allow freight coming in from Liverpool city docks and the Mersey docks to connect at Birmingham and Felixstowe without having to go on to the west coast main line. It would open up passenger possibilities at the gateway of Chester into north Wales and it would link up the gateway of Warrington into Blackpool and into the north-west.
Several of us are pressing my hon. Friend the Minister for such a measure to be included either in the west coast main line upgrade or for it to have discrete funds of its own to make improvements. Furthermore, a consortium could come forward involving the North West Development Agency, which supports the plan; Cheshire county council, which supports the plan; Halton borough council, which supports the plan; the chambers of trade and commerce in Liverpool, and a range of other organisations that believe that such action should be taken. We must not miss such an opportunity. It would be beneficial for the local economy and for the economy in the north-west. It would have an impact. We must remember that Liverpool will celebrate being the European capital of culture in 2008, and that all such matters will be important.
I want to end on a positive note. Two issues are acutely important in my constituency; one concerns a major boost to transport investment in Cheshire. It will cover a large part of my constituency with the exception of Halton borough council, which is a unitary council in the north of the constituency. The Department for Transport has awarded Cheshire county council an extra £26 million of funds for its local transport planning strategy for 2004–05. The county council welcomes that as a major boost to transport investment in the county. Slightly more than £12 million will go into maintenance activities, more than £10 million will be used take forward the county council's integrated transport programmes, and other money will be available for allocation to supplementary bids throughout the year. That is exceptionally good news for my constituents and is good news for council tax payers in the Cheshire county council area.
However, I contrast that with the absurd decision taken by the county council to cut its subsidised bus services after 7 o'clock in the evening. The cuts have
136WH
taken place across the board, and the council is also considering cutting school transport services. Those are retrograde steps, which will mean that more people will use their cars, congesting our roads and making our environment more unsafe and polluted. Cheshire county council, with the extra cash that it was given by the Government, could have been a little more adventurous in the way it approached its transport policy.
Finally, I want to raise the question of Helsby station, which is on the Ellesmere Port to Helsby route into Manchester, and has recently received the best-kept station award. It is a magnificent listed building, and the local community has done a fabulous amount of work to make it a credit to and a jewel in the crown of our area. I want to place on record my thanks to the people involved in that project and to say what a wonderful job they have done. It is an example of what could be done with stations throughout the UK. My hon. Friend the Member for Ellesmere Port and Neston (Mr. Miller) used that rail service on Saturday to go to Manchester; the service ran on time and the trains were clean. He said that it was a joy to travel on it. I give that example to show that I am not just being critical of our rail services; some things in my constituency work well.
During the time that I have represented Weaver Vale, I have been ably assisted by the North Cheshire rail users group and the Mid-Cheshire rail users group. Both groups have been a fantastic source of information and encouragement. I give particular thanks to Andrew MacFarlane from the Mid-Cheshire rail users group and to Ian Watson, who is no longer with the North Cheshire rail users group, but who put a fabulous amount of work into that activity. I also thank Mr. Frank Thomas, who has been one of the leading lights with respect to the best-kept station at Helsby, which is in my constituency.
I hope that I have left enough time for the Minister to respond to the points that I have made, but I shall sum up those points briefly. I am concerned about the diminution of west coast main line services at Hartford. I am also concerned about the diminution of cross-country services and local services, and emphasise the need to recognise that Hartford has a part to play in providing decent rail services, together with Acton Bridge and the other station in Northwich, as well as Runcorn East and the Runcorn mainline services in my constituency. I hope that the Minister can respond positively to the points that I have made.
4.18 pm
The Minister of State, Department for Transport: I congratulate my hon. Friend the Member for Weaver Vale (Mr. Hall) on securing the debate and providing an opportunity to discuss rail services to Weaver Vale. He made a fine speech, and represented his constituents well. He is well qualified to do so. I have been looking at various maps—I have become a bit of a rail anorak since I took on this job—and found that his constituency must have as many railway stations as any other hon. Member's. It has eight stations, served by at least four train companies, of which he mentioned two: Central and Virgin.

137WH
My hon. Friend takes a great interest in communications across his constituency, because it requires good communications. His constituency is not a centre of big, urban populations, but it serves big, urban populations. His constituents are an integral part of several separate city work forces in the north-west of England. I shall try to deal with the points that he raised. I fully understand the importance of Hartford railway station. Hartford may not have a massive population, but it serves a large area and it is a popular station. We are encouraging companies to do what they can to improve railway stations and the rail services to and from those stations.
It might be helpful to give an update on the upgrading of the west coast main line, which is one of Europe's busiest mixed traffic railway lines. Decades of under-investment have affected the ability of current train operators—notably Virgin—to run punctual services on that route. In many respects, it was a second-rate railway, plagued with infrastructure failures and hampered by the poor reliability of the rolling stock. The situation was exacerbated by the speed restrictions imposed on the network following the terrible Hatfield derailment in October 2000.
We have made a huge investment in the west coast main line to turn around the decades of neglect. New rolling stock is being introduced on the line and the multi-billion-pound project to renew and upgrade the infrastructure is well under way. The Strategic Rail Authority's strategy, published last June, sets out how that will be achieved.
My hon. Friend asked an important question about the part of the upgrade that will improve the power supply to the west coast main line and he mentioned the proposed construction of a substation. I appreciate what he said; he is trying to represent the interests of his constituents who live in that lovely part of the world, and who face the prospect of a substation suddenly being dumped in their back yard. However, the site is at the point where the 400 kV electricity supply line crosses the railway line, which is the most convenient spot for a substation to feed the west coast main line, enabling the new trains plying that line, which need much more electricity than existing trains, to receive the upgrade.
I take my hon. Friend's point, but the substation is an essential part of the project to provide greater capacity on the line and to improve performance, and the prerequisite is to increase the power supply. The proposal is well into its planning stage and various procedures are being followed, so I can give my hon. Friend little comfort in that respect. He knows as well as I do the difficulties of trying to interfere with planning law if it has been followed reasonably accurately.
Mr. Hall: I am not asking my hon. Friend to comment on the merits of the planning application or to endorse it. I merely wanted to draw his attention to the fact that there is huge opposition to the proposal and that there is a viable alternative to the intended site.
Dr. Howells: I very much take my hon. Friend's point; he has become an expert on the issue, which I am not. However, I am afraid that he will have to take it up with the powers that be. There is little that we can do because we no longer have the levers to pull on these issues.
138WH
As time is short, I will now deal with the specific matters that my hon. Friend raised. I am fully aware from the debate and from previous correspondence to me and to the SRA of his concern about passenger services to and from Hartford. Services to be introduced from autumn 2004 are still being refined, but the current proposal is that Hartford should have an hourly service provided by the Birmingham to Liverpool route. The SRA has concluded consultation on the proposed timetables for September 2004 and is examining the results. I have a draft of the timetable, which I will be only too glad to give to my hon. Friend. It looks pretty reasonable. He also asked about the additional service from Birmingham to Preston. That service is important because Preston station is, in many ways, a gateway to services north of that point. We hope that Hartford will be part of that service, and I will try to discover more detail about it as soon as I can.
The improvements that my hon. Friend wants for Hartford cannot be introduced earlier because of limited track capacity on the west coast main line while renewal and modernisation work takes place. He has played his part, along with his constituents, in putting up with a good deal of suffering and misery on that line while the work has been undertaken. I want to reassure him that, at the end of the process, it will be one of the very best railway lines anywhere in Europe. The line will see an enormous increase in capacity, a half-hour reduction in the travelling time between Manchester and London, and commensurate reductions in travelling times between Liverpool and London, Crewe and London and so on. That will benefit many of his constituents, as well as allowing greater capacity for more local services within and around his constituency. That is a very good news story—and a very expensive story, as he knows.
Delivery of the new fleet of high-quality 100 mph electric multiple units from mid-2005, facilitating a far better regional inter-city service, should permit an improvement in services to Hartford station. My hon. Friend will welcome that good news. If he does not want the new 100 mph trains, I will have them down in Pontypridd. I am sure that we would be very glad to receive them. They will give a big boost to train services in his area.
In the few moments that I have left, I will deal with the question of the Halton Curve. My hon. Friend has raised that matter with colleagues in the past and I know that he feels strongly about it. Currently, the lightest-possible service runs around it. I understand that it is mainly for rail enthusiasts in the summer, who go, as he put it, one way around the Halton Curve. I can see his point. Interestingly, the SRA has issued a consultation paper on what it calls community railways. My hon. Friend's suggestion on the possibility of a partnership approach in the north-west was also very interesting. I am sure that people in the region will consider carefully the idea involving John Lennon airport, which could certainly benefit from a connection to the market in north Wales for flights out of that airport.
My hon. Friend is right to identify the fact that there are parcels of money that could be put together

139WH
positively so that the Government and the SRA could be asked to consider doing something at some future time with stretches of railway line such as the Halton Curve, so that they can provide new services that benefit everyone. I cannot give him an undertaking that we have the money in place to do something with the Halton Curve right now, because we have not, but I can
140WH
guarantee that the Halton Curve track will be protected to ensure that people do not develop on it and render it incapable—
Mr. Deputy Speaker: Order.
It being half-past Four o'clock, the motion for the Adjournment of the sitting lapsed, without Question put.

ENVIRONMENT, FOOD AND RURAL AFFAIRS
  Combined Heat and Power
  Combined Heat and Power
  Environmental Sustainability
  Environmental Sustainability
  Euratom Treaty (Inspection Visits)
  Euratom Treaty (Inspection Visits)
  Agricultural Support (Severely Disadvantaged Areas)
  Agricultural Support (Severely Disadvantaged Areas)
  Animal Welfare
  Animal Welfare
  Badgers/Bovine TB
  Badgers/Bovine TB
  Birds
  Birds
  Export Subsidies
  Export Subsidies
  Farm Subsidies
  Farm Subsidies
  GM Crops
  GM Crops
  Nappies
  Nappies
  Radioactive Waste
  Radioactive Waste
  Slaughtered Stock (Compensation)
  Slaughtered Stock (Compensation)
  Radon Gas
  Radon Gas
  Sakhalin Oil and Gas Project
  Sakhalin Oil and Gas Project
  Voles/Hedgehogs
  Voles/Hedgehogs
TRANSPORT
  Channel Tunnel
  Channel Tunnel
  Disciplinary/Grievance Procedures
  Disciplinary/Grievance Procedures
  Employment Tribunals
  Employment Tribunals
  Infrastructure Improvement
  Infrastructure Improvement
  Motorised Scooters
  Motorised Scooters
  Steer Davies Gleave
  Steer Davies Gleave
  Stress
  Stress
  Travel Costs
  Travel Costs
  Way to Go Campaign
  Way to Go Campaign
PRIME MINISTER
  Parliamentary Questions
  Parliamentary Questions
  United Nations Charter
  United Nations Charter
SCOTLAND
  Climate Change
  Climate Change
  Departmental Communications
  Departmental Communications
  Departmental Officials
  Departmental Officials
  Secondments
  Secondments
  Temporary Staff
  Temporary Staff
NORTHERN IRELAND
  Belfast Agreement
  Belfast Agreement
  Devolution
  Devolution
  Decommissioning
  Decommissioning
  Employment (Strangford)
  Employment (Strangford)
  Higher Education
  Higher Education
  Economy
  Economy
  Burns Report
  Burns Report
  Ambulance Drivers
  Ambulance Drivers
  Avian Influenza
  Avian Influenza
  Belfast City Airport
  Belfast City Airport
  Birth Statistics
  Birth Statistics
  Ceasefire Breaches
  Ceasefire Breaches
  Citizenship Ceremonies
  Citizenship Ceremonies
  Civil Contingencies Bill
  Civil Contingencies Bill
  Civil Service
  Civil Service
  Costello Report
  Costello Report
  Dental Services
  Dental Services
  Disability Discrimination
  Disability Discrimination
  Drug Seizures
  Drug Seizures
  Equality Commission
  Equality Commission
  Fruit and Vegetable Subsidy
  Fruit and Vegetable Subsidy
  General de Chastelain
  General de Chastelain
  Health Professionals
  Health Professionals
  Health Promotion
  Health Promotion
  Health Service Employees
  Health Service Employees
  Human Rights Commission
  Human Rights Commission
  In-patient Beds
  In-patient Beds
  Insurance Companies
  Insurance Companies
  Police Training College
  Police Training College
  Medical Stair
  Medical Stair
  Musgrave Park Hospital (Brain Injury Unit)
  Musgrave Park Hospital (Brain Injury Unit)
  Olympic Bid 2012
  Olympic Bid 2012
  MRSA
  MRSA
  Paramilitary Offences
  Paramilitary Offences
  Police Service of Northern Ireland
  Police Service of Northern Ireland
  Punishment Beatings
  Punishment Beatings
  Radiographers
  Radiographers
  Refuse Dumping
  Refuse Dumping
  Segregation
  Segregation
  Taxis
  Taxis
  Teenage Mothers
  Teenage Mothers
FOREIGN AND COMMONWEALTH AFFAIRS
  Death Penalty
  Death Penalty
  Family Reunification (DNA Testing)
  Family Reunification (DNA Testing)
  India
  India
  Maldives
  Maldives
  Russia
  Russia
  Tibet
  Tibet
  UN International Covenant on Economic, Social and Cultural Rights
  UN International Covenant on Economic, Social and Cultural Rights
  Zimbabwe
  Zimbabwe
WALES
  Manufacturing
  Manufacturing
  Project Funding
  Project Funding
SOLICITOR-GENERAL
  CPS
  CPS
  Katharine Gun
  Katharine Gun
MINISTER FOR WOMEN
  Equal Opportunities Commission
  Equal Opportunities Commission
CULTURE, MEDIA AND SPORT
  Commercial Radio Mergers
  Commercial Radio Mergers
  Digital Television
  Digital Television
  New Opportunities Fund(Chorley)
  New Opportunities Fund(Chorley)
  Sports (Honours)
  Sports (Honours)
WORK AND PENSIONS
  Child Poverty
  Child Poverty
  EU Enlargement
  EU Enlargement
  Maternity Allowance
  Maternity Allowance
  Pension Credit
  Pension Credit
  Pension Surgeries
  Pension Surgeries
TRADE AND INDUSTRY
  Administration Proceedings
  Administration Proceedings
  Archiving Technology
  Archiving Technology
  Beer
  Beer
  British Nuclear Fuels
  British Nuclear Fuels
  Building Standards
  Building Standards
  Business Start-Ups (London)
  Business Start-Ups (London)
  Clean Coal Technology
  Clean Coal Technology
  Coal Mining
  Coal Mining
  Competitiveness Council
  Competitiveness Council
  Energy Industry
  Energy Industry
  Energy Suppliers (Disconnections)
  Energy Suppliers (Disconnections)
  Holiday Clubs
  Holiday Clubs
  Miners' Compensation
  Miners' Compensation
  Nirex
  Nirex
  Nuclear and Coal Liabilities Unit
  Nuclear and Coal Liabilities Unit
  Post Office Closures (Tesco)
  Post Office Closures (Tesco)
  Postwatch/Postwatch Scotland
  Postwatch/Postwatch Scotland
  Renewable Energy
  Renewable Energy
  Royal Mail Services
  Royal Mail Services
  Small Business Research
  Small Business Research
  Trade Unions
  Trade Unions
HOME DEPARTMENT
  Airguns
  Airguns
  Animal Experiments
  Animal Experiments
  ASBOs
  ASBOs
  Asylum Seekers
  Asylum Seekers
  Cannabis
  Cannabis
  CCTV (Crosby)
  CCTV (Crosby)
  Correspondence
  Correspondence
  Crime Reduction Policy
  Crime Reduction Policy
  Criminal Records Bureau
  Criminal Records Bureau
  Disorder Penalty Notices
  Disorder Penalty Notices
  DNA
  DNA
  Drugs
  Drugs
  DrugScope
  DrugScope
  Forensic Science Service
  Forensic Science Service
  Huntingdon Life Sciences
  Huntingdon Life Sciences
  Identity Cards
  Identity Cards
  Impairment Tests
  Impairment Tests
  International Rights Covenant
  International Rights Covenant
  National Dog Register
  National Dog Register
  Online Crime Reporting
  Online Crime Reporting
  Police
  Police
  Safe Third Countries
  Safe Third Countries
  School Buses (Sex Offenders)
  School Buses (Sex Offenders)
  Suspended Prison Officers
  Suspended Prison Officers
  Tetra
  Tetra
  Travel Documents
  Travel Documents
  United States (Visa Vetting)
  United States (Visa Vetting)
DEFENCE
  Continuous Attitudes Survey
  Continuous Attitudes Survey
  Defence Agencies
  Defence Agencies
  Departmental Estate
  Departmental Estate
  Departmental Minutes
  Departmental Minutes
  Iraq
  Iraq
  Merchant Navy
  Merchant Navy
  New Bases
  New Bases
  Parliamentary Questions
  Parliamentary Questions
  Reservists
  Reservists
  Rest and Recuperation
  Rest and Recuperation
  Second World War Anniversary Celebrations
  Second World War Anniversary Celebrations
  Warships
  Warships
EDUCATION AND SKILLS
  Condover Hall School
  Condover Hall School
  Education (Ribble Valley)
  Education (Ribble Valley)
  Free Places (Burton)
  Free Places (Burton)
  Learning and Skills Councils
  Learning and Skills Councils
  National Childcare Strategy
  National Childcare Strategy
  Neighbourhood Nurseries
  Neighbourhood Nurseries
  Nurseries
  Nurseries
  School Funding (Staffordshire)
  School Funding (Staffordshire)
  School Sports Halls (Burton)
  School Sports Halls (Burton)
  SEN(Performance Targets)
  SEN(Performance Targets)
INTERNATIONAL DEVELOPMENT
  Middle East
  Middle East
  Civil Society Organisations
  Civil Society Organisations
  Commission for Africa
  Commission for Africa
  Millennium Development Goals
  Millennium Development Goals
  Tanzania
  Tanzania
  Zimbabwe
  Zimbabwe
CABINET OFFICE
  Emergency Planning College
  Emergency Planning College
  Better Regulation Task Force
  Better Regulation Task Force
  Disabled Civil Servants
  Disabled Civil Servants
  Lord Birt
  Lord Birt
  Permanent Secretary of Government Communications
  Permanent Secretary of Government Communications
  Red Tape
  Red Tape
CONSTITUTIONAL AFFAIRS
  Freedom of Information Act (Annual Report)
  Freedom of Information Act (Annual Report)
  Freedom of Information Act (Costs)
  Freedom of Information Act (Costs)
  Guantanamo Detainees
  Guantanamo Detainees
  Northern Ireland Court Service
  Northern Ireland Court Service
  Rape
  Rape
DEPUTY PRIME MINISTER
  Council Tax
  Council Tax
  English Partnerships
  English Partnerships
  Fire Service
  Fire Service
  Houses in Multiple Occupation
  Houses in Multiple Occupation
  Local Government
  Local Government
  Planning Applications (Greater London)
  Planning Applications (Greater London)
  Port Clarence
  Port Clarence
  R and D
  R and D
HEALTH
  Drug Treatment (Crosby)
  Drug Treatment (Crosby)
  Biomedical Sciences
  Biomedical Sciences
  Breast Feeding
  Breast Feeding
  Cancer
  Cancer
  Care Homes
  Care Homes
  Children's Hospices
  Children's Hospices
  Cholesterol
  Cholesterol
  Cystic Fibrosis Screening
  Cystic Fibrosis Screening
  Dentistry
  Dentistry
  Department Branding
  Department Branding
  Health Services
  Health Services
  Immigrant Medical Inspections
  Immigrant Medical Inspections
  Infant Formula
  Infant Formula
  Medical Students
  Medical Students
  Mersey Regional Ambulance Service
  Mersey Regional Ambulance Service
  National Service Framework for Older People
  National Service Framework for Older People
  NHS Funding (Manchester)
  NHS Funding (Manchester)
  Prescriptions
  Prescriptions
  Primary Care Funding
  Primary Care Funding
  Radon Gas
  Radon Gas
  Smoking
  Smoking
  Stress Incontinence
  Stress Incontinence
  Sunsmart Campaign
  Sunsmart Campaign
  Working Time Directive
  Working Time Directive
TREASURY

  Debt and Reserves Management Report 2004–05
  The Financial Secretary to the Treasury (Ruth Kelly)
  I am pleased to announce to the House that the Debt and Reserves Management Report 2004–05 is being published today. Copies will be available in the House Library at the conclusion of the Chancellor of the Exchequer's Budget Statement.

  Housing
  The Chancellor of the Exchequer (Mr. Gordon Brown)
  Kate Barker's report Review of Housing Supply, Final Report and Recommendations, is published today. Copies are available in the Vote Office.

DEFENCE

  Service Personnel Process Review
  The Parliamentary Under-Secretary of State for Defence (Mr. Ivor Caplin)
  With effect from 1 April 2004 the three single service personnel agencies will cease to have agency status. This decision resulted from the service personnel process review that was conducted last year and referred to by my right hon. Friend the Member for East Kilbride (Mr. Ingram) on 17 July 2002,Official Report, column 277–78W.

  The review also identified the fact that the career management and manpower planning work of the three service manning agencies did not wholly suit agency status, because they performed primarily support and enabling functions rather than being concerned with the provision of a clear and discrete deliverable service. I therefore concluded that agency status for the agencies (Naval Manning, Army Personnel and RAF Personnel Management Agency) should cease.

  I am pleased to tell the House that a considerable amount of work continues in many other areas. It includes further reviews of tri-service recruiting and welfare and many of the review recommendations have been swept into a service personnel plan, parallel with and linked to the equipment programme and within the framework of the defence White Paper published last December.

  I intend to report on further progress to the House later in the year.

Preamble
The House met at half-past two of the clock: The LORD CHANCELLOR on the Woolsack.
Prayers—Read by the Lord Bishop of Oxford.

The Lord Bishop of Norwich
Graham Richard, Lord Bishop of Norwich—Was (in the usual manner) introduced between the Lord Bishop of London and the Lord Bishop of Newcastle.

Anti-Semitism
2.40 p.m.
Lord Clarke of Hampstead Lord Clarke of Hampstead asked Her Majesty's Government:
What action is being taken to combat anti-Semitism in the United Kingdom.
The Minister of State, Home Office (Baroness Scotland of Asthal): My Lords, the Government have in recent years strengthened both the legal framework against race discrimination and the criminal penalties for offences such as incitement to racial hatred and for racially or religiously aggravated assault and criminal damage. Police forces continue to be alert to crimes being committed against members of the Jewish community and take appropriate steps to safeguard people and property. Furthermore, we support and are encouraging the growing amount of dialogue that is taking place between communities, including faith communities, in the United Kingdom.
Lord Clarke of Hampstead: My Lords, I thank my noble friend for that positive Answer. Does she agree that we are witnessing the return of the oldest hatred? Figures recently released by the Community Security Trust speak for themselves. In 2003, there was a 15 per cent rise in anti-Semitic assaults; 104 synagogues have been vandalised in just over three years; and the damage and desecration of Jewish property in 2003 alone rose by 31 per cent.
Does my noble friend agree that this country has a long history of combating anti-Semitism, but that this recent resurgence has been coupled with claims that the Jewish community is suffering as a result of its support for and affiliation with the state of Israel? Does my noble friend further agree that the conviction of racially and religiously aggravated offences we have witnessed should not be conditional upon people of the Jewish religion having to denounce the state of Israel? What is being done about that?
Baroness Scotland of Asthal: My Lords, I totally agree with my noble friend. Expressions of hatred of Jewish people, let alone attacks on persons and property, are simply unacceptable. Criticisms of the policies of a foreign government cannot be used to justify such behaviour.
Lord Dholakia: My Lords, does the Minister consider that the provisions relating to the incitement of racial and religious hatred are adequate? How many cases have been brought before the court involving those who have perpetrated racially and religiously aggravated crimes?
Baroness Scotland of Asthal: My Lords, we now have appropriate legislation to deal with these issues. There have been increasing figures. The CPS figures for racist incidents show that in relation to the period 2001–02, there were 5,764 charges and 3,597 of those were prosecuted. Those are the most recent figures we have.
The figure for the total number of anti-Semitic incidents in the United Kingdom for 2003 is 375; that is 25 more than last year. It is a worrying figure, but we have some good examples of prosecutions which are robust and successful. The most important was that for which a period of nine years' imprisonment followed. We are therefore giving the clearest signal possible that this behaviour is wholly and totally unacceptable.
Lord Haskel: My Lords, does the Minister agree that it is important to understand the reasoning behind the n umbers? Is she aware that the Institute for Jewish Policy Research—I declare an interest as its president—has been allowed by the Metropolitan Police to have access to their records so that a proper study can be made of the nature of these incidents, their location, social context and motivation? Is it not important to understand those aspects so that we can then understand more fully the exact nature of anti-Semitism and racial hatred in this country?
Baroness Scotland of Asthal: My Lords, as my noble friend says, it is very important for us to understand the basis of such prejudice and dreadful behaviour, because it is only by understanding it that we might be able to craft something that will work to stop it.
The Lord Bishop of Oxford: My Lords, as the noble Baroness is well aware, there is much discussion about the possible interconnection between the policies of the state of Israel and the rise of anti-Semitism. Will she encourage other organisations to follow the good example of the Government and remind people that, however critical they might be of this Israeli Government—and some of the most critical voices come from Israel itself—that state has legitimate security needs which need to be publicly recognised?
Baroness Scotland of Asthal: My Lords, we have made that plain and it would be right to underscore it. All the efforts that are being undertaken by ordinary men and women who come together to try to change the culture are equally important. I commend to the House the efforts being made by the Women's Interface Network. It was started by Lady Levy and brings women together from across the board to discuss, share and develop a better understanding that we should all try to generate.
Lord Avebury: My Lords, as the Government acknowledge that incitement to religious hatred is a growing evil and that actual offences motivated by religious hatred are increasing, why have not the Government found time to debate the report of the Select Committee on Religious Offences?
Baroness Scotland of Asthal: My Lords, all debates have to go through the usual channels to find space. I know that the noble Lord may wish that the Government had a greater say over the usual channels. We may wish for that as well, but we simply do not have it.
Lord Clinton-Davis: My Lords, despite the comments of my noble friend, does she agree that anti-Semitism and other racial crimes have increased, but should not have done so? The whole House will understand her unconditional repudiation of all racial crime. In my view, that is what we should stand for.
Baroness Scotland of Asthal: My Lords, I agree with my noble friend. There has been a rise in racially motivated crimes—both anti-Semitism and Islamophobia. condemn both.
Baroness Ramsay of Cartvale: My Lords, is my noble friend aware that the French Minister for education has just launched a pamphlet that gives guidance for French schools to deal with and counter the worrying rise in anti-Semitic incidents there? If the Government are not already doing so, would they consider giving such guidance to schools in this country?
Baroness Scotland of Asthal: My Lords, I was not aware that the French Minister of education was doing that. I can reassure my noble friend that the Department for Education and Skills is fully supportive of all that we do and tries to ensure that children and people in education are aware of our firm views on appropriate behaviour and comments; and that they form an important part of citizenship and other educational programmes in our schools.

Northern Ireland Legislative Assembly: Members' Salaries
2.49 p.m.
Lord Smith of Clifton Lord Smith of Clifton asked Her Majesty's Government:
Whether they intend to continue to pay the salaries of Members of the Northern Ireland Legislative Assembly and those of their support staff after 9th April 2004 if by that date the Assembly has not been convened.
The Lord President of the Council (Baroness Amos): My Lords, the question of the salaries and allowances paid to Members of the Northern Ireland Legislative Assembly and to parties is being kept under review.
Lord Smith of Clifton: My Lords, I thank the noble Baroness for that brief Answer. Is she aware that in the 19 months from the suspension in October 2002, until Good Friday this year, the Assembly will have cost the taxpayer just under £10 million? Your Lordships' Chamber is reckoned to be the cheapest legislature in the western world and Stormont is the most expensive, because it has not done a stroke of work since 2002. When will the Government call a halt to that pointless expenditure? Stopping the pay of MLAs might just spur them at last to enter into meaningful negotiations. Would not Good Friday be an appropriate day to start?
Baroness Amos: My Lords, the noble Lord, Lord Smith of Clifton, is aware of the justification that we have given for the payment of MLA salaries and allowances, as well as party allowances, following the election. MLAs carry out constituency duties and have done so since the elections in November 2003. I do not consider it right to keep people engaged in politics without an income and, as the noble Lord, Lord Smith of Clifton, is aware, some are participating in the review.
Lord Glentoran: My Lords, does the Lord President agree that this situation has occurred because of Sinn Fein's continual refusal to give up terrorism? Furthermore, does she agree that the privileges granted to Sinn Fein by special resolution of another place should also he withdrawn? She may be aware that only today, or perhaps yesterday, Sinn Fein spent £25,000 in America taking a full-page advertisement decrying the PSNI.
Baroness Amos: My Lords, the noble Lord, Lord Glentoran, knows that I have said many times from this Dispatch Box that we want to see an end to all paramilitary activity. As part of the review process, since the Tohill incident, focus has been placed on the need to end paramilitary activity and the Government are working towards that. We want to see the peace process in Northern Ireland enshrined and the people of Northern Ireland want to see that as well. The Taoiseach and my right honourable friend the Prime

263
Minister will try to reinvigorate the process in their meetings next week and we should give them every support.
Earl Ferrers: My Lords, would the Leader of the House be good enough to have another shot at answering the Question that was put to her? Do the Government intend to continue to pay the salaries of Members from 9 April, which is in about four weeks' time? As I understood it, the noble Baroness said that the matter was continuously under review, but will salaries continue to be paid or not?
Baroness Amos: My Lords, the fact that I said that the process is under review means that a decision on stopping payments has not been made. The payments will continue and the process will be reviewed.
Lord Elton: My Lords, does the noble Baroness have a view on the question asked by my noble friend Lord Glentoran concerning the advertisement placed in the American press?
Baroness Amos: My Lords, that is a matter for Sinn Fein.
Lord Shutt of Greetland: My Lords, will the noble Baroness indicate whether she considers satisfactory the non-activity of the Assembly and the fact that this House and the other place spent three-and-a-half hours in total scrutinising the budget for the entirety of Northern Ireland? If direct rule continues for much longer, will there be some other way in which such scrutiny can be properly achieved?
Baroness Amos: My Lords, noble Lords will know that I am as concerned as they are that we are having to deal with some complicated and quite technical information in a Grand Committee. We would all like to see devolution restored as quickly as possible and we have made that absolutely clear. That is what we are working towards.
One issue that we discussed in this House recently was the importance of support to the Police Service of Northern Ireland and the fact that, for example, we want to see Sinn Fein included on the Policing Board in Northern Ireland. Reference has been made to the advertisement in the United States. I deeply regret that but it is a matter for Sinn Fein. However, we all feel that Sinn Fein's role—for example, on the Policing Board—would take the peace process much further forward. We would like to see devolution restored and that is what we are working for.
Viscount Brookeborough: My Lords, does the Lord President agree that, in the context of the Question, the newspaper advertisement to which reference has been made is not entirely a matter for Sinn Fein? Basically, the Question concerns how long the Assembly will remain suspended, and Sinn Fein's acceptance of the policing of Northern Ireland has a direct bearing on that. Therefore, the two issues are interlinked. We
264
should not say that this matter is entirely for Sinn Fein; it is for this Government, the Irish Government and, at this moment, this House.
Baroness Amos: My Lords, the use of its money for the placing of advertisements in the United States is a matter for Sinn Fein. The policy implications of that and the fact that we, the Irish Government and others have worked tirelessly to bring all parties to the table is of course a matter for this House and for all of us. But there is a distinction between those two issues. I was asked specifically about the amount of money spent on an advertisement. That is not a matter for the British Government, but the policy implications arising from that and from the work that we are doing to restore devolution and to bring peace to Northern Ireland are, of course, matters of great concern to this Government, this House and the Irish Government.
Baroness Park of Monmouth: My Lords, have the Government taken, or do they intend to take, any steps to point out publicly in America that, when the PSNI was set up, Gerry Adams said that Sinn Fein would treat anyone who joined it, including the young Catholics whom everyone hoped would join. as it had always treated the police—that is, they would be killed? The first young graduate was, indeed, shot at. What steps are the Government taking to set these matters right publicly in the United States, as opposed to talking behind the scenes, very properly, with government?
Baroness Amos: My Lords, the noble Baroness may be aware that my right honourable friend the Secretary of State for Northern Ireland is in the United States at this very moment. He will be engaging in talks on these matters not only with US Government representatives but with others. In relation to employment within the Police Service of Northern Ireland, we have worked very hard with regard to 50:50 recruitment and we have seen the number of Catholics recruited increase from 8 to 14 per cent. There was some controversy in this House surrounding the renewal of that order. However, we remain committed to trying to bring about a more integrated service in Northern Ireland because we need a police force that reflects the community that it serves.

Equal Pay
2.57 p.m.
Baroness Turner of Camden: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest. My union, Amicus, is currently engaged in a campaign on the whole issue of women's pay.
The Question was as follows:
To ask Her Majesty's Government what steps they are taking to encourage employers to put equal pay audits into operation to counter any gender gap in pay in certain industries.
Lord Davies of Oldham: My Lords, we are working with the Equal Opportunities Commission, Opportunity Now, trade unions and employers to meet our target of 35 per cent of large organisations completing pay reviews by 2006. We have provided funding for the EOC to develop equal pay toolkits for both large and small employers and funding for trade unions to train representatives in equal pay issues. We are also supporting the EOC's sectoral approach to promoting pay reviews.
Baroness Turner of Camden: My Lords, I am grateful for that response, but is the Minister aware that in financial services, for example, the pay gender gap is as large as 43 per cent? I am very grateful to the Government for the encouragement that they have given and for the work that is done with the EOC. But can we perhaps move a little more towards compulsion as encouragement does not seem to be working as well as it might?
Lord Davies of Oldham: My Lords, I acknowledge the sterling work which my noble friend carries out on these issues. Typically, she has identified one sectoral area of greatest concern—that of financial services, where the gap between men's pay and women's pay is by far the largest of any sector. That is why, as a government, we are addressing that matter and indicating that other sectors are doing far better and that financial services need to improve in this respect.
Baroness Thomas of Walliswood: My Lords, in responding to the Question, the Minister mentioned the Equal Pay Task Force and the work that it is doing. But will he acknowledge that the EOC's recent report stated that 54 per cent of large and 67 per cent of medium-sized employers said that they had no intention whatever of conducting such equal pay reviews? Equal pay for work of equal value has been part of our law for at least 30 years and perhaps longer. Is it not time that the Government now began to use compulsion rather than just encouragement to ensure equal pay for work of equal value?
Lord Davies of Oldham: My Lords, the Government are setting the best example. It will be recognised that in the Civil Service we have made very substantial progress indeed with regard to equal pay, although we have not achieved the full objectives that we have addressed. The noble Baroness is right. She will recognise that by next year a substantial section of major employers will have completed the pay reviews. They are the lead organisations on these issues and we expect them to make real progress. Having done that, it will then be necessary to address ourselves more to the problems of others and particularly to smaller businesses.
Baroness O'Cathain: My Lords, in the Minister's first reply he mentioned that the Government are producing toolkits for equal pay. Are those toolkits readily available? Will they be extended to the private
266
sector, so that, in turn, that sector can put a spanner in the works to stop the leapfrogging of pay, which is started by high pay rises in the public sector?
Lord Davies of Oldham: My Lords, the toolkits are widely available. I hope that the response of industry will not be to put a spanner in the works. I believe that industry will look at certain aspects of the equal pay issue. Perhaps I can give one example of the use of the toolkit. Merely shortening the band on which promotion is effected can often advantage women, as very long bands require them to serve for many years before they reach the same top point to which men graduate more readily because they have been in employment longer. Such an aspect of the toolkits, which perhaps is not widely known, will be of advantage to private industry. I believe that industry will consider that to be a progressive position that it can take up without undue cost.
Lord Lamont of Lerwick: My Lords, do the Government support the directive that is being prepared by Commissioner Diamantopoulos on gender equality, which, if commentators are accurate, will ensure that women pay higher insurance rates than at present in the name of equality and receive lower annuity rates, again in the name of equality?
Lord Davies of Oldham: My Lords, we believe that the commissioner may marginally have misdirected himself as regards the insurance industry. We seek to emphasise the obvious fact that insurance is about risk and risk with regard to life expectancy differs according to gender.
Baroness Sharp of Guildford: My Lords, the Minister will know that in 2001 the Bett report identified in the academic sector a systematic discrepancy of 20 per cent between male and female pay. Are there any indications that the move towards locally negotiated pay will widen or narrow those discrepancies?
Lord Davies of Oldham: My Lords, it came as a surprise to the wider public that progress in academic circles was not as rapid as had been expected and that the same level of discrimination against women academics was occurring as in other areas of pay. On local versus national, provided that local negotiators follow the concepts that we seek to advance, and which are represented by the way in which we develop Civil Service pay, there is no reason, whether the negotiations are local or national, why women should not make the proper advance.

Afghanistan: Women's Healthcare
3.4 p.m.
Baroness Rawlings: My Lords, I beg leave to ask the Question standing in my name on the Order Paper. In doing so, I declare an interest as an unpaid patron of the Afghan Mother and Child Healthcare Clinic in the Panshir valley.

267
The Question was as follows:
To ask Her Majesty's Government what action they are taking to improve the healthcare provision for women living in rural areas in Afghanistan.
Baroness Amos: My Lords, we provided 19 per cent of the EC's £282 million Afghanistan package for 2003–04 (£17.5 million is for health) and £34 million through the World Bank. The EU and World Bank fund basic healthcare through non-government organisations. The UK also funds UNICEF which supports emergency obstetric care services, including in rural areas, and is refurbishing many maternity hospitals in major cities. Our bilateral programme to Afghanistan focuses on government capacity building and income generation.
Baroness Rawlings: My Lords, I thank the Leader of the House for her Answer. Is she aware that Afghanistan has one of the world's highest rates of maternal mortality, with over 50 per cent of deaths among expectant mothers and one rural woman dying every 20 minutes? What assessment has DfID carried out regarding female access to basic healthcare facilities in rural Afghanistan—not in the cities of which she spoke? With the welcome increase in the aid budget announced today, what support is DfID planning to provide for the education and training of rural midwives, thus reaching women living in the countryside who are banned from leaving their homes?
Baroness Amos: My Lords, the noble Baroness is quite right with respect to the high levels of maternity and infant mortality in Afghanistan. DfID has not carried out any assessment. The most recent assessment is part of the WHO Afghanistan appeal, a copy of which I shall be happy to send to the noble Baroness. We have contributed to the Afghanistan ministry of health, which has prepared an interim health strategy.
On the issue of funding, our funding is targeted on capacity building and working at a strategic level with the Afghan interim administration. On health, the World Bank, USAID and the European Union are the main funders. They provide those funds through a mechanism pioneered in Cambodia, where the Government are contracting NGOs to provide services across Afghanistan, particularly in rural areas.
Baroness Northover: My Lords, can the Minister provide me with a more precise Answer to a question that I asked last Wednesday about whether NATO has agreed a timetable for the expansion of the number of troops to be deployed in Afghanistan, given that last Thursday there was a NATO meeting, and given that everyone agrees that, unless there is improved security, we shall not improve the welfare of Afghan citizens? Can she also tell the House what proportion of the money that the Chancellor announced today for Afghanistan, Iraq, and the fight against terrorism will go to Afghanistan?
Baroness Amos: My Lords, I shall have to write to the noble Baroness on the timetable and the number of troops. I believe that last week I said that there is a
268
planned expansion of the provincial reconstruction team in Afghanistan and, as part of that, we are also looking at whether US troops can be focused in the south-east of the country where there is a particular concern about the re-emergence of the Taliban. What that will mean in terms of the deployment of troop numbers is still being worked out. I shall also write to the noble Baroness on the spread of money between the three areas that she mentioned.
Lord Tomlinson: My Lords, can my noble friend confirm that she heard the same words as I did from the noble Baroness, Lady Rawlings, which was a welcome for the announcement of increased aid? Is she as confused as I am about exactly where the Conservative Party's public expenditure plans now stand?
Baroness Amos: My Lords, my noble friend is quite right. The noble Baroness, Lady Rawlings, welcomed the increased aid to Afghanistan. We all welcome that. On the public expenditure plans of the party opposite, there is absolutely no doubt that they are in some confusion. Perhaps noble Lords opposite will enlighten us at some future date.
Lord Elton: My Lords, following the question from the noble Baroness, Lady Northover, does the Leader of the House see the urgency for an extension of the military intervention in Afghanistan linked to the need to get the elections going'? At present, I understand that very small numbers of electors have registered. Humanitarian activity and electoral activity are severely inhibited by the breakdown of the security arrangements in the southeast.
Baroness Amos: My Lords, in relation to the issue of military intervention and increasing numbers. there are two different strategies. The provincial reconstruction teams are a mix of the military and development specialists who are working not only in terms of' the security environment but to bring development in key areas of Afghanistan. Of course, there remains a concern with respect to security, particularly in the south-east where there is a re-emergence of the Taliban, and a different strategy has to be deployed in those areas. On the specific issue of the elections, some 1.466 million were registered by 15 March. We are receiving daily updates on that, and they hope to complete the registration of some 10 million before the elections. There are eight regional centres, and there will be a focus on rural areas from May.
Lord Pilkington of Oxenford: My Lords, if the Minister is going to answer on behalf of the Conservative Party, could she could get properly briefed from this side of the House?
Baroness Amos: My Lords, I certainly did not answer on behalf of the Conservative Party. I said that I thought that there was some confusion, and we look forward to some clarity in due course.
The Earl of Sandwich: My Lords, returning to the question of health services, would the noble Baroness

269
agree that there is a disproportionate responsibility on non-governmental organisations, and not nearly enough effort is going into reinforcing government services, especially health management? How can new emphasis be placed on this sector?
Baroness Amos: My Lords, if I understand the question asked by the noble Earl, one of the reasons that the focus of our assistance is on working with the Afghan government administration is precisely to strengthen government systems, including the health sector. We have worked with the Ministry of Health precisely in that kind of area.
Lord Avebury: My Lords, returning to the subject of women's health, has the noble Baroness seen the report of the United Nations rapporteur on violence against women, which indicates the extreme levels of domestic violence and the lack of any redress for women who are the victims of these activities? Does she think that the Government should increase the level of support for women's organisations in Afghanistan, such as the one that has recently been reported as being very active in the Herat region, so that women can take action against the deprivations that they are suffering?
Baroness Amos: My Lords, I have not seen the report by the UN rapporteur, but I am aware of the issues of violence against women in Afghanistan. They are of considerable concern, not least in the context of the registration of women for the elections. For example, only some 25 per cent of those who have registered to date are women. Many women are being prevented from registering by their husbands. This issue affects women's daily lives, and it will affect their longer-term contribution to the democratic process.

British Transport Police
3.13 p.m.
Lord Faulkner of Worcester Lord Faulkner of Worcester asked Her Majesty's Government:
What additional resources they are making available to the British Transport Police to enable the force to enhance security and surveillance in areas within its jurisdiction.
Lord Davies of Oldham: My Lords, the resources available to the British Transport Police are a matter for the BTP committee, which oversees the force and sets its budget. For 2004–05, the committee has agreed an increase of £25 million, taking the budget to £162 million. The rail industry is responsible for providing the necessary funding for the force. In addition to this funding, the Government have agreed to provide the BTP in 2003–04 with an additional £2.3 million for anti-terrorist response vehicles and equipment in London.
Lord Faulkner of Worcester: My Lords, I thank my noble friend for that reply. I am sure that he will want to join me in expressing a tribute to the officers of the British Transport Police for the courageous and effective work that they do in protecting the travelling public on the London Underground and on the national rail system. Notwithstanding the figures that he has just given in his reply on the funding settlement, is he aware that because of the need to provide for pensions and VAT, that settlement is still far short of what the force needs if it is to avoid a cut in the number of serving officers next year, rather than the increase which in order to counter terrorism most people would agree is reasonable? Does he further agree that it is wholly unreasonable for the railway companies and their passengers to pay the entire cost of the BTP anti-terrorism measures, which should more properly come out of national security budgets?
Lord Davies of Oldham: My Lords, I am grateful to my noble friend for giving me the opportunity to pay tribute to the work of the British Transport Police. We all know the strains and stresses that all our police forces are under at present. My noble friend will recognise that there has been a substantial increase in the budget for this year. The number of officers serving in the British Transport Police is the highest that it has been for the past 10 years, and 100 extra officers are being deployed on the London Underground. I hear what my noble friend says about extra resources. There are two glimmers of light on the horizon in that respect. First, VAT judgment is such as to ensure that the budget is increased by another £3.7 million for this current year. Secondly, the Government will certainly take account of BTP's needs in the comprehensive spending review.
Viscount Astor: My Lords, the British Transport Police faces a Herculean task and we all wish it well. However, yesterday a spokesman for the British Transport Police said that its budget left the service facing a real challenge. Indeed, the British Transport Police Federation chairman, Alex Robertson, said that funding cuts would mean 50 fewer officers. Can the noble Lord give the House a categorical assurance that, when we are facing what the Metropolitan Police Commissioner Sir John Stevens called "an inevitable attack", there will be no cuts in officers during this difficult time?
Lord Davies of Oldham: My Lords, I am obliged to repeat the statistic that I quoted in my original Answer. The budget has gone up by £25 million to £162 million. That is difficult to describe as a cut. The number of officers employed will increase over this coming year, and I have also given the indication that

271
for obvious reasons the Government are keeping this budget under very close scrutiny, given the circumstances that we are all in at present.
Viscount Astor: My Lords, would the noble Lord be very kind and answer my question? Can he give an assurance that there will be no cuts in serving officers during this present time?
Lord Davies of Oldham: My Lords, I have just quoted the budget, and I have indicated that the number of serving officers will increase. The concentration on the London Underground and an increase there is fully justified and supported by the Mayor of London, for the obvious reason that we recognise that the London Underground presents an obvious and conspicuous possible target.
Lord Imbert: My Lords, notwithstanding that there is an increase of £25 million in the British Transport Police budget, and that the Government have made a grant to the BTP, and in the light of the press revelation in the past 24 hours that only 95 per cent of London Underground stations are covered by closed circuit television, does the Minister agree that, however much it costs, every effort should be made to provide full coverage of closed circuit television on every London Underground station and every over ground station in the country, not only in the interest of the travelling public, but in the interests of the nation as a whole?
Lord Davies of Oldham: My Lords, the noble Lord will recognise the resource implications of applying CCTV to every overland station in the country. He will appreciate, as I do, that the fact that 95 per cent of our Tube stations are covered by CCTV is an important defence. We will be looking at the question of the other 5 per cent. Closed circuit television clearly plays an important role in defence against any possible terrorist activity.
Lord McNally: My Lords, would the Minister concede that the worrying word in the Question asked by the noble Lord, Lord Faulkner, is "jurisdiction"? Is he absolutely sure that the various security and police forces now operating counter-terrorism are operating with the fullest co-operation: that there are no turf wars, no squirreling of information and that there is real joined-up government in this war against terrorism?
Lord Davies of Oldham: My Lords, I should have thought that co-ordination could be improved in every organisation, but I assure the noble Lord that effective co-ordination between all authorities concerned with counter-terrorist activity has been the source of very substantial activity in recent months. I would certainly want to reassure the House on this factor. Noble Lords may well have seen advertisements going up only this week about care with regard to the Underground and packages left unattended on it. That process was not
272
the result of the horrors of Madrid. That process was already in hand as a reflection of co-ordinated activity before the Madrid disasters occurred.

Traffic Management Bill
Brought from the Commons; read a first time, and ordered to be printed.

Marriage
3.21 p.m.
Lord Northbourne Lord Northbourne rose to call attention to the role of marriage in securing the well-being of the nation's children and their parents in 21st-century Britain; and to move for Papers.
The noble Lord said: My Lords, last week I mentioned to an acquaintance that I was introducing a debate on marriage. He said, "Are you for or against?". My answer is that I am for healthy, happy marriages and I am against dysfunctional, unhappy ones. Healthy marriages are good for children, for parents and for society as a whole, whereas dysfunctional marriages are hell for everybody.
I am going to argue this afternoon that there are many things which can be done and should be done to help those who have made the choice to marry to have a more healthy and happy marriage, and to help those who are wondering whether or not to marry to make the choice wisely.
It is very much in the interest of us all that more marriages should be happy marriages, and that couples before they enter into marriage should understand what it is all about. Since I introduced a debate on marriage five years ago, the Government have said, in their consultation document, Strengthening Families:
"This Government believes that marriage provides a strong foundation for stable relationships. This does not mean trying to make people marry, or criticising or penalising people who choose not to. We do not believe that government should interfere in people's lives in that way. But we do share the belief of the majority of people, that marriage provides the most reliable framework for raising children".
I agree. The decision to marry is a private one. But that does not mean that it is not one which has huge consequences for society and for the state, particularly where children are involved.
The state has a major stake in marriage. For example, a much higher proportion of single parent families than married families are on benefits. The cost of marriage breakdown is about £5 billion a year, and that is not to mention the human cost, which cannot be quantified. The state should encourage and not compel. It should provide practical help and not moralise. But it cannot afford to ignore the problem.
Marriage is a delicate subject to debate. I know many noble Lords have strong feelings on the subject. None of us wants to hurt or offend those whose lives have taken a different course to our own. I will do my

273
best to present a balanced picture, but I hope noble Lords will have compassion on me—I have only 15 minutes.
Fifty years ago in this country marriage was the norm—at the very heart of family life. Children born outside marriage—and there were a tiny minority of them—were called illegitimate and they were stigmatised and disadvantaged. Although there were reasons for this, it was cruel for the children and often cruel for their parents. Also in those days, some children suffered because their parents were locked together in a miserable, confrontational marriage. Today all that has changed. There is no longer any stigma to being born of parents who are not married. Few parents today stay together in unhappy marriages. In 2002, 40 per cent of children were born outside marriage, and in the same year more than 147,000 couples divorced.
Alas, today we have a different set of problems. The sad truth is that still far too many of the nation's children are growing up in family circumstances which will deny them the chance to develop to their full potential, which will deny them equal opportunity in adult life. I hesitate to quote these educational statistics, but it is said that about 17 per cent of all children today leave school functionally illiterate, and last year only 55 per cent of girls and 44 per cent of boys got more than five passes at A to C level in GCSEs and GNVQs.
These statistics reflect not only on the schools but also on the families in which those children grew up. I believe that the time has come to have another look at marriage. I suggest that the mission for any review of marriage should be to see if we can increase the percentage of the nation's children who grow up in a family which enables them to develop to their full potential, while at the same time providing a fulfilling life for their parents.
I want to look at the needs of children. The physical needs of children and their parents are basic to wellbeing. Poverty, unemployment, inappropriate housing, inadequate services and so forth, all affect the ability of parents to give what they need to their children. This Government have boldly started to address many of these problems and I congratulate them on doing so. It has, however, to be said—which they realise—that there is very much more still to be done. However, due to the limited time this afternoon, I shall focus on the emotional needs of children which are also absolutely fundamental to children's well-being.
Every young child needs to grow up in a cocoon of security, based on a loving, long-term relationship with one or two or more adults. In the majority of cases that will mean parents. A child needs to feel safe as it gradually explores the world into which it has been launched by birth. Children need routine. They fear change because the unknown is threatening to them.
In the debate in 1999, the noble Lord, Lord Laming, said:
"Disruption to family life and to the relationships which children have with the adult on whom they depend usually results in children becoming insecure and fearful of the future".— [Official Report, 24/3/99; col. 1324.]
To feel safe, a child needs guidance and boundaries, to know what is expected of him and a secure framework in which to grow up. A father's role in the home is important. Children thrive on the "father/mother" relationship. Every child will seek out male and female role models whom they can respect and learn from. Parenting is a tough job; it is easier if there are two to share the burden. All these things, and many others, point to the advantages for a child of having two parents working together in a long-term, stable, committed, harmonious relationship. It also emphasises the case for a structure within which that relationship can be sustained.
It is often said, particularly by the professionals and politicians, that family relationships matter more than family structures. Of course that is a perfectly true statement, but it is not the whole story. Committed relationships are very much more difficult to sustain without a structure of commitment and clear understanding by the parties who have entered into them. Today 50 per cent of all cohabiting couples with children part within 10 years, as against only 12 per cent of married couples with children.
In this country today—it may be a pity but it is a fact— the only legal structure that we have for formalising a long-term commitment is marriage. The noble Lord, Lord Lester, introduced the Civil Partnerships Bill last year which contained provisions for heterosexual partnerships. The government Benches shot those proposals down in flames, and as far as I can see the Government have now backed off from heterosexual civil partnerships, which means that for the foreseeable future healthy marriage seems to be the best chance to secure for more children the support they need for a good start in life.
In saying that, I acknowledge. of course, that marriage is not the only way. We all know of children who have grown up in single-parent families, cohabiting families and reconstituted families and have had a happy and successful life, but statistics show that, overall and on a range of measures, children brought up in a stable, happy, two-parent family will, on average, do better in school and in later life than those who are not. The noble Baroness, Lady Scotland of Asthal, said:
"The research is clear. It tells us that children are best nurtured and cared for by two people living together in harmony on a long term basis".—[Official Report, 24/3/99; col. 1319.]
I want to make it absolutely clear that I am not advocating trying to persuade people to marry, if they do not want to. I am not advocating trying to persuade people to stay married, if they do not want to. I am advocating positive action to help those who are married to have a full, healthy and happy marriage and to give those who are considering marriage a sound understanding of the advantages and challenges. The United States Congress has just voted 1.5 billion dollars for a programme that will attempt to achieve exactly that objective.
I must admit that the social background in the UK today is not promising for a healthy marriage. Many young people today, especially young women, are unconvinced of the need for marriage. At the other end of the scale, uneducated and disadvantaged young women have trouble finding a decent man who will make a commitment. The father's traditional role in a low-income family as protector and provider has largely been taken over by the state. In 1999, David Sheppard said that if a father was excluded from regular employment, it had "crucial effects" on family life. He was also quoted as saying that he had been told that, in some disadvantaged communities,
"'Men are regarded as redundant'—in the home as well as at work".—[Official Report, 24/3/99; col. 1298.]
I have more on that subject, but I will not delay the House. I will move on to what I have marked as the action plan.
I would not wish to end without giving the House some positive thoughts about things that could and should be done in this country today. Research over the past five years by One Plus One has shown that, by the time that a healthy marriage has degenerated into a dysfunctional marriage, it is usually far too late for intervention to be effective. Much more time and resources should be devoted to enabling young people to acquire the knowledge and the emotional and interpersonal skills that they will need before marriage, in the early years of marriage and at the transition points, before trouble sets in.
Action should be concentrated in five areas. First, I should mention the physical and environmental problems to which I referred briefly. I shall say no more about those; we all know about them. The second point is that we should define more clearly the respective rights and responsibilities of parents and of the state, in respect of parenthood and in respect of marriage. The Government should, after careful consultation, define more clearly the respective rights and responsibilities of parents and the state for the care and education of the nation's children. They should explore the idea recently canvassed by the National Family & Parenting Institute of having a parents' charter, compact or contract between parents and the state.
Many young people today are surprisingly ignorant about marriage and cohabitation. Research from 2002 shows that 50 per cent of the population incorrectly believe that unmarried people who cohabit have the same legal rights as married people. They do not. Government should take steps to correct young people's misconceptions about marriage. Marriage is not just an excuse for a party. Marriage is not a prop to shore up a failing romantic love affair. Marriage is not admitting defeat or sacrificing individuality but joining forces to be stronger together. It is creating a lifelong commitment with a partner, and it is a sign of maturity and courage. Marriage is a long-term committed partnership in which love can grow and mature.
My third point is that we should work with parents, not against them. Nearly all parents want the best for their child. The Government have—I must make a
276
modest criticism— made a major mistake with regard to the family: they have inflated the value of direct state intervention and tended to undermine the influence and confidence of parents. I believe that we should all value, respect and empower parents more and recognise the sacrifices that they make and the tough job that they do raising the nation's children. The state should provide and procure support for parents where and when they want it. and we should find more effective ways to consult parents of all backgrounds and listen to their concerns. We should provide or procure affordable, universally available education in relationships and communication skills at school and later in life. We should provide or procure affordable parenting education and support for all parents where and when they want it, especially around the birth of their first child.
My fourth point is that the state and society should encourage and support healthy marriage. We should foster programmes to educate and help married parents to improve and enrich their relationships. We should foster programmes to inform young people about the nature of marriage and the sacrifices and advantages involved in a long-term commitment through marriage. We should support and encourage changes to make it easier for committed parents to reconcile family responsibilities and the demands of employment. We should find ways to support young men in becoming good fathers and contributors, not just financially but in an emotionally and morally supportive sense, so that their children can be truly proud of them.
Finally, I turn to what is, perhaps, a controversial point. Governments should send strong signals of support to those who serve society. If long-term commitment between parents is best for children and therefore for the nation's future, governments should support those who decide to make that commitment. Words are not enough. At the least, we should consider making personal tax allowances transferable and examine the possibility of some sort of tax breaks or support. We should do so not because it would make a huge financial difference but because it would show parents who had made a long-term commitment to marriage for their own sake and for the sake of their children that we wanted to support them because we recognised that they were doing good for all of us.
So far, I have referred only to the advantages to children and to the state of long-term commitment in marriage. There is another fundamental aspect: the spiritual strength and wholeness that it can bring to those who enter into the marriage commitment. I have run out of time, but I hope that the right reverend Prelates and other noble Lords will speak about the advantages of marriage for parents themselves. I beg to move for Papers.
3.37 p.m.
Lord Haskel: My Lords, noble Lords will be pleased to hear that my intervention will be brief. I intend to make only one point, and my purpose is to draw the Minister's attention to an injustice.

277
I agree entirely with the noble Lord, Lord Northbourne, about the importance of bringing up children within a stable marriage, preferably, as he put it, in a long-term, committed and harmonious marriage. A long-term marriage or relationship benefits the adults as well as the children. There is plenty of research to show that people are happiest and healthiest in a long-term stable relationship. I imagine that that is because there are enough other unstable elements in our lives that we must put up with.
Within marriage, such long-term stable relationships are recognised in law and, to a certain extent, encouraged. They are encouraged by the state pension arrangements and by tax allowances between spouses, especially on death. Presumably, that is because they look after each other and are less demanding on the public services. What about long-term stable relationships outside marriage? Sadly, they are discriminated against and not recognised in law.
Noble Lords may remember the late Lord Montague of Oxford. He entered your Lordships' House in 1997. Sadly, he died three years later. He and his companion were wonderful friends of my family for 25 years. They had that special relationship with my children that adult family friends sometimes have—a relationship free of the baggage that exists between parents and children. Lord Montague and I both worked in business and frequently exchanged ideas. He built up a successful engineering business, which was quoted on the London Stock Exchange. We were both friends of the late John Smith, and we worked together to build up the relationship between the Labour Party and the business community. When Lord Montague died, he and his companion had been together for 32 years. A real "'til death do us part" relationship. But the tax and pension benefits available to a surviving spouse were not available to his companion. They were not available because his companion was male. The home they shared had to be sold, because death duties did not recognise the surviving partner.
Lord Northbourne: My Lords. I wonder if I could draw the noble Lord's attention to the fact that the Motion specifically refers to families with children. The object of that was to focus on families with children, rather than on the vexed question of homosexual partnerships and marriage, which I felt would distract from the particular, rather narrower, issue which I hoped the House might wish to debate.
Lord Haskel: My Lords, I apologise if the noble Lord, Lord Northbourne, feels I am trespassing on his debate, but I put my name down to speak and prepared this when the Motion on the Order Paper was just a debate about marriage. So I felt that it was relevant then. I would like to continue making this point because I have come to a point the noble Lord, Lord Northbourne, mentioned in his speech.
These benefits were not available because his companion was male, and the home that they shared had to be sold because death duties and pension arrangements did not recognise the surviving partner. This is the injustice to which I refer. Does my noble
278
friend the Minister not find this discriminatory, intolerant, lacking in humanity and perhaps a little bit mean spirited? Because I do. But it is not difficult to put it right.
The noble Lord, Lord Northbourne, told us that the noble Lord, Lord Lester, introduced a Civil Partnerships Bill. It had its Second Reading in your Lordships' House on 25 January 2002. The Government indicated that they would introduce their own Bill, and so the Bill of the noble Lord, Lord Lester, did not proceed. As the noble Lord, Lord Northbourne, said, there was some discussion about whether the Government's Bill would apply to same-sex partnerships or heterosexual partnerships, or both. I have established that the Department of Trade and Industry is handling the Bill. and it did briefly surface on 5 February this year in response to a Written Question to the Minster in another place, Jacqui Smith. She said that the Government hope to introduce the civil partnerships Bill into Parliament in this Session. The purpose of my intervention is simple. It is to try to speed it up.
I congratulate the noble Lord, Lord Northbourne, on moving this debate. He has raised matters of enormous importance. Perhaps it might have been apt if I had said something about children who have been adopted by, or who are living with, same-sex couples. But my purpose is to try to shame the Government into speeding up the introduction of the civil partnerships Bill, because delay means that the injustice continues.
3.44 p.m.
Lord Lucas: My Lords, I am very grateful to the noble Lord, Lord Northbourne, for giving us the opportunity to debate this subject. I have been married three times and am still married, which does not make me an expert but does make me an addict. If I use the word "marriage" in this debate, I would personally intend it to extend to a civil partnership should we get a Bill on that subject, which I very much hope we will. The essence. to me, is of a public commitment made between two people: a commitment to sharing, to sacrifice when that is necessary and to accommodation with each other. All these words can be quite frightening if you have not experienced them at some stage. People can find commitment and sharing quite difficult, and the idea of sacrificing oneself so that someone else can succeed in something is, in some ways, quite alien to the spirit of our times. So if we are to encourage marriage, we ought to be looking for ways to encourage that sort of attitude in people. The best way to do that is to give people experience of it. The sort of place we ought to be doing that is at school.
I certainly do not mean adding a few days to PSHE lessons and rather dry, didactic teaching about what a marriage should consist of, but giving people actual experience. I suppose that it used to be thought that sports offered such an opportunity but today, by and large, even team sports tend to be looked at as collections of individuals rather than teams. One or two, like rowing, are quite clearly team sports where people do rely on each other enormously. But sports have become a very individual thing. The opportunity is much more apparent in areas like drama, public

279
speaking teams and various other extra-curricular activities. There are some very good examples around, where pupils form small teams or groups and really rely on each other to make a success. Keeping the group together, supporting the weaker members of the group, taking your turn and the success of the group are what is important rather than the success of the individual. This is the sort of experience that you can gain from engaging in such activities. We could do more to support such opportunities in schools and make it easier for schools to find and participate in such events. The Department for Education and Skills website is really getting quite good these days. The web is probably the right way in which to go. It would make it easier for schools to find these things and to say "If you're organising something like this, put it up on the website". People will know where to get to it. If someone comes up with an innovative idea that requires a little starting finance to get it running, there should be schemes to allow that to happen.
I should also like to see the return of stories in schools, a long-time favourite subject of mine. I should like to see the return of teaching that is about people and the way people interact, react and behave. It used to be what history was about and, to some extent, what geography was about. Now it is not about people, it is about documents. You build up an understanding of how people are and, particularly, you build up an ambition to be like something, if you are learning about people. There is room for much more of the curriculum to have that slant, rather than a sort of pseudo-scientific approach to history. That has its function, perhaps at A-level, certainly at degree level. But most of us give up history at GCSE, and at GCSE it should be about people.
I share the view of the noble Lord, Lord Northbourne, that we should make some public recognition of those people who make a public commitment as it is for the public good that they do such things. We should encourage that. There should be a definite advantage to being married in all its aspects. There should be small tax advantages. One way or another, you should be better off—not enormously, but you should be better off. Again, I would extend that to civil partnerships, as and when we get them.
Beyond that, we are looking at how we can support an environment from which children and parents, in whatever relationship they find themselves, can benefit. As the noble Lord, Lord Northbourne, knows, I am very much in favour of parenting classes. Such things exist, perhaps, but I have never come across them. They are not part of the package you are given when you get a young child, and that is the point when you need to have access to them. I have learnt a great deal from watching on television the noble Lord, Lord Winston, in his programme "A Child of Our Time". It deals with the problems that occur when bringing up children and how to solve those problems when things go wrong. The web is the obvious route to have access to that advice in an easy way and to be able to know where to turn to.
280
The Government have produced an excellent service, NHS Direct, which I have used several times now. It is just easy. If there is a problem with the kid— it is developing spots or is behaving in a certain way—you ring up, you get treated well and you get an early diagnosis. The whole thing can be done without feeling you have to troop off to the hospital at two o'clock in the morning. You can do it while you are looking after the child in bed and your partner is getting some sleep. That sort of facility, which is easy to use, with someone helpful and interpretative at the other end. would be a useful way to go.
Something else we should try and spread the word about is the joy of parenting—the sheer pleasure to be had from bringing up a child. One thinks of this as a problem for men; indeed, in many cases it is a problem for young men, who do not understand that participating in bringing up a child can be immensely pleasurable. Particularly for those whom my wife spends her time working with in prison, it is a revelation when, in the course of the project that she organises, they come to realise what pleasure they might get from being involved in their child's upbringing and how they can do it well. The problem then is that their womenfolk have become so used to the fathers not being there that they rather resent them saying that they want a role in bringing up the children. None the less, we need to make progress in that direction.
Some good things are being done in schools, where the older children mentor the younger children and help bring them through education. In business life, many of us have been mentors to younger people who need some help making it in the world. But there is a gap; young people in their twenties never really get a chance to mentor school-age pupils, to learn the process of taking pleasure in looking after young children. We have become rather frightened by the prospect of paedophiles and pederasty. The immediate image that that sort of closeness conjures up is one of evil. There was a Coca-Cola cab parked outside the House of Lords when I arrived. It said, "Coca-Cola, the worldwide hug" and had a picture of a lot of people holding hands. If that is what "hug" means these days, we really are in trouble when it comes to understanding the pleasure that can be had with relationships between adults and children.
One way in which we might look at this issue is to give extra support to schemes that develop relationships between adults in this country and children in the third world. If they were supported and made easy, and young people were encouraged to get involved, it might give them—or some more of them—a taste of what it means to be involved in bringing up a child and sharing the pleasures of a child's achievements.
Finally, for people bringing up children on their own, it is an extremely hard and lonely business. We need to look at ways of making available to them the sort of support and community which they would get if they were part of a family network of a successful marriage. It strikes me that the people who really have this help to offer are the old. In many instances, the old

281
are extremely lonely, but still quite capable of support and love. Something ought to be done in terms of the way we organise housing—we should not stick old people in ghettos where all they see are other old people just because it is easier that way. We ought to look at mixing communities, so that old people who are capable and willing to give support find themselves in close proximity to single parents of children, in particular, who would appreciate having that support. Perhaps in that way we can offer opportunities to recreate some sort of informal extended family.
3.54 p.m.
The Earl of Listowel: My Lords, I, too, thank my noble friend Lord Northbourne for initiating this important debate, and for his persistence on this issue. He has dedicated his life to ensuring that as many children as possible in this country are truly wanted and receive the nurturing they need. Marriage can be a means to promoting that goal. If parents have a mechanism by which they can clearly establish that they wish to make a lifetime commitment to one another and to have a child together, the child's prospects must be improved.
This issue must be approached with great sensitivity, of course. Many parents choose not to marry; many children are not born to married parents; many married parents divorce; and many children whose parents are married have a very unhappy time, unfortunately.
Fortunately, the media do a very good job of promoting marriage. In HELLO! magazine, one sees each week so-and-so getting married, with lots of lovely photographs. This is show, I know, but it is popular and it promotes marriage. It is interesting that apparently, more middle-class couples are choosing to marry; it is becoming more fashionable to get married. That is good news.
What other means do the Government have to support parents, families and children? There are many roads, and the Government are vigorously following many of them. The Planning and Compulsory Purchase Bill before the House is part of the Government's strategy to increase the numbers of houses. I believe that there are more families who are statutorily homeless than there were several years ago. When visiting families living in bed-and-breakfast accommodation, it is terrible to see the suffering they have to endure in those conditions. I welcome the Government's commitment to improving the supply of housing. I welcome what they are doing with Sure Start, intervening early to support families. I welcome what they are doing in investing in health and education. All this work is so important when it comes to improving outcomes for children.
My noble friend referred to a parents' charter. Are the Government being careful to engage with parents as far as possible? I know that Sure Start comes from what the local people in an area want, and I welcome that. However, I should like to highlight the danger of not making sufficient effort to consult with parents.
282
In other areas where adults take on the role of parents, we have often neglected that role. I am thinking particularly of residential childcare. Until recently in this country, 80 per cent of residential childcare workers, working in children's homes with children who have been neglected and abused, had no relevant qualification, and this was an important parenting role.
We have neglected foster carers for many years and I am very pleased that the Minister is making such determined efforts to improve conditions for them. We had a debate last week on conditions for elderly people with dementia, many of whom are in residential care. It was quite clear in that debate that the staff working in those homes were not adequately prepared for that work. This is an important parenting role, if you like: when people are coming to the end of their life, they are very vulnerable, and it is as if they are parented.
Your Lordships may be surprised at my bringing up the issue of prisons, but 10 per cent of children who go into care have some involvement in the criminal justice system, and more than 50 per cent have experienced abuse or neglect. I am sorry to bombard your Lordships with figures, but, sadly, 50 per cent of children in the criminal justice system have had experience of care, as have 25 per cent of prisoners in the adult population. For many male prisoners, their first experience of the father figure is their relationship with a prison officer. Those who are experienced in this area emphasise how very important those relationships with the prison officers are.
In this country, prison officers have nine weeks' training before they take up their job. Prison officers who work with children have three or four additional days' training. That is deplorable. In Norway, I believe that they have a year's probationary period, a year in a special college, where they study the theory and then they practise in a mock-up prison. They also have opportunities to travel abroad to see how people practise, in England for instance, before they are fully paid-up prison officers.
Martin Narey spoke to members of your Lordships' House yesterday evening. He was disappointed that prison officers receive only these nine weeks of training and pointed out that most probation officers have a degree and postgraduate qualifications. So what is going on here? That is my concern: that in the past these people, with this important parenting role, have been neglected.
I very warmly welcome the Government's child poverty strategy but there has been concern about the emphasis on getting mothers into work—even mothers with very young children. We know that is the best way to get children out of poverty but parents, especially those with very young children, need to be able to choose whether to go to work or whether to care for their children. There has been concern that such a choice has not been made as easily available as it should be, especially given the lack of availability of good-quality childcare. I note with interest that a forthcoming conference, run by the One Parent

283
Family charity, will concentrate on this issue of parents having the choice of whether to go into work or to care for their children.
I recognise the commitment that the Government are making to this country's children, but I would be grateful if the Minister could offer an assurance that the Government really are seeking to engage parents as much as possible. Perhaps the suggestion made by my noble friend Lord Northbourne, of a parents' charter. would be one way of encouraging engagement with parents. I thank my noble friend Lord Northbourne for calling this debate and I look forward to hearing the Minister's response.
4.03 pm
The Lord Bishop of Oxford: My Lords, like other noble Lords, I am grateful to the noble Lord, Lord Northbourne, for introducing a subject of such crucial importance to our society.
Our present society is characterised by a wide range of different kinds of relationships: single parents struggling, very often heroically, to bring up children on their own or people who are cohabiting for a variety of reasons. Some people do not feel quite ready to commit themselves fully; others have had a bad experience, either their own or their parents' experience, and they have been hurt; others are against marriage on principle; and, as the noble Lord, Lord Haskel, drew to our attention, there are people of the same sex in lifelong partnerships. Why any government should give the marriage relationship a special place in their policy is therefore a very serious, searching question.
The first and most prosaic reason, of course, is that it is good value for money. We know from the study undertaken by the House of Commons Library that in 1994 the cost of relationship breakdown, in terms of legal costs, court costs, benefit costs, and a whole range of other costs, was in the region of £4 billion. Compare that with the mere £5 million which is put into marriage and relationship support. Simply on economic grounds, therefore, it is clearly very wise and prudent of government to do all they can to prepare people for marriage properly and to support the marriage relationship.
Secondly, and more directly related to the debate, support for children, and more generally the family, crucially is provided through supporting marriage relationships. I am personally very glad to be associated with a number of organisations, such as our own diocesan organisation PACT—Parents and Children Together—the Family Nurturing Network, the Mothers' Union, and so on, all of which are fully committed to supporting good parenting and to supporting families.
We can all agree that children need to be supported in any way possible. That does not divide anybody in this House and I hope nobody in our society. We need to do all we can to support children, whatever the context in which they are growing up. However, research shows that a stable and loving marriage relationship has enormous benefits for the children. The effect of relationship breakdown is shown in the children's poor
284
performance: at school very often: leaving school early; difficulty in getting a job; a range of illnesses; themselves getting married too young, and so on.
Under the present government arrangements, MARS—Marriage and Relationship Support — brings together family support and marriage support. The voluntary organisations can see many advantages in this, but it is very important, within that overall field, not to allow support for marriage in any way to be downgraded. As I have tried to suggest, supporting marriage is one of the very best ways in which we can actually support and help children to grow up with the kind of emotional, physical and spiritual health we would like for them.
As the noble Earl, Lord Listowel, has mentioned—I do not have time to develop the thought but I agree with a great deal of what he said— we cannot separate support for marriage from wider considerations of economic policy, social policy and political policy. in a whole range of areas. This is a subject which includes the whole gamut of government departments and government policies.
We need to do all we can to support those organisations, bodies and institutions which are trying not only to support family life but also to support committed relationships. I was very struck recently to read of a new initiative by One Plus One called "Couples Direct", which is an interactive Internet service. Its research has shown that marriage preparation and marriage support, whether done by Churches or anybody else, is extremely patchy. not always accessible to people, and that the vast majority of people who need it probably do not draw on it. They are therefore trying to make marriage support more accessible and more user-friendly through this interactive Internet service. It seemed to me to be a very valuable initiative.
First, there are therefore the economic benefits of supporting marriage and, secondly, the crucial importance as far as children are concerned of longterm, committed, stable, loving relationships.
I now come to my third point, which is a rather more difficult one to make. At the heart of marriage is the idea of a clear, public, lifetime commitment. From a Christian perspective, this commitment reflects a fundamental commitment or covenant between God and humanity. That is symbolised most beautifully in the Hebrew scriptures by the great overarching rainbow after Noah's flood. It is a sign of God's undeviating good will, unswerving love for humanity as a whole and a covenant into which the people of Israel consciously entered; and from a Christian point of view a covenant which comes to its focus in Jesus in whom earth and heaven are joined, never to be unjoined.
The Church has always held out the wonderful ideal that the relationships of men and women at their best should reflect that covenant of God and humanity that runs through the different marriage services. The marriage relationship is meant to reflect that covenant of God and humanity. I believe that it is right that the

285
law of our country, or any country, should have a high ideal of that relationship expressed in one way or another through its public policy and through its laws.
A few years ago there was a famous debate between Lord Devlin and H.L.A. Hart, the philosopher, on the relationship between morality and law. Lord Devlin's point was that nothing in life is value-free or neutral and that the law of every country reflects, through its history, culture and religion, a particular understanding of marriage. So it is in this country.
I suppose the question arises of why we should continue to give marriage a very special place in our law and public policy. Marriage belongs to all human beings; it is not an invention of the Christian Church. In fact, the Church of England believes that when two people make promises to each other in public that brings about a marriage. You do not have to be in church to get married. Of course we would love everyone to come to church to receive God's blessing upon their marriage; and Jesus performed his first miracle at Cana of Galilee. As a character in one of Dostoevsky's novels said, Jesus performed his miracle to increase people's joy.
However, many people today get married in register offices. Of course those are valid marriages. From the Church's point of view I believe that we should support the work of registrars, who do all they can to prepare people for marriage properly and who also indicate to them the kind of help they can get. In that connection, I ask the Minister when we shall hear more from the Government about what is going to be asked of registrars under the new dispensation to Parliament of the regulatory reform order and explanatory document. The Church of England is also revising its laws on marriage and it would be interesting to know exactly where the Government stand on that. Therefore, whether marriages take place in a Church or in register offices we need to do all we can to support them.
I move on to a slightly more difficult point. I bear in mind what the noble Lord, Lord Haskel, said. I totally accept that people of the same or opposite sex cohabit and live wonderfully mutually supportive and loving lives. There is absolutely no doubt about it. In many cases they put married relationships to shame. From a philosophical point of view, however, I would say that those relationships are in some way parasitic upon publicly stated vows, above all the vows of marriage. After all, when people enter into cohabitation, in their hearts in some way or another they want to make those kind of life-long vows. The fact is that most young people still want to get married. Even people who have divorced, although they have had a bad experience, still would like to find the right person to whom they can make a lifetime commitment.
So, I do not think that the Government should be timid or frightened about continuing to maintain in the law of this country a very special place for marriage. I do not think that it denigrates other relationships which in their own way can be very special, and from which we can learn.
4.14 p.m.
Baroness Howe of Idlicote: My Lords, we clearly all owe the noble Lord, Lord Northbourne, our considerable gratitude for continuing to keep our minds on the importance of marriage for the family and children. Indeed, long before I was privileged to join your Lordships' House, I have since discovered that the noble Lord instituted many debates on marriage and the importance of the role of fathers and so on. Since I have been here, he has certainly continued to keep our minds firmly focused on these subjects through a number of different means.
If I look back over my lifetime—it is a shock to realise just how long that now covers—I am amazed at the changes that have taken place in the pattern of domestic family life. I refer not just to changes but also to diversification.
At the start of my adult life—now half a century ago marriage was certainly the conventional norm; the norm for young people from all walks of life, wishing to start a life together and raise children. It was the norm not just for them but for their neighbours as well and it lasted, in most cases, for the rest of their lives.
I was powerfully reminded of this the other day when I looked again at the 1957 seminal research by Michael Young and Peter Willmot, Family and Kinship in East London. Your Lordships will recall their brilliant description of the everyday built-in extended family support systems that then prevailed and the extent to which those were weakened as the younger generations moved out to the new housing estates in the suburbs. But what for me today is most significant about that book is that from beginning to end the term used is "marriage"—certainly not "cohabitation".
That is clearly not the case today. We seem to have moved from an almost total marriage convention—sustained by fairly draconian divorce laws— to a situation where far fewer young people actually marry; 13 per cent of women between 18 and 49 were cohabiting in 1998—up from 8 per cent 10 years previously. If they do decide to marry it will be considerably later—most probably only at the long delayed moment in their thirties and sometimes their forties when they decide to start a family. Even for those who do marry, divorce—with or without remarriage—is increasingly common, as we have already heard—and, all too often while their children are still young. Like it or not, the trend towards cohabitation and more frequent divorce is here to stay. Almost 30 per cent of children experience divorced parents by the time they reach 16 years.
Of course many factors have been at work to bring this about. The divorce laws have been relaxed considerably. The stigma of divorce that once kept many couples together has almost disappeared. Women, who in the "old days" more often than not had no other means of support for themselves and their children but their husband's income, are now a considerable part of the workforce and are either in jobs or able to return to employment relatively easily.

287
Since the 1970s and the Sex Discrimination and Equal Pay Acts women have far greater economic independence. "Women's Lib" really did liberate women in this country. Sadly, we have heard of other countries where it has not done so in the same way. It included liberation from the ties of broken marriages. That may be seen perhaps from the fact that women initiate seven out of 10 divorces.
Of course a number of other factors have worked in the same direction: the liberalising effect of the pill; the lack of social stigma in having children "out of wedlock"; the fact that many of the younger generation earn considerably more than their parents; and the fact that people now wish to "enjoy life" before settling down later than used to be the case—considerably later, incidentally. A great deal is explained, is it not, by some of those happenings?
Even so, we need to remind ourselves that by no means all those changes are bad. Your Lordships would not expect me to say they were, not least with my interest in equal opportunities over many years. In the past, there were far too many appalling cases of women locked into violent, nightmarish marriages who did not dare to complain. There were also cases of women who unwillingly had abortions or put children up for adoption. I listened to a number of those cases and worried about them. Women today can be spared that kind of anguish as a direct result of changes in attitudes.
Even so, many Members of this House, of which I am certainly one, continue to believe that the institution of marriage is the best way in which to bring up children and that it is the most likely way to succeed. We believe that it is the best way to provide the mutual love, support and background that are so important. for the development of young human beings.
However, we can, and should, do far more to promote the value of the institution of marriage to young people. The Government's 2002 report Moving Forward Together rightly makes clear their intention to improve the delivery of marriage and relationship support services. I believe that it identified 10 areas for future development and action. The Government's intention was confirmed in a reply to a Parliamentary Question from David Kidney MP in another place a little while ago. Perhaps when she replies the Minister will be kind enough to bring us up to date on what has been achieved so far.
In tackling this question, it is important to be realistic about the situation on the ground. Like it or not, the trend towards cohabitation and more frequent divorce is as I have already mentioned. So we should, and must promote—via parent contracts; citizenship classes; in schools, where action is possible very early indeed; and by other means— a true understanding of marriage as a long-term commitment and as the best possible way to bring up children.
It is also vital that we give far greater respect and priority to the important role of parents. As the noble Lord, Lord Northbourne, and other noble Lords have said, we need to listen to what parents want. It is very
288
fashionable today to consult and listen to many groups including, rightly, children but, sadly, parents do not seem to be a high priority.
Far more authoritative research is needed on the effect of family break-up on children. There is not much research on that subject.
As the noble Lord, Lord Northbourne, also said, we are facing a long battle. We are not likely to turn back the clock completely, however long and hard we try. Above all, we must think about what else we can do to mitigate the damage that is beyond doubt inflicted by the family conflicts and poor parenting that can flow from the decline in the institution of marriage.
As I know all too well from my many years in juvenile courts, Moving Forward Together rightly identified family conflicts and poor parenting as key risk factors for adolescent problems of drug abuse, youth crime, school-age pregnancy, school failure, mental health problems and homelessness. In other words, we must try much harder to prevent the social exclusion of such young people. The Government want to achieve that; indeed, we all do.
A good start has been made by our increasingly firm commitment, as expressed by the Government on our behalf, to put the interests of the child first. We have excellent programmes such as Sure Start. As the Minster knows, I am enthusiastic about Sure Start and many other noble Lords are clearly enthusiastic about it too. At last, we have a Children Bill, even if that Bill does not yet contain all the powers that some of us hope for, and a proposed child commissioner for England.
But should we not now be looking harder for new ways of harnessing the extended family? As has already been pointed out by the noble Lord, Lord Lucas, we are all living much longer and healthier lives. The voluntary sector has long played a crucial role in sustaining cohesive communities. Today, those of us who have arrived at what might euphemistically be called "the retirement age" are, and should be, an increasingly obvious target for voluntary organisations to recruit to help to provide active and experienced support for failing families. Home Start is a good example of that.
I believe that the noble Lord, Lord Northbourne, also mentioned grandparents—if he did not, I am sure that he intended to do so. It remains an absurd situation that grandparents, who are immensely willing to take charge of grandchildren in the sad event of a family breakdown, find themselves less adequately resourced to do that job than they would be as foster parents. With the right practical, as well as financial support, we know that many more grandparents would be willing to take charge of grandchildren.
Returning to the Wilmot and Young description of family life, surely what we need is a new form of extended kinship support. In some cases, perhaps we even need to be able to make use of the wider familial network that can arise as a result of several marriages and co-habitations.

289
Making it possible for parents to have time to spend with their children is, perhaps, most important of all. Here I am referring to the vital need to rearrange all working patterns in sufficiently flexible ways to allow parenting to be effective parenting. I refer not just to women's working patterns but to patterns for both sexes.
The future citizens of this country are our responsibility, whether we have children of our own or not. Above all, as we plan for the future, we need to remember that the UK is a signatory of the UN Convention on the Rights of the Child and is therefore committed to work towards what is best for each child.
The institution of marriage is still the best, even if not the only, means of achieving that objective. The noble Lord, Lord Northbourne, has done us a great service in reminding us of that principle. This should be our guiding principle in all that we try to do.
4.27 p.m.
Baroness Strange: My Lords, we must all be in a permanent state of gratitude to my noble friend Lord Northbourne for yet again giving us an opportunity to emphasise the importance of marriage, the family and the upbringing of children.
Marriage is never easy. It is not always a bed of roses; there is the odd thorn. Sometimes it does not work out and that is a sadness for everyone concerned. There are many reasons why it collapses, but the trouble is that we are all human beings and none of us is perfect. Sometimes when everyone is trying hard, it still does not work out.
As a family, we have all been very lucky. My parents were happily married for 46 years, and at every anniversary my father would quote how long they had been married, and say, "In all that time we have had only one fight", and then he would add, "of course, we do have an armistice now and then". We celebrated their ruby wedding in this House in 1968 with a small party. Our ruby wedding was also celebrated here with children and grandchildren, pages and bridesmaids, and the best man. I made a three-tier cherry wedding cake but somehow I got the mechanics wrong and the top tier flew off to be caught by Miss McWilliam. My middle sister celebrated her ruby wedding on a cruise and we had a family ruby dinner for my youngest sister here last December. We went for gold in 1952, and so did my husband's parents in 1966. That is so much for which to thank God. If I did not collapse into sleep at night I would still be praying.
Families are at the heart of everything. They are that small warm place that you retreat to when you can think of nothing else. Those of us with happy childhoods and happy families always have some place that we can retreat to when all else goes wrong. The world can be a big cold place, and what everyone needs is one place where they can throw off their hat, take off their shoes and know that give or take, and despite all the criticism and advice, everyone is on their side.
290
There are fashions in morality, in commitment between two people. Fashions change just like clothes; they come and go like the tide. I read recently that today's teenagers are all for marriage, against teenage pregnancies and for children being brought up in a family. The tide is turning. For the tide is part of the sea and that does not change.
Marriage is like the sea, one of the eternal values, which does not change, though it has fashions like the tide. Better and worse tend to get mixed up. Richer must be nice, though poorer is what we usually end up with. With luck we have quite a bit of health, though sickness is always lurking round the corner. But for the mutual society, help and comfort one cannot beat marriage, nor as a means of bringing up children.
Marriage has been going on for a long time, as long as there were people. The right reverend Prelate the Bishop of Oxford mentioned the marriage at Cana in Galilee. An old cousin, Albert Baillie, who used to be Dean of Windsor, said when he married us that it was no accident that the first miracle occurred at a marriage—at Cana in Galilee. It was simply putting the importance of marriage first.
The cycle of marriage is the cycle of life—you start as a child and grandchild, you end up as a parent and grandparent. But throughout life there is a commitment at both ends. Marriage anniversaries start close together with paper and flowers and wood, but after the 15th year with crystal and glass—very useful too after the wedding presents have all got smashed and there are no longer six of everything—they stretch out to every five years. Twenty is china, which fills a splendid gap. Perhaps they are celebrated every five years because time has already begun to whiz; you are always living through tomorrow before yesterday has even finished.
My husband and I are working up to 52 years and many of your Lordships have much longer to celebrate. When I go to the AGM of the War Widows Association at the end of this month, I am always conscious of how short a time of happiness they had together and it makes me count my own blessings. We have also been blessed with children who are nearly all married themselves and we have the joy of grandchildren. Many of my noble friends share this joy with grandchildren, great-nephews and great-nieces and godchildren. Happiness is hearing four year-old Alfred say: "Excuse me, Grandma, will you read me another story?". However, I have my fingers crossed for next Friday when my 13 year-old French granddaughter, Pelagie, is bringing 65 of her French school friends to tour the Palace of Westminster. Watch this space, as the advertisements say.
Last month, I was with the Arts and Heritage Group in the Royal Academy looking at 15th-century Flemish and Burgundian Books of Hours. There were many visions of people suffering the torments of hell. But there did seem to be one or two escape routes through purgatory for which I felt one might qualify: "The good but not so good", "The bad but not so bad" and "The long and faithfully married". I think there is hope for all of us there.
4.33 p.m.
The Lord Bishop of Leicester: My Lords, I too welcome the opportunity for debate provided by the noble Lord, Lord Northbourne. He is right to say that healthy marriages are good for children and adults and to point to the importance of supporting marriage and enhancing awareness of its benefits. Whoever said that marriage was not so much a noun as a sentence got it badly wrong. Marriage remains the major institution of family life, upheld by the teachings of the Churches and other faith communities and the values of civil society. The Churches believe that marriage is a gift from God to the whole of creation, which enables the whole human family to flourish and not just those who are themselves married.
The Church of England in its response to the Government's consultation document Supporting Families recognised the lack of consensus in society about marriage and family life and the difficult task of helping government to forge constructive policies to support families. However, it went on to say this:
"We have argued that families are simultaneously public and private institutions … But it is simply not possible to have a 'value free' or neutral policy … An ideological commitment to pluralism, which rules out any possibility of one family form being judged better than another, provides an inadequate basis for developing a sound family policy."
The response of the Church of England went on to,
"urge the Government to develop its family policy with a clear commitment to the support of marriage as its basis."
There remains a reluctance to prioritise one family form over another. We face a problem here in perceiving as mutually exclusive support of marriage and other forms of family life, including individuals in situations of hardship. In reality, marriage needs to be supported alongside parental relationships outside marriage for the benefit of children and adults within all family situations.
We need a framework that recognises the institution of marriage and the reality of those who do not choose it, for both are part of the fabric of our society. We need a family policy towards children with clear commitment to supporting marriage as its bedrock while addressing the realities that we encounter in society. With its clear teaching on marriage and family life, the Church can be seen as standing for an ideal while at the same time serving in an enormous variety of ways individuals and communities for whom this is not an option. The Church is involved in supporting marriage and in working with those who are victims of broken relationships, both in marriage and other family patterns.
In a confused society there are three particular contributions which those of us outside government can make to the national understanding of marriage. First, we need better teaching about the nature of marriage. The bishops of the Church of England in their recent teaching document have said that there is a great deal in our culture which discourages us from making binding and public promises. That is undoubtedly a difficult thing to do and requires courage but the promises are an important part of entering marriage.
292
If love is to grow, it needs an explicit commitment of the couple to stay with each other through changing circumstances, through personal development and growth and through the process of growing older and approaching death. But the promises are also liberating. Through them we focus our intentions and offer one another a shared future in a way that we could hardly dare to do otherwise. By making our promises in public, we call on a community of well-wishers to support us in our resolve to be a couple, an important assistance in a culture that is generally unsupportive to any kind of commitment.
Secondly, there is much that many of us can do in contributing towards preparation of couples for the married state. The Church invests considerable resources in this kind of preparation for marriage and in supporting people in their married lives. Over 90 per cent of marriage preparation—a major aspect of relationship support and education—is conducted by the voluntary sector. A great majority of this is carried out by the Churches, including the Church of England, often in partnership with other agencies such as Relate. This provides secure, well-managed occasions for couples to discuss their subconscious impressions of' marriage implanted at an early age by their own parents. Such discussions are often a way to address relationship problems which can otherwise surface later in life in a much more troublesome way. This points us to the need not just for marriage preparation but also for marriage exploration—ongoing packages of support for people that enable relationships to last for a lifetime.
We need an understanding of marriage as a process not just an event. We may need to see that cohabitation might for some be part of that process by which couples explore marriage, demanding similar social obligations as a formally married couple. We need to recognise better the work of organisations involved in marriage and relationship support. Despite the increasing rise in the rate of divorce and the added choice couples now have on where they are married and by whom, the Church of England still conducts about 25 per cent of marriage ceremonies a year. In the year 2000, 65,000 couples were married according to the rites of the Church of England.
Thirdly, we need to do more to support the victims of relationship breakdown and especially of marriage breakdown. For example, the Children's Society estimates that some 100,000 children, some as young as six, run away from home or from care each year and risk being attacked on the streets. In partnership with the Churches, the Children's Society has established family mediation programmes and schools education packs to prevent children running away. It has developed outreach work and drop-in centres to get them off the streets if they do run. Safe emergency accommodation is available and missing persons interviews can be conducted when the police return children home to find out what made them run in the first place.
These are examples of practical support for children that go beyond gesture politics. Verbal support for marriage and the family is easily given but concern for

293
marriage often comes too late. As the right reverend Prelate the Bishop of Oxford pointed out, the cost of picking up the pieces of broken relationships resulting from demands made on health resources, social security and social services, legal aid, court, tax and benefits, is enormous.
The crucial point that needs to emerge from this debate is the need for clearer government policy towards supporting married relationships. The bishops' teaching has stated:
"By marriage a new unit of society is created: a couple, stronger than the sum of its members, held together by the bond of domestic friendship. Together the couple can extend love to other people … Their love enables them to make a strong contribution to society so that the weakening of marriage has serious implications for the mutual belonging and care that is exercised within the community at large".
It is, therefore, vital for all of us that the Government support marriage, as well as parental relationships more generally, because of its crucial role in providing a basis for bringing up children, as well as further benefits for the couple and for wider society as a whole.
4.43 p.m.
Baroness Sharp of Guildford: My Lords, I should like to join with others in thanking the noble Lord, Lord Northbourne, for initiating this very interesting and important debate.
I also have to declare an interest. I cannot claim 52 years of successful marriage, as did the noble Baroness, Lady Strange, but I can claim 42 years of successful marriage. I am the product of a happy marriage that itself lasted for more than 55 years and provided a happy family background for four.
The debate initiated by the noble Lord, Lord Northbourne, concerns the role of marriage in securing the well-being of the nation's children and their parents in the 21st century. As he said, he is not trying to persuade those who are not married to do so, but he nevertheless argued both that the framework of marriage provides a bulwark to support long-term relationships that are so important, and that the state might encourage marriage through tax incentives and similar policies of support for the process of marriage. That theme has been echoed by a number of speakers, including the two right reverend Prelates. The right reverend Prelate the Bishop of Leicester has just said that the Government should provide a clearer. more overt policy to support marriage.
The noble Baroness, Lady Howe, quoted from a publication issued in 2002 by what is now the Department for Constitutional Affairs, but was then the Lord Chancellor's Department, Moving Forward Together. A paragraph in that publication points very clearly to the importance for children of long-term stable relationships. The document states:
"There is a significant relationship between parental experiences and the outcomes experienced by children once they reach adulthood. In general, children brought up by birth parents experience the lowest levels of conflict and early difficulty. Children brought up by two birth parents until the age of 16 have higher levels of life satisfaction and more family support, fewer psychological problems and less conflict at every age".
294
Conversely, the report concludes:
"Parental conflict is an important influence on a number of adverse outcomes in both intact and separated families".
There are knock-on effects for children even in families that stay together if there is parental conflict.
The report continues:
"There is a greater probability of poor outcomes for children from separated families than others. Outcomes for children who have suffered disruption and multiple family structures are worse than for those living continuously with a lone parent or step family. Constant changes to residence and contact arrangements have a particularly negative impact. A 'bad' divorce or relationship breakdown is therefore particularly likely to affect children adversely".
As the right reverend Prelate the Bishop of Oxford stressed, the costs of family breakdown are substantial. The House of Commons Library put them at £4 billion to £5 billion a while back. In Greater London alone the cost for the police and social security services of responding to domestic violence is put at £278 million.
The position that these Benches adopt is that it is not for the state to lay down moral rules. The role of the state is to give people the opportunity to fulfil themselves in any way they choose as long as, in the process, they do not harm others. But what becomes clear from the debate that we have had is that in the process of marriage breakdown children may be harmed. That in itself provides a case for legitimate intervention on the part of the state. In that respect these Benches have backed a succession of children Acts from the 1948 Act onwards. I am delighted that we now have a Children Bill to bring these procedures up to date. These Benches support many aspects of that Bill.
It seems to me that in all respects the role of the state is to encourage but not to compel, to provide practical help but not to preach. Therefore, our emphasis is not on marriage per se but on the means of providing the safe, secure, loving long-term relationships that children need. It is the quality of the relationship that is the key issue rather than the precise legal institutional framework of that relationship.
That said, I think that one can perhaps exaggerate the degree to which there has been a breakdown of relationships. I was interested in evidence produced by Kathleen Kiernan of the Department of Social Policy and Centre for the Analysis of Social Exclusion, London School of Economics in an article that appeared in Population Trends in the summer of 1999. On cohabitation across western Europe she stated:
"We found little evidence that pre-marital cohabitants in their first union are more likely to experience marital breakdown than those who marry directly. Pre-marital cohabitation may be an effective way of selecting out partnerships with an enhanced risk of breakdown … Undoubtedly. the evidence from this and other studies show that most European countries are experiencing changes in the ways that men and women become couples, but whether countries are on a trajectory to an ultimate destination where marriage and cohabitation are largely indistinguishable or even where cohabitation overtakes marriage as the dominant form of union awaits the future".
On balance, the evidence still suggests that most people will spend most of their lives in a family environment. I will sum up some of the statistics.

295
There are 16 million families in Britain and 11.7 million children. Four fifths of those dependent children live in a family with two parents. Four out of 10 babies are now born outside marriage, but many of those parents go on to marry later. Two in five marriages are likely to end in divorce, but, again, people remarry. One in four children is likely to experience the break up of their parents' marriage by their 16th birthday. That statistic was quoted by the noble Baroness, Lady Howe. It is the most frightening statistic. If that break-up is violent and leads to distress, there are problems that knock on for the children.
The right reverend Prelate the Bishop of Leicester quoted the fact that each year 1,000 children run away from home because they are frightened of what is going on there. We know from the experience of Childline that many children ring up who are enormously distressed by their parents quarrelling with each other.
The problems caused by the break-up of relationships and the development of new relationships should also concern us. In the earlier quote that I gave, the problems of the multiple break-up and complex relationships should not be underestimated.
In a school where I was a governor for some time, we had a number of children from disturbed homes. I remember the reception class teacher talking to me about one young lad. She talked about school being an oasis of stability in a very turbulent little life, where the mother was likely to have different boyfriends from week to week and where the child was sometimes loved and sometimes not loved. We know that such relationships later on create children who are disruptive in school, drop out of school and cause all kinds of problems. If possible, we want to be able to intervene on such relationships and prevent those problems emerging.
Yesterday I attended a meeting organised by the group against corporal punishment. They had invited Professor Joan Durrant, a Canadian academic who has made a special study of the effect of the abolition of corporal punishment in Sweden. In this country we are experiencing an increase in hooliganism, youth theft, drug use and drug-related problems. If Professor Durrant's statistics are to be believed, Sweden has experienced a substantial drop in all of those over the past two years.
The most significant thing that she said was this: "Do you know that when a child is born in Sweden the parents are provided with an enormous amount of information and help with bringing up that child? When I had my first child, did anybody talk to me about how I should bring it up? Did the doctor or the midwife talk to me? No. You learn about the little baby, but nothing more—not about how to cope with the terrible twos, the seven year-old or the 13 year-old."
That struck a bell with me. Parenting classes need to be pursued when there is a captive audience. The right reverend Prelate is right. We need to teach people more about bringing up children—and this is the point when we should do it.
296
I agree with the noble Lord, Lord Northbourne. We should put more effort into parenting and teaching parents about the importance of stable relationships.
4.55 p.m.
Baroness Seccombe: My Lords, I congratulate the noble Lord, Lord Northbourne, on instigating this highly valuable and significant debate. One cannot say that it is timely, because it is timeless and always of consequence and concern to many of us.
Marriage has been for me a wonderful experience and I have been blessed with 53 years of amazing happiness and contentment. I appreciate that I have indeed been fortunate, and I hope that it does not sound smug to say that both my sons have extremely happy marriages, and my elder son has passed the 25-year mark. I am therefore a strong believer in the institution and value the satisfaction that it can bring to all members of the family.
Some would say that, with such limited experience, I am not the one to speak on this subject. However, I am acutely aware of the difficulties experienced by those who have not been so lucky and find themselves having to raise their children alone.
I think that raising children with two "live in" parents in the same home helps to give children that stability which is, and has been throughout the centuries, essential to enable them to thrive and develop. I could weep for those children who live out of a suitcase, spending half of each week with one parent and the next half with the other. Often each parent has formed a new relationship, and there may be other children from different liaisons, so that the child can become bemused and disorientated as to where home really is. I cannot think of a more confusing background in which to grow up—being tossed from one to the other. Sadly, my father died when I was 10, so I grew up in a single parent family. I really believe that it was for me a more stable atmosphere than being pulled and pushed in all directions.
In July 1994, I had the privilege of piloting the Marriage Bill through this House, which allowed weddings to take place outside a conventional venue—though, as we stressed at the time, the location had to be appropriate and dignified. I enjoyed the experience and hoped that it would be a small gesture in bolstering the tradition of marriage.
Sadly, statistics reveal that today more than 40 per cent of marriages end in divorce, and in 2002 the number of divorces granted was 160,000, with the average length of the marriage only nine years. That says to me that in less than 10 years of marriage, 320,000 young people—bright-eyed and bushy-tailed, full of hope—have become disenchanted, and many, in spite of all the difficulties of caring for young children, have decided to lead separate lives.
Of course, the choices available to young people today are very different from when I was young. More women work, earn their own money and want to pursue their own careers. They are having children

297
later in life, and fewer of them. For some, marriage does not seem to be such an obvious and desirable path as it once was.
I want to stress the idea of a stable family relationship being the essential environment in which to raise a child. Children from permanent, secure and strong family units are more likely to leave school with qualifications. They have the loving support of their parents to help them through school, university and perhaps even raising their families. This support is stronger when it comes from two parents who live together in the same house.
It is the breakdown of the relationship between parents, be they married or not, that causes unhappiness and distress for children. This distress can manifest itself in many ways. Of the 60,000 children living in care, 98 per cent are there due to family breakdown. Aside from the huge cost to the taxpayer, it is worth bearing in mind that 39 per cent of all male prisoners under the age of 21 have been in care.
At the same time, young people are maturing much more quickly. The number of girls having under-age sex in this country had doubled in the past 10 years and in 2000 there were 98,000 teenage conceptions. Abortion rates nearly doubled between 1971 and 2000. It seems to me that the quality of life for many young people today is poorer and certainly much harder than it was. Truancy is up, as well as anti-social behaviour, crime, drug addiction and violence.
Being a parent today is a tough and difficult task. One of the figures that I found shocking when researching this speech was that during May 2002, more than 900 "truancy sweeps" were carried out. Twelve thousand children were stopped and about half of these were accompanied by a parent. If parents actively encourage their children not to attend school, then perhaps it is because neither do they see education as important, nor the state as helping them or their children.
The rise in the number of pupils excluded from school is another area I would like to touch on as I feel that education is of absolutely vital importance to all children. According to figures from the Department for Education and Skills, released in May 2003, permanent exclusions in England increased by 4 per cent from 9,135 in 2000–01 to 9,540 in 2001–02. More parents appealed against expulsions in 2001–02 compared with the year before, but the proportion that were successful fell from 32 per cent to 24 per cent. We need to keep these children in some form of schooling and address the problems of disruption, violence and truancy by helping parents and their children to understand that education is crucial, rather than alienating them. Stable families are more likely to produce stable children and a strong parental influence will ease the burden on teachers, care workers and, therefore, the state.
I believe that we need to do as much as possible to make life as easy as possible for parents, as they face the daunting challenges of raising children. Times have
298
changed and we have to be progressive and open-minded, but not at the expense of the wellbeing of children today. Relationships last longer when they are not put under pressure, whether financial or social.
I, too, want to mention taxation. Apart from anything else, our taxation system no longer favours married couples. The married couple's tax allowance was replaced in 2000 by a children's tax credit which enables people with one or more children under 16 to reduce their income tax bill by up to £520. There is, therefore, no financial incentive to be married, unless one has children. Of course, financial reasons should not be cause alone to enter into marriage, but, as my noble friend Lord Lucas said, any encouragement we can provide should not be ignored.
Finally, I feel I should finish on an upbeat note. Many speakers have looked at the surrounding problems of marriage. But my message is one of optimism and hope that with the right encouragement and support many more parents will be able to enjoy the contentment, companionship and pleasure of a long and flourishing relationship within marriage.
5.4 p.m.
The Parliamentary Under-Secretary of State, Department for Education and Skills (Baroness Ashton of Upholland): My Lords, I join all noble Lords in thanking the noble Lord, Lord Northbourne, for initiating this debate. I cannot compete with the longevity of your Lordships' marriages, but I declare an interest as a married woman, a parent and a stepparent. I hope that to that extent I bring a little experience to the debate.
The noble Lord, Lord Northbourne, covered a great deal of ground and, as always, he focused on his desire to support children. I pay tribute to him for that. Like him, the Government and I recognise that marriage is the surest foundation for raising children. The stability, love and support for children that we wish to see in all relationships between adults who have children should be paramount and we recognise the importance of marriage in that.
However, I noticed that the noble Lord also seemed to be saying that, on the one hand, the state needs to be part of the solution by providing the support while, on the other hand, criticising the state for taking away responsibility. I do not believe that we have taken away responsibility, but I accept that the support we provide is critical to enable our children to flourish.
My noble friend Lord Haskel spoke with passion and I will ensure that his comments are passed on. He will be aware that we announced in the Queen's Speech on 26 November our intention to bring forward a civil partnership Bill. I will ensure that his comments are taken forward.
The noble Lord, Lord Lucas, who described himself as an addict, is a good example of someone who recognises the importance of marriage and I will pay regard to his comments about education as I continue my remarks.

299
The noble Earl, Lord Listowel, talked about the need to engage parents. That is a critical part of the agenda, and one we have neglected in terms of our development and thinking, which I am sure we will be able to debate more fully. The right reverent Prelate the Bishop of Oxford talked interestingly about the good value for money, with which I agree, that marriage brings. But there is also the recognition of marriage and relationship support and the role and work of the voluntary sector in particular. The right reverent Prelate asked me how we are going to make clear what we are doing in relation to the regulatory reform order on registrars. We are considering the consultation responses and we are putting proposals before Parliament to be in place before the Summer Recess.
The noble Baroness, Lady Howe, reminded us of the extended families and the work of Michael Young, taking us through the changes that have taken place since the 1950s and the vast range of experience that we now have of family relationships. She spoke also in the context of her own experience.
The noble Baroness, Lady Strange, spoke with emotion of what we all yearn for in marriage—that one place, the total support, the caring for each other, and the need to instil those values in our children. I offer her good luck when the 65 children come to the Palace of Westminster next week.
The right reverend Prelate the Bishop of Leicester spoke of the importance of the contribution of those outside government, in particular better teaching about marriage, preparation for marriage and support for victims of relationship breakdowns. I echo his sentiments in all of those areas.
The noble Baroness, Lady Sharp, brings support from the Benches of the Liberal Democrats to the work we are doing on supporting children and recognises the role of marriage within that. The noble Baroness talked about the quality of marriage, which is critical. I, too, am interested in what is happening in countries such as Sweden. HomeStart is an interesting example of what is happening here and, in a sense, emulates what is happening in Sweden.
The noble Baroness, Lady Seccombe, raised in particular the difficulties for children in adapting to changes that happen in their life when there is a breakdown and the critical importance of stability. I could not agree more.
It is always an indication of the importance of the subject when one has the breadth of debate that we have had today. In response, I want to set out the Government's strong commitment to supporting our children and families. As the noble Baroness, Lady Sharp, said, strong families are at the heart of our strong communities. Successful and confident parenting is essential if we are to create healthy families. We know the importance of good parenting and good family relationships to children's chances of success in later life. As I said, the Government believe that marriage is the surest foundation for raising children and it remains the choice of the majority of people in Britain.
300
Our aim is to make the support available for parents and carers at the heart of our approach to improving outcomes for children and of developing more and better universal services open to all families as and when they need it.
As the right reverend Prelates the Bishop of Oxford and the Bishop of Leicester said, it is important. I hope that this investment, in combination with the integration of a wide range of family support services, will go some way towards widening access to support and removing the stigma of seeking help.
We recognise that parents are the most important influence on children and young people. Parenting, as noble Lords have indicated, can be challenging and the majority of parents want help at some stage. By enabling parents to access early support and deal with problems before they become acute we can improve outcomes. I agree wholeheartedly with the noble Earl, Lord Listowel, about the need to involve parents in our discussions. Work is under way across the department to bring together our work with parents in the broadest sense, and to enable us to consult and discuss such issues more fully with them.
We share the belief that has been expressed in your Lordships' House, as the noble Baroness, Lady Seccombe, said, that stability in a couple's relationship is the best foundation for raising children and protecting them from the wide range of risks and negative outcomes. We hope that by bringing together in one department, the Department for Education and Skills, responsibility for policy and services for children, young people and their families, the Government should now be able to respond more easily to the needs of children and families in providing appropriate, accessible and timely support at all of the key stages in the lives of families.
The Moving Forward Together strategy report for marriage and relationship support recommended supporting couples at times of challenge and crisis. Convinced by the evidence, leading researchers are now moving beyond the basic question of whether parents and their relationship affect their children's well-being, to questions about interventions and the impact they have on families as a whole and children in particular. For example, in a study by One Plus One, mentioned by the noble Lord, Lord Northhourne, the birth of the first child, while of course a time of great joy, can also be challenging. Existing research indicates an emerging trend that many couples report a drop in marital satisfaction upon the birth of their first baby. So, initiatives such as Brief Encounters, which trains and equips health visitors and midwives with the necessary skills to identify potential relationship problems during their statutory home visits—and act as a referral route to enable parents to access a range of support services at that early stage—are critically important in the support that we provide for families.
We recognise that the missing link in our preventive policies has been a serious focus on supporting families, relationships, carers and parents. We want to shift the balance towards prevention, through tackling child poverty, improving the work in early years' education and childcare, raising school standards and

301
supporting families and parents. We know, as the noble Lord, Lord Northbourne, said, that family relationships and parenting have a critical influence on educational potential and increasing a child's health chances.
But not enough attention has been paid to how the state, working with the voluntary sector—who are critical partners—can support families and parents. So, in the Green Paper Every Child Matters and our other work we have set out our objectives to ensure that every child can reach its potential, to build on the progress we have made and identify the main areas for further action to support our children.
We know that if family breakdown does occur it can have pervasive ill effects on children as well as having an impact on the wider family. It is a major cause of poverty, as noble Lords have said, inequality, ill health, and social exclusion. The outcomes for children who have experienced disruption and multiple family structures are generally worse than for those who live continuously with a lone parent or a stepfamily. We know that at least one in three children will go through parental separation before the age of 16. We also know that most of them will go through a period of great unhappiness. Many experience low self-esteem, behaviour problems and loss of contact with the extended family.
We also know that children can be helped by good communication with both parents and, fortunately, that both can be enabled to settle back into a normal pattern of development. We also know that there are different approaches to conflict and the extent to which it is resolved; and that those different approaches can have different outcomes for children. We know as well that persistent and intense marital conflict can erode good parenting. It therefore makes sense to help and support couples to promote stability in their relationship. However, the targeting of that support must continue to recognise the choice that couples make about whether they marry.
I was delighted when the Chancellor announced today a 17 per cent increase in the Budget for the Sure Start programme between now and 2008 and I was pleased that the noble Earl, Lord Listowel, and the noble Baroness, Lady Howe, mentioned that. It is at the heart of our strategy to support families and to give children, particularly those from disadvantaged communities, the best possible start in life. Its principles underpin the Green Paper. The combination of health, family and parenting support with early education and childcare is critical. We have 524 Sure Start programmes that touch the lives of 400,000 children under 4 years old and reach about a third of children living in poverty.
All of those programmes provide an element of parenting support. The nature of that support is determined by local needs—and rightly so. It includes drop-in sessions for families, parenting courses that have proved hugely popular, and specific support for fathers a point raised by both the noble Earl, Lord Listowel, and the noble Lord, Lord Northbourne. We intend to build on that commitment by extending family support through our children's centre programme
302
and through extended schools. Children's centres provide that combination of family, education and health support, accessible in a "one-stop" way, and extended schools enable, in partnership with other services, support for families in a site that is recognised as a place of education and where children can receive those benefits.
We recognise that the importance of that work is in the impact it can have in what happens to our children. Most parents strive to do the best for their children, but how they do that will depend partly on their own experiences. So it is important that we are there to give them that support when they need it. We know how important that is for children's life chances. It is perhaps summed up by Professor De Forges' work, commissioned by my department, which showed that good parenting in the home can make over a 10 per cent difference to children's outcomes at school. So programmes like Sure Start are critical.
Regarding the references to what happens in Sweden, and references by the noble Baroness, Lady Howe, to the HomeStart programme, noble Lords will know that we have outlined our intention to roll out nationally home visiting support to one in 50 families. The HomeStart programme particularly enables families with young children to receive that vital support at the beginning—which noble Lords have described as the joy of new parenting, which also brings challenges. The programme enables us to offer support to families who need it. That will be important.
I know that the noble Lord, Lord Lucas, has not come across parenting classes, but yesterday I received a leaflet from my children's school inviting me as a parent to go to parenting classes if I so wished. Although we are parents of teenagers, I may yet take it up. Having met the noble Lord's beautiful daughter, I suspect that she is teaching him everything he needs to know about parenting.
Both right reverend Prelates, the Bishop of Oxford and the Bishop of Leicester, talked about the voluntary sector and the need to engage other partners in our work. I believe that it is critical that we engage and offer direct support for the voluntary sector. We are establishing a framework to do that more efficiently and to recognise that we also need to facilitate public education, through best practice, in our work with the voluntary sector. Most organisations with which I have had the privilege to work recognise how important it is to work in partnership with us and to offer those special services to families.
In addition to Sure Start, we are providing funding through a number of grant programmes such as Family Support and the Parenting Fund. While we are debating this matter, the families division within the department is looking at the wider funding programme that we need to put in place to ensure greater cohesion and effective rollout of family related funds for the future.
Organisations such as Parentline Plus, Relate, HomeStart, Fathers Direct, 2as1 and the Asian Family Counselling Services work in partnership with

303
government on evidence-based policy as well as providing family and relationship support services at a national and local level. That is critical to the work that we want to do.
Noble Lords referred to the importance of recognising the issues that concern our lone parents, many of whom are alone not by choice but by circumstance. They need help to enable them to support their families financially through work, where that is the right thing to do; they need support in childcare; and they also need help to enable them to get out of poverty, where so many of them are.
However, we also recognise that children are better in a stable, loving relationship with one parent than in an unhappy, chaotic or possibly violent relationship. That point was made clear by a number of noble Lords. We should not penalise such children and families; we should support them. Under no circumstances should we make ally child feel that his relationship is inferior, nor make any parent feel guilty.
Noble Lords raised the issue of fathers, and I have referred to that. It is critical that we engage fathers, particularly at a time when we see families changing and when fathers may not necessarily feel so sure about their role. Again, an important part of the Sure Start programme is engaging fathers.
The noble Baroness, Lady Seccombe, and the noble Lord, Lord Lucas, talked about the role of schools and education. I agree with what they said. I am pleased that the noble Lord likes the website and I shall feed hack that information. It is important that the curriculum reflects people, and I believe that it does. No doubt we shall engage in further discussions on that topic. I was particularly pleased that the noble Lord referred to mentors and the critical importance of role models. We know that to be very important in many of our schools where we have learning mentors. It is important that some boys have the role model of an adult male, who is perhaps the only role model that they have in their lives.
The noble Lords, Lord Northbourne and Lord Lucas, and the noble Baroness, Lady Seccombe, talked about taxation. I acknowledge the replacement of the married couples' tax allowance with the child tax credit and the working families' tax credit, which are marriage blind. But the focus of these new tax arrangements is on tackling child poverty. We consider that to be critical, and it is more important than discriminating against children because of the marital status of their parents. As a government, we want to tackle social exclusion across all families. However, there continue to be substantial tax advantages for married couples in capital provisions and in death and inheritance arrangements. Those do not directly benefit children but they are a tangible recognition of the support of the state for married couples.
In conclusion, I want to make a few points on which I believe we all agree. We are all committed to supporting all children and all families, and we share the view that promoting family stability is essential if we are to achieve a better outcome for families and children. I hope that, having heard about some of the
304
things that we are undertaking, noble Lords will agree that we are attempting to ensure the provision of better support.
We know that parents and families have a critical influence on a child's life and life chances and that, where children grow up in stable, happy family units, they usually do better in life. We agree that marriage can act as a bedrock for many families but, increasingly today, families take many forms: single-parent families; same-sex families; stepfamilies; and blended families. Children who grow up in all such stable, healthy families, enjoying the love and support of a committed parent or parents, thrive.
We are committed to supporting marriage but we are committed, too, to supporting all parents in building and maintaining stable relationships and a stable family life. We remain committed to saving marriages which can be saved but, where a marriage has irretrievably broken down, we feel that the best way forward is to support parents in establishing a good, ongoing relationship between themselves and their children.
Families are all different, whatever form they take, and their need for support varies, too. By bringing together into one department the different responsibilities for policies relating to services for children and young people and their families and, more importantly, by joining up those services on the ground, we believe that we shall be able to respond more effectively. We recognise the importance of our voluntary sector partners. We remain committed to investing in the voluntary sector, which remains an important and integral partner in our support for families.
We know that families and parents want the best for their children. Our job is to find the right support at the right time and in the right way. I hope that the work that I have explained this afternoon will help us all to be better able to support our couples, our children and our families and to recognise the importance of marriage.
5.24 p.m.
Lord Northbourne: My Lords, what a joy it is to have a Minister who can speak with so much enthusiasm and genuine commitment on this issue, and what a joy it is to have a government who have done so much in this area. I believe that I have about two minutes in which to speak. I can see noble Lords who are to take part in the next debate watching me with eagle eyes, but I want briefly to make two points.
First, what has emerged from this debate is that we are talking about all kinds of different things when we talk about committed relationships, stable relationships and quality relationships and, in particular, when we talk about cohabitation. Cohabitation covers a whole spectrum. It may be worthwhile to think a little more carefully and to try to define what is and is not good for children, just as, if I may say, I have done in relation to marriage. If I may make so bold as to correct the noble Baroness, I am not talking about promoting marriage; I am talking about promoting healthy marriage, which is

305
different. That is what I should like to see the Government do more of—if that is a legitimate use of the English language.
This debate is not about a nanny state and it is not about moralising; it is about the nation's future. I thank all noble Lords for their contributions. I beg leave to withdraw the Motion for Papers.
Motion for Papers, by leave, withdrawn.

Library Service
5.26 p.m.
Lord Harrisons Lord Harrisons rose to call attention to the public library service of the United Kingdom and the Department for Culture, Media and Sport's publication, A Framework for the Future; and to move for Papers.
The noble Lord said: My Lords, in opening this debate, I declare myself a lifelong supporter of the British public library system and a former chair of Cheshire County Council's libraries' committee. A number of my immediate family work, and have worked, in libraries.
I feel that I was almost brought up in my local library, Bury Knowle Library in Headington, Oxford, and in the old City Central Library in Blue Boar Street. I well remember the day in the 1950s when, as a callow 12 year-old, I received my first ever inter-library loan—a copy of the mammoth A History of Chess by HJR Murray. This exotic volume had come from sunnier climes—well, from Southampton Central Library, to be precise—but, to me, its very arrival betokened an undiscovered world of mystery, romance and learning. I had begun down the path taken years before by Virginia Woolf, of,
"ransacking public libraries [to] find them full of sunk treasure".
Many of us must have had that experience when young and, most especially, when the local library represented the major source of books in the family home, as it did to me. Today, public libraries are still held in high esteem by the public, but they are almost wholly ignored by politicians other than as venues for surgeries—a service I prized as a councillor and an MEP. Indeed, I yearn for the day when the Prime Minister and the Leader of the Opposition at Prime Minister's Question Time throw the book at each other over the quality and funding of the public library service.
In today's Britain, when improving public services is the current catchword of party politics, our libraries are left largely speechless. Indeed, today's debate in the Lords is the first that we have had on the subject for many years, and in the other place only one such abbreviated debate has taken place in the recent past.
That is more the pity, given that this is the first government in decades to invest new moneys in the libraries, as exemplified by the outstanding People's Network programme of furnishing all our public libraries with on-line facilities and also by the publication
306
last year of the ground-breaking A Framework for the Future, which gives new direction to a public service which has survived rather than marched into the 21st century. I very much welcome the contribution that will come from my noble friend Lady Blackstone, who pioneered A Framework for the Future. I hope that today's debate can help the process of raising the profile of Britain's most used and most loved public service.
The Audit Commission's recent report on public libraries highlights some of the stagnation that has silently overtaken our libraries and which A Framework for the Future seeks to address. It points to deficiencies in libraries' traditional roles: book funds have diminished by some 33 per cent over the past 12 years; loans are down 23 per cent and visits by 17 per cent; and the number of libraries that remain open longer than 30 hours a week has declined by 9 per cent. Too many of our current libraries are in old buildings, poorly furbished and often wrongly sited to meet today's mobile populations.
Of course, some of those problems can be resolved by injections of cash into councils' budgets which have seen increases both in central funding and in centrally imposed new responsibilities and targets. A better use of current resources to refocus our libraries on serving current needs can also be beneficial. I give an example. At the moment certain categories of books, like cult and fantasy fiction, gay and lesbian books and 20th century American and world literature are neglected in favour of other, sometimes more traditional categories that are declining in popularity. Likewise, too many libraries fail to buy sufficient copies of regularly issued books through lack of book funds and perhaps through a fear of being accused of dumbing down by concentrating on bestsellers. But surely the customer should be king.
With regard to opening hours, too often they reflect past life and work patterns. Staff should be flexible to the idea that large libraries in the hearts of towns and cities, for instance, should open on a Sunday, now a traditional shopping day, as Wednesday was once early closing day. Sometimes we must take the book to the customer, not the other way round.
In recent years there has been a renaissance in building new libraries of considerable architectural merit and utility. Such new designs get closer to the customer and are attractive both inside and out. But not all is well. My own 1984 Chester City library is an attractive, if small, library of modern design, incorporating the charming older facade of the former Westminster coachworks. I fear that its replacement, as Chester undergoes significant retail redevelopment, will rejoice in modernised facilities, but I regret its loss of a groundfloor window on the world as its main facilities are posted upstairs, out of sight and hence out of mind.
We middle-class users too readily forget that the 30 per cent of our fellow citizens who never use libraries find them all too often in buildings that are both inaccessible and forbidding. I have often wondered too why the insides of our libraries are not more welcoming to the public. Coffee bars can add to

307
the general welcome, without disturbing the peace, if wisely located; and toilets should be a facility offered, not concealed from the public. Truly, we need our libraries to spend a penny or two on satisfying the customer.
Many staff perform with dedication the pivotal role of linking borrower to the borrowed in a job which is neither well paid nor well regarded, nor replete with opportunities for promotion. Some reform is needed here, too, so that, for instance, a culture of floor-walking by staff can bring their skills closer to the customer, skills, as Charles Medawar describes, which are underestimated and largely underemployed. Commensurately, greater use of self-issue can free librarians from their rubberstamping role to one of active engagement with the borrowers, a plus for both parties.
I also endorse the growing practice of librarian job swaps which help to spread the adoption of best practice. But all this needs greater investment in time and energy to help to propel the library service into the 21st century. I invite my noble friend to suggest how the Government might deploy their admirable philosophy of coupling reform with public investment to achieve those aims.
So far I have concentrated on reinvigorating the traditional role of promoting books and reading, but I would like to touch on other themes of A Framework for the Future, including the People's Network, which, alongside learndirect, helps to promote learning and the expansion of digital citizenship. Indeed, the People's Network, an inspired initiative, for which we must thank my noble friend Lord Evans of Temple Guiting, illustrates the Government's desire to use the library service to support and to supplement other government and local authority objectives, including the promotion of education and gaining jobs. For those members of the community hitherto excluded, the network has found jobs for some 8,000 people, some 27 per cent of whom have never before used the Internet. But I am unclear about the future funding and expansion of this and other clearly successful initiatives, whose cost-effectiveness must be unparalleled across the gamut of the public services, sponsored by the Government. Perhaps my noble friend will reassure us.
In preparing for this contribution I have been impressed with the arguments for concentrating on the young, indeed sometimes the very young, to break the impoverishing cycle which sees those excluded from the worlds of learning, skills and meaningful employment rearing the next generation, similarly bereft and excluded. That libraries have a unique role here has been revealed by the success of the Bookstart scheme, piloted in Birmingham in the 1990s and unusually supported privately by Sainsbury's supermarket chain. Its efficacy is illustrated not only by its beneficial effect on very young children's preparation for formal school, but also by the fact that their parents, often from target social classes D and E, are themselves drawn into the libraries and hence into the world of learning.
The issue of book packs, through local health visitors, is particularly innovative and successful and illustrates the benefits of joined-up government. It
308
would be helpful to learn from my noble friend what steps are being taken to secure enduring funding for those cheap but cheerful and effective initiatives. Indeed, what other initiatives might be fostered by better liaison with national, but more especially, local businesses? My instinct is that currently, despite some sporadic green shoots of enterprise, the worlds of business and library services are still ships passing in the night.
Similarly that is the case with libraries and the tourism industry. I am one of those sad people who finds libraries tourist attractions. I fondly remember visits to the New York public library and the Harry E Widener library at Harvard. There are practical reasons why tourism and libraries should team up, if' only to dispense tourism literature better—but more could be done.
I am told that in Canada libraries encourage tourists to use their e-mail and Internet facilities to stay in touch with home—simple but effective. That leads me to another missed opportunity for our libraries. They advertise everyone else, but themselves. Libraries, so often the notice board of their local community, signally fail to market themselves in the high street. I am heartened by the experiment in Luton whereby local cinemas collude with the library authorities to advertise to the young people streaming through the doors of local cinemas that there is another world of fantasy, fact and fiction down the road: their local library. Our public libraries must be nimble in spotting where they can collaborate with and buttress other public services. Education and tourism are but two examples. The Prison Service is a third, where good dynamic libraries are the touchstone for rehabilitating prisoners.
The first door on which to knock is surely that of the wealth of other library providers found in our towns and cities up and down the land. I do not simply mean college and university libraries. What about private libraries and those attached to business and industry? They should also be brought in. Britain should become a mosaic of a single library service, not a maze of separating libraries where high hedges separate treasures that can be shared by us all.
In this respect, I am particularly pleased to learn of the British Library's recent receipt of £2.4 million from the Treasury's "Invest to Save the Budget" scheme, helping the British Library to respond to its yearly 160,000 requests from local libraries. As welcome is its involvement with local libraries in Newcastle, Birmingham and Liverpool to provide specialist material for a touring football exhibition aimed at football fans young and old, whose current reading may be limited to fanzines and football programmes.
In promoting the spread of best practice in modern libraries, we should share experiences with our European neighbours and Commonwealth colleagues. I am not sure whether this is done at anything other than anecdotal level. I understand that in Belgium it is practice to provide post boxes to return borrowed items outside libraries when they are closed. That reminds me of the new Norfolk and Norwich

309
Millennium Library, which provides in its lobby a fast book service for the borrower in a hurry, again matching the service to the customers' lifestyles.
I would like to put some concluding questions to my noble friend. As this is Budget day, I invite the Minister to suggest to his friend the Chancellor that he make a significant hike in the funding of our public libraries at his next spending review. Spending currently stands at some £800 million. Is it really beyond the wit of the Treasury to round that figure up to £1 billion, given the cost-effectiveness of libraries and their major contribution to other government policies? Will my noble friend also approach the Office of the Deputy Prime Minister—which has a slightly confusing relationship with DCMS in respect of responsibilities for libraries—and suggest that it is intolerable to have so wide a variation in local library service spending? Some authorities spend a mere £1 per head of population, and others £2.50, which is two and a half times as much. Is it not time to expand the local authorities' statutory duty to run a library service and to hypothecate a percentage of councils' budgets to their libraries?
Can my noble friend help local councils to do a more effective job in overseeing the library service by establishing an "Oflib", or "Ofbook", tasked to inspect our libraries on a rolling basis? Incidentally, do the Government believe that the 21 standards that they set out four years ago as benchmarks for an improved public library service have been met? I am informed by one local authority that only two of the original 21 can be said to have been fulfilled.
In conclusion, I remind the House that the ancient library at Thebes had inscribed over its portal its role as "the medicine chest of the soul". Our public libraries are far from expiring, but they need some remedial first aid to help them and us to minister to our people in the coming century. I hope that the Government agree. I beg to move for Papers.
5.43 p.m.
Baroness Blackstone: My Lords, I am extremely grateful to my noble friend Lord Harrison for introducing this debate on public libraries. I am only sorry that there are so few speakers in this debate. I know that it is Budget day, but nevertheless public libraries deserve something better than this from your Lordships' House.
I am speaking in this debate to reconfirm my strong commitment to sustaining a strong public library system. Public libraries should be at the centre of all of our communities. They must be at the centre of our communities in promoting reading, but there are other things too that they can and should do. I will say more about those later.
As the Minister for the Arts, I was delighted to discover that public libraries were part of my remit. I was proud to have that responsibility for two years. I discovered that they had had far too little attention from government for some time. Perhaps the more glamorous areas in the arts, such as museums, were
310
taking precedence. Perhaps public libraries had been taken for granted for far too long. Perhaps, as my noble friend Lord Harrison said, expenditure on public libraries is not under the control of the Department for Culture, Media and Sport, and there is a slightly uncomfortable split responsibility between the DCMS and the ODPM.
Having discovered that they were part of my remit, I then went on a wonderful voyage of discovery through visits to public libraries, including the library in Chester that my noble friend played such a big part in developing back in the 1980s. I went to conferences, and I read about libraries. I then decided that it was sensible to set up a series of seminars in the DCMS, bringing in experts from a variety of different fields to consider the key issues in ensuring that our public library service should be as good as it possibly could be. I am grateful for what my noble friend just said about my part in developing A Framework for the Future, but it really was a team effort. I want to express my gratitude to the many participants in the process, of which those seminars were a key part. What A Framework for the Future tries to do is provide a national vision as to why libraries matter and to set out what they should do. I also wanted to start a debate on how to improve them. I wanted them to have greater visibility, and I wanted to promote their importance, although I do not seem to have had a great deal of effect in the House of Lords.
The general public has an enormously high regard for libraries. Some 60 per cent of the population are members; 90 per cent think that libraries provide a valuable service to local communities; and 90 per cent of 16 to 24 year-olds share that view. This is a very high level of support for a public service, and it is a tribute to the dedication of many of those who work in libraries. In the light of this, one might ask whether anything needs to be done about libraries. My answer is a resounding, "Yes". The library service is not just one service; there are 149 different library services in England, and they are all autonomous, so it is a fragmented service. What is on offer varies greatly, and so do standards in our public library system. There are a great deal of gains from that autonomy and variety. It allows for innovation; it allows different means of delivery in different kinds of communities. However, there are also benefits from shared aspirations and high standards across authorities rather than huge disparities from place to place in the benefits that public libraries provide.
Moreover, the ways in which libraries are being used have changed, and we must take this into account. Libraries must be aware of this, and they must adjust to it. Between 1992 and 2002, library visits dropped by 17 per cent, and hook loans dropped by the remarkable figure of one quarter, which is a cause for concern. Library book issues went down, whereas book sales went up. That need not in any way spell the demise of public libraries—certainly not. As my noble friend has already said, libraries are not just about book loans, although that will always be an important function of libraries. We must provide books that people want to read, and we must do so in a cost-effective way that reflects contemporary needs. To

311
give an example, renewals should be possible through a 24-hour telephone service. It should not be necessary for people to carry large bags of books back to the library to renew them.
Libraries are about other things than supporting reading for pleasure, which is the greatest of all pleasures in my view, for at least many people. They are about providing information, and they are a repository of information of all kinds. In the digital age, no public library should be unable to help people to find the information that they need. As my noble friend has already mentioned, one of the valuable services that the British Library provides to the public library system is the supply of documents remotely. This is being modernised by a Treasury grant, as my noble friend said. That certainly enhances the information services that libraries can provide. A very important part of the job of public libraries is to enhance learning and support the work of schools and colleges.
Anybody who has been into a children's library on a day when there are a couple of primary school classes there cannot but help to find that an enjoyable experience. Every primary school should be instilling in children the habit of reading. Every primary school should regularly be taking its classes into children's libraries. I am afraid that is not always the case. Similarly, every secondary school should be encouraging its pupils to use their local libraries for project work, which is true for FE colleges, too. Even before school begins, toddlers should, wherever they live, be in reach of a public library for story-telling sessions and benefit from services such as toy libraries, which I have seen in a number of public libraries but not in all of them. What discussions has my noble friend the Minister had with the DfES and his colleagues there to promote more effectively schools' use of public libraries?
Of course, learning in libraries is not just about young people. It is also about life-long learning. One of the recent success stories, as my noble friend mentioned, has been the People's Network, and the lottery grant which was provided to link up all libraries to the web has been immensely successful. That has been achieved. Associated with that are exciting programmes for IT training in libraries for adults, especially for elderly people. sometimes in partnership with learndirect. Again I have a couple of questions I want to put to my noble friend the Minister. I do not know whether any data have been collected on how far links with learndirect are leading to expanded provision in public libraries for people to acquire basic skills. Libraries, of course, can and should be helping the Government to reach their overall goal of Internet access for everyone.
My second question concerns the end of the NOF money and builds on what my noble friend has already asked. It has been said that the library service will run into difficulties in sustaining free Internet-connected services once that money dries up. I wonder whether my noble friend the Minister thinks that is a legitimate worry, and if so what plans the Government have to intervene.
As well as promoting learning, public libraries have a very important role in promoting social cohesion and a sense of pride in a local community. It is one of the few
312
free community spaces still available. Anyone can go into a library; they can come off the street and benefit from what libraries have to offer. That space should be used imaginatively. It ought to be available for art exhibitions by local members of the community; for the work of young people in secondary schools or FE colleges who have taken part in a poetry competition—their poems should be up on the walls. There are many other ways in which we can use space in our local libraries. Perhaps it is relevant to say on Budget day that one library I visited had invited the Inland Revenue to come in and provide regular sessions for people who needed advice on how to fill in their tax forms. A little hit of that could be extended to other advisory services and perhaps across the country in other library services. Some libraries provide music clubs for young people. I could go on: there are so many uses for this space in buildings which should be used to their maximum by the local community.
One of the most pressing tasks for libraries is to reach out to those who do not use them, such as people who are likely to be socially excluded from many other areas of life. That requires libraries to undertake good outreach work, particularly in deprived inner city neighbourhoods—libraries should go into housing estates—but also in cut-off rural areas, or go to those who are in residential care or to people who are housebound.
Making libraries welcoming, warm and attractive places is important, as is ensuring that they are open at times that people want to use them. That means that they have to be open at the weekends. on both Saturdays and Sundays. But good buildings that are in the right place and which are easily accessible are enormously important. If your library building is run down, depressing and in an area hard to reach by public transport, that does not help to make it accessible to the maximum number of people. There are many new libraries in beautiful buildings, such as Norwich, Bournemouth and Peckham—just a few examples of libraries that have a great buzz about them.
Anyone who says that one cannot make inroads in encouraging more people to use libraries should look at what has happened at Tower Hamlets. That authority found that only 15 per cent of its residents were regular users. By taking the initiative to develop what it called idea stores, and turning around 100 year-old libraries—refurbishing them, making them cheerful and providing cafés and opportunities to use the web—they have had a trebling in their use. Issues of books are up by over 60 per cent.
Much of that is set out in Framework for the Future, but that was not an action plan—it was a vision of what public libraries should be like. In order to help make this vision a reality, we appointed a new advisory council on libraries. What advice has that group provided my noble friend with so far and what action has he been able to take as a result? Clearly there is an important role for the Office of the Deputy Prime Minister in funding local authorities adequately. Also important are the decisions made by local authorities on how to spend the funding they receive. Will the Minister reassure us that the reduced weighting of

313
libraries as an indicator for CPAs will not be allowed to result in a lower priority for public libraries in local authorities? Has he yet been able to use his persuasive powers to talk to local authority chief executives and leaders? If he has not yet, I hope he will do so soon.
The other important issue is how to drive up standards across the public library service. Our best libraries are superb; our worst are pretty miserable places. At one time I thought that inspection was the answer, but on reflection I think that is too heavy handed and too costly; local government is already over-regulated and over-inspected. Has the Minister been able to develop a scheme to get the best authorities to work with weaker library authorities in their own region? Can he tell us whether any funding might be made available to bring this about? I am sure that he would agree that that approach ought to be developed.
When we published A Framework for the Future we agreed that annual library plans were over-complex, over-demanding and encouraged a tick-box mentality. We decided that much simpler public library position statements should be asked for instead. These position statements have now been analysed and I hope that my noble friend will say something about what he draws from them and what action is required following this analysis.
I end by saying that free public libraries were invented in the 19th century. They flourished in most of the 20th century, but there has been some under-investment and lack of a public profile for them in the 1980s and 1990s. That has meant that there is a danger that they might start to decline and end up on a downward slope that would be hard to climb up again. In the 21st century, libraries must reinvent themselves to meet the expectations of a different era to the time of Andrew Carnegie. They need political and financial support, but, above all, they need energy, drive and inventiveness from those who run them and work in them. We must recruit the best people to do the job. If that is done and a framework is established that will reward excellence and reinvigorate the dull and the mediocre with good leadership where it counts, our public library system can be the envy of the world.
6 p.m.
Viscount Falkland: My Lords, we must thank the noble Lord, Lord Harrison, and congratulate him on his good fortune in securing this debate. We commiserate with him, of course, in so far as he has attracted few speakers. I know not whether that is due to the Budget or to Cheltenham races. Nevertheless, the noble Lord has had the good fortune to hear from one of the greatest experts on the matter, the noble Baroness, Lady Blackstone. I have the honour and rather fearful duty of following the noble Baroness in the debate. She has covered many of the points.
It has always been my view—shared, I think, by many in the House—that the library system, in common with our museum and gallery service, must either modernise or die. Both are going about the
314
business of trying to modernise. The library system has been more successful than any of us could have hoped. I agree with the noble Lord, Lord Harrison, that we owe a lot to the fact that, in the short time for which she was Minister, we had in the noble Baroness a fervent supporter of literature and reading. If she will forgive me, I will pick out a few words from her launch of A Framework for the Future. She said:
"Great literature is, without question, our country's greatest gift to the world's cultural heritage, and libraries are the means by which we share and celebrate it. Reading is essential to modern life, and a major source of pleasure for millions".
How right she was. How right that must now seem to a larger number of people than when she said it.
We have had some very good initiatives. The modernisation that is taking place includes the huge success of the People's Network. There are now 32,000 terminals in libraries throughout the country. funded by the New Opportunities Fund, which I am glad to have the opportunity of praising. There have been other initiatives, not least BBC2's recent initiative, "The Big Read". One might be sniffy about attempts of that kind to promote cultural activities, but it was enormously successful. The list of books to which the public attached some importance was somewhat limited, but, nevertheless, the programme attracted a great deal of enthusiasm and provoked a great deal of interest among the public at large in buying books again, particularly backlist literature. As your Lordships know, backlist literature is always vulnerable to the increasingly competitive world of publishing, where the sharpened focus on new titles means that it is always competing with backlist literature. Forty per cent of the fiction market has, in recent years, been backlist literature, but it is a tough battle.
It is not surprising that the lists that young people create of their preferred reading are limited to quite recent works. I was fortunate enough—and unfortunate, I suppose—to have a fairly peripatetic early childhood because of the war and because I was an only child. I spent a lot of time on my own. The other day, my noble friend Lord Thomson of Monifieth, who was giving a talk at a birthday party in the Cholmondeley Room, mentioned a book of which, he said, no one would have heard. I had a slight flush of pleasure when I realised that it was, in fact, a book that had set me off reading seriously at the age of seven: WW Jacobs's collection of sea stories, Many cargoes. I was so enthusiastic about that book, although my noble friend was right to say that it was now completely unfashionable. I do not think that young readers are likely to have heard of WW Jacobs. However, initiatives such as "The Big Read" will encourage such interest.
Reading, of course, is for pleasure, in the sense in which I understood the noble Baroness's remarks in the introduction to A Framework for the Future. It is so important that people should read for pleasure, not least because they can talk about it afterwards with their friends. For a while, television took over from reading, and we all disliked its effect on reading. Now, television has reversed the situation and actually encourages people to read. There is now less of a gap

315
between the world of reading for pleasure and watching television. When we come to consider the charter of the BBC and its role as a public service broadcaster, the BBC's role as a supporter of reading and literature will be an important part of the debates that will take place in your Lordships' House and in the other place.
I mentioned my peripatetic childhood. I went on to read all kinds of authors who did not figure in the lists produced after "The Big Read". Perhaps, I will be permitted the luxury of mentioning one or two. Graham Greene is, of course, still on the main lists. He is an important author for all kinds of reasons, not least because his work creates a great deal of discussion. George Orwell is still on the main lists. Aldous Huxley and DH Lawrence, who used to be seen as writers for people going through their adolescence, have almost disappeared. Others whom I like, such as Forster and others, are still there but are, seemingly, rather dated to the younger generation. The women authors that I liked when I was at school—Pamela Hansford Johnson, Pamela Frankau, Rosamund Lehmann and others—seem to have disappeared completely, although a very good biography of Rosamund Lehmann was published recently. and I recommend it to others. It is rather like a book group now; one indulges oneself in telling fellow members of the group what one likes. I would not like to leave the Chamber without mentioning a minor master, Patrick Hamilton, who wrote just after the war. His psychological novels based in seedy Brighton and London were minor masterpieces, if not major masterpieces. He has disappeared to some extent, and his plays—Rope and Gaslight—are not often seen, because of the disappearance of the repertory companies.
Happy to have got that off the page to your Lordships, I must say that it is important for libraries to introduce people to translations. Introducing readers to translated authors such as Chekhov or Tolstoy or to French authors, who are somewhat different and can be difficult to translate, encourages the learning of languages and interest in other cultures. That is an important function of libraries.
I am a little dismayed by the figures that were quoted. The noble Baroness quoted some figures. It is dismaying that recent statistics that I have seen show that only 9.6 per cent of the amount spent by libraries is spent on new books. There may be a good reason for that, and the Minister may be able to cheer me up on that point. It may not be such a significantly low figure as I take it to be.
The modern side of making computers and IT technology available to people is very important. But such technology is quite expensive and the certainty of core funding is, of course, always important. There is always a doubt about that in all areas of the arts. The continuity of core funding and the reassurance that it gives is absolutely vital. I hope that the noble Lord will be able to say a few words about that.
Children are taking to books now. I am very encouraged. I have an 11 year-old who has become an avid reader thanks to JK Rowling and Anthony Horowitz, two of the leading children's writers. He has
316
become, thanks to computers, a dedicated writer as well. I do not know where he gets this from. I am far too lazy to do that, although I have always been interested in writing. He also illustrates them, so there must be something right going on in the world which prompts children to take these kinds of steps forward.
Broadcasting and literature are now much closer friends and I am hoping that this impetus will continue. I do not know whether noble Lords are aware of it but, for what I think is the first time ever, there is an All-Party Book Group, which is very encouraging. I went to its inaugural meeting and it was very interesting. I am pleased to see the noble Baroness, Lady Miller, who is the inspirer of that book group, on the Benches behind me. I thought that was a wonderful initiative. I was told by a very prominent member the next day, "You must be careful about book groups. You will find that inevitably the majority of regular attendees will be women. They will like to talk about books, in particular about their frustrated ambitions to be writers". I said "Oh no, no! That won't happen in the Houses of Parliament". We shall see, but I am quite sure the noble Baroness will give us a programme which will be varied and stimulating, and navel-gazing will be kept to a minimum. On the first meeting of her group there was such enthusiasm among the small group that I would encourage other noble Lords, who may not be aware of it, to attend regularly.
That is all I have to say, except that I would select one quotation from the reactions to A Framework for the future, which I think hit the nail on the head. It is an extract from the remarks of the Poet Laureate, when he said that libraries,
"are vital to the intellectual health of the nation, and as such, should be properly funded, developed and cherished".
I hope the noble Lord, Lord Harrison, will give us some hope that that will the case.
6.13 p.m.
Lord Luke: My Lords, I very much welcome this debate and congratulate the noble Lord, Lord Harrison, on giving us the opportunity to assess the impact of this DCMS publication, Framework for the future. As noble Lords know, this report was actually published over a year ago. The noble Lord, Lord Harrison, said that there had not been any debates about libraries since then, but in fact there was a debate about facilities in public libraries for those who have difficulties accessing books last June. I shall come to that in a minute.
There has also been the publication, yesterday, of library statistics since the last annual appraisal on 20 February 2003. These statistics show, once again, that this Government's keenness about targets really does not work. For instance, out of the 18 public library standards targets set by DCMS, only two were met by all libraries across the country. These statistics also show that, far from increasing library usage, the number of people visiting libraries seems to have been decreasing since the standards were introduced.
What is the reason for this rather depressing situation? Like the noble Baroness, Lady Blackstone, I certainly do not believe that the library system is

317
about to collapse. I wonder, however, whether opening hours do not suit as many people returning from work as they might? Or is it that libraries do not carry enough of the kind of facilities, which have been mentioned by several noble Lords, that the general public are now looking for?
The Secretary of State for Culture, Media and Sport has a statutory responsibility to promote the development of the public library service under the Public Libraries and Museums Act 1964, and to ensure that local authorities provide a
"comprehensive and efficient"
library service. The public library service is administered by local authorities and funded through what was once the Department of the Environment, Transport and the Regions. Would the Minister tell me why it is that the public library service is the responsibility of the DCMS, but it appears that the funding of the service is the responsibility of a different department? Is this not illogical?
When the new public library standards were issued in April 2001, it was stated that these standards would be reviewed from time to time, partly to ensure that the administrative burden placed on local authorities required to achieve these standards does not become disproportionate. As I have already said, it appears that these standards are not working. Is this because the administrative burden is, perhaps, excessive?
The DCMS publish an appraisal of the annual library plan, as submitted by each library authority, every year. This appraisal forms a key planning tool, and facilitates the assessment of each authority's performance against locally set standards and targets. Would the Minster explain why an annual appraisal has now been substituted by a Public Libraries Position Statement? Perhaps he could also explain to me, because I do not understand it, the reference to a "post steering group discussion" on 26 January this year.
I notice that the 2003 DCMS appraisal of annual library plans clearly states that it is unlikely that the targets will be met by the authorities in March 2004 as planned. Thus the performance of public libraries will fall beneath standards set by the Government. This appraisal, published in February 2003 and now updated by the position statement, details a number of strategic failures. For example, the first DCMS objective was to ensure that,
"library authorities must enable convenient and suitable access for users of libraries".
This target has not been met. We want the potential in all our public libraries to be utilised, to ensure that everyone has access to resources, knowledge and information—particularly the groups in society that would otherwise be disadvantaged by not being able to do this. Again in February 2003, the report A Framework for the future was published, and it offered,
"a long-term strategic vision for the public library service".
318
In the report, based on the extensive consultation and research with the MLA—previously Resource—the Government states that they are,
"committed to public libraries and all that they stand for. Our strategy for their future makes promoting reading their key priority. Libraries also have—and will continue to have—a central role in helping people from all walks of life to be part of the communications revolution sweeping the world".
The Government press release on the day of the report's publication stated:
"The launch of Framework for the Future is the beginning of the action phase. The Culture Department, together with Resource: The Council for Museums, Archives and Libraries, and a newly-constituted Advisory Council on Libraries, will work with leaders from local government, libraries and education services to make this vision a reality".
In May 2002, the Audit Commission published a report entitled Building Better Library Services, which concluded that local libraries focused on current users, rather than on attracting new users. We welcome the new initiatives and ways of encouraging new users, such as offering limited free Internet access in libraries. It is self-evident that libraries need to renew and communicate their purposes to the communities they serve.
Like the noble Baroness, Lady Blackstone, we welcome the development of new libraries, such as the new Central Library in Bournemouth, pictured in the report. This new library is in the central part of the town and maintains excellent transport links, with the bus terminal positioned directly outside the building, in addition to a multi-storey car park. The old library in Bournemouth, which was built in 1913, was on the outskirts of the main town centre. The new library, built very recently, has 45,000 more books and over 50 computers available free for an hour's Internet use. It even has toilets and baby-changing facilities, something which your Lordships' House does not have and which the old building in Bournemouth lacked as well. The surroundings are very pleasant and offer open-plan reading tables, an easy reference system and well trained staff in a modern and accessible environment.
This new library is always busy and has become a focal point for the town, highlighting how such a facility can considerably improve social cohesion while making valuable resources available to all members of the community. The library hosts events to raise public awareness of national initiatives such as the Big Read and the Orange Prize. In addition to the numerous books stocked, the library boasts a collection of spoken word CDs and cassettes, which are available free of charge to those who are visually impaired. Initiatives such as this should be warmly welcomed. However, I am afraid it seems that Bournemouth library, however worthy, is unfortunately not the norm.
I now return to the debate on 8 May 2003 when Her Majesty's Government were asked:
"what measures are being taken to remove all barriers to literature for those who have difficulties accessing books in traditional print formats".—[Official Report, 8/5/03; col. 1295.]

319
In that debate, I referred to the report Framework for the Future, the subject of this debate. In the report, the Government argue passionately—and rightly—for the importance of reading and access to literature. While detailing a number of ways in which problems of illiteracy and increasing skills can be addressed, there is no mention of any strategy to assist the blind or visually impaired. With today's increased technology, would it not be appropriate for the Government to consider addressing the issues that the visually impaired face by setting targets for public libraries to carry a selection of audio books which meet the demands of the general public?
It has been established that audio hooks are by far the most popular method by which visually impaired people can access literature. The drawback, as is so often the case, is the cost. Has there been any progress since the debate on 8 May? In that debate, the noble Lord, Lord Davies of Oldham, said, when referring to VAT on audio books:
"I hope that I can give a slightly more positive response this year"—
that was last May—
"although I cannot promise to solve all the problems of British taxation in regard to the European Community".
He went on,
"I am able to say this evening that the Government will engage in the negotiations positively. with a view to getting the rate of VAT down on audio tapes of books"".—[Official Report, 8/5/03; cols. 1309–10.]
I hope that the Minister will be able to reassure us on that.
This has been a most interesting debate. I think we are all trying our best to improve the services offered by public libraries, as they are an ever more vital part of community cohesion and education. I look forward to hearing the Minister's response. After that, perhaps we could all retire to our splendid Library here and carry on the debate.
6.24 p.m.
The Parliamentary Under-Secretary of State, Department for Culture, Media and Sport (Lord McIntosh of Haringey): My Lords, we are all grateful to my noble friend Lord Harrison for introducing this debate. He is right that the subject deserve more attention in your Lordships' House. It is sad, as he said, that so few people have been inspired to take part in the debate. However, we have made up in quality what we lacked in quantity.
I was particularly pleased to have the contribution of the noble Lord, Lord Luke. I looked back at the passage of the Public Libraries Act 1850, the first Act to establish public libraries in this country. It was promoted by a Liberal MP, William Ewart, and attacked by the Conservative Party on the grounds that, as one Conservative MP said,
"people have too much knowledge already: it was much easier to manage them twenty years ago; the more education people get the more difficult they are to manage".
I am glad that the noble Lord, Lord Luke, does not echo those sentiments.
320
It is true, we have to admit, that libraries face a great deal of competition for people's leisure time. It is hardly surprising that if people are watching, on average, four hours of television a day, there is less reading of books. In addition, purchasing books is relatively cheap in relation to disposable income than was the case many years ago. Therefore, a lot more books are actually being bought. It really does not matter, from the point of view of our aesthetic and intellectual objectives, whether the books are bought or borrowed as long as people are reading. I think it is a triumph that people are reading as much as they are. But the effect on public libraries cannot be denied.
It is true, as my noble friend Lord Harrison said, that visits to public libraries have been going down. as have book loans, although there is some indication that the number of visits to public libraries, perhaps because of the wider range of services now provided, has bottomed out and is increasing slightly The MLA figures show that there could have been an increase of 2 to 3 per cent of visits to libraries in 2002–03, and I find that encouraging.
It is also true that declining use of libraries and declining hook loans are accompanied by declining funding, because it is thought by local authorities that this is a less important service. But they are profoundly wrong, because of course, despite the decline there has been, as my noble friend Lady Blackstone said. 60 per cent of people in this country are members of a public library. There are more visits to public libraries than there are to professional football matches or to the cinema. As far as the customers are concerned—the users, the readers, although it is more than readers, as I shall show—libraries are one of the most important services that local authorities provide. There are 4,600 public libraries in this country, a lending stock of 84 million books and 32,000 public access computers with access to the Internet. That is quite a service.
It is right that I should say a word about the contribution that libraries make to the priorities of central and local government. Of course they are justified in their own right; of course they are justified on their basic service. But, in addition, they play a very important role, and I shall be responding to the questions of my noble friend Lady Blackstone in a minute. They raise standards in our schools, they provide books for babies, they encourage family reading, reader development schemes and homework clubs and they provide help for lifelong learning. They improve the quality of life for older people—after all, libraries are a safe, warm, community space in which people can meet. This is particularly valuable for older people. I have heard bingo clubs described in the same terms, but I rather think that libraries provide a little more than they do. Libraries provide help in terms of the economic health of the communities. If they provide, as they do, adult basic skills, business information for small and medium-sized companies, then they are an economic resource for this country. If I am asked to say the right words to Gordon Brown then, yes, those are the words that I would use. I think that there is a very significant economic benefit.

321
I was very pleased to hear the welcome for the People's Network, particularly from the noble Lord, Lord Harrison, and the noble Viscount, Lord Falkland. It has been a remarkable achievement, not just to get the lottery funding in the first place but to get it on the ground and to get it working in nearly every one of this country's public libraries. If you extrapolated from a survey of 30 library authorities, you would find that, nationwide, nearly 24,000 people had started a formal education course; over 62,000 people report gaining a new skill; over 105,000 IT training sessions were run in public libraries; and 7,000 people have found new jobs.
There is an issue about sustainability, because you put in computers and train staff but they become obsolete in a period of years. Part of the bid to receive NOF funds for the People's Network, however, was that local authorities were obliged to submit plans, illustrating how they would continue to fund their People's Network centres once the NOF funding ceased. I have confidence that local authorities are aware of that obligation. I am also conscious that it probably will not work everywhere and that we shall have to find some additional funding from somewhere, in order to make sure that it continues.
Let me now turn to the A Framework for the future, which is referred to on the Order Paper and, as has been recognised, is the brainchild of my noble friend Lady Blackstone as a most distinguished Minister with responsibility for libraries. The basis of A Framework for the future was that, although there were plenty of examples of good practice in libraries—and some of them have been given by speakers today—and plenty of examples of local authorities providing modern, high-quality libraries and understanding their potential, there were also plenty of examples of local authorities who do not. That was why A Framework for the future was published: to provide a 10-year strategic vision; to encourage greater innovation and greater efficiency in the library service; to promote books, reading and learning; to encourage access to the digital age; and to develop community and civic values.
It was not just a publication in its own right, however. What happened immediately afterwards was that my noble friend Lady Blackstone commissioned the Museums, Libraries and Archives Council to prepare a three-year plan of activity to turn that vision into reality. That action plan was published in September last year at the Public Libraries Association conference in Torquay, at which I spoke. It is funded with £3 million over a period of three years. There is a long list of targets, and achievements towards those targets, in the action plan and in our reports on that plan. I will return in a moment to the point made about targets by the noble Lord, Lord Luke.
As has been said, one of the purposes is a sort of glorified self-help. If we have a library service which is widely varied in quality, it is enormously important that we should have the best helping the less good. Therefore, with the Museums, Libraries and Archives Council, we are setting up help teams, using the Improvement and Development Agency and the Office of the Deputy
322
Prime Minister peer review system. These teams are already in training and starting to be in operation. They will bring together library leaders and staff to work with individual authorities, to help them to improve their libraries. We will be seconding mentors to libraries and encouraging pairing-up with other libraries. We have a leadership programme for about 450 library staff, developed with the Society of Chief Librarians and with the MLA.
Valid points were made, in particular by my noble friend Lord Harrison, about the marketing of libraries. I heard my learned friend Lady Blackstone praising Tower Hamlets' Idea Stores. She is quite right. I too have been there, and what is being done is terrific. Hampshire is proposing to re-brand its libraries as "Discovery Centres". I rather like the word "libraries". I like Peckham's wonderful new library, which has the word "library", about 100 feet long, on the roof. I would rather stick to that brand, which I think is an enormously important one and describes what it is. I believe that we can build on it, to extend the range of services that a library provides without losing the essential element behind it. It is certainly true, however, that we do need to market our libraries substantially better.
The noble Viscount, Lord Falkland, referred to the fact that the expenditure on books is only 9.6 per cent of total library budgets. It is also true that, as there is a decline, there is the horrible tendency that more money goes on administration and less on frontline services. That happens everywhere. We have to do something about that. The Advisory Council for Libraries, which my noble friend Lady Blackstone revived and which I have been using intensively, is very concerned on that point. I am not convinced that we are getting the right deals out of publishers and booksellers on books, using our purchasing power. I am certainly not convinced that we are doing the most economical thing. There is one study which shows that it costs as much to purchase and to index a book as it does to buy a book. That cannot be right. We have to find some way round that, and indeed we are actively doing so.
Even though there has not been too much reference to it this evening, I want to refer to learning initiatives. One of the main things that libraries can do to make a real difference to people's quality of life is the promotion of reading and informal learning, and indeed of formal learning. A Framework for the Future identified five learning offers which libraries will make to the community and which will be marketed as national activities. Those are: early years services, to which reference was made by my noble friend Lord Harrison, namely Bookstart, book bags, and encouraging parents to share books with children from an early age; learning for young people, which involves the Positive Activities for Young People programme for the vulnerable eight to 19-year-olds, and to steer them towards reading. That is the work of the Reading Agency, which is particularly concerned with literacy targets and opening up the world of the creative imagination to people whose homes, I am afraid, are book-free zones.

323
My noble friend Lady Blackstone referred to this as out-of-school learning and referred in particular to project work. She asked whether we were having discussions with the Department for Education and Skills about collaboration in this area, and I can assure her that we certainly are. The Secretary of State for the DCMS, Tessa Jowell, is working with the Secretary of State for Education and Skills, Charles Clarke, to encourage visits by schools to museums and libraries. Of course that is part of it, as is also the availability of libraries for out-of-school learning.
I am a member of the Cabinet Committee on Adult Basic Skills, and the chairman, Charles Clarke, referred to the locations for adult learning. He of course mentioned universities and colleges and also, quite rightly, the National Health Service and prison populations—where there are quite a lot of people who need adult basic skills. I piped up and said, "Libraries as well", and he immediately added it to his list, because clearly these are obvious places for adult learning.
I discovered to my astonishment that we do not know what libraries can contribute to adult learning. If I was asked. "What facilities are there? How many libraries have room for individual learning workstations as they do for ICT work stations, or room for study circles or seminars and so on?", I find it shaming to say that I do not know the answers to those obvious questions So I am setting in train a survey which will make sure that I do know the answers. When DfES comes to me and says it wants to use the libraries for e-learning, or when Ofcom comes to me and says it wants to use libraries for media literacy, I will be able to give answers on what we can provide.
That leads me on to the issue of adult learning. I can assure my noble friend Lady Blackstone that the links we have with learndirect are absolutely critical. Ann Limb, its chief executive, is very conscious of the contribution that libraries can and indeed do make. These are not projections for the future.
Inevitably there has been talk about funding. My noble friend Lord Harrison wants me to appeal to Gordon Brown for more money. The difficulty is that, as everyone knows, libraries are funded as part of local authority block grants. There is no ring fencing for libraries. If local authorities are either poor or mean—in my experience all local authorities are either poor or mean and sometimes both—there is no way that we in DCMS, who have the responsibility for library standards, can ensure that any given amount of funding will be allocated to libraries.
The noble Viscount, Lord Falkland, wants the certainty of core funding. Of course we want it too, but we do not have it. The way to get an improvement in library standards is not with sticks, because we do not have any sticks, but with carrots.
324
The noble Lord, Lord Luke, was exaggerating a little when he accused us of damaging the library service with the overuse of standards. He must know that—
Lord Luke: My Lords, it was in respect of targets.
Lord McIntosh of Haringey: My Lords, targets and standards are two approaches to the same thing. The noble Lord must know that for 150 years local authorities have had responsibility for setting their own budgets, including libraries. For the first part of those 150 years, under Conservative governments, there were restrictions on the amount of money that could be spent on libraries—a halfpenny rate comes to mind. More progressive governments have moved ahead, but we have not yet said that central government will prescribe how much local authorities will spend on libraries. I do not believe that we should. I recognise the difficulties that it involves.
We find ourselves in the position of having responsibility in DCMS for standards in libraries but without the means to carry them out. What are we going to do about it? I have hinted at the answer already, in the sense that we have been establishing standards or targets—whichever one wishes to say. We have not achieved 100 per cent compliance with all those standards. We set an ambitious target of the end this month. In almost all these areas we are seeing improvements in the quality of services according to our own standards and targets.
The Advisory Council on Libraries has been simplifying the targets with position statements. We have simplified them by excluding those that are no longer necessary because they are being 100 per cent achieved. So I think that it will be accepted that we are doing the right thing. My noble friend Lady Blackstone asked me about how the advisory council works. It has set its own agenda in those ways. I have set it additional targets for e-learning and for the sustainability of the People's Network. In general, we have a lot of pressure, a lot of collaboration between library services and a lot of things that we can do from the centre, in terms of help rather than force, to improve the library standards to such a level that we can all be proud of them. As we receive future reports on the progress towards the achievements set out as being possible in A Framework for the future, I hope that that it will be seen that we are making that progress.
I have not answered the question of the noble Lord, Lord Luke, on disability. I visited the National Library for the Blind. I agree with him entirely about the value of the services that it provides. I wish I had a positive answer on VAT, but, as he knows, negotiations for VAT last autumn did not come to anything. Therefore, the cautious response of my noble friend Lord Davies was rightly cautious.
I say again that I am grateful to all noble Lords who have taken part in the debate. I repeat my thanks to my noble friend Lord Harrison for introducing it. I am glad to have had the opportunity to respond.
Lord Harrison: My Lords, I hope and believe that tonight's debate has furthered the cause of better

325
understanding of public libraries. I too would like to thank all noble Lords who have contributed. As the Minister said, we may be few in number but I think the quality was extremely high.
I would like to take up the suggestion made by the noble Lord, Lord Luke, of retiring to our own Library for further discussion, but I fear that we might disturb some of our colleagues who might otherwise like the silence there. The noble Lord prompts me to thank all those who work in our own Library, and especially those at the research desk who have contributed yet again to the background material I have used tonight.
326
Finally, as I am in the House of Lords with Dukes and others, perhaps I may be permitted to remind your Lordships of Shakespeare's The Tempest. The dispossessed Prospero was isolated on the magic island when he said that his library to him was "dukedom large enough". With that I beg leave to withdraw the Motion for Papers.
Motion for Papers, by leave, withdrawn.
House adjourned at twelve minutes before seven o'clock.

Official Report of the Grand Committee on the Companies (Audit, Investigations and Community Enterprise) Bill [H.L.]
(Second Day)
Wednesday, 17 March 2004.
The Committee met at half past three of the clock.
[The Deputy Chairman of Committees (Lord Lyell) in the Chair.]
Clause 8 [Auditors' rights to information]:
Lord Hodgson of Astley Abbotts moved Amendment No. 31:
Page 10, line 11, after "explanations" insert "(in written form where so requested)"
The noble Lord said: We move now to Chapter 2, which takes us from the structure of the accounting profession, and Mr Masson's brilliant charts, to accounts and reports. Amendment No. 31 relates to auditors' rights to information and concerns the manner in which statements are to be taken by auditors. It states that an auditor may require information or explanations in written form by inserting the words in the amendment after the word "explanations".
Under current law, as I understand it, auditors have the right to demand explanations in writing but it is not clear whether that is the case in the Bill. That is why we have tabled the amendment. The value of the provision is self-evident. If director A makes a comment to the auditor which the auditor considers important, the auditor should be empowered to require that the statement be put in writing. I beg to move.
The Parliamentary Under-Secretary of State, Department of Trade and Industry (Lord Sainsbury of Turville): Clause 8 contains important provisions on the right of auditors to obtain information. These derive mostly from existing law but with the significant change that those required to provide information and explanations to the auditor include employees for the first time. That change reflects clear recommendations from both the Company Law Review Group and the Co-ordinating Group on Audit and Accounting.
Auditors should be able to ask for information and expect truthful answers from as many as possible of those likely to have information necessary for the successful performance of the audit. The amendment would specifically enable the auditors to require information and explanations to be given in writing. We do not think that this is necessary. The auditor's right under this clause, as under the existing provision, is to such information and explanations as he thinks necessary for the performance of his duty as an auditor.
GC 76
As far as we are aware, there has been no difficulty because auditors cannot specifically require explanations in writing. if an auditor is dissatisfied with oral information—perhaps because the subject matter is highly complicated—it will be possible for him to say that he has not had the necessary information for the performance of his duties and to ask for the information in writing.
The noble Lord may see this change as linked to his further proposal, which we shall reach at Amendment No. 44, to restrict the offence of providing a misleading, false or deceptive statement or explanation to an auditor only where it is written. If the amendment is seen as a way of addressing the gap opened up by his Amendment No. 44, I do not think that that is a good enough reason for this amendment. Giving the auditor the right to require a person to provide the information or explanation in writing does not change our view about the desirability of that amendment, to which we will come later.
So, in simple terms, we do not think that this is necessary. The auditor would be able to get a written statement if he so wished.
Lord Hodgson of Astley Abbotts: I can reassure the Minister that Amendment No. 44 stands alone. This amendment is not linked to it in any way.
Our advice is that existing law provides for an explanation to be given in writing. The Minister may say that that does not matter but, of course, his officials have argued strenuously that changes elsewhere in the Bill which drop provisions—this happened in regard to vouchers yesterday—indicate that Parliament's will might be altering. If it stated "written" before but does not state "written" now—which is probably a matter of fact that his officials can confirm—why does not this provision indicate that Parliament's will is changing on this matter? If "written" is to be dropped, surely the courts will interpret that accordingly. Does the Minister wish to comment on that?
Lord Sainsbury of Turville: Yes, I do. I do not think that anything I said should imply that we are changing here. There is not a requirement for information to be written now and we are not proposing a change to that. The noble Lord seems to suggest that a barnacle should be added to the ship, rather than taking one away.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister for that explanation. If the provision is not in existing law—our legal briefings suggested that it was and that therefore there would be a reduction or a weakness—and as I do not know the detail, I shall obviously take further advice. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hodgson of Astley Abbotts moved Amendment No. 32:
Page 10, leave out line 14 and insert—
"(a) any officer of the company or those employees of the company engaged in the preparation of the company's accounts:"
The noble Lord said: We arc still on the same clause. We now come to consider the position of employees for the first time, to which the Minister referred in his reply to Amendment No. 31. Amendment No. 32, which is grouped with Amendment No. 76, would limit the people who must provide information to the auditors not just to officers or employees of the company, but also to those who are engaged in the preparation of the company's accounts. Therefore, the amendment would confine the auditors' source of information to those who are engaged in preparing the company's accounts.
By this and the next group of amendments, we wish to probe the Government's thinking on the position of employees. Although it seems unjust to put every employee in the firing line, we recognise the force of the argument that it is more reasonable to permit the auditor's inquiries to include those involved in preparing the company's accounts, because the verification of the accounts is the auditor's key role. The law should give the auditor access to information relevant to his task. If the auditor asks to look over all information stemming from every possible source within the company, however unrelated it might be to the company's accounts, there may be a risk that the focus of the audit becomes blurred—as, indeed, does the role of the auditor. Some might argue that if the scope of the auditor's duty is to become as extensive as that, is he not in danger of becoming an investigator rather than an auditor?
As we understand it, it should be noted that those included in the range of the auditor's rights to information under the provisions of this clause would include anyone who was formerly an employee or officer of the company at any such time—that is in new Section 389A(2)(e). The upshot is that the duty of cooperation goes far beyond those responsible for the company at the time of the audit. Rather, the duty would be imposed so widely, with co-operation demanded of not only "any employee" but also of any past employee. That is indeed a wide definition.
Bringing all employees within that provision with its criminal sanction not only has drawbacks that may be undesirable to companies, employees and even to auditors, but creates what is essentially a duplication. As we shall debate under later clauses, the directors are under a duty to ensure that the auditors are made aware of all relevant information—at new Section 234ZA, page 12, line 11. Therefore, the scope of this clause should be limited to those engaged in the preparation of company's accounts. I beg to move.
The Deputy Chairman of Committees (Lord Lyell): I advise the Committee that if Amendment No. 32 is agreed to, I shall not be able to call Amendment No. 33.
Lord Sharman: I think that the narrowing of those people who would be obliged to provide information to auditors would be very dangerous. An audit is concerned with the verification of accounts. but in so doing it has to take a judgment over many matters and many items that appear in those accounts. In doing that, it will need information from many people who arc not directly, or even indirectly, involved in the preparation of those accounts.
I can think, for example, of an organisation such as an oil and gas company and those responsible for the booking of its reserves, which might have a fairly significant impact on the depreciation charges. None of those people would be directly, or even indirectly, involved in the preparation of the accounts, but they would have a very significant impact on the judgments that could be arrived at in so doing. I am afraid that I cannot support the amendment. I think that it is too narrow.
Lord Hodgson of Astley Abbotts: In the circumstances of oil and gas reserves that the noble Lord has just described, could he envisage that this would be undertaken by a person who was not an officer of the company?
Lord Sharman: Yes, I can. There may well be a situation where the individual responsible for booking the reserves of an oil and gas company may not be a director or an officer.
Lord Sainsbury of Turville: The amendments would weaken what the Government propose. I shall speak first to Amendment No. 32, which would amend Clause 8. This would restrict the ability of the auditors to require information and explanations to only those employees engaged in the preparation of the company's accounts. Our purpose is to enable the company auditors to carry out their duties more effectively and thus to increase the reliability of and confidence in company accounts. The noble Lord's amendment would restrict the scope to those employees involved in the preparation of accounts. In our view, that would weaken the provision significantly.
It is a little difficult to know who would be covered by the phrase,
"engaged in the preparation of the … accounts".
Even if some fairly wide definition could be found, there may well still be others holding relevant and valuable information who should be under an obligation to answer an auditor's questions.
In practice, the auditors talk to and ask questions of a wide range of employees and this is likely to go well beyond those who could in some sense be said to be involved in the preparation of the company's accounts; to cite a simple example, those who are responsible for the company's stocks. The auditor should be able to require information and explanations from all those employees who he feels may be able to provide such information as he thinks necessary for the performance of his duties as auditor.

GC 79
The idea that the auditor needs information only from those involved in the preparation of accounts seems to be based on a very outdated view of what an audit is about. For example, it is essential, not least to enable the auditors to assess the risks to the entity, for the auditor to obtain a good knowledge of the business of the entity. An excellent way of obtaining that knowledge may well be by questioning those in a wide range of functions, such as computer personnel, internal auditors and senior operating personnel. All are good examples of such people.
I turn now to Amendment No. 76 to Clause 12. This clause provides the Financial Reporting Review Panel, the body which reviews the annual accounts of public and large private companies, with a statutory power to obtain relevant information from the company, and from any officer, employee or auditor of that company. This raises similar issues to those we have already discussed in relation to Clause 8.
To date, the FRRP has relied on voluntary co-operation to get the information it requires, and this has worked. Rarely in practice has the panel encountered difficulties in obtaining what it needs to carry out an investigation. However, with the panel moving on to a more proactive footing and increasing the number of accounts it reviews, there is clearly an increased likelihood, if only in pure number terms, of a company failing to co-operate. We have therefore sought to provide powers for the FRRP in Clause 12 which are wide enough to enable it to have access to all the information and documentation it needs to undertake its work—no more and no less than that.
In most cases, the FRRP will be interested in getting documents or information from those employees who are or were involved in the preparation of the accounts, but that need not always be the case. As I mentioned in the context of Clause 8, there are difficulties of definition. What does it mean to be engaged in the "preparation of the accounts"? There may well be other employees holding some information which would be relevant to the FRRP investigation, and in exceptional or complex cases the FRRP may want to talk to a wide range of employees, not just those involved with the accounts. Again, the example of company stock is an obvious one. Clerical assistants and personal secretaries may also hold valuable information. Is the personal assistant to the finance director a person who is,
"involved in the preparation of the company's accounts"?.
That is a debatable point.
This amendment would introduce an unnecessary degree of uncertainty. It is clearer and better to have a general obligation on employees to comply with requests from the FRRP. But I must emphasise that this is not an unfettered power. Whoever the employee is, under subsection (2) the FRRP can only require the provision of information that it may reasonably need for the purposes of the functions it has been authorised to perform.
While I cannot accept these amendments, I am grateful to the noble Lord for giving me the opportunity to outline the Government's intention in these matters. I hope that I have reassured the noble
GC 80
Lord that while our version of these provisions is slightly wider than would be the case if this group of amendments was accepted, what we are introducing is proportionate and, in the case of the FRRP, properly safeguarded.
Lord Hodgson of Astley Abbotts: We did not expect the amendments to be appreciated with open arms, but we wanted a chance to discuss them and the wider issues that come in the next two groups of amendments. I understand the difficulties of definition, and see the recommendations made by various review bodies. I also understand the points made by the noble Lord, Lord Sharman, although he was a little abrupt on the question of whether an officer should have passed his opinion on a major issue involving a company. However, I am perfectly happy to beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
3.45 p.m.
Lord Hodgson of Astley Abbotts moved Amendment No. 33:
Page 10, line 14, leave out "or employee"
The noble Lord said: Amendments Nos. 33, 36 and 77 have been grouped together, and I shall speak to them all. They cover a wider aspect of the arguments that we discussed on the previous group, and propose a more radical solution. We hoped to table them so that we could discuss them before the previous group, but were told by the Table Office that, unfortunately, we had to deal with the other group first due to the way in which we tabled them.
The amendments remove every employee from the auditors' potential line of inquiry. There are two parallel and, at times, overlapping issues on which we wish to probe the Government's thinking. The first is the position of employees of a UK-incorporated company or its UK-incorporated subsidiary, whether they are working in the UK or overseas. The second regards UK companies that have subsidiaries incorporated overseas and the position of their employees, which is dealt with in the next group of amendments. However, Amendments Nos. 33, 36 and 77 deal with the first issue; namely, the extension of auditors' rights to information to include employees of UK-incorporated companies and their UK-incorporated subsidiaries.
The first two amendments withdraw auditors' rights to information extending to all employees. Amendment No. 33 leaves out the employee of the company from the list of those from whom the auditors have rights to information. Amendment No. 36 leaves out the employee of any such subsidiary undertaking from the same list. Amendment No. 77 concerns Clause 12. which is on the power of the authorised person to require documents, information and an explanation. That amendment leaves employees of a company out of the scope of the auditors' rights to information.
Currently, the Companies Act 1985 entitles the auditor or an authorised person to ask for information or documents from officers of a company. such as directors,

GC 81
company secretaries or managers—that is, people who have direct knowledge and/or responsibility for the company's affairs. The Explanatory Notes state at paragraph 42:
"Clause 8 reflects a recommendation in the Company Law Review".
The recommendation was that,
"employees should be brought within the scope of the current duty and its criminal sanction".
We have had a very useful briefing from Mr George Bompas QC, a leading commercial Silk. He tells us that the recommendation appears to have been directed at employees of companies subject to audit in accordance with the Companies Act, not at employees of subsidiary companies—whether or not GB-incorporated—and to have been aimed at imposing on that class of person a direct duty to provide an explanation where the auditors think it necessary for their audit. In other words, the recommendation of the company law review would have been sufficiently dealt with by including, in existing Section 389A(1), "and employees" after "officers", and, in existing Section 389A(2), "or employee" after "officer".
In fact, the new draft of Section 389A goes further. It extends the range of persons from whom the auditors have the power to require information and explanations. Those newly included under it are: employees of the company; persons holding the company's books, accounts or vouchers; officers, auditors and employees of the company's GB-incorporated subsidiaries; and persons holding the books, accounts and vouchers of any such subsidiaries.
Our amendment focuses on the first of those categories: the employees of the company or its subsidiaries. We examined that extension in the light of the extensions proposed in Section 389B in Clause 8 on page 11, which states that any person giving misleading evidence to an auditor is guilty of a fine, imprisonment, or both. It could be argued that it is quite a leap to include "any employee" within that liability, and going beyond what the company law review suggested.
"Any employee" is a broad category, which may usefully need further defining. At what level does "any employee" stop? Does the clause, for example. extend to the postman and the photocopy attendant? How will they be made aware of the serious nature of the inquiries being made of them and of the consequences which may follow from an answer that may be given capriciously or without due reflection? What is their position if they were to give false information after persuasive instructions from a superior? There is an issue of "equality of arms"—equal knowledge, equal sophistication and equal awareness. It could be too easy for very junior employees to become unwittingly caught up in a maelstrom in no way of their own making. We wish the Government to explain more clearly the parameters of the definition of "any employee" and how the new provision will work.
Furthermore, the main interest of the auditor is to extract relevant material—be it explanations, statements or documents from the company in
GC 82
question. For that to be achieved with maximum effect, total co-operation is needed from the relevant persons. If the relevant persons are junior employees who are aware that they now fall within a liability that could result in imprisonment, will that cause them to be more or less forthcoming with material?
The law should unquestionably come down heavily upon a director or an officer who submits misleading, false or deceptive information. A director has obvious obligations to a company as well as a full understanding of the consequences of misleading an auditor. The same cannot be said of every other employee, particularly those of minor ranking. "Employees" should therefore be omitted from this field of responsibility. I beg to move.
Lord Sharman: First, I apologise to the noble Lord for my abruptness. If he felt that I was abrupt, it is only a reflection of how deeply held are my views.
The issue that we come up against here is one that we touched on yesterday—the conflict between the legal and the accountancy professions. We have enough problems with auditing at the moment; auditing is under pressure, has been criticised widely and, in many cases, access to information has been restricted. If one considers auditing failures, one will find time and again that they happened because of restricted access or because access has been in some way curbed.
I contrast that with the Government's attitude and the general international development towards encouraging whistleblowing. If one is going to encourage whistleblowing, one must have a process that responds to that. Part of that process means that the individual employee has to feel responsible for blowing the whistle when something is going wrong. I find it very difficult to see how one removes the responsibility from the individual employee to provide the information that the auditor wants and at the same time say that he must blow the whistle if he sees something going wrong. There is a conflict here, which we need to be careful in resolving.
I always start from the basis that an auditor must have unrestricted access. To restrict access means effectively that one is saying that one is not going to let him do his job properly. We must be very careful about pulling back those parameters.
Lord Sainsbury of Turville: In some senses, these amendments cover old ground. I will not repeat the arguments about why employees should be covered. I see no need to set limits on the questioning of employees. Obviously, the auditors will have queries only for those who may have relevant information. Although, in practice, that may involve asking the postman for information, that may be the best way of finding out what is happening in the company. I do not think that we need worry too much about where the line is drawn.
The noble Lord raised one new and very important question—the argument that Clause 8 imposes too great a burden on employees. He argues that the Bill's requirements place an unreasonable burden on the

GC 83
employee. Of course, we recognise the need to strike the right balance between the rights of the auditors and the burdens placed on employees. We think that the clause achieves just that.
I emphasise that there are important protections for the employee. The employee does not commit an offence simply by giving information that turns out to be false or by failing to give that information. The information must be false in a material particular. The employee must have known that the statement was false or have been reckless as to whether it was false. The employee is protected against self-incrimination, and the employee is able to show by way of defence that it was not reasonably practicable to provide the information.
There is another issue. The employee may still be in an impossible position when, for example, a manager makes it clear that he does not expect employees to co-operate with the auditor. There may be circumstances in which it proves difficult for the employee. However, those are likely to be cases where the management has something important to hide from the auditor. Placing an obligation on the employee, as this clause does, overrides any duties of confidentiality that the employee might otherwise owe to the company.
Employment law has, of course, long allowed employees, subject to qualifying service, to complain to an employment tribunal if they believe that they have been dismissed unfairly. A dismissal where the employee is simply fulfilling his legal obligation under this clause would almost certainly be an unfair one.
Finally, how will employees be aware of their obligation? We will, of course, expect companies to make their employees aware of the obligation. It is also for the auditors to make the position clear to employees when requiring information from them. I hope that I have demonstrated to the noble Lord why employees should be covered. As for this group of amendments, we think that the employee would have proper protection if he provided information to the auditors.
Lord Wedderburn of Charlton: I entirely appreciate my noble friend's case that the auditor must be entitled to the kind of information that he is describing. However, he said that if an employee was in some way disadvantaged—I think he said "dismissed"—then he would "almost certainly" find that he is justified in any other proceedings. Does my noble friend think it would perhaps be sensible to consider striking out the "almost" and making other provision in the Bill?
Lord Sainsbury of Turville: That is an extremely important point, which is quite properly covered in the normal way. If a person were dismissed, that would be a matter for an employment tribunal. I do not think that anything is added to his protection simply by saying that he is protected in that way.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister, particularly for listing the protections available to employees, especially junior employees,
GC 84
on this equality of arms issue. I accept the basic premise about the need for the auditors to be able to obtain information that is as unfettered as possible. I have no wish to find myself as the nut in the cracker of the accounting and legal professions. However, I hope the Committee will forgive me if I consult again and, if I have fresh ammunition, bring back the amendments. I heg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 34 not moved.]
4 p.m.
Lord Hodgson of Astley Abbotts moved Amendment No. 35:
Page 10, line 17, leave out from "company" to end of line 18 and insert "including subsidiaries outside the United Kingdom"
The noble Lord said: We come to the second barrel, so to speak. This is a group of six amendments that deal with the other half of the issue; that is, employees outside the United Kingdom. Here, a distinction is being drawn between UK-incorporated subsidiaries and subsidiaries incorporated outside the UK. At Second Reading, we raised and recognised the difficult questions involving extra-territorial jurisdiction. These amendments are designed to probe and question and to encourage the Government to illuminate their thinking on this point.
Amendment No. 35 alters the auditors' rights to information from being limited to "any subsidiary undertaking, which is a body corporate incorporated in Great Britain" to "any subsidiary undertaking, including subsidiaries outside the United Kingdom". Amendments Nos. 38, 39 and 41 are consequential. They seek to remove subsections (3), (4) and (5) of new Section 389A, which explain the distinctions between the treatment of subsidiary undertakings incorporated inside Great Britain and those incorporated outside.
Amendments Nos. 75 and 78 concern Clause 12 and the issue that we considered in the earlier groups. They face the other way and seek to include the company's subsidiaries within the power of the authorised person to require documents, information and explanations. Nevertheless, they raise the same issues of extraterritoriality, so we have grouped them.
Under the Bill, the officers and employees of a subsidiary incorporated outside Great Britain are not under any duty to respond to requests for information or explanations and, as I understand it. cannot be made criminally liable.
Subsections (3), (4) and (5) of new Section 389A explain that, imposing instead upon the parent company the duty of obtaining from the subsidiary, its officers, auditors, employees, and persons holding the subsidiary's books, accounts or vouchers, or any former officers, information or explanations reasonably required by the parent company's auditors. That different regime applies even though the subsidiary incorporated outside Great Britain may be carrying on business inside the United Kingdom and, indeed, may have a greater UK presence than a GB-incorporated subsidiary of the same parent which is carrying on all its business outside the United

GC 85
Kingdom. In other words, an overseas subsidiary may be doing business in the UK greater than that of the parent company itself.
The thinking behind those provisions seems to be that it would be wrong to impose duties and criminal sanctions on foreigners. However, the proposal for separate regimes applicable in the case of GB-incorporated companies on the one hand and non-GB incorporated companies on the other must be seen to be crude and unsatisfactory. That is particularly true when bearing in mind that employees and persons holding documents of a company may have no idea whether the company that employs them is a GB or a non-GB incorporated company, and that their own duty and liability will depend not on the place where they are based or where the company carries on its business, but on the accident of the place of incorporation of the company that employs them.
The Government claim that the Bill is part of their strategy to help restore investor confidence in companies following recent corporate failures. Others have less kindly called it a knee-jerk reaction. But however described, the Bill is largely the product of recent mishaps in America with WorldCom and Enron. The only comparable financial debacle in the UK is the events concerning Barings Bank. Problems and fraud within Barings Securities Singapore as an offshore subsidiary of Barings brought down the parent. Yet under the Bill, there will be no direct authority to go into the affairs of the Singapore company. Is that a sensible and coherent approach?
The intention of the amendments taken as a whole is to put overseas subsidiaries on a level playing field with UK subsidiaries. The noble Lord, Lord Sharman, said that accountants need unrestricted and unfettered access. So be it. We do not underestimate the difficulties of this approach, but if restoring investor confidence is really what the Government are seeking to achieve, that would be best achieved by including subsidiaries incorporated outside the United Kingdom within the jurisdiction covered in Clause 8, providing for a single regime applicable wherever the subsidiary is incorporated.
If the Government feel that that is too extreme for foreign jurisdictions and wish to keep the distinction. the rational solution would be to use Amendment No. 36 and remove subsidiaries' employees from these provisions. I beg to move.
Lord Sainsbury of Turville: I am grateful to have this opportunity to discuss the issues raised by the noble Lord's amendments, which relate to the issue of group auditors and overseas subsidiaries. I should like to begin by addressing the amendments to Clause 8—that is, Amendments Nos. 35, 38, 39 and 41. Perhaps I can explain why we cannot support these amendments and then comment on some of the wider concerns raised at Second Reading about the auditors' right to information from an overseas subsidiary.
GC 86
The noble Lord, Lord Hodgson. mentioned at Second Reading the example of Barings Bank, where a failed overseas subsidiary brought down the whole company; and, of course, the role of overseas subsidiaries seems to be a significant element in the Parmalat case. I do not think our response can be described as "knee-jerk". We gave careful deliberations to the whole issue before bringing forward these carefully judged changes.
Amendment No. 35, the substantive amendment, would place obligations on overseas subsidiaries, their directors, employees and some others. It would introduce an extra-territorial element into the legal rights conferred on auditors. In all likelihood the only connection such people have to Great Britain is that they are directors of, or are employed by, a company which happens to have a GB company as its holding company. I accept the noble Lord's point that there may be cases where such companies have significant operations in the UK. We do not intend to impose direct obligations and penalties on such persons.
Of course it seems desirable to place such direct obligations on those who have the relevant information, but we do not think this is reasonable or likely to be effective. In practice, it would be very difficult to enforce the obligations that could arise as a result of the amendment. It is not a practical way of ensuring that auditors of an international group headed by a GB parent get all the information they need. In any event, to claim jurisdiction on that basis risks undermining our position in resisting claims by foreign states to exercise jurisdiction in the UK.
Nevertheless, we share the concerns expressed that what happens in an overseas subsidiary is all too often the cause of serious problems or worse for an international group. Barings Bank and Parmalat are high profile examples of that. There is a role for the law in facilitating the auditor's access to information on overseas subsidiaries. Thus, both the existing law and the Bill place a specific requirement on a GB parent, when asked by the auditor, to take all reasonable steps to obtain the required information from the subsidiary. We think that is the best approach and we think it is effective.
There is a criminal sanction against the parent provided for in new Section 389B; and, very importantly, the auditor, under Section 237(3), must state if he has not received all the information and explanations necessary for the purpose of his audit. Any indication by the auditor that he may make such a statement unless he gets adequate information about the subsidiary is likely to focus the minds of the directors of the parent company very sharply indeed.
Let me now turn to the similar amendments which the noble Lord proposes to Clause 12. I briefly remind the Committee that Clause 12 provides the Financial Reporting Review Panel, the body which reviews the annual accounts of public and large private companies, with a statutory power to obtain relevant information from the company and from any officer, employee or auditor of the company.

GC 87
The points raised by the noble Lord about subsidiary companies are interesting and I shall do my best to address them. In order to do so, I need first to distinguish between domestic subsidiaries and foreign subsidiaries. In respect of the former, we do not believe that the clause needs to make any special provision. We are trying to keep the powers of the FRRP as straightforward as possible. It seems to us that all that is required is the power to require the documents, information and explanations from the company whose accounts are being looked at. That may include relevant information about subsidiaries where this is pertinent to the group's accounts, because group accounts are, of course, the accounts of the parent company.
If the FRRP concluded that as a result of its investigations into the parent company it should also carry out a review of the accounts of a subsidiary company, it could open an investigation into the accounts of that company and then, of course, use the Clause 12 powers in relation to that company as well. It would have to satisfy the criterion set out in Clause 12(1)—
"that there is, or may he, a question whether the annual accounts of a company comply with the requirements of this Act".
The case of overseas subsidiaries is somewhat different, and what I have just said about the amendments to Clause 8 applies here as well. It is neither straightforward nor generally desirable to empower a UK regulator or auditor to require overseas companies to produce documents. I do not think that it is worth going into all the arguments again other than to emphasise the point that this would introduce an undesirable extra-territorial element. We do not think that that approach would be reasonable or desirable or, above all, effective. So it is not a practical way of ensuring that the FRRP obtains the information it requires to undertake its work. On those grounds, it will be clear why we should like to keep the clause as it stands.
Lord Hodgson of Astley Abbotts: As I said, I understand the issue of extra-territoriality, which is clearly sensitive. Our difficulty with the present proposal may be made clear with a practical example. A UK company has a French subsidiary incorporated in France and shares an office with the French sales subsidiary of a UK-incorporated company. Two people could be sitting next to each other at their desks because they happen to operate out of the same office. However, one person would be criminally liable for information given while the other would have absolutely no obligation. That is where we encounter the hard point of the issue, and whether it is a sufficiently hard point to deal with the question of extra-territoriality—one that is complex and has major inward implications for the United Kingdom requires further reflection.
GC 88
Having heard the Minister's thoughts and comments, and bearing in mind the wish of the noble Lord, Lord Sharman, to have unfettered access—-I know that he is keen on that—I shall withdraw the amendment, reflect on it and perhaps come back to the matter.
Amendment, by leave, withdrawn.
[Amendments Nos. 36 to 41 not moved.]
Lord Hodgson of Astley Abbotts moved Amendment No. 42:
Page 10, line 40, leave out "concerned" and insert "as defined in subsection (4)"
The noble Lord said: I am glad that I have the noble Lord, Lord Sharman, on my side this time. Amendment No. 42 still relates to Clause 8, subsection (5)—which, I shall point out before another noble Lord rises to do so, is a subsection that under a previous amendment we sought to leave out. But never mind that. We hope that this amendment will provide a nice alternative for the Government.
Subsection (5) provides that when an auditor requires information from an overseas subsidiary, the parent company must obtain the information from the person concerned. However, in line 40 the subsection does not specify that the "person concerned" is a person attached to the undertaking as described in paragraphs (4)(a) to (d). For the purposes of clarity, we believe that the term "persons concerned" in subsection (5) should refer explicitly to the previous paragraph. I beg to move.
Lord Sharman: I am delighted to agree entirely with the noble Lord, Lord Hodgson, on this.
Lord Sainsbury of Turville: The noble Lord suggests that the drafting would be clearer if the reference to the "person concerned" in subsection (5) explicitly referred back to the person as defined in subsection (4). I hope that I shall not be accused of unfair prejudice towards accountants if I say that I have some sympathy with the points made by both noble Lords on this.
I do not think that the phrase could be interpreted as referring to any person other than one of those listed in subsection (4), from whom the auditor has required the parent company to obtain information. Nevertheless, the basic thrust of this amendment is right in that it seeks to spell out to whom the phrase "person concerned" refers. However, I cannot accept the amendment as it stands, not least because it refers to persons being "defined in subsection (4)", when in fact these persons are listed rather than defined. Accordingly, we will bring forward at the next stage an amendment expressly to spell out to whom the term "person concerned" is intended to refer.
Lord Hodgson of Astley Abbotts: That is generous of the Minister. After a day and a half of honest endeavour, to have had an amendment more or less accepted I regard as a home run. We are very grateful, and I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
4.15 p.m.
Lord Sharman moved Amendment No. 43:
Page 11, leave out lines 1 to 4.
The noble Lord said: Amendment No. 43 deals with an issue that we have touched on of late, which I might describe broadly as yet further fettering of the auditors' access. Proposed new Section 389A(7)—an exception for legally privileged information—would, if enacted, result in a scaling back of the auditors' current rights to information. Current practice is that such information is available to auditors. It is quite important in the auditors' forming an opinion, certainly on disclosure of contingent liabilities, where there are major cases of litigation.
If the auditors were denied access to such information, it is questionable whether they would be able to form an opinion on whether the accounts gave a true and fair view. As a result, they would have to qualify their approval. Moreover, I cannot see how disclosure of such information to the auditor would prejudice the matter to which the information related. The auditor needs the information to form a true and fair view. He does not need to publicise it to any other party. If the information relates to litigation between the auditor and the entity, the auditor would of course not be able to act anyway, so he would have resigned.
We note that, quite rightly, there is no equivalent exception in Clause 9, which deals with the directors' disclosures. The information in regard to such matters would have to be volunteered in some way. Therefore, the exception in Clause 8 is an ineffective anomaly and needs to be removed. I beg to move.
Lord Razzall: I support my noble friend, and should say that Hansard should record that, for the first time, a Member of the Liberal Democrat opposition has managed to seize a Dispatch Box. Characteristically, my noble friend understated the problem. When an audit occurs, the normal format in relation to any form of litigation—potential claims or actual litigation going on—is that the auditors will write to the company, asking for an opinion from the firm of solicitors advising it about the litigation. They will ask whether there is a potential claim and what the potential magnitude is.
As a former practising solicitor, I assure Members of the Committee that, when that letter arrives from the company or the auditors, it is a serious matter for the firm of solicitors. If they write an opinion that indicates that the claim is scurrilous or on the other hand potentially worth £125 billion, there is serious potential liability for that firm of lawyers if the statement is wrong. If the clause were implemented in its current form, as surely as night follows day, any firm of solicitors worth its salt, when asked for that opinion by either the company or the auditors, would simply say, "I'm terribly sorry; that is a matter of legal professional privilege and, under Section 8(7) of the new companies Act I do not have to provide it".
We will actually have endless company reports where the auditors say, "We have to qualify the accounts because we cannot form a true and fair view".
GC 90
The reason that they will not be able to do so is that the firm involved—Linklaters, Freshfields, Slaughter and May or whoever—will have written a letter quoting the clause and saying, "I'm terribly sorry; we can't give an opinion". It will relieve endless firms of solicitors and insurers of professional firms from their potential concerns on the issue. Therefore, I would have thought that the clause, which is apparently small, would have a devastating impact on the production of companies' accounts.
Lord Hodgson of Astley Abbotts: I do not wish to be seen again as the voice of the legal profession, but we have some concerns about the proposal to remove subsection (7) because of the fundamental nature of legal professional privilege and its removal being undesirable except in exceptional circumstances. As we have said in previous debates, we are in favour of facilitating the auditor's right to information, and the immunity of professional privilege embodies a substantial legal right that should not be easily overridden. However, we are not sure that the case made here justifies that approach.
The noble Lord, Lord Razzall, referred to the impact on companies' accounts but, if I were a director of a company and the result was that my accounts would be qualified, I would go to my solicitors and say, "I would like this sorted out because I do not want to find myself with a qualification on my accounts". That is far more dangerous than anything else.
As a director of a company, I would want the auditors to sign on to a true and fair view. Their great power is to refuse to sign unless they get the information to enable them to do so. In those circumstances, what is proposed here tackles and weakens a fundamental civil and legal right. On the arguments we have heard so far, I am not convinced that we should give it our support.
Lord Sainsbury of Turville: When a lawyer and an accountant join forces, one should look very carefully at what is being proposed. In this case. I think that the lawyer rather than the accountant is probably on the stronger ground.
The aim of Clause 8 is to increase the ability of auditors to carry out their duties effectively, thus increasing the reliability of, and confidence in, a company's accounts. It achieves this by strengthening the existing rights of company auditors to obtain information and explanations by entitling the auditor to require information and explanations from a wider group of people and by introducing a criminal offence for the failure to provide such information.
The Committee should note that I said "strengthening the existing rights of company auditors". It is not our intention that Clause 8 should change the position in respect of legal professional privilege. Subsection (7) therefore makes it explicit that an auditor cannot require a person to give information which is subject to legal professional privilege.
We believe that it is desirable to make this explicit because the Bill creates a new criminal offence in new Section 389B(2), inserted by Clause 8, where a person

GC 91
fails to comply with a requirement to provide information or explanations. There is an issue as to whether disclosure to the auditors of such information would involve an infringement of legal professional privilege, given the particular nature of the relationship between the company and the auditor.
However, the auditor's duties may involve the disclosure to the public of the information he obtains if it calls into question the truth or fairness of the accounts. Although the arguments are finely balanced, we believe that this would mean that a disclosure to an auditor of information subject to legal professional privilege might lead to disclosure to the public and thus involve an infringement of that privilege.
Thus, as the law stands, we think it unlikely that auditors currently have the power to require officers of a company to produce information in respect of which legal professional privilege could be claimed. The Bill puts that beyond doubt in the context of the new criminal offence.
I also agree with the noble Lord, Lord Hodgson, that the problem raised by the noble Lord, Lord Razzall, is in practice not a serious issue because of the way in which companies would behave. Where an auditor believes that he is not receiving the required information for the purpose of his duties as an auditor, on the basis that such information was subject to legal professional privilege, he would consider whether to qualify his report on the accounts. We believe that, faced with this possibility, the directors would choose whether to waive their right to legal professional privilege and disclose the information to the auditor, or to protect the privileged information and risk the adverse consequences of qualified accounts. We believe it is clear what decision they are likely to take. On that basis, we oppose the amendments.
Lord Wedderburn of Charlton: This privilege is a very important right, but it is not a divine right. What is at stake here, if I have understood the matter at all, is what the auditor has a right to know. It is the very important issue of producing proper accounts. My noble friend mentioned Parmalat and other dreadful matters, of which very little is said here. But that is becoming increasingly important to a wider and wider sector of the community, and to the public interest. Is it really necessary to include a clause that simply makes a pronouncement of legal professional privilege a complete barrier, no matter what the course of action in the litigation or the parties involved, and no matter what else is involved?
Would it not be possible to produce a more limited clause giving legal professional privilege in some areas its right as an answer but not as absolute as in the Bill? I do not know, I must admit, what is the position of the professional bodies on the matter, but I should be very surprised if all lawyers demanded this absolute subsection, which really seems to go very far.
Lord Razzall: Following on from that, I should like to give a practical example. If I may dare to be so bold, the Minister, whose brief was probably written before
GC 92
he heard what my noble friend Lord Sharman or I had to say on the topic, has not actually answered the question.
Let us take the example of Enron. Suppose that we had an Enron situation in the United Kingdom: and the Crown Prosecution Service, if it was still called that, chose to launch prosecutions against the Enron-equivalent directors before the audited accounts had been produced. The clause would mean that anyone involved in producing the audit or in what had happened would be able to say to the auditors. "I am terribly sorry, but I am not gong to disclose the information you have asked for because I am protected by Clause 8(7)". That would be because,
"a claim to legal professional privilege",
would apply in relation to all those matters, because a prosecution had been launched. That cannot be right.
It cannot be the intention of the legislation to enable people to shelter behind legal professional privilege in failing to give information to the auditors. Incidentally, auditors under their own professional rules would be under an obligation not to disclose. They can disclose the conclusion that they draw—that this forms a true and fair view and that in their belief there must be a contingent liability note that Enron owes 125 billion dollars to whomever. But there is no obligation on the auditors to disclose to the public any information that they have. In those circumstances, the company and its professional advisers could simply shelter behind the clause and fail to give the auditors the information. That cannot be right.
Lord Sainsbury of Turville: Of course, my answer was drafted very carefully before I heard the words of the noble Lord, but I thought that the anticipation was very good and answered exactly his point. As I hope that I made clear, in practice, any company faced with an auditor threatening to qualify the accounts because he could not get hold of the information would, without any question, unless there was something appalling to hide, ask for the legal privilege to be waived. Therefore, in the specific matter of auditors considering accounts, I cannot see that that would in any way impede people getting the information.
4.30 p.m.
Lord Razzall: Were that the case, what would be the need for the clause, if every company would simply waive it?
Lord Sainsbury of Turville: This is a new criminal charge, so the situation should be clear.
Lord Sharman: It is important to understand the nature of the qualification that would result. There would be a withdrawal of opinion, which would not mean that the accounts do not present or that they present subject to certain matters; it would mean, "We cannot form an opinion", which does not take us anywhere.
Lord Wedderburn of Charlton: With the greatest respect, I did not find my noble friend's reply totally

GC 93
convincing. One is always suspicious of the argument that a legal provision that appears to be absolute will not work like that in practice, because the next thing you come up with is that the case regarded by the authority as exceptional is where it does work like that. As I understood him, my noble friend accepted the argument on Enron. Having done a certain amount of reading on Enron, I was not entirely sure that the noble Lord, Lord Razzall, could not be criticised in his argument. Broadly speaking, however, my noble friend appears to accept that, in an Enron situation, the clause would be the answer and the end of the matter.
Lord Sainsbury of Turville: If Enron had come forward and said, "Our accounts are being qualified by the auditor because he cannot get hold of this legal information", even in the state of market opinion that we have sometimes had, I can see no circumstances in which a company could deal with that. The noble Lord, Lord Sharman, who probably has much greater expertise in the area, seems to believe that companies can tell the Stock Exchange, "Our accounts are qualified because we cannot get hold of this legal advice", and that people will say that that is a minor technicality. I fear that I do not believe that that is how the world works.
Clearly noble Lords have strong views on the issue. In particular, there is the question of whether, in subsequent investigations as opposed to the initial stages, there is an issue about auditors' rights of information. We certainly do not intend to scale back on the auditors' rights of information. On that basis, I should very much like to take another look at the amendment.
Lord Sharman: When the Minister looks at the amendment, will he consider the proposition that a qualification that results from an inability to obtain information is normally an expression of what is known as a "no opinion", meaning "We are unable to form an opinion". In circumstances where the information withheld is so catastrophic or important to the formation of that view, there may be a board of directors that would regard that as a better solution than providing the information and the consequent opinion that would flow therefrom.
Lord Sainsbury of Turville: That obviously raises questions about the noble Lord's clients. We will take the matter away and look at it.
Lord Sharman: Having listened to the Minister's response, I thank all noble Lords for their contributions. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hodgson of Astley Abbotts moved Amendment No. 44:
Page 11, line 7, leave out "statement (oral or written)" and insert "written statement"
The noble Lord said: We are still winding our way through Clause 8, on auditors' rights to information. This amendment relates to new Clause 389B, on the
GC 94
offences relating to the provision of information to auditors. Punishment for those offences includes imprisonment, so it is a serious matter.
The Bill gives auditors the option to take statements in written or oral form. Our amendments seek to limit the auditor to taking written statements because of the risk of errors and misunderstanding that could arise from relying on oral statements alone. Let us consider the practicalities of the provision. For example, as a director of a company, I may be interviewed by the auditor and he or she may make notes of my remarks, which may well be written up, if at all, in a hotel room or office hours or days later. What I think I said and what the auditor thought I said could be very different, not for reasons of malice but because of the jumbled process of normal human communication. This amendment is designed to avoid those complications by forcing auditors to prepare written statements, where relevant, and to obtain a sign-off.
I am aware that the unamended formulation of words is to be found in Section 389A(2) of the Companies Act 1989, but there are some important points to be made. First, on effectiveness, according to legal advice, only one case about the use of oral evidence has been brought since the provisions of the Act came into force. That hardly argues that it is a hugely effective and important provision. Some might argue that, if the provisions cause so few problems, it could be left in. The Minister will know that I am not of that persuasion and believe that, where provisions have not been regularly used over a long period. they should be removed.
The second point relates to extent. As we have already discussed, Section 389A(2) currently extends liability only to officers of the company, but it is now to be extended to any employee. Accordingly, if potentially incriminating statements are to be taken from a much broader and varying range of company employees, including very junior ones, there is reason to argue that the process of statement-taking requires extra diligence.
Finally, there is the issue of proportionality. There is no doubt that we live in an increasingly litigious age, and that the pressure, weight and responsibility on the director of a company increases all the time. In principle, we do not and cannot object to that. but for a non-executive director to find himself or herself in hugely time-consuming, extensive and reputation-damaging litigation that may continue for years because of an oral statement that he or she made is, to say the least, a disincentive to serving on a board.
In summary, the statement given by an officer or employee under the provisions could possibly lead to their imprisonment. We do not believe that notes taken by an auditor from an employee's oral statement have the thoroughness and accuracy that is necessary. Oral statements can often be misleading, and emphasis placed on the wrong word can change the entire meaning of a sentence. Any notes of the speeches that we make in Committee this afternoon will probably differ in little ways. and mistakes may even be made. I dare say that the near-faultless and untiring

GC 95
Hansard writers very occasionally make a mistake, and they rightly consider themselves one of the most practised, professional oral note-takers in the country.
Considering the liability involved, the breadth of those who will now be liable, and the increasing resort to litigation that is part of our society, it seems right that auditors should rely only on written statements. To those who say that the issue is irrelevant because the provision will never be able to be used in a court of law, I reply: why bother to include it? I beg to move.
Lord Borrie: I am not entirely surprised that over all those years there has been only one case of a misleading oral statement. After all, it is much more difficult to prove that an oral statement has been made, because many meetings between auditors and the directors and employees of companies may be on a one-to-one basis, so there may not be much evidence. Inevitably, there is a difficulty of proving that a misleading oral statement has been made. But that should not lead us to delete the word "oral" and confine the possibility of an offence to written statements. After all, there must be some occasions when very seriously misleading oral statements are made. If—naturally, it is a very big "if"—-that can be established by adequate evidence, why should not that offence be considered proved?
The noble Lord has made perfectly reasonable points about the maximum punishment, but that is in the hands of the court, and will no doubt depend on the seriousness of the matter and what is justified.
Lord Wedderburn of Charlton: Surely my noble friend is right. Would not the effect of the amendment—to put it somewhat softly perhaps; but with no hostile intent to the noble Lord who moved it—be that, instead of saying, "Thou shalt not make deceptive statements knowingly or recklessly", it would say, "Thou shalt not make such statements if they are reduced to writing". It is a quite extraordinary provision to put on the statute book.
Lord Sainsbury of Turville: Clause 8 contains important provisions on the rights of auditors to obtain information. These derive mostly from the existing law, but with the significant change that those required to provide information and explanations to the auditor include employees for the first time. That change reflects clear recommendations from both the Company Law Review Group and the Co-ordinating Group on Audit and Accounting. Auditors should be able to ask for information, and expect truthful answers, from as many as possible of those likely to have information necessary for the successful performance of the audit. I very much agree with the noble Lord, Lord Wedderburn, that this amendment effectively says, "You can make inaccurate statements as long as you do not put them in writing".
The noble Lord's amendment would make the task that we have set ourselves more difficult. Of course, there may be greater difficulty in proving that oral information is false or misleading than is the case where information is written. But that is not a good reason for excluding oral information from the scope
GC 96
of the offence. To do so would simply send a signal that it is all right to give a misleading oral statement to the auditors. It is important to uphold, not weaken, the principle that those giving information to an auditor have an obligation to do so honestly.
I think that accepting the noble Lord's amendment would mean that we are taking a step backwards from the current law in this area and would weaken the Bill. Let us remember that the point of the Bill is to increase the effectiveness of auditing, even if it is not used a great deal. I think it sends entirely the right signal—that we are very concerned to increase the effectiveness of auditing.
We considered the position of employees very carefully in relation to the criminal offence, precisely because they may be less aware—than the directors, for example—of the possible consequences of what they say. We think that the clause gets the balance right between protecting the individual and meeting its purpose. In particular, as I said, to be guilty of an offence, a person must "knowingly or recklessly" provide information which is,
"misleading, false or deceptive in a material particular".
Secondly, it is open to a person charged with an offence to show by way of a defence that it was not reasonably practicable for him to provide the required information. Thirdly, the information given cannot be used against him in criminal proceedings for any other offence.
In those circumstances, I think it right and proper to say that all statements by employees, oral or written, should come within the scope of the law. On that basis, we oppose the amendments.
Lord Hodgson of Astley Abbotts: I understand the points made by the noble Lords, Lord Borrie and Lord Wedderburn. I suppose that my practical answer to their point is that if I am making a reckless oral statement to the auditor and the auditor believes that I am doing so, the auditor could say, "Will you now please put that in writing?" In our earlier debate on Amendment No. 31, we suggested that the auditor should have powers to require that matters be put in writing.
Our concern, and the reason why we tabled this probing amendment, is that there will be an increasing amount of litigation—not necessarily because corporate behaviour is less good, but because people are much more aware of their legal rights and how to exercise them. One of the characteristics of those rights is that they take a long time to reach fruition. Directors can spend a long time with a sword of Damocles hanging over their heads. It is a disincentive for good quality people to sit on boards. We therefore wished to probe the Government's thinking on oral statements, which, in the vernacular, can be "flaky". We thought it might be worthwhile to discuss the possibility of placing on such statements the constraints that we have suggested. However, I understand where the Government are coming from. In the circumstances, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Clause 8 agreed to.
Clause 9 [Statement in directors' report as to information disclosed to auditors]:
4.45 p.m.
Lord Hodgson of Astley Abbotts moved Amendment No. 45:
Page 11, leave out line 27 and insert—
"Before the report is approved under section 234A each director shall ensure that the auditors are aware of the information required of him by section 234ZA(1)."
The noble Lord said: With some relief, I leave Clause 8 and move on to the next clause. This concerns the additional statement in the directors' report about information disclosed to auditors. The amendments in this group—Amendments Nos. 45, 48, 53, 56, 58 and 62—all relate to Clause 9.
The clause introduces a new statement under Section 234ZA, which is to be added to existing Section 234. In regard to this clause, I acknowledge the help we have had from Mr George Bompas QC in drafting this group of amendments.
The additional statement requires that at the time of the approval of the report, there is no information of a particular description that has not been disclosed to the company's auditors under Section 234ZA(1). The description of the information in proposed subsection 234ZA(2) is information that any director knows, or which it would be reasonable for him to obtain by making inquiries, and which he knows, or ought to know, to be relevant for the purposes of the auditors' determination of whether companies' accounts have been properly prepared in accordance with the 1985 Act and, finally, information which he knows, or ought to know, the auditors do not know.
Where the statement is made and is untrue, every director of the company will be guilty of an offence and liable to imprisonment, a fine or both, subject to the director himself failing to take all reasonable steps to prevent the approval of the statement when he either knew the statement was false or was reckless as to its falsity under Section 234(7).
According to paragraph 48 of the Explanatory Notes accompanying the Bill, Clause 9 is designed to,
"make it less likely that a director will hold back information from the auditors"—
and is—
"similar to one of the objectives of the recommendation in the Company Law Review".
That relevant recommendation is that directors should be under a duty,
"to volunteer information where the normal standards of directors' care and skill require them to recognise that such information is needed".
However, the criminal sanctions should be applied only to breaches of the extension of the duty where the director knows that the information is material to the audit.
The difficulty with the proposal is that it places on directors, under sanction of serious criminal penalties, a duty of onerous and obscure extent. This is despite the fact that the directors are already under a duty which ought to be sufficient to meet the recommended objective. The warranty which, in effect, each director is required to give by the inclusion of the proposed new statement in the directors' report, is not only that he has himself given to the auditors any relevant information fitting the descriptions in paragraphs (a) and (b) of Section 234ZA(2), but also that each and every other director of the company has also given to the auditor the information he or she should have. In other words, not only are directors bound to search out what they know, or should know, is relevant to the audit, and make sure that the auditors know about it, they are also bound to search out and make sure that each and every other of their fellow directors has done the same thing.
Let us reflect on what this means in reality. For example, a non-executive director on, say, a 15-person board is taking responsibility for every other director, including members of the executive team, for failing to disclose to the auditors relevant information, and is doing so on pain of potential imprisonment. That surely fails the test of balance. Of course each individual director can, and must, take responsibility for his or her actions, but to take responsibility for the actions of all his or her board colleagues is not reasonable. So the amendments limit each director's liability to responsibility for his own actions.
Amendment No. 45 amends subsection (2A) by making sure that before,
"the report is approved under section 234A each director shall ensure that the auditors are aware of the information required of him by section 234ZA(1)".
That ensures that the director accepts and undertakes a direct responsibility before the report is approved. That has the consequential effect of deleting subsection (1) of new Section 234ZA as per Amendment No. 53, because it is no longer necessary.
Amendment No. 48 then replaces subsection (7) of Section 234, and states:
"Where a directors' report is approved under section 234A but the auditors are unaware of information which, as regards any director, is information required by section 234ZA( I ), and the director failed to take all reasonable steps to prevent the report from being approved, the director is guilty of an offence and liable to imprisonment or a fine, or both".
That withdraws the reference to subsection (2B) and withdraws further whether the director knew that the statement was false or reckless, which is not necessary as it is covered by existing statute. It can be seen that the wording from the Bill to the effect that,
"the director failed to take all reasonable steps",
remains in our amendment. While we approve of the duty being placed on the director, it would be helpful if the Minister would explain the Government's thinking on the definition of "reasonable steps" in the light of this new legislation and, indeed, of modern legal practice.
Amendments Nos. 53, 56 and 58 amend subsections (1) and (2) of new Section 234ZA, which is entitled:
"Information to have been disclosed to auditors before directors' report approved".
The amendments replace subsection (2) so that it reads:
"Information is required of a director of a company as mentioned in section 234(2A) if",
the,
"director … is aware of the information or it would be reasonable for a director … to obtain the information by making enquiries".
Paragraphs (b) and (c) continue unamended. With subsection (1) of new Section 234ZA removed by Amendment No. 53, Amendment No. 62 renumbers the subsections so that subsection (2) becomes subsection (1).
The punishment for a negligent director who contravenes Section 234ZA will remain the same, but the amendments make it implicit that the director has a clear personal responsibility to ensure that the auditors have the required information. At the same time, they relieve directors of any joint liability. The wording in the Bill, especially in new subsection (7) in Section 234, fails to make that clear. Hence the necessity for the amendments. I beg to move.
Lord Wedderburn of Charlton: Because of the nature of our procedures, I could not ask the noble Lord while he was still semi-recumbent a question about his rather complicated argument, which I may have failed to follow. If so, I apologise.
As I understood it, he was arguing that Clause 9 as it stands makes the director responsible in virtually every case when one of his fellow directors is at fault. Does he base his opposition on the fact that in such cases the director cannot have taken all reasonable steps, or is there something else in Clause 9 that I have missed, which is the ground for his argument? I should have thought that, if he is resting on the proposition that the director must take all reasonable steps, there would be cases when a director would not be responsible for the fault of his fellow directors, and the responsibility in the clause is indeed personal. I may have misunderstood the noble Lord, and I thought it better to clear up that very simple point at this stage.
Lord Hodgson of Astley Abbotts: Perhaps I may answer that question—I have not become recumbent. As we understand the proposal for the new statement, the drafting requires that a director, in approving the statement, must ensure that all his fellow directors have complied with it. It is joint, several liability, not a single liability.
On later amendments, we will discuss the issue of what information is required. It is very wide-ranging and includes a number of statements, in particular about what the auditors know or ought to know. It is difficult enough for a director to know in respect of himself, but it is even more difficult for him to know exactly how well other members of the board—for example, a chief executive who is working in the company day to day—have complied with the requirement.
GC 100
If, however, the Minister says that we misinterpreted the clause, and that there is only a single responsibility, not joint responsibility for the activities or disclosures of the directors, clearly some of my argument falls away. But we are advised that, as currently drafted, the provision creates a joint responsibility, not a single one.
Lord Evans of Temple Guiting: Clause 9 introduces an important new requirement that the directors' report must include a statement that information required to be disclosed to the company's auditors by the directors has been so disclosed. Given its importance, I wish to spend a few moments answering the questions raised.
The amendments would remove the requirement for such a statement, replacing it with a requirement on each director to ensure that the auditors are aware of the required information. We have listened carefully to what has been said. I understand the concern that we should not impose disproportionate or unreasonable requirements on directors, particularly non-executive directors. I want to explain why I do not think that that is the case, and why we should not change the Bill as suggested in the amendments.
First, I should explain why requiring the directors' report to include a statement is the best way of achieving our objective of strengthening the auditors' position. The statement provides the spur and focus for each director to think hard about whether he or she is aware of any information that it is important for the auditors to know; it encourages directors to discuss this prior to approving their report. The statement is an outward sign that they have done that. The alternative approach in the amendments is much less satisfactory; it would simply place a general requirement on each director.
Secondly, although we do not want one director to take responsibility for the failings of others, we think it right that a director should have regard to his or her fellow directors when considering his or her position with regard to disclosure. Let me explain—this is perhaps the key—why we do not believe that the clause imposes an unreasonable requirement on a company director. I want to be clear, however, that we do not intend to let off the hook a director who is tempted to mislead; a director who knows that another director is concealing critical information but turns a blind eye; or indeed a director who simply could not care whether his fellow directors were concealing information.
The best way in which I can explain why the provisions are balanced and fair is simply to outline what a director would need to do to fall foul of the requirements. The statement of disclosure of information that is required to be in the directors' report applies only to information that meets all the following three criteria. First, the director must be aware of the information, or it must be reasonable for hint to obtain the information by making enquiries. There is a separate amendment to explore what is meant by "reasonable" in this context, so I suggest that we do not consider it now.

GC 101
Secondly, the director either must know or ought to know that the information is relevant for the auditor's determination of his report under Section 235; that it is relevant to the auditor reaching a view that the accounts meet the requirements of the Act. In particular, it must fulfil the requirement that the accounts give a true and fair view. Again, there is a separate amendment on what we mean by "ought to know". I suggestion we leave the discussion on that until later.
Thirdly, the director must know or ought to know that the auditors are not aware of the information. If information exists which comes within the above criteria and which is not disclosed to the auditors, the statement in the directors' report will be false. However, a director does not commit an offence simply by virtue of the statement in the directors' report being false. He or she must know that it is false—for example, because of knowledge that other directors are withholding information—or must be reckless as to whether it was false—for example, because a director does not care whether or not it is false. This is already, deliberately, a stiff test for the prosecution to show is the case.
In addition, the director must have failed to take all reasonable steps to prevent the directors' report being approved. Again, there is a separate amendment to explore that specific provision. The clause does not mean that every director is guilty of an offence simply because one of the directors has concealed key information. Nor does it mean that all directors are treated the same regardless of their function; quite the opposite. What it is reasonable to expect, for example, the finance director to inquire into is likely to be different to what it is reasonable to expect a non-executive director to inquire into. As the clause explicitly makes clear in new Section 234ZA(3), what a director ought to know relates both to the knowledge, skill and experience that can be reasonably expected of someone carrying out their functions and to their actual knowledge, skill and experience.
The noble Lord asked what is meant by Section 234 new subsection (7)(b) where a director takes or fails to take,
"reasonable steps to prevent the [directors] report from being approved".
The purpose of new subsection (7)(b) is to protect the director who does his best to prevent the approval of a directors' report containing a statement concerning disclosure to auditors that he knows to be false. It would be for the prosecution to show that the director had failed to take reasonable steps. What is reasonable will depend on the circumstances.
In conclusion, the requirements imposed on directors by the clause are proportional, balanced and practicable. The honest, reasonably diligent director has nothing to fear. The amendments are undesirable both in that they would remove the need for the explicit statement in the directors' report and because they would limit the requirements on directors. That is not necessary, for the reasons I have given. The effect
GC 102
is likely to be a Bill with less effective provisions. For that reason, I invite the noble Lord to withdraw the amendment.
5 p.m.
Lord MacGregor of Pulham Market: I am not sure that this is the appropriate time for me to intervene in this matter; it may be better on later amendments. As a non-accountant, I hesitate to embark in a debate on these matters, but I have been a non-executive director of a number of companies for some time. I have some concerns about the overall impact of the clause. We shall turn to the references to "reasonable" and "ought to know" later, but they are highly relevant.
I noted that the Minister referred to the fact that a reasonably diligent director has nothing to fear. I like to feel that I am a reasonably diligent director and I certainly have no intention of letting directors off the hook. I should like to explain from where my worries about how this is put together come. I start from the view that I am finding it increasingly difficult to recruit extremely good people to be non-executive directors, particularly for companies that are in regulated industries.
The risk/reward ratio has undoubtedly altered over recent years. The amount of work involved has increased considerably. Therefore, the amount of time that a director has to take, particularly if he is on the audit committee, is now quite substantial and, undoubtedly, has put a lot of people off wishing to do it. My concern is that these issues are exacerbated by parts of this clause. I am not yet reassured by the Minister that I am wrong. I hope that he will be able to do so.
My main concern is that the phrase "ought to know"—"reasonable" is another issue—seems to apply as equally to the non-executive directors as to the finance director. As a non-executive director with an inevitably limited amount of time to spend on the company's affairs—and I spend a great deal of time on audit committees already—am I expected to delve even further to establish what I ought to know? I am certainly concerned that everything I know should be revealed to the auditors, but I do not know how I will actually know what I "ought to know". I am certainly not in the same position as a finance director, on whom I rely very considerably in these matters.
Even if the non-executive director has the knowledge, skill and experience, I doubt whether he will have the time or scope to delve into all the details in an audit report—they are now voluminous—to ensure that he has not missed something which he ought not to have missed. I am therefore concerned about the introduction of "ought to know". Inevitably, a non-executive director relies very considerably on the executive directors and, in large companies, cannot get round the whole company.
"Reasonable" is another issue. I am not clear what would be "reasonable". It is clear that, as the Minister says, one would be dependent on the courts in any particular case. However, with the introduction of "ought to know", I have a fear that many people will feel that they do not want to embark on this risk, because

GC 103
they do not want to find themselves spending a long time in a court establishing the "reasonable" position that they have.
I am also not clear what Clause 234ZA(3) actually means. It refers to,
"the knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as are carried out by the director in relation to the company",
and to,
"the knowledge, skill and experience that the director has".
In terms of the Smith report, we are now seeking to recruit finance directors and accountants—the former senior partners of accountancy firms—to join and chair the audit committee. Is there not a risk that, in this context, it depends what "knowledge, skills and experience" means? Does it mean that a much lesser test will be applied to those who do not have that knowledge and are not accountants, than to the non-executive director who has accountancy skills?
I can see that we are trying to recruit people from a much wider range for non-executive directors, but is that the implication? It would mean that it would be more difficult to recruit non-executive directors who are accountants and finance directors and whom one wants to get on to the audit committee. So I have a number of concerns about this. I hope that I am wrong in my interpretation, but my fear is that it will become more difficult to persuade people to take on these tasks if this clause is phrased in exactly the way it is now.
Baroness Noakes: Perhaps I may echo the points just made by my noble friend Lord MacGregor. The clause is particularly worrying because of the way in which the actions or non-actions of other directors are brought within the scope. We will come on to discuss what one ought to know and what is reasonable. In a sense, however, we cannot conclude the discussion on this group of amendments until we have had discussions on the other amendments.
One point is very clear to me. Overall, this clause is bringing in the benefit of hindsight in a context in which the specific duties are not well understood or codified. The concept of different standards for different functions of directors is a very novel one. We are not only going into the territory of liability attaching to the individual director, with all the difficulties expressed by my noble friend; we are effectively picking up the liability for all other directors. That is what many of those I have spoken to are particularly worried about.
The benefit of hindsight is a wonderful thing. The people I have been speaking to recently have been appalled, for example, at the way in which non-executive directors at Equitable have been castigated for what they did. I do not want to discuss the substance of that, but it is very clear that the benefit of hindsight has been used extensively there. The concern is that the benefit of hindsight would be used, not only to damn one's own activities but also to damn one in relation to everybody else's activities.
The whole clause, and the individual points that we shall be debating over the next few groups, raise very significant issues. I believe that the provisions will
GC 104
significantly impair the pool of those willing to undertake roles in relation to non-executives, and particularly in relation to the audit committee, to which I understood that the Government were firmly committed.
Lord Wedderburn of Charlton: Before my noble friend the Minister answers the long list of questions—and without trespassing on the amendments that are to come, which is very difficult in the present discussion—does he recognise that the introduction of the objective standard of care, skill and diligence is one of the most important provisions in the Bill? Of course, every time a duty of skill and care or indeed any other duty is introduced by legislation, people want to know—I was about to say, what non-lawyers want to know, but sometimes lawyers engage in it—precisely what facts will give rise to liability. Of course, no one can answer that.
What a person ought to know depends on the facts. My noble friend is not being asked questions of law, which is what legislation is about. He is being asked questions of fact. What a non-executive director or a finance director should know is defined as far as the law can possibly do it. In Section 234ZA(3), he must have the,
"knowledge, skill and experience that may reasonably be expected of a person carrying out the … functions".
If he has special knowledge, skill and experience, he will of course by judged by them.
No doctor would expect any further definition of his legal standard of skill and care. He would know that when he went before the General Medical Council, or some such body, the question of facts—of whether he had operated at a reasonable standard of medical care—would be judged. But no statute can answer that. I hope that my noble friend will not be led into trying to define the types of fact that could give rise to liability, which would be quite impossible for a statute to do, and is something that a statute should not be expected to do.
The substitution of a positive objective standard of care for directors is of course one of the most important recommendations in the Company Law Review reports. The 19th century subjective approach, to which we shall come in later amendments, is now being overtaken. Those who are used to having their standards of skill and care judged by what they happen to know and think in a subjective way will of course complain about that—unless, perhaps, they reflect that it is time that British business had standards of skill and care in the boardroom that the reasonable man on the Clapham omnibus and the reasonable doctor would expect to have applied to him. They might understand that there is now going to be a reasonable man in the Clapham taxi cab.
5.15 p.m.
Baroness Noakes: Perhaps I may develop that argument with the noble Lord. He talks about reasonable care—for example, the reasonable care and skill of a doctor. Does the noble Lord think that it is reasonable that, say, a doctor in a team of surgeons

GC 105
should be held in some way responsible for the standards of care adopted by other members of the team? In effect, that is what this clause attempts to do.
Lord Wedderburn of Charlton: With great respect, the noble Baroness is going back to our previous discussion. I disagreed with the noble Lord, Lord Hodgson, that this clause, as a whole, imposes a kind of "pudding" of liability on the entire directorate for any fault in any single director. I do not think that is what the clause means at all. I very much hope that my noble friend will repeat that that is not what it says. That is a total misunderstanding of the clause. That is what we discussed just now.
Now, we are discussing the point raised by the noble Lord about the actual standard of what the director will be liable for in terms of a duty of skill and care under subsection (3) of new Section 234ZA. In that respect, I again hope that my noble friend will not be led into defining every possible situation of fact that could possibly give rise to liability. The definition is clear.
Lord Evans of Temple Guiting: I am very grateful to my noble friend Lord Wedderburn for making those points. We agree with him. This has been an interesting but difficult discussion which has looked ahead to a number of proposed amendments. We shall return to "ought to know" and such issues later.
I turn now to the problem of the non-executive director. Having spent most of my working life as director of a company, I am very interested—as are other noble Lords—in the implications of this clause. I talked to a number of people in the accountancy world and to various head-hunters. The general view is that this Bill is trying to improve the standards of audit in the UK. In doing so, the standard of the non-executive needs to be improved. Although there are some extraordinarily able non-executive directors, as we know, the position of non-executive director has been the sort of job that one could get on retirement. It was a rather comfortable job for a few hours a week, with a small amount of money. I can see heads being shaken, but I can point to a number of companies where that is the case.
Baroness Noakes: I am grateful to the noble Lord for taking the intervention. The noble Lord is repeating stereotypical views from another era. I do not know which head-hunters he has been talking to recently, but I could take him to the leading head-hunters of today who, frankly, would find that deeply insulting in relation to the work that they carry out in placing individuals on boards. It is also deeply insulting to the vast majority of non-executive directors in British business.
Lord Evans of Temple Guiting: I think that I am being misunderstood. I talked about the traditional non-executive director, for a number of whom the stereotype is correct. I spoke to two senior, well-established head-hunters who are delighted that the standard of non-executive directors to be appointed will be raised by the Bill.
GC 106
In the company I chaired for many years, the non-executive director was, and is the managing partner in a large firm of accountants. I asked him, "Will this result in a change in your attitude to being a non-executive director in this company?". He said, "Yes, it will and I am delighted that it will. I will now have to take an even greater interest in the company's activities". He saw it as a positive rather than a negative. Therefore, I am not as worried as the noble Lord, Lord MacGregor, about the problem of recruiting non-executive directors. It is right and important to impose on them a level of professionalism, which most of them have already.
Lord MacGregor of Pulham Market: I do not recognise the kind of non-executive director to which the Minister refers in terms of the new non-executive directors coming forward. The world has changed very considerably in the past 10 years—well before the Higgs report, which is making it change even more. Certainly I find that, in nomination committees now, most boards are seeking to appoint people not because of who they know, or anything like that, but because of the skills and experience they can bring to bear. My one concern is to make sure that we get the balance right and that we do not go too far and discourage those kind of people from continuing to perform the role.
Lord Evans of Temple Guiting: I accept that point. However, I return to a point I made earlier: that the two senior head-hunters to whom I have spoken about this issue do not think that this clause will be a disincentive to people who wish to be non-executive directors.
We shall come on to many of the issues raised but perhaps I may make two important points arising out of the discussion. In spite of what I have said, the Government are aware of the concerns in relation to the recruitment of able non-executive directors. We have recently consulted on directors' liability and are considering the responses carefully. The consultation directly addressed the position of the non-executive director.
In addition, a point was made about one director picking up the liabilities of other directors. This will not be the case.
Lord Wedderburn of Charlton: Before my noble friend sits down, will he not join me in a general rejoicing at the description given by noble Lords of very great experience in these matters? They have described non-executive directors who will not have much difficulty in complying with the standards the Government are rightly setting down.
Lord Evans of Temple Guiting: I thank my noble friend Lord Wedderburn for his support. What he says is the absolute logic. If professional standards are improved by the Bill, what problem is there?
Lord Hodgson of Astley Abbotts: We have had an interesting debate on this group of amendments. I am extremely grateful to my noble friends Lord MacGregor and Lady Noakes. They provided a breath of fresh air in the real world as opposed to the theoretical world.

GC 107
I take issue with my noble friend Lord MacGregor on only one matter. He said that we could end up spending a long time in court. For most non-executive directors or directors, the issue is not so much the long time in court but the long time spent preparing to go to court. The court process is quite easy, but you can wait two or three years while preparing to go to court. That is a time of agonising suspense and it can damage your reputation. Your professional career cannot develop in any way because of the matter hanging over you.
The noble Lord, Lord Wedderburn, encouraged the Government on the issue of depending on the facts. I understand his point. But the noble Lord should know that the reality out there is that people say, "If I am going to take on this non-executive role, what are the risks and what are my chances?". They are entitled to ask for some assessment of those issues if they are going to take on the task. Trying to define it may not be attractive but, if we are to encourage good quality people to come forward, they will want to know the "risk for reward" ratio—-not so much in terms of money but in terms of reputation—that goes with a task such as this.
I am grateful to the Minister for trying to cover some of the points. I entirely accept his point about directors who behave capriciously and knowingly allow matters to go through when they know that their fellow directors have not acted responsibly. Capricious behaviour is unacceptable—I take that as a very fair point—but I was not absolutely clear about the degree of responsibility that one director will take for another. George Bompas, a legal expert, states that it is very considerable. The Bill as presently drafted will mean that it is a joint and several liability. If someone on the board withholds something without telling you about it, you will be in dire straits. That is his view.
I should like to read what the Minister said, take into account the other points made in the debate and consult further. I shall then, quite likely, come back and readdress the issue. This is a serious and important matter and we share the Government's desire to have the highest quality people serving as non-executive directors. We have had a good preliminary canter over the ground.
Lord Wedderburn of Charlton: I do not wish to delay matters, but I wonder whether the noble Lord can help us. This is a very important point in the discussion more generally. The legal advice that he obtained is that there is a general joint or collective liability somewhere in the clause. Can he tell me on which part of the clause his legal advice is based?
Lord Hodgson of Astley Abbotts: As I understand it, it is in lines 38 and 39. The failure to take "reasonable steps" imposes a severe duty on the directors as a body to ensure that all directors have complied. "Reasonable steps'' will include steps to ensure that one's fellow directors have done it. Although a large board may be composed of 15 or 20 people, "reasonable steps" would require that to happen.
GC 108
As I said, I do not wish to cross swords with the noble Lord on the finer points of law. I am in danger of repeating what I have been told; however, that is what I have been told.
Lord Evans of Temple Guiting: Before we move on, it may be helpful to the Committee if I say a word about joint and several liability so that it is in the record for the noble Lord, Lord Hodgson to read, along with everything else.
The offence in new Section 234(7) applies to every director to whom paragraphs (a) and (b) in that subsection apply. Accordingly, just because one director commits an offence under new Section 234(7), it does not necessarily mean that the offence is committed by all of the directors.
Lord Hodgson of Astley Abbotts: I am very grateful to the Minister for reading that into the record. It will indeed illuminate our thinking. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Baroness Turner of Camden moved Amendment No. 46:
Page 11, line 27, leave out "statement" and insert "statements"
The noble Baroness said: In moving Amendment No. 46, I shall speak also to Amendments Nos. 47, 49, 50, 51, 54 and 65, which stand in my name and that of my noble friend Lord Wedderburn. We are seeking to amend Clause 9 of the Bill. As we know, this clause seeks to establish the obligation of directors to disclose information of which they should be aware. A statement is to be provided in line with the requirements of the clause. We seek to lake these requirements further, particularly in our new clause set out in Amendment No. 65.
Subsection (3) of our new clause specifies that a statement must be made stating whether all of the meetings of the remuneration or other committees concerned with directors' remuneration were attended by social partner representatives. We further define what is meant by "social partner representatives". It means representatives of the employees of the company appointed or elected in accordance with regulations made by the Secretary of State and having the rights and capacities set out in the regulations.
Why are we making these proposals? In recent years there has been much talk of "fat cats". One of my noble friends—sadly no longer with us—Lord Dormand of Easington, used regularly to table Questions to HMG, drawing attention to the astonishing increases in pay and benefits of senior executives in companies—payouts which took place even when the company itself was not doing very well and workers were facing redundancies. He was usually told by the Minister that this was not a matter for legislative intervention. However, it is increasingly a matter of concern, not only in this country but also in the United States. American lawyers have begun to call it "rent extraction" by the top managerial elite. In Britain the process began in the 1980s, but the big take-off in directors' rewards took place in the 1990s. Between

GC 109
1994 and 2000, the median annual salary and bonus for the highest paid British directors increased by 107 per cent, while the median increase for employees in the same companies rose by 31 per cent.
In 2001 there was another dramatic upward shift in directors' pay. Indeed, in the 10 years to 2003, the average rewards for chief executives in British boardrooms rose by 288 per cent when workers' average salaries grew by 45 per cent. Share options and long-term incentive schemes added incrementally to salary increases. Beyond share options were bonuses, incentive plans and, even further, pension plans. A House of Commons Select Committee reported in 2002 that massive payments for termination of contracts were not in any way justified or required. The Secretary of State, Patricia Hewitt, criticised management for rewarding itself massive pension entitlement increases, about which she said that,
"they were feathering their own pensions nests while slashing the pension security of their workforce".
Often there are other benefits such as cars, chauffeurs, enormous housing relocation allowances and so on.
This new phenomenon is not just a cause for envy, as has sometimes been said. It is socially divisive. Society has become relatively more unequal over recent years. The differential between executive pay and ordinary workers' pay has been growing and is still increasing. Productivity in Britain is still flagging and workers and their unions are complaining. Unions contrast the £9.2 million reward of a CEO with a low-paid worker's £10,500 year—and less for women. The Times referred to the,
"seemingly unstoppable rise in executive pay and pay-offs for dismal performance".
Quite why all this was not confronted by the Company Law Review is rather surprising.
There are some restraints, such as independent non-executive directors to act as monitors. Indeed, we have been talking recently about non-executive directors. There is more disclosure, some shareholder activism, new shareholders' rights to pass an "advisory" resolution, but "rent extraction" continues to rise. I expect that in response to the amendment we shall be told about the existing restraints. However, it seemed to me and to my noble friend Lord Wedderburn that there is good reason to look at all this again and to consider what further steps might reasonably be taken. So we ask, not for the first time: "What about the workers?". Our amendment seeks to involve the workforces through their representatives. I emphasise that this is TUC policy and has been, I understand, since 1995.
I must stress that this is not an attempt to return to the 1970s and the discussions we had then about the Bullock report. We are not seeking a version of the German "Mitbestimmung"—co-determination—although many years ago when I was a union official I spent some time in Germany looking at the way it worked over there and was quite impressed. This is a different approach. We are seeking involvement in the area of remuneration where the workers would have a legitimate interest.
GC 110
In the UK, there has been much emphasis on the need for greater shareholder involvement, and that has had some limited results. However, I shall quote a US academic on the matter of co-determination—it is one that I like—who says that,
"employees may have made a much greater investment in the enterprise in their years of service and have much less ability to withdraw and may have a greater stake in the future of the enterprise than many of the shareholders".
On the agenda for reform should be the right of workers to have a voice in the machinery of the company regarding the development of managerial "rent extraction". It is getting out of control and is not being reached by the traditional methods of monitoring or external consultation. In 2001, when the value of their companies fell by 16 per cent, executives in top British companies increased their salaries by 12 per cent and bonuses by 34 per cent. The time has come for a new approach, and hence the amendment. I beg to move.
5.30 p.m.
Lord Wedderburn of Charlton: I rise to support my noble friend on these amendments, to which I have attached my name. I speak in particular to Amendment No. 65, which sets out the meat of the matter.
It has only recently occurred to me that we have been prompted to introduce this perhaps somewhat unusual subject into the Bill, representing only a small morsel of company law reform, because of the slow pace of company law reform in general. I look forward to the day when the Minister presides over a big companies Bill, one brought forward in 2005, 2006 or 2007—no doubt he will still be in office—but so many matters are now urgent in company law reform that some have now overtaken the Company Law Review. That is one reason for initiating a debate via this Bill by tabling these amendments, in particular Amendment No. 65.
There is no doubt about the facts. Survey after survey has shown that, over the past decade or so, the mark of the modern elite of executives in large companies—international and trans-national groups, as well as large domestic enterprises—is an escalating rate of overall reward of a kind which my noble friend said is very socially divisive and difficult to justify.
Of course I appreciate that we have not reached the position of the United States, with its very different culture and, in many ways, its very different form of capitalism, where a few years ago John Kenneth Galbraith was able to describe the pay of a chief executive officer of a large corporation as,
"not so much a reward for achievement as a warm, personal gesture by the individual to himself".
But we are rapidly approaching the point where some overall rewards give rise to the same criticism. Moreover, research has shown that the problem of excessive executive reward is not, as many analysts have thought for some years, merely a phenomenon of Anglo-American dispersed shareholder capitalism with the so-called "divorce"—the separation of ownership and control. Evidence is emerging from

GC 111
France, the Netherlands and Germany, not least in the trial of Mr Ackermann, that this problem has surfaced even in those varieties of capitalism—as the literature has it—which are not usually designated as part of the dispersed shareholding phenomenon as evinced in our system.
This led the trades union movements in Britain, Germany and Holland, the TUC, DGD and FNV, to make in May 2003 a joint statement to the European Commission and the governments of their respective countries stating:
"Excessive executive pay is now an issue pressing at the very heart of European capitalism. [These] decisions can only be prepared in relevant subcommittees when employees' representatives are involved".
I shall not try to repeat any of the other evidence on the matter of excessive executive pay because I promised my noble friend at the Dispatch Box that I would deposit a much longer paper on the matter in the Library. I shall do so and send him a copy. However, the evidence is overwhelming that directors are benefiting from salaries, stock options, incentive plans and a vast range of other benefits including, as the TLC pointed out only last week, enormous pension entitlements. Even the Secretary of State, who is not given to Bolshevik statements, recently criticised directors for,
"feathering their own pensions nests while slashing the pension security of their workforce".
The Company Law Review did not face up squarely to this new phenomenon, one that has taken on a new qualitative characteristic since 1990. One of its members, Professor Davies, of London University, has stated in one publication that it did not discuss directors' remuneration fully because the Government had the matter under review which,
"in effect excluded [the Review] from looking into the matter".
I do not suggest in any way that there is a national or indeed international conspiracy of directors, executive or non-executive—such discussions are silly—but directors do sit on one another's remuneration committees and a leading fund manager commented, quite rightly, last year that whatever the performance figures of companies,
"directors arc deciding their own pay. They sit on each other's boards … they are pushing only one way".
The curve goes on going up. It is all very well for the Government to say that it is a problem of rewards for failure. We are not concerned merely with rewards for failure of the kind that the noble Lord, Lord Simpson, was found to exemplify at Marconi. We have had enough of them. The Government have no answer to that, and they certainly have no answer to the real problem of overall excessive reward.
In my own research I have been very interested to find out how much evidence there is of persons leaving the board of directors to become consultants because in that way they avoid disclosure. The Minister looks interested. I am very glad about that. It is impossible to deal with the conventional answers to the problem in the scope of the few minutes available. Disclosure is arguably as much about encouraging competition to be in the top quartile of peers as it is about anything else.
GC 112
Ministers have enjoyed a luxury of hope over experience on shareholder activism for many years. Mr Stephen Byers, when he was the Minister in 1999, said,
"we arc seeing the beginning of the shareholder activism that exists in the United States".
I do not know what comparative travails he had but we have certainly not seen anything of the kind, and naturally so. Apart from rewards for failure, shareholder activism and the right to move advisory resolutions are manifestly unlikely to be a method of curtailing excessive reward, as many academic writers have shown in the past 15 years. Nor, for many reasons, are institutional investors necessarily suited to that task. Although in certain situations they have an interest in looking at the matter critically, their main duties are to their beneficiaries.
As to the fashionable solution of independent non-executive directors, I understand the problem of getting such directors to fulfil the tasks that they ought to fulfil. As one American writer put it, the board of Enron was a splendid board, with 14 members and only two insiders; all the rest were independent non-executive directors. You could hardly expect the independent non-executives to form a wall against the remuneration committee structure as it stands.
It was with some prescience that the Trades Union Congress, in its evidence to the Greenbury committee, said that there was one constituency, largely unrecognised by British company law, that offers an untapped resource in introducing a pressure of a countervailing kind—that is, employees, whose lives are as much bound up, if not more so, as stakeholders within the enterprise, as my noble friend has said. For many years the programme of the TUC has been that employees should be represented on remuneration committees, at least to the extent of having a voice. It is a voice that the amendment calls for. So far as anyone can discover, it is not clear what the response of the Department for Trade and Industry has been to this call, which has been repeated many times since 1995. There does not appear to be an official response. I am not asking the Minister for a definitive response today—I hope that he does not give it, as I fear that it might be the wrong one—but one would have expected some response to this very modest suggestion.
That is especially so when, 20 miles across the Channel, workers send representatives from the comité d'entreprise to attend both shareholders' and directors' meetings of large companies. They have the right to all the documents of those meetings and to appoint experts to examine them. They have a voice. Twenty miles is not a long distance, but it could be the planet Pluto so far as British company law is concerned. The Company Law Review Group and the Government even want to abolish Section 309, where employees' interests are recognised.
We cannot possibly have a full debate on the matter today. Our amendments rest on a very conventional device; they say that one must tell the auditors whether one has had representatives of employees involved in the process of discussing the overall reward of directors. I remember the Minister saying many times

GC 113
that the important thing is to get the contractual arrangements right. I cannot think of a better group who might help to get the contractual arrangements right than representatives of the employees, who might take a more general view of reward in a corporate enterprise. Behind that, we have traditional machinery that says, like the Combined Code does, "comply or explain"—if one has not had such representatives, explain why not.
A Grand Committee is not a very suitable cockpit for prolonged discussion of such a fundamental theme. Whether we should entice a wider audience to debate the matter on Report will depend very much on what the Minister says. I hope that now or on a future occasion some answer can be given of a reasoned kind, not merely one that says that employees have no place, when the conventional wisdom of the Government is that they are partners in the enterprise. Partners would like a voice on what is being taken out and on what my noble friend has called, using the Americanism, "rent extraction".
Although I agree that these amendments are somewhat odd in this Bill, I hope that they will be taken as a serious attempt to stimulate a debate about a proposition that is as modest as it is sensible.
5.45 p.m.
Baroness Noakes: I am sure that the noble Lord, Lord Wedderburn, and the noble Baroness, Lady Turner, have enjoyed talking about excessive executive pay. I do not wish to get into a debate on whether pay for executives is excessive, but they may be slightly out of date on what happens in remuneration committees. It is not a case of people sitting on each other's committee and conspiring to pay them ever-large amounts. In my experience, committees have a genuine desire to ensure that executives are remunerated for what they do and are not remunerated for what they do not do. Over the past couple of years, we have seen very significant changes in the boundaries of what is the correct remuneration for that.
I wish not to debate excessive pay, but to put a specific question to the noble Baroness and the noble Lord. What would the people to whom the noble Baroness, Lady Turner, referred as "workers" do on the remuneration committee? I resent slightly the term "workers", because in my experience the executive directors about whom we are talking are the ones who have no regard to the Working Time Directive. They are very hard workers for the companies of which they are directors. I struggle to see what would be added by getting one or more workers on to a remuneration committee, when very technical issues about the design of long-term incentive plans are discussed and a detailed appraisal is carried out of the market in which we are trying to set pay.
As I understand the amendment, these individuals will simply,
"attend and participate in all the meetings".
GC 114
It does not say whether they would have any voting power at the meetings in determining the recommendations from the remuneration committee to the board. It is the board that makes the decisions. I am struggling to understand the practical effect of the amendment, although I concede that it has provided an excellent opportunity for noble Lords opposite to have a little rant about executive pay.
Lord Hodgson of Astley Abbotts: My Lords, I agree with the noble Lord, Lord Wedderburn, about the importance of company law review. On these Benches, we are entirely with him on that. It came up at Second Reading and in Grand Committee. I am sure that the issue will come up again. All power to his elbow in that regard in persuading the Secretary of State to move it up the agenda.
The noble Lord will be less surprised that we, on these Benches, cannot support the extension of mandatory employee involvement to these new areas. That is not to argue that there have not been unacceptable cases of executive pay; there have. All one can say is that those cases have been given a lot of publicity. Perhaps less publicity has been given to the many, many cases where pay is reasonable, rewards are properly earned, and so forth. Of course, big news stories are about the bad things that have happened.
From our point of view, the present legislation—the companies Acts and so forth—provides more than sufficient statutory provision in that area. As in so many of the issues that we have been talking about during this Bill, the key is the question of disclosure; that is, the voice that the noble Lord, Lord Wedderburn, talks about. Disclosure gives the voice to the shareholders. Shareholder power has greatly increased in recent years, as, again, we have seen in the newspapers, encouraged by various interests and pressure groups that now professionally advise shareholders on their rights and on the suitability and compliance that is being achieved. "Comply or explain": a body should provide that all the time.
As we have already said, we are increasing the director's liability with the addition of the report under Clause 9. A further report that the directors will be required to approve is another increase in their liability. As my noble friend Lady Noakes said, we are seeking ways to encourage good quality people to serve as non-executive directors. This will not be an incentive for them to do so. Therefore, we cannot support this group of amendments.
Lord Sharman: I, too, express my sympathy with what the noble Lord, Lord Wedderburn, said about company law review. In this context, it is particularly important. Clearly, the noble Lord and the noble Baroness, Lady Turner, seek to raise an issue about which they feel very strongly. I feel strongly that this is the wrong place. The Bill is about auditing. Whether or not one agrees with the thrust behind the amendment, the issue is about worker or employee participation in the overall direction of the enterprise. It should not be restricted merely to attendance at a remuneration committee. In my view, that is the wrong structural approach.

GC 115
One may or may not agree with employee participation; I think that there are very good ways of dealing with it. But if one is arguing for employee participation, it is not right to incorporate it into a subcommittee of the board. The reason that we have such difficulty is that in this country we do not have the overall reconsideration of corporate legislation. As I said at Second Reading, we are dealing with company law that is 50 years old. The nature of the corporate enterprise and the corporate endeavour has moved on in those 50 years. There are different views now about what is needed for the overall governance of the enterprise. The right way to deal with these issues is through a fundamental restructuring of company law.
Lord Wedderburn of Charlton: Before the noble Lord sits down, I very much appreciate what he has said. What falls from his Benches is of course of particular importance in these matters. I was about to ask whether the noble Lord would give us marks for managing to get our amendments within the Long Title of the Bill, but I shall refrain from that.
Although the noble Lord and I no doubt differ as to whether this is a proper matter to discuss with the Bill, did I understand him to say that a stakeholder approach of some kind is more appropriate to modern corporate law than the old-fashioned approach, which unhappily has dominated the company law review?
Lord Sharman: We shall come later to an amendment that I have tabled which deals with social and environmental reporting. It will demonstrate that it is not different but has similar factors; it reflects the way in which the view of the enterprise has moved.
Perhaps I did not make myself clear. In my view, the nature of the enterprise and society's view of it has changed and developed in the 50 years since the law under which we now operate as corporations was first put on the statute book. We need a comprehensive review of company law to reflect those changes. We should be debating how, why, where and when the various developments and changes should be incorporated into the new company law.
Lord Sainsbury of Turville: I am pleased that my noble friend Lord Wedderburn is looking forward to the day when I will bring forward a new companies Act. My personal view is that I hope I will have been sacked or some other act of God will have intervened before such a happy occasion takes place.
I am not at all surprised that the noble Lord has managed, very cleverly, to introduce these amendments to the Bill because he is extremely adept at legal matters. However, I am slightly surprised that he has any doubts about what the Government's response will be because we have consistently put forward our view on these particular issues.
Let me explain our position. This group of amendments deals with employee involvement in company discussions involving the disclosure of the remuneration of the directors of a company and the reporting of that involvement. Amendments Nos. 46, 47, 49, 50, 51 and 54 are consequential to Amendment No. 65 which contains
GC 116
the main provisions. This amendment requires the Government to legislate to create the legal right for two or more employee representatives to attend any committee or other group within the company which discusses the disclosure of directors' pay in relation to Schedule 6 or Schedule 7A of the Companies Act 1985.
The Government have consistently made it clear that directors' pay is a matter for companies and their shareholders under UK corporate governance structures. It is for companies and their shareholders to decide on the nature and extent of any consultation with employees or their representatives. Nevertheless it is clear that directors face a conflict of interest in the setting of their remuneration, which is why the Financial Reporting Council's Combined Code on Corporate Governance includes a number of principles and provisions in this area.
The revised Combined Code was introduced for listed companies with financial years ending on or after 1 November 2003. The code was developed following the recommendation of Derek Higgs's review of the role and effectiveness of non-executive directors and is the result of extensive consultation. Code main principle B.2 states that,
"no director should be involved in deciding his or her own remuneration".
Code supporting principle B.2 states that the chairman of the board should ensure that the company maintains contact as required with its principal shareholders about remuneration. Code provision B.2.1 states that the board should establish a remuneration committee of at least three members, who should all be independent non-executive directors. The definition of "independent" given at code provision A.3.1 specifically excludes directors who have been employees of the company within the last five years.
The Government fully support the operation of the Combined Code and the key role that it plays in UK company law and the corporate governance framework. The amendment is in accordance with neither the overall approach of enlightened shareholder value taken by the Company Law Review, nor the principles and provisions of the Combined Code.
The Government strongly support the general principle of employee involvement in the workplace. Employees should have the chance to be informed and consulted on management decisions affecting their future. That is why we are committed to a full implementation of the EU directive on informing and consulting employees. The implementing legislation will come into force next year. That follows extensive consultation with stakeholders representing the interests of employers and employees. Indeed, noble Lords will have the opportunity to debate the issue of employee consultation as part of their scrutiny of the employment Bill, which includes a power to introduce the information and consultation legislation.
The draft regulations published for consultation last year were based on a framework agreed with both the CBI and the TUC. It is an approach designed to promote better workplaces and more committed staff.

GC 117
It provides plenty of opportunity for management and employee representatives to reach agreement on the precise nature of the information and consultation arrangements and the topics for discussion.
I shall now deal with remuneration of directors, as I want to make it clear that the Government share the genuine investor concern about the need for proper accountability, transparency and performance linkage in directors' pay. We remain concerned that there should be a very clear link between directors' pay, the remuneration market and performance. There should also be control by shareholders. If we look at the total amount and the speed of the increases in recent years, it is not always clear that the remuneration of directors is either linked to performance or the market, or controlled by shareholders.
We continue on those grounds to be concerned about what has happened with directors' pay. That is why the Government have taken significant action in the area over the past two years. In August 2002, the Government introduced the Directors' Remuneration Report Regulations. Those require quoted companies to produce a detailed annual directors' remuneration report which is put to a shareholder vote at each annual general meeting. I do not agree totally with the noble Lord, Lord Wedderburn, that that is obviously not effective. Directors are very concerned that such matters should be voted on at annual general meetings, and that will begin to show results. We need to see those results coming through as soon as possible.
The UK now has a comprehensive, transparent and accountable framework for directors' pay which surpasses other corporate governance regimes in similar market economies. But that latest legislation has been in place for only one full financial year, and more time must be given for it to take full effect.
In addition the Government have recently consulted on the specific issue of "rewards for failure". That took place in response to continuing investor concern about situations where directors leave companies which have performed poorly but receive excessive compensation packages when their contracts are terminated. The Government's response to that consultation was announced by a Written Statement on 25 February this year. It included announcing the monitoring of compliance with the Directors' Remuneration Report Regulations, which shows that we are still very much concerned about the issue.
The enlightened shareholder value approach recommended by the Company Law Review states that the primary responsibility for directors is to run the company in the collective best interests of its shareholders. In deciding what will be in those interests, directors must consider all relevant factors. Those include those areas that are important to companies in a modern economy, such as the company's relations with its employees and its need to maintain its business reputation. That ties in with the Company Law Review conclusion that the approach of enlightened shareholder value provides the best conditions for the proper exercise of business judgments in order to achieve the best means of securing overall prosperity and welfare, and that a
GC 118
pluralist model of company law would not be as effective in delivering improved competitiveness and thus the efficient creation of wealth and other benefits.
I should comment on why so long has been taken. The task is, of course, extremely complicated. In seeking to take forward the detailed proposals within the framework of a completely new companies Act, we found that we necessarily had to address questions of how the elements would be built up. In doing so, we are not in any way seeking to depart from those Company Law Review principles, which, as we have said, remain as relevant as ever. However, it is apparent that if, as part of the process, we change the basic concept of our company law, that could have practical consequences on how companies operate that were not explored fully in the Company Law Review. We remain committed to the process and to making proposals, on which we should properly consider such major issues.
We do not think that the amendments are the right way in which to deal with directors' remuneration, but it is an issue that we are keeping under review.
6 p.m.
Lord Wedderburn of Charlton: I listened very carefully to what my noble friend said. One advantage of the extraordinary scope of the Department for Trade and Industry is that one can ask the Minister to leap about from the law on employment consultation to company law, and his advisers can cover both areas and, indeed, many others. I would like to ask him two questions.
The Minister mentioned the forthcoming regulations on consultation under the directive, of which the Government kindly provided us with a draft. Did I understand him to say that he expected those regulations to give employees' representatives an opportunity to consult on proposed remuneration and rewards for directors in a company, before they were settled? That was not my understanding of the draft that I saw; no doubt I have not studied it sufficiently carefully. I do not want to ask him for an answer on the hoof, as it were, if he does not want to commit himself on that question, but it is a most important matter in which trade unions are very interested. If he does not want to answer it now, perhaps he could give us further information on the point.
The Combined Code sets out an approach for remuneration committees. Something that I found in my notes, to which I did not have time to refer, is taken from the annex to the Higgs report. and I think that it is the text in the Combined Code after all the discussions with the Financial Reporting Council. It states that,
"remuneration committees should be sensitive to broader issues, including pay and employment conditions elsewhere in the group … when determining annual increases",
of directors' rewards. Does that not indicate that there is a place for input before the matter is settled from employee representatives?
Lord Sainsbury of Turville: I certainly did not say that full implementation of the information consultation directive would lead to consultation

GC 119
about directors' pay by the employees. I do not believe that it does, but I will check and, if I am wrong, I will come back to the noble Lord. I am afraid that I did not understand his second point about the reasons for employees being involved. Could he repeat it?
Lord Wedderburn of Charlton: I was struck by the phrase, which I believe has survived into the Combined Code. that,
"remuneration committees should be sensitive to … pay and employment conditions",
not merely in the company, but in the group. So much of our discussion is about "the company" when we ought to discuss "the group".
The whole reward structure in an enterprise is of such importance these days. There is a great deal of feeling on the part of workers—I do not exclude directors or anyone else who works for a living from "workers"; I simply talk about those who are employed and not in the higher reaches of management—caused by the fact that excessive rewards have been set so often without regard to the balance in the enterprise between the upper and lower reaches. Many commentators have pointed out how that enormous increase in proportion in the past 10 years, which some people will not take seriously, has become divisive in a new way. If the Combined Code says that remuneration committees must look at pay and employment conditions overall in the company and the group when determining the annual increases at the top, would that not be a good place for those who are very interested in the overall balance of rewards in the enterprise to have a voice?
Lord Sainsbury of Turville: There is a distinction between what the Combined Code says that the people taking the decisions should bear in mind, and a further argument that suggests that a particular group of people should play a part. Those are two quite different issues. I totally support the first, but my initial arguments suggest that the second is the wrong approach.
Baroness Turner of Camden: I thank Members of the Committee who have taken part in the debate, which has been very interesting. In particular, I thank the noble Lord, Lord Sharman, who at least was syrnpathetic but thought that the amendment was in the wrong place. I am also glad to learn that the Government have at least some concern about the imbalance in directors' pay. I believe that they still say that companies are controlled by shareholders and that pay is a matter for the company and its shareholders. Nevertheless, the Minister mentioned the concern about rewards for failure, excessive packages for pay and the widening gap between workers in enterprises and very senior management.
We would like to examine what the Minister said very closely. We may want to come back with a rewording on Report, because the issues are sufficiently important for us to have a discussion on the same question then, even though there is a view that our amendment might be better attached to some other legislation. I do not know about that, but the
GC 120
issue is very important. We would like to have a debate on Report but, in the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendments Nos. 47 to 54 not moved.]
Lord Hodgson of Astley Abbotts moved Amendment No. 55:
Page 12, line 5, after "no" insert "material"
The noble Lord said: Clause 9 is on the statement in the directors' report. Amendment No. 55 is concerned with proposed new Section 234ZA, which appears at the top of page 12 and is entitled:
"Information to have been disclosed to auditors before directors' report approved".
It is a small amendment but nevertheless important. As the Bill is drafted, the new statement in the directors' report requires the inclusion of a statement that, at the time at which the report is approved, there is no information which has not been disclosed to the company's auditors.
That is an extraordinarily wide and far-reaching definition and requirement. In the real world, I suspect that more or less every director of every company could be hung on such a provision. I hope that the Minister will not argue that there is no need to worry about the unamended clause because if the information were not material the courts would not use it. That would be an unsatisfactory reply.
The amendment inserts "material" into proposed new Section 234ZA(1) under Clause 9, ensuring that at the time of the approval of the directors' report there is no "material" information which has not been disclosed to the company's auditors. It offers the Government a helpful alternative approach to our Amendment No. 53, which we discussed earlier. I beg to move.
6.15 p.m.
Lord Evans of Temple Guiting: I do not think that there is a great difference of principle between us here. We are in agreement that we do not want to require the directors to overburden the auditors by providing them with everything they know about the company. Clearly, that would be counter-productive and result in both auditors and directors spending too much time and costs in providing and assessing large amounts of irrelevant information.
However, we do not consider that this amendment is necessary. Subsection (5) of Clause 9 inserts a new Section 234ZA into the 1985 Act. Subsection (2)(b) of that new section restricts the information to which the statement relates to information that the director knows—or ought to know—is relevant for the purposes of the auditor's determination (in accordance with Section 235). In other words, the information must be relevant to the audit opinion; that is, that the accounts have been properly prepared in accordance with the Act, and in particular that they show a true and fair view of the state of affairs of the company and of the profit or loss for the year. We think that that provides the right balance—so that the directors have to provide the

GC 121
information that is of real relevance to the auditor's work, but are able to make the required statement without providing excessive amounts of information.
Nevertheless, a director may say that it is difficult to know what he or she ought to know is relevant for the auditor to reach an opinion. We do not require the directors to put themselves in the position of the auditors. We require them to use a minimum level of common sense which might be expected of a person in their position and to use any particular knowledge they may have.
Baroness Noakes: The Minister said that the requirement that the director "ought to know" that the information would be relevant is to do with common sense. Is that a definitive explanation of the Government's interpretation of that clause?
Lord Evans of Temple Guiting: I think this comes back to our earlier discussion when we were talking about the level of expertise of directors who guide the affairs of companies. They are not fools. They are intelligent people, and we require them to use a minimum level of common sense which might be expected of a person in their position. I think that that is a perfectly reasonable part-answer to the issue raised.
Baroness Noakes: Perhaps I can take that further. We are talking about what is relevant to auditors in terms of the reasonableness of how they perform their functions, not about what directors themselves do. We are talking about the directors needing to understand what is relevant to an auditor. That is why I am struggling in terms of the test for a director when he or she is trying to find out what would be relevant to the auditor. That is why my noble friend's amendment, which refers to the materiality of information, takes us to the heart of how to ensure that directors disclose material matters. It does not mean that directors have to know the mind of the auditor. We will return in a later amendment to the need to know the mind of the auditor. I find it extremely difficult to know how any director, even one with some knowledge of accounting or auditing, would be able to see into the mind of the auditor at any given time.
Lord Evans of Temple Guiting: I think that we are going to disagree on this. I return to the earlier point—that we are talking about well-organised, well-structured companies with boards of directors who are aware of the audit process. I would be amazed if directors in the sort of companies we are talking about were not aware of the audit process. They would be aware of the necessary probity for their position and the need to exercise governance. All we are saying is that—returning to an earlier point on which we disagreed—we have a very high regard for those who run these companies and the level of their intelligence. We would expect them to have the common sense to be able to determine for themselves as a board and as individuals what auditors would expect from them.
Lord Hodgson of Astley Abbotts: I have to say that I am disappointed with what the Minister has said. What we are dealing with in new Section 234ZA is a balance of new provisions, to which the noble Lord referred. The phrase "ought to know" has been causing Members on this side of the Grand Committee a lot of concern. One of the ways to lessen our concern about the phrase is to say "no material information" instead of "no information". That would provide some more protection in this balance. I cannot see how the addition of materiality to this new section would weaken the position. It would reassure directors, executive or non-executive, that they cannot be hung on a figment or a small event. As the new section is presently drafted, I think that that could happen.
The Minister will say that that will not happen in reality. While that is fine to assert when sitting comfortably in the Moses Room on a nice March afternoon, there will be times away from here when people have to face the reality of what we are discussing. To be honest, I do not think that the Minister has mounted a convincing argument to explain why materiality should not be a qualification on information.
Lord Evans of Temple Guiting: Perhaps I may add a further word. The new section restricts the information to which the statement relates to information that,
"the director knows or ought to know … relevant for the purposes of the auditors' determination (in accordance with section 235)".
The director should be able to tell whether the information is relevant to the auditor's opinion.
As we stressed in Grand Committee yesterday, we are keen to see, wherever possible, consensus on the Bill. Obviously there are strong feelings on this point. We shall take the matter away and think on it further before returning to it on Report.
Lord Hodgson of Astley Abbotts: That is a very fair offer, which we gratefully accept. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 56 not moved.]
Lord Hodgson of Astley Abbotts moved Amendment No. 57:
Page 12, line 8, leave out from "information" to end of line 10.
The noble Lord said: We are working our way through proposed new Section 234ZA entitled,
"Information to have been disclosed to auditors before directors' report approved".
This amendment relates to subsection (2), which explains how the director should know about information for the auditor.
Amendment No. 57 seeks to leave out the lines reading,
"it would be reasonable for a director of the company to obtain the information by making enquiries".
This implies that a director has to take on a role with potentially very far-reaching demands. Without harking back, the issue of materiality is raised again here. What

GC 123
is reasonable to expect a director to enquire about and what is unreasonable is a pretty grey area. It would be helpful if the Minister could enlighten the Committee on the Government's thinking on how this is to be determined. I beg to move.
Lord MacGregor of Pulham Market: Perhaps I may add a word, because earlier I gave the general context in which I approach these matters, and this is a relevant point. The Minister's words have been extremely comforting and soothing: there is no unreasonable requirement; a reasonably diligent director has nothing to fear; a minimum level of common sense. I must say that the phrase, "a minimum level of common sense" was the one that worried me, suggesting as it does that there is no heavy test at all. However, I suspect that when it comes to real issues, the "minimum level of common sense" will be much debated.
This amendment, along with our debate on the words "ought to know", draws attention to the heart of my concern. Let us take, for example, a UK company with a large number of overseas subsidiaries in the Far East, Japan, Australia and the United States. That is not an unusual situation for some of us. Sometimes it is impossible, when an issue arises in an American subsidiary with a different audit, to know as a non-executive exactly what is going on in that area unless it is drawn to one's attention by the executives involved. Taken at face value, it would sound as though a director now in an audit committee should be making all sorts of inquiries over and beyond the papers that are put in front of him, just to be absolutely sure that he is safeguarded against any subsequent attack or litigation.
I wonder again whether the words the Minister is using square with what is in the Bill. That is my concern. If one ought to know what the auditor is seeking and one does not know what is going on in one of the subsidiaries, where does that leave one'? That could be an extremely onerous requirement. It is those two provisions, combined together, that lead to my worries.
Lord Evans of Temple Guiting: As we have discussed under previous amendments, the statement in the directors' report provided for in this clause is above all a way of focusing the attention of directors on the question of whether relevant information has been disclosed to the auditors. The amendment introduced by the noble Lord, Lord Hodgson, would remove a detailed provision designed to ensure the effectiveness of Clause 9. We believe that to accept it would weaken the clause significantly.
The amendment concerns new Section 234ZA(2)(a), which states that, in certain circumstances, information may still fall within the scope of the directors' statement when the director is not initially aware of the information but—this is the crucial phrase—it is reasonable for the director,
"to obtain the information by making enquiries".
The test here—which brings us on to the foreign subsidiaries—is that if it is impossible to know, then it is not reasonable. If something is happening in a
GC 124
subsidiary in Peru, for example, it is unreasonable to expect the director to know about that. The test is reasonableness.
That is very important because it means that a director cannot say, for example, "I did not know about that particular information concerning the value of the company's stocks, though I know that it was important to the auditors. I also know that Mr X knew all about it, but I never bothered to ask him. However, the test in law is simply whether or not I was aware of the information—and clearly I was not, so I have done nothing wrong". In such a case. we believe that it is reasonable to expect the director to make inquiries.
In other words, the provision in new Section 234ZA(2)(a) is necessary to make this clause effective. But, it is fair to ask, does it impose too uncertain a test on a director? Can it not be argued that what is reasonable to one person is unreasonable to another and that the director does not therefore have enough certainty to know what is and is not unlawful? I do not accept that argument. There is no expectation or implication in the provision that a director needs to make inquiries down every avenue that may yield relevant information. It is only where it is reasonable for the director to do so. We are all used to thinking in terms of what is reasonable. The particular circumstances will determine what is reasonable in each case.
I do not accept that in practice a director will find that difficult to work with. If he or she is uncertain, it must be sensible to discuss the matter with others and get a second opinion on what is reasonable. In the vast majority of circumstances, however, I believe it will be perfectly obvious to the director when it is necessary to make inquiries and when it is not.
This is not an entirely new and novel approach to the problem that we are now adding to the law. The concept of making reasonable inquiries is used, for example, in Section 80(3) of the Financial Services and Markets Act 2000, which concerns disclosure in listing particulars. I hope that, with my explanation, the noble Lord will be prepared to withdraw his amendment.
6.30 p.m.
Lord Wedderburn of Charlton: Does not my noble friend also agree that what is much overlooked in these discussions is that subsection (3) makes it perfectly clear that the knowledge that one would expect a "reasonably diligent person" to have must be judged also in relation to the functions fulfilled by a particular director in the corporate enterprise? The test is what is expected of a person carrying out the same functions as carried out by the director in relation to the company.
Lord Evans of Temple Guiting: I agree absolutely with the point made by my noble friend Lord Wedderburn. In an earlier amendment we made the distinction between

GC 125
what a finance director should know and what a sales director should know. So I agree with my noble friend on this.
Lord MacGregor of Pulham Market: Can the noble Lord explain why paragraph 48 of the Explanatory Notes states that:
"Each director will have to think hard about information, of which he or she is aware but the auditor is not"?
Lord Evans of Temple Guiting: Again that is a perfectly reasonable and sensible proposition for the directors of a company to embrace. We are not dealing with a group of stupid people; we are addressing highly intelligent people who run very successful companies. The line of questioning seems to suggest that they need in some way to be taught how to do their jobs when it comes to governance and probity, and how to recognise audit problems that may emerge within their organisations. I am slightly bewildered by that line of questioning, but that may be my problem.
Baroness Noakes: I was interested in the noble Lord's reference to making inquiries in relation to listing particulars. I am sure the noble Lord is aware that, when listing particulars are finalised, directors are surrounded by armies of lawyers carrying out detailed due diligence checklists. I should like to explore with the noble Lord whether he thinks that that is the direction of travel for boards of directors and, in particular. for audit committees. Will we end up with a process that involves advisers going through individual items and possible lines of inquiry, checklists of questions to put to the auditors about what they know and do not know, and questions in relation to all the subsidiaries? That is what the analogy to listing particulars implies in practice, although one would not get that from reading the law.
Lord Sharman: Perhaps I may add a word to what has been said by the noble Baroness, Lady Noakes. I think that it is almost beyond peradventure that we are headed down the route of verification notes as regards information in the directors' report. When we consider what is to come with the OFR, we are headed down the route of verification notes. It is inevitable. However, noble Lords should not take from my remarks that we are doing anything other than providing full employment for the legal profession. I can envisage circumstances in which it will not be possible to hold a board meeting without a lawyer sitting in. We need to understand that, and I think that it should be taken as a given.
Lord Evans of Temple Guiting: When I referred to the Financial Services and Markets Act 2000, I did so because the concept of making reasonable inquiries is contained in that Act. It was not an analogy; it was simply an example of another Act which uses the same wording. I thought that might be helpful given that there is some surprise and worry about what is meant by "reasonable".
GC 126
We are talking about what directors are aware of. If they are not aware there is no responsibility. This point has been made before.
Lord Freeman: With great respect, that is not what is stated in the text of the Bill. It would help matters greatly if the Minister could confirm the Government's intention in regard to the fact that directors ought to know what the auditors do not know? Is that responsibility—to which my noble friends, with their vast experience, have referred—directed at, for example, the finance director and the audit committee? Can the Minister confirm that it does not apply to non-executive directors and others who do not have direct dealings with the auditors and that there is no intention for them to be caught?
Lord Evans of Temple Guiting: Clause 9(5) makes the situation clear. Subsection (3) of new Section 234ZA states:
"For the purposes of subsection (2)(b) and (c), a director ought to know a matter if it would be known by a reasonably diligent person having both—
(a) the knowledge, skill and experience that may reasonably be expected of a person carrying out the same"—
executive or non-executive—
"functions as are carried out by the director in relation to the company, and
(b) the knowledge, skill and experience that the director has".
Lord Hodgson of Astley Abbotts: Did the Minister say "the same executive or non-executive functions"? That is not in the Bill.
Lord Evans of Temple Guiting: I added that simply to clarify the position. We are not looking at a difference, as postulated by the noble Lord, Lord Freeman, between the non-executive and the executive director.
Lord Sharman: From what the Minister has said, and the way I now interpret the clause, it seems to me that we have different levels of responsibility and expertise expected of different directors, be they executive or non-executive, dependent upon their background, skill, knowledge and so on. That introduces a situation which is directly at variance with the situation that has arisen under the Sarbanes-Oxley Bill, where the US approach has been that even the designation of an individual as the financial expert on an audit committee does not attract any greater degree of liability. I can assure the Minister that, if my interpretation is right, there will be no more financial experts on audit committees.
Lord Wedderburn of Charlton: Before my noble friend replies to that somewhat extraordinary notion, would he reflect on the fact that when a consultant surgeon goes in to operate and the doctors who assist him go in to operate, they expect to operate as reasonably diligent persons, with proper experience and a proper mind to inquire into matters. That does not require them to go into a huddle with lawyers before they perform the operation.
Lord MacGregor of Pulham Market: I am sorry to continue the debate but the point raised by the noble

GC 127
Lord, Lord Sharman, is one that I raised earlier in relation to subsection (3). I was going to come to it later but, as the noble Lord has raised it, let me deal with it now.
Where one is trying to recruit non-executive directors from a much wider field than normal—from the public sector, from charitable organisations, from minority groups and so on—the knowledge, skill and experience of some of those people would be very small in relation to the issues we are discussing, particularly in relation to audit committees. There would be two classes of people on the audit committee.
As the noble Lord, Lord Sharman, correctly said, one of the dangers would be that the people with the real knowledge, skill and experience would face problems about making reasonable inquiries, and all of the rest of it. They would have a much higher degree of responsibility than those with no financial experience. If my interpretation, and that of the noble Lord, Lord Sharman, is correct, it might be quite difficult to attract, as the Government and Smith want, former finance directors and accountants on to the audit committee.
Lord Evans of Temple Guiting: I return to the example raised before; that is. expertise for particular functions. The distinction between the specialist knowledge that the finance director and the sales director would have was raised. We have to come back to the notion of "reasonableness". Probably, we would not accept that the sales director would have a detailed knowledge of audit procedure. We would expect the Finance director to have that. We would not expect the finance director to be able to predict whether a product in stock will sell out within three months, but we would expect the sales director to have that information. The words "awareness" and "reasonableness", when applied, help us with the interesting problem that has been raised.
In other words, what it is reasonable to conclude a finance director ought to know is not the same as what it is reasonable to conclude a non-executive director ought to know. To take a small company, there is a difference between what the director running the business ought to know and what a fellow director who has little active involvement in the business ought to know. I do not think that it is extraordinary that when we hire an expert we should expect expertise. For that reason, and the others that I have given, I think that our approach is the right one.
Baroness Noakes: I do not want to prolong the debate, but I should record for today—I am sure that we will be debating this matter again—that what the Minister said has, in effect, sounded the death knell of audit committees being run by those who have expertise in the matter.
Lord Hodgson of Astley Abbotts: I am sure that the Minister is under no illusions regarding our concerns about this amendment and the provisions of this clause. What most concerns us about "reasonableness" is reasonableness ex ante and reasonableness ex post. Hindsight is a wonderful thing. "Reasonableness" in
GC 128
respect of what one should have done. looking back up the track six or eight months, appears incredibly straightforward, but at the time it was not quite as clear.
We have not got a clear guide from the Government on the shifting nature of reasonableness in relation to society or time. For my part, I was slightly further confused by the small and big company example and, indeed; the discussions about expertise. Without wishing to further belabour the Minister. I did not think that the FSMA example was helpful. Listing particulars are about raising money. They are about trying to entice the public to put money into a company. An annual report is reporting what the company has done to shareholders who are already owners of the business. It is a very different function, but we do not need to go any further on that.
Clearly, we shall come back and look at the issues in connection with this clause. In the mean time, I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 58 not moved.]
6.45 p.m.
Lord Sharman moved Amendment No. 59:
Page 12, line 13, leave out from "determination" to end of line 15 and insert "of the form of his report under sections 235 and 237 of this Act:"
The noble Lord said: We return, I fear, to subsection (2) of Clause 5. There appears to me to be a technical flaw in this subsection. As currently drafted, it does not fully reflect auditors' duties in regard to their overall reports on financial statements and annual reports. The information disclosed to the auditors before the directors' report is approved under new Section 234ZA(2)(b) should not be restricted to the information required by auditors for the purposes of the auditors' determination in accordance with Section 235 of the 1985 Act, which deals with the preparation of accounts. It needs to be extended to include the information that auditors require to meet their responsibilities under Section 237, which deals with the accounts and other matters on which they have to report in respect of the auditor's report. I should be very grateful if we could clear that up.
Lord Evans of Temple Guiting: We recognise that, as currently drafted, new Section 234ZA(2)(b) does not reflect the full range of material which must be covered in an auditors' report set out in the Companies Act 1985. The reason for this is that the principal purpose behind this clause is to ensure that the auditors have all the information relevant to determining their opinion on the annual accounts; that is, whether the annual accounts have been properly prepared in accordance with the Act, and in particular whether they give a true and fair view.
However, we have some sympathy with the noble Lord's amendment. In particular, I find it difficult to argue why this particular provision should not also refer to information relevant to the determination of the auditor's opinion in relation to the directors' remuneration report, as required by Section 235(4) of

GC 129
the 1985 Act. I am not convinced, however, that we need to include information relevant for all of the auditor's duties under Section 237.
I therefore hope that the noble Lord, Lord Sharman, will accept my undertaking to look at the point raised by this in more detail and to bring forward an appropriate amendment for consideration at Report stage.
Lord Sharman: I am grateful to the Minister for that response. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
Lord Hodgson of Astley Abbotts moved Amendment No. 60:
Page 12, line 16, leave out "ought to know"
The noble Lord said: We come now to new Section 234ZA(2)(c), after hammering away at subsections (a) and (b). Paragraph (c) introduces yet another complexity that lies at the heart of our differences. We thought very carefully about "ought to know" in connection with subsection (2)(b), which states:
"the director knows or ought to know that the information would be relevant for the purposes of the auditors' determination".
We decided that, on balance, it was fair to leave that in. However, when we got to subsection (2)(c), which states,
"the director knows or ought to know that the auditors are not aware of the information",
we thought that it was a bridge too far.
The director is in a very difficult position if he is being asked to decide what the auditors ought to know but in fact do not. So we felt that Amendment No. 60 was right to seek to remove "ought to know" from this part of the Bill. We are quite content with the penalty for a director failing to disclose information that he knows is relevant to the audit and where he also knows that the auditors do not know it. However, asking a director to take responsibility for information that he ought to know the auditors do not know is a step too far. It is very difficult to see how a director is to avoid being charged with being reckless in such circumstances, particularly in the modern litigious environment in which we live. I beg to move.
Lord Evans of Temple Guiting: The amendment tabled by the noble Lord, Lord Hodgson, would, like his earlier Amendment No. 57, remove a detailed provision designed to ensure the effectiveness of Clause 9. Again, we think that this amendment would significantly weaken Clause 9. The provision that Amendment No. 60 would remove introduces the concept of what a director ought to know in relation to what information the auditors are not aware of. Let me explain why I think that necessary to make the clause effective, and why it does not impose an unfair or disproportionate burden on directors.
Without the references to what a director ought to know, we are left with a test which it is very difficult in practice to demonstrate has been met. Whether a director knows that the auditors are not aware of certain information is difficult to prove. A director might say, "I realise that a reasonably diligent person
GC 130
in my situation would have known that the information was not known by the auditors by, for example, checking lists of disclosures that had been made to them. I should have realised that but as a matter of fact I did not". I am clear that the references to "ought to know" and its meaning in proposed new Section 234ZA(3) are necessary to make the clause work effectively.
Again, it is right to consider whether the provision imposes an unfair burden on the director, and again our answer is that it does not. I would have been sympathetic to that concern had we simply included the reference to "ought to know" without further explanation. However, proposed new subsection (3) carefully defines what is meant by "ought to know" in the context.
There are three elements to that. First, the director does not have to be a superman or superwoman; he or she is expected to know only what a reasonably diligent person would know. Secondly, in reaching a view of what a reasonably diligent person would know, the clause does not lump all directors together, but says that it is to be determined in relation to the knowledge, skill and experience that may reasonably be expected of a person carrying out the same functions as that director. In other words, what it is reasonable to conclude that a financial director ought to know is not the same as what it is reasonable to conclude that a non-executive director ought to know. That point has been made several times this afternoon. Thirdly, what a reasonably diligent person would know is determined also in relation to the knowledge, skills and experience that the particular director actually has.
Our aim is to produce legislation that is carefully balanced—that will be valuable and effective in supporting the statutory audit but will not impose unreasonable requirements on directors. We believe that the provisions meet those aims. The very first point on the first day—it seems like last week—made by my noble friend Lord Sainsbury was that one of the purposes of Committee is to listen carefully to what everyone says, take it away and consider the discussions and arguments.
Baroness Noakes: What the Minister says is clearly extremely encouraging but, before my noble friend decides what to do with his amendment, I want to probe a little more about the practical implications of the paragraph. It suggests that the director knows or ought to know that the auditors are not aware of the information. It contains nothing about being able to rely on reasonably diligent auditors.
What one ought to know that the auditors did not know would be different if one had highly competent auditors or non-competent auditors. The clause is not balanced by any counterbalancing assumption that the director can make, because we are in effect talking about hypotheses that the auditors are acting reasonably. Without some balance, the provision will result in severe practical difficulties for those charged with considering the matter. I shall return to audit

GC 131
committees: I should have declared an interest a long time ago as a chairman and member of a number of them. Such considerations bear heavily on my mind.
I do not know what procedures I would have to undertake to ensure that I knew or ought to know that the auditors were aware of information. I find that particularly difficult to contemplate in the context of what level of skill they are expected to demonstrate in the way in which they conduct their audit. I feel that we are going into unknown territory. To reinforce the point that I made under an earlier amendment, that will make the job of anyone wanting to be involved in an audit committee so undesirable as to set back corporate governance by a decade. I shall be interested to hear what the Minister says.
Lord Freeman: Before the Minister replies, may I add a brief comment to what my noble friend Lady Noakes has just said? There is a great emphasis at the moment on training or attempting to train non-executive directors in an effort to recruit a higher quality and wider range of directors. Before we come to Report stage, will the Minister reflect on the effect of the provision?
Unless the Bill is amended, I can tell the Minister that it will have a very serious effect on our ability to recruit more people to serve on boards of public companies. Despite the words of reassurance the Minister has given the Committee, the reality of the situation is that all directors—not only those serving on audit committees, with whom there are separate problems—will have to be warned about their responsibilities. I assure the Minister, from my experience, that that will have a deleterious effect on the legitimate aspirations of the Secretary of State for Trade and Industry to recruit more experienced directors, including those with perhaps no direct experience of business—those coming from the teaching profession, from quangos or academia, for example. They will be put off by the requirement of "ought to know". I seriously ask the Minister to reflect on that before we come to Report stage.
Lord Evans of Temple Guiting: First, I shall speak to the interesting point made by the noble Lord, Lord Freeman, when he asked us to reflect—which, of course, we shall do. I was rather concerned when he said that directors should be warned about their responsibilities. Good Heavens—that is part of the job of being a director!
Lord Freeman: I apologise for not making my point crystal clear. In training sessions for non-executive directors—in the excellent courses run by the Institute of Directors, for example—the lecturer will inevitably refer to what is in the Bill. The detailed explanation with which the Minister has favoured the Committee will not, I assure him, be gone into in great detail. The lecturer will quote Section 234ZA(2)(c), and will not necessarily go into the fine detail of all the exceptions and nuances. That is what will put off recruits.
Lord Evans of Temple Guiting: I hear what the noble Lord. Lord Freeman, says, but we disagree. I do not
GC 132
see the pool of non-executive directors drying up as a result of this Bill becoming an Act, but that is simply a difference of opinion.
All I would really like to say in relation to the points made by the noble Baroness, Lady Noakes. is that she postulates the idea of auditors who are not very good and a board that is not very good. However. what we are doing in the Bill is assuming—-I think rightly—that the auditors know, accept and embrace audit standards, and that the board of a company behaves as a board should behave. We are continuing to come back to how we define "reasonableness" and "awareness", how we establish a direct "need to know" in relation to the auditor, and what the auditor needs to know in relation to the board. Those are issues that we have been teasing out this afternoon, and we shall probably continue to tease them out for the next half hour and into Monday. They contribute to words that we shall all be reading over the next week or so.
7 p.m.
Baroness Noakes: I thank the Minister for that. Can I take him as saying that the interpretation of this section is that the director may rely on auditors complying with extant auditing standards?
Lord Evans of Temple Guiting: No, we believe that we have the balance right in this clause. but we will reflect on the points made today. I cannot go any further than that at this stage.
Lord Hodgson of Astley Abbotts: I am grateful to the Minister for his assurance that he will reflect on what we have discussed and on the points made. Whoever drafted his speaking note to say that, by removing "ought to know", the amendment would weaken the detailed provisions of the clause is overstating the case. The issue relates to "not", and whether a director ought to know that the auditors are not aware. Proving a negative has always been a very difficult task.
My noble friend Lord Freeman refers to the issues of attracting non-executive directors. For better or worse, high profile cases where non-executive directors find themselves in the firing line—there will be more if such legislation is enacted—put people off. Perhaps they should not, but they do. I was a director of a hospital company, which employed many nurses and whose essence was to provide people with medical care. We wanted to have on the board a senior nursing sister to provide an aspect of expertise. Before we got to the issues that we are discussing, it was difficult, even under current legislation, to discuss with the nurse, who knew nothing about finance—we asked her to join the board because she was a nurse—what her liabilities were and where her responsibilities began and ended, without what we are proposing here.
On this side of the Committee we thought carefully about subsection (2)(b). Those provisions, which are unamended subject to the points made by the noble Lord, Lord Sharman, state that,
"the director knows or ought to know that the information would be relevant for the purposes of the auditors' determination".

GC 133
That is a positive statement, which is fair enough. However, paragraph (c), which says,
"the director knows or ought to know that the auditors are not aware",
pushes out the provision a bridge too far.
Although we shall withdraw the amendment this afternoon, we shall return to it. I hope that the Minister will give it very sympathetic and serious consideration in the mean time. I beg leave to withdraw the amendment.
Amendment. by leave, withdrawn.
The Deputy Chairman of Committees (Lord Geddes): Before calling Amendment No. 61, I must advise the Committee that, if it is agreed to, I cannot call Amendment No. 52 due to pre-emption.
Lord Wedderburn of Charlton moved Amendment No. 61:
Page 12, leave out lines 18 to 24.
The noble Lord said: This amendment is complicated, but I shall try to deal with it as quickly as possible, in view of the hour. Amendments Nos. 61 and 64 are an attempt to probe into a strange situation that has arisen in regard to directors' duties. With our usual helpful intention, my noble friend and I tabled the amendment with the helpful intention of getting the Minister off a peculiar hook of his own making.
I do not want to revert to previous discussions, but subsection (3), at page 12, lines 18 to 24, introduces an objective standard of the duty of skill, care and negligence on the part of directors. I say at once that that was proposed by the Company Law Review Group, with which I am totally at one on the matter. I therefore approve of the subsection that my amendment curiously purports to leave out. I shall explain why.
I could have done this in a previous century or in previous decades simply by saying that there is applied to professional people a very clear objective standard known under the heading of imperilia culpae adnumeratur. However, I know that today that shall not be enough, so I must explain the issue in longer language, and, as Mr Balfour said once, talking English not law. An accountant is judged by the standards of a reasonable accountant; objectively. A doctor is judged by the standard of a reasonable doctor. A nurse, who has been mentioned, is judged by the standard of reasonable nursing practice. So are all professions. It is directors who have been the exception.
I cannot understand the mystification of those who have vast experience of sitting on boards to be brought face to face with the fact that in new company law directors are to be brought into line with the rest of the law. There will be an objective standard of a reasonably diligent person with the knowledge, skill and experience that is to be expected of a person carrying out those functions. Exactly the same formula could be applied to the doctor, nurse, accountant and solicitor. Some scholars predict that the judges are
GC 134
themselves about to modify that matter and that there will be litigation—it is afoot already—where some of these questions will be aired. But that is the present position.
Since the Marquis of Bute's case in 1892, the position of the director has been judged on skill and care according to that director's knowledge and that director's experience—largely a subjective matter. The statute has modified it in various situations, such as insolvency, of course. A change is coming to company law.
The difficulty for the Government is that subsection (3) of new Section 234ZA is ahead of the rest of events. The Government have out for consultation a document on director and auditor liability, on which the consultation period ended last Friday. In that document the Government have given a number of options for people to respond to, mainly either the proposal of the Company Law Review to introduce the objective standard or to opt for the disaster of an Americanised business judgment standard, with or without associated principles relating to indemnification and various other matters. I say at once that I can think of no greater disaster for company law than introducing the business judgment standard of the United States state jurisdictions which have adopted it.
I quote from page 20 of the consultative document where it accurately and summarily describes the business judgment rule:
"The court [under such a judgment rule] will look only to determine whether the directors—at least those directors making the decision—were disinterested in the matter, appropriately informed themselves before deciding, and acted with good faith belief that the decision was in the best interests of the corporation".
With the exception, perhaps, of part of the judgment on a duty to inform oneself, that is largely a subjective test, which would be a very backward step.
In fact, much of the argument today has been a subfuse and camouflaged argument in favour of the Americanised business judgment rule. By introducing this clause, the Government have set off what they can expect in the consultation. I very much hope that they will not give way to this pressure. We have even heard that if the same objective standards are introduced for directors as for other professions, they will take away their bat and ball and not sit on these boards at all. I find that quite extraordinary.
In the 21st century, it is clear that the objective standard must be adopted as at least the basis of the new company law. The problem is: where does that leave company law reform in general? Surely it would be better if the objective standard was firmly adopted by a measure of company law reform ahead of the rest of the companies Bill. Why do I say that? I say it because the Bill has introduced the issue. You cannot keep subsection (3) concerning reporting to the auditors and keep the Marquis of Bute's case for the rest. Directors will suffer a kind of schizophrenic attack trying to know what is their standard of care in the one matter and then in the other.
I am serious when I say to my noble friend that the object of this amendment is to ask whether it would be possible to act rapidly on the basis of a consultative document which the Government need now to consider and introduce a measure on directors' duties of skill and care, liability and negligence, as a preliminary reform, thus making some progress on company law generally. Into that, as Amendment No. 64 suggests, subsection (3) would fit very naturally if the objective standard were adopted in accordance with the recommendation of the Company Law Review.
The amendment is an attempt to get my noble friend to say whether, on the enactment of this Bill, we shall be left with an objective standard in one area—covered by new Section 234ZA—and the Marquis of Bute's case in the other. That would be a most undesirable development. Moreover, although I cannot say, the judges may well look at the whole matter again during the next few years. However, the Government should not rely on that, in particular in light of the relationship between some members of the Cabinet and the judiciary. They cannot pull all the chestnuts out of the fire.
I make a serious point in asking whether this subsection does not pre-empt the response to the consultative document that has been issued. Of course I would be quite happy if it pre-empted it and were more general than it is. That is the objective of these probing amendments: to ask for further statements about exactly where the duties of skill and care in general will lie on the enactment of the Bill. I beg to move.
Lord Sharman: I congratulate the noble Lord, Lord Wedderburn, on introducing this amendment because it goes to the heart of what we have been discussing over the past hour. I start by confirming to him that I have no problem with an objective standard of measurement of care. My problem is with the notion that the idea of "joint and several", which we have lived with for many years, is now to be replaced by a form of supple proportional liability without actually having the legislative backing for a system of proportional liability. That is what it seems the noble Lord is saying when dealing with terms such as "reasonably", "ought to know" and so forth.
I think that those issues of directors' responsibilities and duties of care are inextricably linked to the issue of liability and the consultation which the Government have been undertaking. At Second Reading I asked the Minister whether, if the response to consultation could be handled, it would be possible to table amendments to the Bill latter, either here or in another place, to reflect the outcome of that consultation.
What we are struggling with here is change which will be subtle rather than open, moving away from a situation that is known and understood by members of boards of directors to one where personal, individual responsibility and a proportional sense of duty becomes much more important—without that actually being incorporated in statute so that who ultimately pays whom can be interpreted by the courts. People are
GC 136
not worried about being judged, they are worried about having to pay for something they do not understand or they do not know about.
So I support the notion behind these amendments and look forward to hearing what the Minister has to say.
7.15 p.m.
Lord Hodgson of Astley Abbotts: I agree with the noble Lord, Lord Sharman. The noble Lord, Lord Wedderburn, has brought forward a valuable and interesting initiative. I shall not repeat what he has said but it seems to me that what is proposed in the amendments moves towards an answer to the issues that troubled us so much in our debates on Amendments Nos. 55, 57 and 60.
The need for clarification is important. Clearly, both sides of the Committee feel that it is critical. A statement outlining the nature of directors' duties has its attractions and I look forward to hearing the Government's thinking on how this may be pushed forward.
Lord Sainsbury of Turville: The essence of the amendments of my noble friend Lord Wedderburn is to bring forward a fundamental part of the companies Bill and that somehow this subsection pre-empts that. We take a different view. We see this as an issue that we need to solve. To see this issue—which has to be absolutely central to a companies Bill—as some kind of an adjunct or a separate issue is not the right way to approach the matter.
In effect, the amendments of my noble friend Lord Wedderburn seek to make a connection between the question of what is expected of a director in this relatively narrow context of providing information to the company's auditors and the much broader issue of directors' duties to the company. I think that, despite a superficial similarity, these are two quite distinct issues. The latter—that is, directors' duties to the company—very much belongs in the main companies Bill and not here.
As I said at Second Reading, we are committed to that important reform and we shall publish a draft Bill for comment before we introduce it to Parliament, but it is important to take the necessary time to get it right. We must achieve the delicate task of modernising and simplifying company law while avoiding unintended consequences—in particular, uncertainty—which could damage business and the financial markets.
Amendment No. 61 would remove new Section 234ZA(3), which defines what a director "ought to know" for the purpose of the clause. The meaning of "ought to know" in subsection (3) is closely modelled on the approach in Section 214 of the Insolvency Act 1986 for determining whether a person who is or was a director ought to have concluded that there was no reasonable prospect that a company would avoid going into insolvent liquidation. I am sure that is right.
However, the drafting of subsection (3) reflects the limited circumstances of this particular clause compared with the wider circumstances covered by

GC 137
Section 214. The only differences are the omission in this clause of words in Section 214 which have no application here.
It is surprising that my noble friend is suggesting with his Amendment No. 64 that we should drop from the Bill a perfectly good and useful definition and instead put a definition in separate legislation. Usually the Government are criticised for leaving detail out of a Bill and only supplying it later. Here it seems to be the reverse. I think it would be much better to leave the definition in subsection (3) so that everyone can see the whole picture. I can assure my noble friend that the much broader question of directors' duties to the company will be dealt with as soon as possible in its rightful place, namely the main companies Bill. To take it out of the companies Bill would be a strange way of proceeding. It is absolutely critical to any companies Bill.
Lord Sharman: Can the Minister answer my question about whether we can expect a statement on the plans for reform of directors' liabilities before the Bill is passed?
Lord Sainsbury of Turville: The answer is yes.
Lord Wedderburn of Charlton: I congratulate my noble friend on that statement, which is a very
GC 138
important advance. We shall get an answer, so I shall be caused such distress for only a limited time. I remain distressed that he insists on impaling himself on the hook that he has created, a hook that demands that he dangle between one standard of care under the Bill and a different standard of care, diligence and so on in the rest of company law. We shall have to deal with that as best we may.
The courts may well advance their jurisprudence in the light of whatever statement the Government make before the enactment of the Bill. That is a most important revelation. Whereas I thought that I would feel hopelessly lost, given the curious position, I now feel much comforted and am very grateful to the Minister. I beg leave to withdraw the amendment.
Amendment, by leave, withdrawn.
[Amendment No. 62 not moved.]
Lord Evans of Temple Guiting: This may be a convenient moment for the Committee to adjourn until Monday at 3.30 p.m.
The Deputy Chairman of Committees: The Committee stands adjourned until Monday 22 March at 3.30 p.m.
The Committee adjourned at twenty-one minutes past seven o'clock.

  Official Secrets Act: Defence of Necessity
  Official Secrets Act: Defence of Necessity
  Bangladesh
  Bangladesh
  Passports
  Passports
  Electoral Commission
  Electoral Commission
  Fire and Rescue Authorities
  Fire and Rescue Authorities
  Armed Forces: Fitness Tests
  Armed Forces: Fitness Tests
  Armed Forces: Swimming Tests
  Armed Forces: Swimming Tests
  Ministry of Defence: Fire Services
  Ministry of Defence: Fire Services
  Freedom of Information Act 2000
  Freedom of Information Act 2000
  Electoral Bodies: Employment of Staff
  Electoral Bodies: Employment of Staff
  Dental Services
  Dental Services
  Children's Fund
  Children's Fund
  International Sports Federations
  International Sports Federations
  Housing Benefit
  Housing Benefit
  Parliamentary Ombudsman
  Parliamentary Ombudsman
  Aircraft: Seat Spacing
  Aircraft: Seat Spacing
  International Ship and Port Facility Security Code
  International Ship and Port Facility Security Code

  Referendum Guidance
  Lord Bassam of Brighton
  My right honourable friend the Minister for the Cabinet Office (Douglas Alexander) has made the following Written Ministerial Statement.
  WS 24
  The Government have published guidance to civil servants and NDPB board members and staff on their role and conduct during the referendum campaigns for elected regional assemblies and the accompanying referendums on local government structures.

  The Government believe that people who serve in public life as members of public bodies should not be precluded from taking part in the referendum campaigns—whether for a "Yes" or "No" vote—in their capacity as private citizens. However, where they decide to participate in such activity they should do so in accordance with the requirements of this guidance.

  Copies of the guidance have been placed in the Libraries of the House.