Westminster Hall Sitting of 8 March 2000

Preamble
[SIR ALAN HASELHURST in the Chair]

Exchange Rate
Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Robert Ainsworth.]
9.30 am
Mr. Austin Mitchell: I asked for this debate today, which I am delighted to have got, as I want to draw attention to the fact that the pound is grossly over-valued, especially against European currencies. Given that the euro has been falling, I want to argue that the pound's over-valuation is having a deeply damaging effect on our manufacturing industry. It is also damaging our regions, especially the north and the midlands.
I want to argue also that manufacturing is certain to lose jobs and to shrink as a result of policies that have been pursued for six years now. That is how long the pound has been over-valued, and it is only now reaching what might be hoped to be its peak. Unless the Government act, investment decisions will be taken that will shift investment away from this country. Jobs will be lost, and the capacity that is closed will never be opened again.
The Government must not wring their hands, as they have done for two and half years. They have been saying that nothing can be done, but now they must do something. That is the burden of my song today, Sir Alan.
Mr. Deputy Speaker: Order. "Mr. Deputy Speaker" is the correct form of address.
Mr. Mitchell: I apologise for starting on a bum note, Mr. Deputy Speaker. However, that should not undermine the brilliance of the song, nor the beauty of the words.
The pound is undoubtedly at an excessively high level. In the European exchange rate mechanism, a pound was worth DM2.95. That very high level had disastrous consequences for British industry, but the pound has been as high as DM3.27. It is now slightly lower, although the euro fell again yesterday, so the pound's level against the deutschmark may have risen slightly.
By any account, sterling's over-valuation will damage manufacturing. Estimates of its over-valuation vary, but I put it at about 30 per cent., or perhaps a little more. The Institute of Directors puts it at 15 per cent., but that was before the pound went over DM3. The Confederation of British Industry also agrees that the pounds is over-valued.
Why is that over-valuation happening? The Bank of England does not appear to know, and changes its opinion fairly regularly. However, the pound is over-valued because Britain is becoming—or has become—a rentier nation. We have invested massively overseas, just as the rest of the world has invested in this country.
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The problem is that the return on our investment overseas is about £15 billion a year greater than the return for foreign investors on their investments in Britain. We do better with our investments overseas than do people from overseas who invest in this country. The dividends and profits come to this country, get translated into sterling and thereby keep the pound's value high. The same thing happened at the end of the 19th century, when we were on the gold standard.
The second factor is that the euro has fallen in value. I believe that it has been managed down as part of a competitive devaluation designed to kick-start the European economies. The other possibility is that the euro has fallen because it is a monstrous, unlikely beast that was never going to work anyway. However, I leave that for the nation to judge—it is not part of my song today. I honestly do not know what the answer is, although I suspect that it is being managed down. Those in charge of the euro want the European economies, and especially Germany's, to be more competitive. They therefore need the boost that an undervalued exchange rate gives to the manufacturing economy. They have achieved that, and German industry has benefited greatly.
The third and most important factor is that our interest rates are high, in real terms and in historic real terms. They are nearly double European rates. It is impossible for manufacturing to compete effectively in what is now a single market with very intense competition when we have interest rates double those of our nearest competitors. How on earth can it be expected to compete in a race against very powerful competitors when it has a ball and chain around each ankle—one that is called high interest rates, and the other called over-valuation, which is the consequence of those high interest rates? For some reason, Britain expects the economics of outward bound courses to have a beneficial and stimulating effect on our manufacturing. In contrast, other countries compete more effectively.
Our interest rates are high. The world is awash with growing money flows, due to uncertainties in south-east Asia and about the euro. Inevitably, that money gets parked here because it can earn high rates of interest. It can also profit from the possibility it has been a probability over the past few years—of an appreciation in the exchange rate. Naturally, therefore, this country is attractive to all the money washing around the world.
We are paying the funny-money manipulators to bring that money here and to keep it here. That is doing us great damage. The City might do well out of it, but the rest of the economy does very badly. When sterling is bought and the funny money is parked here, the pound appreciates.
I believe that the Bank of England is using overvaluation of the exchange rate as its only weapon against inflation. The psychology works as follows: over-valuation makes imports, foreign holidays and everything that is imported cheap, and therefore reduces the cost of living, even though it destroys jobs in this country. The second element to be considered is that, in order to compete in a race while hampered with overvaluation, British producers cut back on costs. When they cannot agree wage increases, they shed jobs and put

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the pressure on labour. It is assumed that the result of all that is that inflation will be defeated, albeit at the expense of our long-term industrial survival.
Inflation is no longer the serious problem that it was in the 1970s. The world is awash with excess capacity in manufacturing. The power of labour has been broken. There is an air of insecurity because people are frightened for their jobs, and competition is now more intense than it has ever been. For those reasons, inflation is no longer the problem that it used to be, but we are fighting it with the monetarist weapons of the 1920s. We appear to believe that disciplines must be imposed on British manufacturing that other countries' industries do not have to bear. In essence, we have aimed the monetarist musket right at the heart of British industry.
If the Bank of England wants high interest rates when inflation is low and sterling is high, what will happen to interest rates when sterling comes down in value, as it is bound to do at some stage? The Bank of England will have to push interest rates ever higher in order to maintain sterling's value, because it will fear the inflationary consequences of a fall in that value.
I think that that fear is unrealistic, but the Bank of England's mentality is such that, having sustained rates at high levels during a benign period when inflation has been pretty well dead, it would have no alternative but to increase rates to prevent a fall in sterling's value that it—the Bank—created in the first place. That folly would ruin British manufacturing. The Tory Government acted in the same way between 1979 and 1982, and between 1989 and 1992. Both those periods of deflation were ended only by falls in the exchange rate. Massive recessions followed on both occasions, and the same policy would result in damaging declines now.
The Labour Government need growth to deliver their promises to the people. C. A. Crosland argued that the essence of socialism was economic growth, as that enabled the redistribution of wealth and improved public spending that made society better for working people. However, this Government, who are supposed to share that ideology, are undermining redistribution and destroying growth. The consequences are certain to be the same as in the two previous, and unnecessary deflations, that I mentioned earlier.
The pound's over-valuation hits manufacturing directly. Manufacturing is on the front line of intense international competition on price. Price is the central competitive factor—people say that it might be the improvement of models, but everything has its price. Manufacturing is faced with increased prices through no fault of its own, because of the exchange rate. The exchange rate translates all our costs into foreign currencies when the goods are sold, meaning that our costs are far too high. They have appreciated by more than 30 per cent. over the past six years because of the exchange rate. Manufacturing has done its best to cut costs. It has made itself very efficient and is now extremely productive, but this burden of costs has been imposed on it as a kind of outward bound course mentality.
There is nothing that manufacturing can do about this. It is exhorted to hold wages down. Even if it holds down wages permanently, cuts wages and every cost
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available, it cannot cut costs by more than perhaps 2 per cent. a year. Yet the costs in foreign exchange terms have been increased by 30 per cent. It is a hurdle that manufacturing cannot jump.
The evidence of the effects of increased costs can be seen all around. It has happened near Grimsby. Fisons is just closing its fertiliser plant in the neighbouring constituency of Cleethorpes, with the loss of 250 jobs. It is concentrating production in Europe because it is cheaper to produce there at this level of over-valuation. Multinationals usually have a choice of having plants in this country, in other European countries or outside Europe. Fertiliser companies are facing difficulties because of the agricultural depression so, given that choice, they will close the plant that is the least competitive and, given our exchange rate, that plant is, ipso facto, inevitably in Britain.
The same is happening to the agricultural and chemical industries. They all tell me that the pound is not hurting them, it is crucifying them. Something must be done about it. The pig protest outside this House is because our costs are so much higher, thanks to the exchange rate. There are other factors as well, but the burdens of agriculture are largely due to the exchange rate.
It is happening in the steel industry. I have a statement that I asked for from the UK Steel Association. It says that 85 per cent. of all the steel produced in the United Kingdom is sold in the European Union single market. Price is key here and affects the UK markets as well as export sales. The UK steel industry exports half of all it produces. More than 70 per cent. of those exports go to mainland Europe. UK steel exports, however, fell 14 per cent. in 1999. The association says:
In 1999, UK steel companies would have realised an extra £300 million a year or £25 million a month on their exports, to underpin UK jobs, if the Sterling/euro exchange rate had remained stable throughout the year instead of hardening by 12 per cent … In the past 20 years, UK steelmakers have improved productivity nearly five-fold. That is 10 per cent. a year, nearly three times better than UK manufacturing as a whole … Now, in euro terms, UK wages have increased by one third in the last three years, destroying years of wage restraint, throwing away productivity gains … The strong pound is making it cheaper to source from Euroland. Imported components for new cars are now 72 per cent., fully 10 per cent. up on three years ago.
Why? Because sterling is over-valued, and it is cheaper to import components from Europe. The UK Steel Association says that manufacturing investment is now down 17 per cent. on a year ago. It shows that plant is not being renewed and new technologies are not being adopted.
The effect of the exchange rate on steel is echoed by Corus whose chairman, Sir Brian Moffat, warned Members of Parliament when he spoke here:
Manufacturing industry in the UK is fighting for its very existence and will continue to do so. It is extremely efficient but the impact of the continued strengthening of the pound on its cost base is remorselessly undercutting its competitiveness … The facts are that profits are in decline and already well below the levels needed to provide necessary future investment, never mind reward shareholders.
I requested opinions from several organisations. The Engineering Employers Federation says:
Of particular concern is the impact the strength of sterling is having on confidence and investment plans. The EEF's latest survey shows that investment plans have been cut back for the sixth consecutive quarter and there has been no let up in the rate of decline.

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Nissan says:
The implications of Sterling continuing at its present level against the Euro are being grossly underestimated and are poorly understood. Should the present circumstances continue unchecked, the UK's manufacturing exporters, their export markets and our domestic markets, are at grave risk.
Nissan says that production has been increasing in the UK. It says, however:
The position of Nissan in Sunderland is particularly vulnerable, exporting as we do, 75 per cent. of our production—mostly into the heartland of our competitors in continental Europe. Ask any of our competitors in France, Germany or Italy what they think of the current Euro/Sterling relationship—they cannot believe their good fortune … Nissan currently buys 70 per cent. of its total European component spend from UK suppliers—a policy which adds to the burden of competing profitably overseas. The UK supply base must compete …
The implication is that UK suppliers will be cut out and that Nissan will buy its supplies from Europe.
That is the story from a clutch of manufacturers. It is repeated everywhere. Raleigh Bicycles closes production in Nottingham and transfers it to south-east Asia. Ford sheds 5,000 jobs at Dagenham and transfers them to Europe. Marks & Spencer cuts down on its purchases in this country, with devastating damage to textile towns in Lancashire, as all my colleagues representing Lancashire constituencies complain, because it is cheaper to have the same goods produced in Morocco or Sri Lanka and import them here. More is being done overseas; more components are being imported, and jobs in this country are going. Long-term investment decisions are being taken. As Bruce Springsteen sings in the immortal "My Home Town", "The foreman said these jobs are going, boys, and they ain't coming back". Investment decisions taken now will affect employment and production in this country for another decade at least. Those decisions are being taken against this country.
I think that the way in which every piece of sewage that can be mustered is being thrown at Ken Livingstone is an atrocious act on the part of the Labour party, which will alienate public opinion. We are now told that there is a Livingstone effect—that the threat of Ken Livingstone as mayor will stop businesses coming to London. There is already an Eddie George effect, and if I were not such a loyal party member, I would call it a Gordon Brown effect.
Mr. Deputy Speaker: Order. I remind the hon. Gentleman of the way in which we address fellow Members of the House—not directly by name.
Mr. Mitchell: I am grateful, Mr. Deputy Speaker. Let us just call it the Eddie George effect—it is much safer that way. It puts investing companies off this country, and the decisions have already been made.
German manufacturers in this country, in particular, say that the solution to our problems is to join the euro. It is not, because we cannot join the euro at this exchange rate or anything like it. That would set it in concrete and make it permanent. The exchange rate operating when we join will have to be that maintained for two years before entry. It is impossible to join the euro at this exchange rate, and people arguing for that are so devoted to Europe that they have lost their sanity or they are Liberal Democrats. Both want euro entry
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now, which is a folly. When companies say that we should join the euro, they are really saying, "We are not competitive at this exchange rate. Do something about it." That is the real message.
The consequences are that imports are going up and exports are falling, and the balance of trade is turning sour. It is saved only by oil. That trend will affect a dismaying proportion of our gross national product if it continues at this rate, and there is nothing to stop it. We will build up a deficit, and manufacturing and jobs will be hit just as we are in the run-up to an election in May 2001. I had better tell the right hon. Member for Wells (Mr. Heathcoat?Amory), before he slip outs to make preparations, that we are making those preparations for him with this economic policy.
The effects have not hit us before because the most vulnerable firms and industries disappeared in the two previous deflations, and there has been a credit expansion to keep up domestic demand, but it is hitting the fundamentals of production, exports and our position in the world. We have been here before, and it is distressing to hear the same things being said. I hope that the Minister will not say the same again today. We have been having these debates for some time, and Ministers' replies could have been enunciated by Conservative Ministers in the previous two deflations.
We are told that industry is learning to live with the strong pound; well, it is certainly learning to die with the strong pound. It is a truism to say that our existing industry is competitive—the fact that it has survived means that it is competitive. That view makes no allowance for the new industries that are developing or the old industries that we have lost; nor does it deal with the means of survival.
Industry is surviving by exporting; it is hanging on, often without profit, as firms all over the country have told me, just to keep its market share. It is having to cut down on everything—investment, research, design and innovation—just to survive. That formula is uncompetitive in the long term, but it leads to short-term survival. In the drought in the 1970s, people told us that the great trees had survived, and we all marvelled at that feat, but shortly afterwards the trees collapsed one after the other. That is the position of British manufacturing.
We are told that the situation is good discipline for British industry because it will make it competitive, and that is Government policy. We are preaching competitiveness, investment and upgrading skills. All that is desirable, but useless in the face of this over-valuation, because firms cannot cut costs enough to overcome that hurdle. We look fairly silly preaching the need for a cost-cutting, burden-shedding, low-wage economy to European competitors who are now doing well because of their undervaluation while our manufacturing is being crucified by our over-valuation. I cannot understand that approach.
We are told that the pound will come down. The Bank of England clearly does not know what is going to happen. I read from the minutes of the Monetary Policy Committee's last meeting:
Committee members differed in their preferred assumptions for the path of sterling's effective exchange rate … Some preferred to assume a constant nominal exchange rate; some others preferred a depreciation in line with interest rate differentials … The assumption used in the best collective projections was half way between the two.

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It split the difference between the status quo and obvious nonsense—the idea that the exchange rate will decline—to get the projected rate. That is rubbish because the exchange rate has gone up.
The Bank of England does not know what is happening. It sits there in its ivory tower, terrified at the prospect of house price increases in the south-east, where the members of the MPC live, and wage increases in the City, where most of them mix and from where they draw their ideology, and damages the rest of the country by putting up interest rates.
We are intermittently told by Ministers that the pound will come down. I have been told that several times in correspondence. Why does it not come down? When will it come down? What will make it come down? Each time we are told that it will come down, it goes up. That means that the bleeding will continue.
We are told, finally, that there is nothing that we can do, which is an abdication and an obvious nonsense. The pound is a market-clearing mechanism; it must clear markets at a level that allows us to balance our trade in conditions of growth and full employment. It is being deliberately held up to fight inflation even though inflation is no threat. The resources of civilisation are not exhausted; it is no use us just wringing our hands and saying that there is nothing we can do. We can talk the pound down. If the Government and the Bank said that they wanted the pound to come down substantially, that would help to weaken confidence and bring the pound down.
We can reduce interest rates to the European level. Why should they be double those in Europe? We can change the terms of reference of the Bank of England—in my view they were always a folly—because they should certainly take account of employment, and of exchange rates and growth. We could change the targets. We could sell sterling on a scale that will bring it down. Why do we not do that?
We could buy euros. The European Union would regard that as a big favour. That would push up the euro and bring down sterling. Gerry Haltham, the former director of the Institute for Public Policy Research, who now works for Norwich Union, has suggested a scheme whereby we raise £20 billion in public debt. British Government 20-year bonds pay less than 5 per cent., so we should use that £20 billion to buy euros and invest in European public debt.
In France, Italy and Holland, such debt pays a full percentage point more than our public debt, so if we invested £20 billion raised on British public debt, over 20 years we would get £200 million a year for the British taxpayer and the appreciation that will eventually happen when the euro begins to rise, and we would bring down the pound. Why are we not thinking about such sensible methods to solve the problem? I have suggested that to Ministers and the Bank of England.
Mr. Denis MacShane: I am delighted to hear my hon. Friend sing such high praises for the euro. That needs to be hosannaed around our country. Is he aware that although the Treasury may have had its fingers burned on gold sales and may be a little nervous of Mr. Haltham's idea, Thomas Cook reports that the
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British people are buying all their holiday money now because they are ahead of policy makers in thinking that in six months, when the summer holiday season starts, the pound will not be worth as much as it is today? He should follow the instincts of the good British people.
Mr. Mitchell: If my hon. Friend heard me singing the praises of the euro, there is something wrong with the acoustics of the Room, which I know are a problem. I would not dream of doing that. I was trying to help the euro in its hour of need by suggesting that we should buy that poor, timid, cowering creature and give it a lifeline to get it up so that we can get down sterling, which is the main problem. My hon. Friend says that people are buying their holiday currency early and that is another argument that the pound will come down, but it is staying up and it will continue to do so with these interest rates.
All the weapons that I have described are available to the Bank of England. It has even considered intervention. Good heavens—what a lot of progress has been made in the two and a half years since the Bank was given its powers. Those weapons are available to the Government. It is easier to intervene to get rates down than to keep them up, as we usually do. Why do not we intervene? It is crucial that we get sterling down to achieve growth.
Since the 1970s, our growth has been 2 per cent. a year, which is pathetic. The rest of the industrial world has had nearly 4 per cent. growth, and that gap is widening. Our manufacturing is weaker, and productivity growth comes only from manufacturing, not from services. The big productivity gains are all made in manufacturing. South Korea has had a cumulative annual growth rate of 14 per cent. because of its expansion in manufacturing. Here, if productivity from services increases at all, it is only by 2 per cent. Yet, we have been shifted from a manufacturing to a service economy, in which growth will be low and the motor of our economy, which provides two thirds of exports. will suffer, reducing the power and capacity to serve the nation, pay our way in the world and attract the necessary investment to sustain such power and capacity.
The only way to achieve higher growth in our economy is to get the exchange rate down to a point where our cost base becomes competitive with the rest of the advanced world. Achieving higher growth is easily done; it requires only a substantial fall in the exchange rate. That is the way to do it, rather than watching the exchange rate go up and up, wringing our hands, saying in the most unsocialist tradition that I know, "There is nothing that we can do against these brute economic forces." There is; and when we do it, we will grow. Unless we do it, we shall be damaged.
I therefore hope that the Government will recognise that something must be done and that there are ways of tackling the problem. I hope that they will get the message from the cries of pain around the country, if not from this crowded Chamber: do something about the problem!
10.1 am
Mr. Denis MacShane: I congratulate my hon. Friend the Member for Great Grimsby (Mr. Mitchell) on obtaining this debate and on a speech

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that I know will be read with great sympathy in the steel and other manufacturing and farming communities of our country. Since I shall refer briefly to steel, I should declare at the outset my usual interest in any debate that touches on the industry: a relationship with the Iron and Steel Trades Confederation, the main steel trade union, and 25 shares in Corus, the dividend from which, I am afraid, is less than the price of a McDonald's hamburger, but at least keeps me in touch with what the company is up to.
My hon. Friend has raised the issue at an appropriate moment, but we must set the specific problem of the exchange rate in a broader context. My right hon. Friend the Chancellor has undertaken remarkably successful management of the economy, with levels of stability, growth and job creation that have not been seen for many years. The key strategic decisions and guidelines have been laid down. I welcome independence for the Monetary Policy Committee, control of Government spending and sensible tax policy, which, while all other centre-left Governments of Europe are cutting taxes, I hope the Chancellor will follow in his Budget.
However, there is growing and real concern about the exchange rate, particularly in the steel industry which is so vital to my constituency. All steel prices are posted in deutschmarks—today, of course, we should say euros—for sale across the European Union and further afield, just as oil prices are posted in dollars. The steel industry in our country cannot long survive if it must export in prices that can no longer compete with producers in Ireland—there are some—and on mainland Europe.
Like a Darth Vader who has not been killed by the forces of light, there is one remaining dark and malicious leftover from the boom-and-bust economy that we associate with the Tories: the over-valuation of sterling, which becomes more acute as oil prices harden at the spectre of sterling again becoming a petrocurrency, as it did in the early 1980s, and inflicting yet more damage on manufacturing.
It is surprising that the right hon. and learned Member for Rushcliffe (Mr. Clarke), the former Chancellor, keeps his name as a friend of the euro, since the biggest percentage surge in the pound's value in recent years—from DM2.15 in May 1996 to DM2.70 in May 1997 occurred during the last 12 months of his office. I excuse the right hon. Member for Wells (Mr. Heathcoat-Amory), who will speak for the Conservative party in this debate, from such criticism because he wisely resigned just as the pound was about to shoot up. I raised the issue again and again on the Floor of the House, begging the then Chancellor and the Chief Secretary to the Treasury to take some remedial action on sterling, but they did nothing.
The Tory-initiated policy of an over-valued pound has, more than any other factor, distanced the UK from the euro and begun the process of the crunch on exports and manufacturing, which has cost so many jobs and led in the steel industry to great worry about plants and employment.
The over-valuation of sterling against the real weight of the UK economy—this is important—may be as high as 30 per cent., as the International Monetary Fund recently suggested, and is certainly 15 per cent., as most commentators agree. Since 1996, according to analysis
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done for me by the House of Commons Library, sterling has appreciated by 10 per cent. against the dollar and 30 per cent. against the ecu—now the euro. That is having a major negative impact on the economy in four areas.
Over-valuation is slowing down the rate of exports, as my hon. Friend rightly pointed out; it is sucking in imports as demand grows; it is encouraging massive flows of capital overseas, because for every pound that comes into the UK, £2.50 to £3 leaves it in money generated in Britain; and it is hitting disproportionately regions to the north of the M25.
The go-go regions of the UK economy—London, the south-east and what I call M25-land—might generate about 40 per cent. of the UK economy, but they run a major balance of trade deficit. In contrast, Yorkshire, the north-west, the north-east and the midlands run a much smaller part of the UK economy and a balance of trade surplus. Therefore, the north earns Britain's money and the south spends it. There is resentment about that unfairness.
Let us not forget the extent to which the UK has been dragged more and more out of line with our main markets in Europe, where we sell most of what we produce, whether as goods or services. In the eurozone, exchange rate problems have been eliminated and policy makers have been able to focus on much tougher decisions about investment, training and productivity, as well as cutting taxes and undertaking the other reforms called for by the Prime Minister to get their economies going again.
Let us not forget that the UK is ranked 10th in terms of gross domestic product per head in the eurozone. We may be the world's fifth or sixth biggest economy—a statistic often rolled out—but in the world league table of purchasing power parities, we have been stuck at 18th for a quarter of a century, well beneath most of our EU partners. Anyone who represents a constituency in the north, as my hon. Friend does, knows the disparities between poverty, deprivation and social exclusion in such areas and in our European partner countries.
There are other insidious effects of an over-valued pound. First, when the pound buys FF11 or 3,000 lire, there is a kind of national cockiness. A strong pound seems to prove that we have swallowed the Viagra and solved our economic problems. For millions of holiday makers, the high pound does mean cheaper margaritas and paellas than ever before. However, for not just our steelworks and manufacturing but our farmers, who are crippled by it, our tourism industry, which suffers from people staying away except perhaps, from spending their money in the rich hotels in London, and our architects, who are trying to sell their products, services and talents, the future is bleak.
The second insidious effect arises from the dependency on an over-valued sterling controlling inflation and improving productivity. We are, and always have been, a great importing nation. The UK imports nearly a quarter of its GDP—22 per cent. in 1998—compared with just 11 per cent. in the United States, which is why the endless Tory refrain that we should couple ourselves with America cannot make sense. Exchange rate variables are far more important to Britain than to America, so the cheaper that we can buy from overseas, the lower the prices at home and the lower costs that shape inflation.

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In addition, the first response of firms faced with a high pound is to lay off staff; hence, the scores of thousands of jobs lost in manufacturing—160,000 since 1996, at the last count—and the great worries of the steel and other exporting industries. Technically, if the work force are slashed and output is maintained, productivity improves—that is a mathematical certainty. However, in my judgment, improved productivity should mean more output from the same number of workers, not the same output from fewer workers, which is what currently happens. The pattern we are witnessing is one of cuts in investment in capital stock, because exports stall and better returns on capital are found as the high pound allows profitable investment overseas.
The third insidious effect of a high currency is like that of any drug—the high never lasts. We have a booming pound which might continue to defy the laws of currency gravity for a while longer, but sooner or later the markets, with their usual adulterous infidelity, will fall for another currency; the pound will be spurned and thrown to one side, and its value will start to fall. The key tasks facing policy makers—here I address my hon. Friend the Economic Secretary—is to prepare both public opinion and decision takers for the new thinking that will be needed when the pound trades at a level commensurate with the true weight of the UK economy.
What is certain is that those who make key decisions will always lag behind events. By nature, I am a strong currency man, but a strong currency should be a byproduct of a strong economy. The deutschmark and the Swiss franc hardened over the years as the German and Swiss economies gained in strength. A strong currency does not create a strong economy; rather, the reverse is true. My hon. Friend the Member for Great Grimsby did not use the word "devaluation", but I got the impression that he was calling for the pound's value to be brought down rather suddenly. My view is that, if there is a decline, it must be managed and gentle.
To any of those hon. Members who are interested in the exchange rate, I recommend a remarkable new book that I obtained from the Library. The book's author is the curator of coins at the Ashmolean museum in Oxford, Mr. Nicholas Mayhew, and its title is "Sterling: the Rise and Fall of a Currency". His book more than supplies the historical perspective that is lacking in our debates: it covers 1,000 years of sterling. I know that you, Mr. Deputy Speaker, as a man who proudly wears the symbol of sterling on his lapel, will be interested in reading that book.
In the matter of sterling, there is nothing new under the sun. The repeated sterling shocks experienced by the UK, with over-cockiness followed by over-correction, dance over the centuries, and recent experience reflects the same pattern. In the lifetime of most Members of Parliament, sterling has been one of the most rollercoaster currencies of any mature democratic economy.
The Americans have not made our mistake. Since the Plaza accord of the mid-1980s, the dollar has been relatively stable. That has helped to promote American exports: that part of American GDP taken by exports has significantly increased over the past 10 years because dollar trading has been relatively stable, despite
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significant shocks originating in south-east Asia. The dollar does not have the up-and-down rollercoaster history that the pound sterling has had over the past 20 years.
Mr. Mitchell: Since the 1970s, we have lived in a world of floating exchange rates, in which sterling has been held at unnaturally and uncompetitively high levels by high interest rates in our economy. As a result, since the early 1970s, British manufacturing prices have increased 40 per cent. over those of our competitors. That is the new feature of the debate. The dollar might have been stable in the 1990s, but between 1985 and 1990, it fell by almost 50 per cent.
Mr. MacShane: My hon. Friend appears to accept my argument. Even in the world of floating currencies that has prevailed since the end of the Bretton Woods era in 1973, it has been possible to maintain stability. After the Plaza and Louvre accords, which brought down the dollar's value, the dollar has been relatively stable whereas sterling has not. In addition, since the era of the exchange rate mechanism and with the introduction of the euro, the main European economies have opted for currency stability against each other, as can be seen in the external exchange rates between France and Germany, Ireland and Spain, the Netherlands and Austria. By contrast, the pound sterling has peaked and troughed with all the stability of a ping-pong ball on a jet of water at a fun fair.
Hansard, alas, does not print charts, graphs or photographs, but the House of Commons Library produced a graph for me that shows sterling against the ecu now the euro—and the dollar since 1996. In both cases, we see up-and-down movements that are the result of mismanagement or non-management of the exchange rate. Contrary to the belief expressed by some of my friends inside and outside the House that the fault lies entirely with the Bank of England Monetary Policy Committee, the evidence is that interest rate movements have not had a direct impact—there is no cause-andeffect link.
There is a problem with the MPC, which is that no member of it has direct experience of manufacturing, or the economy beyond the M25 region, or the ivory towers of Oxbridge and the London school of economics. I urge the Chancellor to ensure that, in future, the membership of the MPC reflects a wider range of experience. I hope that the MPC will listen to our debate and decide this afternoon not to put up interest rates.
I am sure that the Economic Secretary will point out that, thanks to growth in the United States and to the welcome return to growth of the Asian economies, UK manufacturing and exports are recovering, albeit from a very low base. I would answer that, when one falls into a hole, one has to climb upwards to get out, as the graphs show. However, real, sustained and stable growth is not possible with an over-valued currency.
Our first task is to admit that there is a problem; only when we have admitted that can we start to discuss solutions. Therefore, I welcome the discussion that took place at the MPC's most recent meeting. Our need is not so much for an unyielding policy on sterling as for the intellectual and political honesty to admit that we have

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a serious problem. We need a new policy mix that is aimed at making our currency correspond to our economy's real strengths and is as supportive of the exporting economy as it is beneficial to the importing economy.
It would be helpful if the myriad organisations representing the industrial and exporting sectors could unite and speak with one voice. There is a low-level, haphazard whine emitted by the Confederation of British Industry, the Engineering Employers Federation, the UK Steel Association and trade bodies representing other exporters, but the sum of their justified complaints about sterling is not the convincing and strong voice that is needed to be influential in the public policy arena. The Institute of Directors, with its obsessive anti-Europeanism, has no locus standi in the matter. Until manufacturers and exporters learn to speak with a united voice, they will not have the clout required to influence policy.
I am close to the trade union movement. Trade unions are quick to protest about sterling's rise, but they need to advance concrete propositions on how to keep down inflation and improve productivity—the two beneficial side effects of a strong currency. The best way to improve productivity so that it is not a zero-sum process is to invest in modernising and renewing capital infrastructure and human skills, and much of the Government's policy on training and life-long learning reflects that fact. Nevertheless, manufacturing investment is falling: today, it is 15 per cent. below its 1990s peak, as manufacturers take what profits they can and invest them elsewhere because the over-valued pound makes exporting less profitable and sucks in cheap imports from Europe that have a 30 per cent. price advantage over equivalents made in Britain.
That problem is made worse by short-sightedness and failure to invest when the money is present. Corus, the former British Steel, is right to complain about loss of profits. However, British Steel was making more than £1 billion profit only three years ago, and last year £800 million was taken from the steel industry pension fund to pay a sweetener to shareholders in the company during the merger with the Dutch Hoogovens company that created Corus. That is £2 billion missing, which was available to British Steel and not used to invest, upgrade and protect against the cyclical rise in sterling that has been on the cards since the irresponsible behaviour of the previous Conservative Government.
Unions must embrace flexibility and partnership and ensure, for example, that there is only one union in each workplace, instead of unions representing different categories of workers, each defending its own pay corner in each company or sector.
Increases in earnings in all three sectors—manufacturing, services and the public sector—are running significantly ahead of inflation. The bonuses paid to City executives in December were so big that they influenced the average earnings data. Those big bonuses push up house prices in the M25 region, to which the MPC responds by raising interest rates, which merely fuels the square mile economy and increases the bonuses, so creating the next round of the vicious circle.
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We need a new fiscal and regional policy mix to warm up the cold bits of the economy suffering from the high pound, and to cool down those overheated parts of the economy which fuel the interest rate rises that help to keep the pound over-valued.
In other economies, notably the United States, there are sub-national levels of government that can take fiscal, planning and labour market decisions which allow much more rapid adaptation to the markets and to economic changes. In the UK, the one-size-fits-all policies laid down by Whitehall are not sufficiently flexible to allow South Yorkshire, for example, to set its sails to the winds of the global economy. Instead, we are steered on bearings that suit the directions in which the M25 region, and often simply the City of London, wish to head. I plead for greater fiscal flexibility and planning devolution.
The other inescapable part of the argument, and my final point, concerns Europe. I shall not rehearse the arguments over the euro. I thought that my hon. Friend was extremely restrained in the part of his speech dealing with that issue.
I predict that in 10 years, we will have, in effect, a single transatlantic currency uniting the great democratic market economies of the 21st century. It will be called the dollar over there and the euro over here. The currencies will co-operate and be stable with each other in order not just to promote trade and growth, but to defend the common democratic values that unite Europe and North America, and to defend the identity of the nation states that make up this great region.
The anti-Europeans want the pound to float between the dollar and the euro—up today and down tomorrow. As long as that is the case, there will be no stability, sustainability or security for British manufacturing and British exporters.
I fully support the Government's five economic tests, but, on the key issue of convergence, the performance of the pound sterling is leading us further away day by day from Europe. Perhaps that is what some of those who take the key decisions on interest rates and other matters that determine the pound's value secretly desire. If so, they should join my hon. Friend the Member for Great Grimsby and, I think, the right hon. Member for Wells and proclaim their anti-European faith.
I believe, on the contrary, along with the Prime Minister, that a strong and growing Europe needs its single currency, and that it is in Britain's interest for Europe to grow, create jobs and embrace the reform agenda advanced by the Labour Government. To rule out UK participation in the euro as a matter of principle would be to condemn the pound to a life of instability—now strong, now weak, today over-valued, yesterday or tomorrow devalued, always too hot or too cold for Britain's steel and other manufacturing and exporting industries.
For 10 years, the British people have heard only lies about Europe and propaganda against the euro. Now is the time to start telling the truth. We cannot help steel and manufacturing to prosper with a currency that is out of line with the currencies of our main trading partners, whether it is out of line because of devaluation, as in the mid-1990s, or over-valuation, as at present. We cannot have a boom-and-bust pound and expect to do well in the European and world economy.

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When those who make policy accept that lesson, we will get a currency that serves our nation again. When those who sit in the board rooms and the trade union executives of our land start to raise their voices and heads to tell the truth about Europe and the euro, and face down the lies from the anti-Europeans and from those who say that an over-valued currency does not matter, we can begin to make progress. That way offers some hope for steelworkers in my constituency and in other steel communities of our country who now face a grave period of worry for their jobs and their families.
10.24 am
Mr. Matthew Taylor: Time is fairly short, so I shall try to keep my remarks brief.
The debate deals with serious issues. I welcome the fact that the hon. Member for Great Grimsby (Mr. Mitchell) has secured another debate on the subject. It is one to which he returns regularly, almost irrespective of the level of sterling at any given time.
There is significant pressure on manufacturing industry in particular, which is reflected in the balance of trade and is not being addressed by Government. If there is a vacuum in Government economic policy, it is in the area of exchange rate policy above all.
What is the depth of the problem? Both the hon. Member for Great Grimsby and the hon. Member for Rotherham (Mr. MacShane) dealt with that at length. In summary, the pound's strength relative to the eurozone is the real story. The yen has fallen against the pound, and the dollar has barely changed over the past few years, but sterling is 15 per cent. higher against the euro than it was when the Government were elected, and 30 per cent. higher than in 1996.
That is directly reflected in the current account balance. The seasonally adjusted current account balance has worsened from a small surplus in May 1997 to a deficit that has got worse month by month since. Total export volumes have been falling since August 1999. The global trade deficit in December was £2.7 billion—the worst on record—and £3.1 billion, excluding oil and erratics. The underlying impact on the economy is far worse.
There is some improvement, as we heard, but it is driven by the Asian and US economies, where the exchange rate issue is not significant. The decline has been almost entirely in the goods sector and in trade with the European Union—in other words, in the most price-sensitive sector, and in relation to the economic zone which is our major goods trading partner and where we have by far the biggest exchange rate problem.
I asked the House of Commons Library to do some research for me. The figures confirm that picture—the widening of the global trade deficit in December to the largest monthly deficit on record, the widening of the deficit in trade excluding oil and erratics, and the deficit in trade and goods up for 1999 as a whole to £26.3 billion from just over £20 billion in 1998.
The non-EU data reveal that the deficit was up in January to £2.4 billion from £2.3 billion, but the underlying deficit, excluding oil and erratic items, fell to
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£1.9 billion in January from £2 billion. The export volume growth figures show exports picking up significantly in the non-EU zone.
We see two different economies working. What is the explanation for that? The exchange rate problem. The consequences are reported day by day in the press long-term significant investment decisions to pull out of purchasing and manufacturing in the UK. We see the major car companies clinging on—but only just—to manufacturing bases. We shall see what BMW's longterm investment plans are for Longbridge, over which there is a big question mark, and what the long-term future is for Halewood and Dagenham. There is a major question mark over whether Ford will retain a manufacturing base at Dagenham.
We know that manufacturers are pulling out of the purchase of UK-sourced components on a huge scale. That is happening not only in car manufacturing, but right across the British economy. We are losing the markets, as well as the manufacturing base. The loss of a market might be corrected in a year or two, with a depreciation, but the loss of a manufacturing base cannot be so easily corrected. That is why the Government's policy is so questionable, as is evident from all the figures relating to the manufacturing sector.
Manufacturing shows little or no growth when other parts of the economy are growing fast. For years, not only months or quarters, there has been a steady quarterly decline in manufacturing investments. There is growth in employment in the economy as a whole, but huge job losses in the manufacturing sector. That has a long-term impact on balance of trade and jobs.
If the Government are serious about pursuing a policy that is based on convergence and joining the euro because it is in Britain's interest, there is no conceivable case for joining at the current exchange rate. That view contradicts the claims of the hon. Member for Great Grimsby about Liberal Democrat policy. There is a vacuum at the heart of the Government's policy on joining the euro.
The big unanswered question; the issue that really counts is the rate at which we join. The benefit of membership of the euro is that it provides long-term stability on exchange rates. However, if we join at a rate that is too high at the start, we will experience at least a massive adjustment problem, and arguably, a long-term loss of welcome prosperity for this country. Yet the rate is a criterion that dare not speak its name in Government policy and pronouncement.
We can press the Government for an explanation of what they believe is necessary to achieve the requisite conditions. Liberal Democrats argue that there should be a pro-active policy to achieve them. We believe, like the hon. Member for Great Grimsby, that we need to pursue an exchange rate policy that has been worked through. However, the Government do not even mention the problem, let alone a policy that might be pursued to secure an answer.
A question mark has always existed over the position of the hon. Member for Great Grimsby. I am not sure what exchange rate the hon. Gentleman would believe to be competitive. However, whatever his view, he has not explained how we would maintain stability. For those who believe that it would be in Britain's interest to join the euro under the right terms—the hon. Member

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for Rotherham and I agree about that—the answer is that we would have stability in the euro, and that we would thus get rid of the current boom-bust exchange rate fluctuation and its attendant job losses. Temporary fluctuations in the exchange rate cause permanent job losses. That could be resolved by membership of the euro.
If that is not the answer, those who argue against joining the euro must devise a policy for exchange rate stability rather than simply claiming that exchange rates are too high.
Mr. Mitchell: The hon. Gentleman has made a lot of sense until now, but, like my hon. Friend the Member for Rotherham (Mr. MacShane) at the end of his speech, he is beginning to stray. I do not want us to join the euro; it would be a serious mistake. However, if we join, we must maintain exchange rate stability—preferably at a competitive level—vis-a-vis the euro for two years before we enter. The problem of managing the exchange rate for stability is the hon. Gentleman's problem as well as mine.
Mr. Taylor: I agree that we need a policy for achieving stability. However, the timetable for euro entry means that we will not join tomorrow and there is therefore time to devise a policy. However, the Government should be pro-actively pursuing a policy now. There is a vacuum in the Government's euro policy.
I want to consider what is actually happening, because I do not believe that the hon. Member for Great Grimsby has characterised the position correctly. Interest rates do not help, but the position is not fundamentally driven by interest rates, but by sentiment and people gambling on the exchange rate. That is the problem with exchange rates and the reason that they fluctuate so wildly. It is currently believed that tomorrow the exchange rate will be high and therefore it remains high. It is believed that the rate will decrease in the long run, as long-term interest rates show. The markets assume that there will be a fall and also that we will join the euro. However, they do not believe that it will happen tomorrow. Until they believe that, the fall in the exchange rate will not occur.
The sentiment does not already exist because the Government do not state that such a fall is necessary. The Government should take a clearer position of actively arguing the case for low exchange rates and membership of the euro. That would help to create the necessary circumstances for joining. However, the Government do the opposite.
The hon. Member for Great Grimsby tries to put the blame on the Monetary Policy Committee, but our knowledge of the MPC suggests that it believes that the exchange rate should be lower. Eddie George spoke at the most recent meeting of the Treasury Committee. He said that all members of the MPC were worried about the strength of the exchange rate and its impact on specific sectors such as manufacturing, and on some regions. That is the argument that I am presenting.
The MPC pursues an interest rate policy that is not designed to hold up sterling, but assumes that the level of sterling is likely to fall. It does not know when that will happen, therefore it pursues an interest rate policy that assumes that it will happen; its members fall out
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about the timing. The minority who believes that the level of sterling will remain as it is, argues for a low interest rate policy. Those who believe that it will fall, argue for tightening interest rates to achieve the inflation pressure that they want.
The Government argue that the economy is adjusting. I believe that they are wrong. In the pre-Budget report, the Government argued that there were signs that the economy had nearly completed its adjustment to high sterling values. Nothing could be further from the truth or potentially more damaging to the economy. I hope that the Minister will deal with that when she responds to the debate.
10.37 am
Mr. David Heathcoat-Amory: We are grateful to the hon. Member for Great Grimsby (Mr. Mitchell) for raising such an important subject. It tempted me into this new Chamber for the first time. I presume that the matey, horseshoe structure is designed to get us to agree. We agree on much about the damage caused to sections of the economy, especially to manufacturers and exporters. I declare an interest as the director of an engineering company that manufactures and sells agricultural machinery. I can therefore testify to the difficulties in that sector. However, we disagree about some of the causes of, and the supposed cures for the exchange rate problem. Nevertheless, the debate is interesting and presents an opportunity to discover the Government's policy on exchange rates. However, I say that more in hope than expectation.
I have examined the deliberations of the Bank of England and the minutes of the Monetary Policy Committee. To go back a little further, the Bank of England Act 1998 is important because it establishes the responsibilities and duties of the Bank of England for monetary policy. The operational responsibility for setting interest rates, not general monetary policy, was transferred to the Bank of England. Responsibility for monetary policy remains with the Treasury, which is accountable to the House. We must therefore obtain answers.
Under the Bank of England Act 1998, the Bank must maintain price stability, and, subject to that, support the economic policy of Her Majesty's Government. It is therefore relevant to examine the instructions and illustrations about its policy that the Treasury sent to the Bank.
At that point, I struck a problem. Under section 12 of the 1998 Act, the Treasury has to put those instructions in writing and lay a copy before Parliament, but I am advised that that has not been done. I went to the House of Commons Library yesterday and it was unable to find the directions, which have been filed away in another building. However, I was told that, contrary to the requirements of the Act, they had not been laid before the House. That is a matter of more than merely technical importance. The procedure of laying a document before the House is described in "Erskine May". It has to be given to the Votes and Proceedings Office and becomes a paper of the House that can then be ordered by the House to be printed. It is kept in perpetuity and is available to hon. Members and the public. There is no record of that having been done.
If the Government have broken their own law that is a serious matter, but even if I am mistaken—although the Library was pretty clear—they have certainly broken

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another provision as they did not produce that paper within seven days of the Act receiving Royal Assent. Perhaps the Minister will tell us what happened to that procedure. I hope that she is statutorily immune from breaking the law—I do not want someone to be sent to the Tower of London over this but there has certainly been a discourtesy to the House and she needs to tell us a little more about that. She also has the opportunity to tell us what is in the directions. She must know, so perhaps she can tell this Committee.
Mr. Deputy Speaker (Mr. Nicholas Winterton): Order. This is not a Committee, but an extension of the House a sitting in Westminster Hall.
Mr. Heathcoat-Amory: I apologise. You, sir, are the Deputy Speaker for these purposes, and much deserved.
Even worse, the House has been the subject of discourtesy, or certainly incompetence, by the Treasury. For the purposes of the debate we need to know what directions were given to the Bank. The MPC is concerned about the exchange rate and reference has already been made to the February minutes, which report that
a number of Committee members were very concerned about the further rise in the exchange rate … and the associated imbalances in the economy.
Those were graphically described by the hon. Member for Great Grimsby. Interestingly, the minutes said that it
was, therefore, desirable to consider whether official policy could do anything to mitigate this.
Even more interestingly, in paragraph 37 it continued:
The Committee debated whether intervention in the foreign exchange markets could usefully be deployed.
I was not aware that intervention, which means selling or buying the currency, is within the powers and responsibilities of the Bank, but it seems that it is. The Minister could confirm that.
The MPC discussed the possibility of intervening and concluded that it would not be wise to do so on the ground that that might not be effective. It also pointed out that
sterling's strength mainly reflected euro weakness
and hinted, slightly bizarrely, that the publication of the minutes of the discussion on the exchange rate could have a similar effect on the market as if it had intervened. It was certainly disappointed in that and I gather that when the minutes were published sterling strengthened even further.
The MPC is wise to reject intervention. Last year, the Chancellor sold 75 tonnes of gold, just before it went up in price, and bought euros, just before they went down even more. The Treasury's record is rather bleak in respect of swapping assets for euros so I would not recommend that the Bank go down that path. However, a majority of MPC members concluded that a lower exchange rate and a higher interest rate would have been preferable. It put up interest rates by 0.25 per cent., but that has had the opposite effect on the exchange rate. We know its views and deliberations in some detail, but we also need to know the Treasury's views, particularly as
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a Treasury representative is present at MPC deliberations. Indeed, we read in this morning's press that the Chancellor is to brief it on the Budget.
I believe that it is unwise and probably impossible to specify an exchange rate. That is largely outside the control of Governments. Attempts to fix exchange rates can work temporarily, but usually have undesirable consequences. We all remember the exchange rate mechanism disaster. It was not caused, as is sometimes alleged, simply because we joined at the wrong rate in 1990. That would not explain why the entire system broke up a year after we left in 1992. It was fundamentally flawed and a shock was caused to it by German reunification, which simply meant that policy requirements in Germany were different from those in the rest of Europe.
Other shocks are developing at present. Some are benign, such as the spread of information technology, but the effects of the oil price rise on our own country—and, therefore, on its policy requirements are clearly different from those on the continent. I would argue that variable exchange rates are an essential adjustment mechanism, which is one reason why joining the euro would be such folly. We read in today's press that the euro has sunk
to an all-time low of 95.78 cents.
Conversely, the oil price rise has had a different effect on sterling, which simply shows not necessarily the superiority or inferiority of the British economy, but the difference between its monetary policy requirements and those obtaining in the eurozone.
That is being painfully felt in Ireland, whose inflation rate is the highest in the eurozone and well over twice the average. It is unable to do anything about that. Interest rates are set for it by a committee of bankers in Frankfurt and not according to the requirements of the Irish economy so its inflation rate is 4.4 per cent. The average is only 2 per cent. For all those reasons, aside from the constitutional and political implications of which the Government are so contemptuous, there is a clear economic case against joining the euro. As the hon. Member for Great Grimsby said, if we joined we would lock in the over-valuation of sterling against the euro almost permanently.
Mr. MacShane: Will the right hon. Gentleman give way?
Mr. Heathcoat-Amory: No, if the hon. Gentleman will forgive me.
Mr. MacShane: I have a one-line question.
Mr. Heathcoat-Amory: I give way.
Mr. MacShane: Is the right hon. Gentleman saying that the United Kingdom should never join the euro?
Mr. Heathcoat-Amory: I wish that I had not given way. The hon. Gentleman knows our policy on the euro perfectly well and I am saying that our reasons are being validated and proved as every day goes by.
The Government can do something to co-ordinate monetary and fiscal policy and therefore address the strength of sterling. They have attacked savings, for

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example. The £5 billion a year raid on pension funds was undertaken through the abolition of dividend tax credits and personal equity plans and tax-exempt special savings accounts, which were successful mass savings vehicles, were abolished so the savings ratio has fallen. Savings, in macro-economic terms, are an excellent way to remove expenditure from consumption and relieve inflationary pressures without having to raise interest rates, with all the effects that that has on the exchange rate.
I do not believe that exchange rates can be fixed. However, there is an imbalance between sterling and the euro, which is chiefly caused by the euro's decline against the dollar. We have been pretty stable for about eight years. The Government can and should have used fiscal and monetary policy, working together, to address that problem. They eroded the savings culture in this country by lowering the savings ratio, which contributed to inflationary pressures and persuaded the MPC to keep interest rates higher than they otherwise would have been. That was particularly stupid and short-sighted.
10.50 am
The Economic Secretary to the Treasury (Miss Melanie Johnson): It is my pleasure to respond to the debate that my hon. Friend the Member for Great Grimsby (Mr. Mitchell) has secured. I shall do my best to deal with the contributions made by other hon. Members, but I have only 10 minutes.
The Government understand very well the concerns of business, especially manufacturers and other exporters, about the level of the pound. Some people have suggested that sterling is high because the Monetary Policy Committee's remit is too narrow. The force of their argument is that the MPC should have not only an inflation target, but an exchange rate target. The Government strongly disagree with that argument. They are determined to avoid the instability that was caused by the ever-changing money targets of the early 1980s, and the dual exchange rate and inflation targets of the late 1980s and early 1990s. I have some sympathy with the points made by the right hon. Member for Wells (Mr. Heathcoat-Amory). The failure of the exchange rate mechanism shows the difficulties of pursuing such a policy. For that reason, the MPC has only one target—the symmetrical inflation target, as my hon. Friend the Member for Great Grimsby knows well.
There have also been suggestions that the Government either directly or by putting pressure on the Bank of England should intervene in foreign exchange rate markets to reduce the value of sterling. It is important to note that the sheer size of the funds involved in currency markets severely limits the effectiveness of any such approach, even if it were thought the right course to pursue.
As a number of hon. Members have said, the issue of intervention was discussed at length by the MPC at its last meeting, but it was agreed not to go ahead with such a move. Hon. Members have selectively quoted from Eddie George's contribution in front of the Treasury Select Committee last week. I should like to point out that he argued that intervention
would be ineffective and aggravate upward pressure on the pound.
It is important that we recognise the position of the MPC and the Bank of England.
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Does the MPC take sufficient account of regional issues? My hon. Friends the Members for Great Grimsby and for Rotherham (Mr. MacShane) may be sceptical about the degree to which the MPC takes account of regional issues. There is one interest rate for the United Kingdom economy as a whole, so the MPC needs to base its decisions on the circumstances and requirements of the UK economy as a whole. However, it takes into account a wide range of regional and sectoral data.
In particular, it closely considers the contribution of the Bank's 13 regional agents, which cover all areas of the UK. The role of the agents is to ask local people how they view economic conditions and prospects. Each year the Bank's agents talk to and visit about 7,000 business contacts, and ensure that regional information is passed to the MPC. I know from discussions with Eddie George that he tries to get out and about the regions.
The Government believe that delivering sound public finances and low inflation is the best contribution that they can make to exchange rate stability, and is consistent with their objective of a stable and competitive pound over the medium term. The Government have done that by putting in place new fiscal and monetary policy frameworks. The frameworks are highly transparent, forward looking and based on clear rules and targets.
A key feature of the Government's macro-economic policy framework is that it delivers effective co-ordination between monetary and fiscal policy. That is particularly relevant, as it has been suggested that sterling is high because fiscal policy has not supported monetary policy. That is not correct.
Fiscal policy should, whenever possible, support monetary policy through the cycle, if that is consistent with meeting the fiscal rules that the Government have introduced. Indeed, that has been happening. In the first two years after the Government took office, they cut borrowing by £30 billion, which significantly eased pressure on interest rates. Official interest rates are higher in the UK than in Europe, but longer-term interest rates are much closer to those in major European economies.
The Government's strategy has helped to lock in economic stability and open the way to steady growth, leaving behind the boom and bust of the past. The short-term outlook for growth is now stronger than previously expected. The Government's economic forecasts will, of course, be updated at Budget time, but the latest forecasts that were released with the pre-Budget report, which the hon. Member for Truro and St. Austell (Mr. Taylor) mentioned, showed that growth is expected to pick up in 2000 and remain strong in coming years. That outcome in part reflects the proactive and forward-looking nature of the Government's macroeconomic policy framework.
I enjoyed the debate between my two hon. Friends on the euro and euro-sterling levels. It is early days for the euro, and it is not appropriate for the Government to comment on it from day to day. I appreciate that it provokes debate, but it is not proper for us to engage in such discussions.
With the platform of stability that is now in place, the Government are delivering high and stable levels of employment. More than 800,000 new jobs have been

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created since the election, and more people are now in work than ever before. Of the increase in employment in the past year, about 80 per cent. was in full-time work, so they are proper jobs. Unemployment remains on a downward trend. Claimant unemployment at 1.2 million is at its lowest level for two decades. Since the last election, long-term unemployment has been cut by half, and youth unemployment by two thirds.
The strength of business investment in 1999 has exceeded earlier expectations and remains at the level of recent highs. The strength of investment spending in recent years is partly attributable to the clear reduction in macro-economic instability and uncertainty. The UK remains Europe's premier investment location. Inward investors understand the Government's policy of a stable and competitive pound over the medium term. It would not be sensible to implement short-term measures that may put the medium-term position at risk.
There has been substantial investment in the economy. Investment has risen rapidly in recent years, with an annual rate of about 10 per cent. since 1995. Even during 1999, when there was a pause in output growth, business investment remained robust. The latest figures show business investment increased by 1.2 per cent. in the last quarter of 1999. Those investment decisions are reflected in the investment of a number of companies in the UK: Nissan, Jaguar, Peugeot, General Motors, ICL and Microsoft. Indeed, part of the Toyota group chose my hon. Friend's constituency of Rotherham for its European manufacturing plant, which cost £32 million and brought some 400 jobs to the area.
Mr. MacShane: We are pro-European in Rotherham.
Miss Johnson: Those decisions show that the Government's policy is encouraging manufacturing to invest in the UK.
My hon. Friends spoke about the problems of the manufacturing sector in the current substantial downturn in world economic activity. As growth has picked up since the crises that occurred in Europe and Asia, there are encouraging signs that conditions for manufacturers are beginning to improve. Manufacturing output rose by 0.7 per cent. in the last quarter of 1999, and there are continuing signs of a strong recovery. There are also signs that exports are recovering from their recent period of weakness. Export volumes, excluding oil and erratic items, in the three months to December were up 4.8 per cent. on the same three months a year ago.
In addition to delivering greater economic stability, the Government are also helping business in other ways. In particular, they have introduced measures specifically designed to encourage enterprise. They have reduced the main rate of corporation tax, reformed capital gains tax to encourage long-term investment, and worked on improving the way in which regulations affect business. Those and other measures will help firms in all sectors of the economy, including manufacturing.

Telecoms Regulation
11 am
Dr. Vincent Cable: Mr. Chairman—
Mr. Deputy Speaker (Mr. Nicholas Winterton): Order. Let me say straight away that, whatever the hon. Gentleman may think of me, my title in this place is Mr. Deputy Speaker.
Dr. Cable: I apologise, Mr. Deputy Speaker.
I am grateful for the opportunity to introduce a debate on this subject. When I put in a bid for it nearly two weeks ago, I envisaged a gentle canter around some of the more esoteric and uncontroversial areas of Government policy—not the kind of thing that one would expect to discuss in the Rat and Parrot but— in view of what has happened since in at least two respects, the subject has become much more topical, and consequently more politically interesting.
I want to deal with four matters, and to begin with the two controversial ones. First, there is the question of where we now stand in relation to telecommunication regulation following the decisions that were made last week. I know that much of the procedural side of the debate is being dealt with in the Utilities Bill Standing Committee and was touched on yesterday, but I want to tackle the issue in a slightly different way—a more forward-looking way. I want to discuss what will happen now, in the hiatus between the abandoning of the Bill's approach to communications regulation and the adoption of the new integrated approach, and, specifically, what will happen to the telecoms business.
Secondly, there is the question of charging for the internet. The position is moving by the day, if not by the hour. I am not sure that any of us fully understands the implications of developments emanating from the private sector, but I want at least to raise some questions about what those developments may mean, and where they leave Government intervention.
Thirdly, I want to ask about other aspects of access to the internet, which are not simply a question of price; and, finally, I want to deal with the issue of the public sector's use of the internet. It is clear that, as the private sector solves its problems, more and more of the spotlight will be directed at the Government's role in using the system—in other words, online government—and the whole issue of how it is being benchmarked and promoted.
Let me start with the withdrawal of telecommunications from the Utilities Bill. Last week, several of us were party to a slightly histrionic session, with Order Papers being torn up, karate chops on the Dispatch Box and other excitements. Interesting and important issues were raised, however, and I want to raise them again now, in a spirit of questioning rather than of accusation.
The Government's line—which, up to a point, is very plausible—is that they are listening; but whom are they listening to? That point was made effectively last Thursday by the hon. Member for Crewe and Nantwich (Mrs. Dunwoody), who observed that, while the Government were listening acutely to industry and to the operators, they were not, perhaps, listening to

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consumers. Until yesterday, when I talked to consumer groups from the public utilities access forum, I had not appreciated quite how badly consumers had been treated over the past week.
There is a history; I am not sure of the extent to which the Standing Committee went into it. When the Utilities Bill was first presented, the consumer groups were quite enthusiastic, because they, as much as anyone else, had insisted on the strong consumer powers in it. Indeed, I understand that when the Bill was published the press office of the Department of Trade and Industry telephoned the consumer groups, and asked them to issue statements praising the Government for incorporating telecoms—which they did, because they were very pleased. Last week, however, not only were the consumer groups not consulted on the change of policy; they were not even given an explanation. There is clearly a serious imbalance between listening to a perfectly legitimate group of interests represented by the operators—who are acting quite properly—and not listening to the countervailing arguments of the consumer side.
There is a related point of more basic importance. If the producer interests are listened to in such a panic, that begins to undermine the reputation that the Government have built up so carefully—a reputation for impartiality in their dealings with business. I was involved in the Government machine in the 1970s, when we had a rather corporatist approach: certain companies saw themselves as representing Great Britain Ltd, and had partial access to Government. The present Government, certainly in the DTI context, have gone out of their way to create a more transparent process. The rules governing the auctioning of mobile licences strike me as an admirable example of the Government's detachment from special-interest pressure groups, and their creation of a transparent process. However, as a result of their listening to a particular company, or representing a group of companies, their reputation for transparency and objectivity is being gravely undermined, and that has potentially damaging longterm implications.
There is an even more serious question: what were the Government listening to? Until I had an opportunity to read the correspondence in detail at the weekend, I had not realised the extent to which, by acceding to the demands of the operators, the Government were not merely doing what they claimed to be doing —taking a visionary view of convergence—but conceding specific criticisms of the treatment of telecommunications in the Utilities Bill. The operators made it clear that they were wholly opposed to the fine regime, that they were hostile to an independent consumer council, and that they were hostile to many of the proactive consumer provisions in the Bill.
I was sent a letter by the operators' group—I think all hon. Members have received copies—explaining what the operators objected to in the original Bill. It states:
The prospect of unlimited fines with no full appeal mechanism
—this is the key passage—
and communications companies being agents of social and environmental policy through vaguely or even undefined measures will severely lessen the UK's attractiveness for investment in communications.
It is important for us to learn from the Minister whether the Government have accepted that criticism, and what the social and environmental objectives that
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are being jettisoned are. I suspect that the phrase may refer to the preventive approach to health in relation to telecommunications masts, and, perhaps, to access to the system for socially deprived groups. I do not know what it means, but one of the Bill's objectives was clearly to strengthen social and environmental regulation. Given that the operators' criticism has been accepted, to what extent will that objective be diluted?
Mr. Andrew George: I congratulate my hon. Friend on securing this timely debate, and apologise for not being able to stay for all of it.
I hope that my question is not too tangential. Is my hon. Friend prepared to comment on the right given to operating companies by the Telecommunications Act 1984, in the form of 25-year licences to disrupt communities, particularly in my constituency? With the arrival of the worldwide network, small country lanes have been disrupted almost continuously for the past four or five years by company after company. The road network is minimal; there has been no compensation and hardly any notice, and the roads are deteriorating seriously.
Mr. Deputy Speaker: Order. This is becoming a speech rather than an intervention.
Dr. Cable: I understand that the cable companies are digging up Cornwall with the same finesse with which they dug up urban constituencies nearer London a couple of years ago, and I know that that is creating a problem. I think that the point relates to a wider issue—that of local loop competition, with which I shall deal shortly—but I agree that the companies have often been rather crass in the way in which they have opened up the system.
I return to the thread of the argument: telecommunications operators have won a retreat on telecoms regulation under the Utilities Bill. I push the Minister a little further: how far does she accept not merely the process point that they have raised—the desirability of future legislation integrating telecommunications and broadcasting—but the substance of their criticism of the original Bill?
One of the points relates to the social and environmental objectives that the companies appear to have objected to. The other relates specifically to consumer protection. What, within the original proposals for a telecommunications regulatory authority and for an independent consumer council, specifically inhibits the development of e-commerce, as the operators claimed? Does the Minister accept that argument? Is that a factor behind the retiming and restructuring of the legislation?
What will happen in the hiatus between the withdrawal of telecommunications from the Utilities Bill and the introduction of new legislation, which will follow the White Paper and, presumably, arrive in the early years of the next Parliament? In that period, will no action be taken to introduce an independent consumer council, or can it be introduced? I have heard it argued that it could be introduced on a free-standing basis without new legislation, but will the Minister make clear what the position will be? It is an important point in relation to consumer protection.

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In the intervening period, how will the Government deal with those aspects of consumer protection that are not provided simply by the stimulus of competition? I take one concrete example. Clearly, there is enormous consumer benefit from the fierce competition in the mobile telephony sector of telecommunications, but for some time there has been strong pressure on the mobile operators to come up with the information that will make possible comparisons between different mobile systems for consumers.
As we know, there is much obfuscation in the promotional material about price, quality and back-up service. Consumers have found it difficult to obtain the comparative basis for judging the products. How far will consumer protection go to deal with such a problem?
Does the withdrawal of telecommunications from the Utilities Bill imply a different model of regulation from the one that the Government were embarking on until a week ago? Many of us believed that, despite the rapid changes and the competition at the margins, the telecommunications sector merited a utility regulation approach because, after two decades, British Telecom still has about 72 per cent. of the fixed-line revenue. There are still problems such as the enormous volume of disconnections, which have to be dealt with through a regulator. Do the Government still accept that telecommunications requires that form of utility regulation?
Mr. Bob Laxton: Does the hon. Gentleman agree that, in the light of what is happening, particularly in the telecommunications sector, and the rapid changes, there is a case for regulation? However, because of the convergence of technology within the broadcasting industry as well as the telecommunications industry, is there not a case for regulation and a commission that encompasses not just the broad sector of telecommunications, but an even broader sector: broadcasting, where convergence is occurring rapidly?
Dr. Cable: I entirely agree with the hon. Gentleman. I think that there is consensus on that. It is clear that the sector is moving rapidly. Communications and telecommunications are becoming interwoven. An Ofcom dealing with communications regulation in the wider sense is clearly the right way to go. I do not think that there any dispute about that.
The dispute is about why it was necessary to withdraw telecommunications regulation in its strengthened form, with consumer protection, at this stage? Why could not the legislation have proceeded and been built on when Ofcom was eventually introduced? There is no questioning of the basic wisdom of integration and of having a regulatory structure for that. I think that we all accept that.
I move to the second issue: charging. The problem that the Government have had—it is a problem that we all share; it is not specifically a Government problem—is that, in many respects, the UK has lagged behind in terms of access to the internet and internet use. It is an important failure.
One of the most persuasive papers that I have read in the past few days, which I strongly commend to those who have not seen it, is the excellent one by Sushil
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Wadhwani of the Monetary Policy Committee on the economic consequences of internet use—the enormous advantages in terms of productivity growth and lower inflation with growth. It is compelling, with much detailed industrial and service sector data to back it up.
As the Minister has repeatedly argued—indeed, she has worked for it in the past year or so—it is important to get Britain to the top of that league. We are about 12th, lagging behind not just the United States and Canada, but many European countries, particularly in northern Europe.
The argument has been—there is some consensus about it—that one of the main reasons why we have lagged behind is the charging system: because of metering. Most consumer surveys suggest that use of the internet could multiply three or four times if charging were not metered.
That metering in turn relates to BT's practice—derived from its history—of charging on the basis of voice telephony, rather than of the new internet system, where marginal cost is effectively zero. The question that I ask is partly about what is happening in the market: how far do the developments of the past few days represent a fundamental breakthrough in relation to that problem? Do the Government believe that, as a result of this week's developments, that problem is now effectively cracked?
My sense—I am just reacting to news—is that that probably is not the case. As I understand it, the AltaVista proposal involves the company taking a heavy commercial risk. It will absorb BT's charging in the hope that the rapid growth in e-commerce revenue will compensate it for the risk.
This morning's proposal from BT itself, as I understand it, is a special package. It will not be open to all internet service providers. It will not provide a route to rapid spread of unmetered charging, but I should be grateful for the Minister's assessment of the changes.
Mr. Derek Wyatt: The hon. Gentleman is right. The position this week, I understand, is that there is no unmetered call. AltaVista has taken a hit of £100 million to its bottom line. It explained both to the Office of Telecommunications and to BT that a commercial package could be won, but BT does not want to accept that it has to change. As he has indicated, the problem basically is BT.
Dr. Cable: I thank the hon. Gentleman for that intervention. That links directly to the public policy issue. A couple of weeks ago, through the Chancellor of the Exchequer, the Government indicated that they were willing to challenge the existing BT monopoly in respect of the local loop. Clearly, the market believed it, because there was a major impact on BT's share price, but now that the dust has settled, the question is: what has changed? As I understand the position and the comments of the Oftel director, Mr. Edmonds, and others, nothing has changed. The date for the breaking of the monopoly—July 2001—has not changed. It remains dependent on a gentleman's agreement, essentially, between BT and Oftel on the technological readiness of the system to cope with an opening.
If nothing has changed and the local loop monopoly structure remains essentially intact, one may well wonder what purpose the Chancellor's intervention was

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intended to serve. What has been the result of the intervention? It has created enormous confusion in the industry about who is making telecommunications policy, and it seems to have had minimal effect on the fundamental problem—internet charging.
Dr. Nick Palmer: This has been a very illuminating debate, and I regret that I shall not be able to stay for all of it. However, I should like to know—simply to act as the devil's advocate—whether the hon. Gentleman is certain that the unlimited flat-rate access model is the most appropriate long-term method. America—which we all bow down to as our example—has used that model for many years, but I have read suggestions that that is more for historical reasons which arose long before the internet had been imagined. Moreover, in economics, the idea of providing a product for which there is no restraint on unlimited use does not necessarily accord with ensuring that that product is used optimally.
Dr. Cable: I thank the hon. Gentleman for his intervention. The simple answer is that I am not certain about that. Very few of us are certain, as very few of us deeply understand what is happening. There are substantial changes in the economics of the issue, and those of us who were brought up in the old economics world of scarcity and diminishing returns are having to rethink the world. We are not living in a world of diminishing returns. The marginal cost of using a broadband system is zero. There is no reason why there should be metering, and most consumer surveys suggest that metering is a massive deterrent to use of the system.
Mr. Alan Duncan: The implication of unbundling the loop seems to be that there will be an all-gain outcome. However, in its brief, BT says—I think that its case should be heard in this debate—that it should like to emphasise that unbundling the local loop
will not be a short cut to cheaper internet access for all—on the contrary, cherry-picking of the most lucrative customers and areas will be encouraged.
Does the hon. Gentleman therefore accept that unbundling the loop might not be all it is cracked up to be?
Dr. Cable: I certainly did not wish to imply any criticism of BT as a company. Some years ago, when the Conservative Government were in power, BT accepted the principle of competition from cable companies. BT accepted that—rather than unbundling the loop, which is the United States's approach—that form of competition should take place, and its subsequent strategy has been on predictable assumptions flowing from it. I also accept—I think this was the purpose of the hon. Gentleman's intervention—that unmetered charging is not necessarily exactly the same thing as unbundling the loop. The two are partly disconnected, although there is a relationship between them.
None the less, what I hope will come out of this debate is a clear statement from the Government on two points. First, what is the Government's understanding of the current position on unmetered charging, and what options are open to them in ensuring that it is made universal as quickly as possible? Secondly, where do we
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stand on the principle—whether it is right or wrong of
unbundling the loop? What is the Government's commitment on that, and what time frame do they envisage as necessary for its implementation?
I should like briefly to touch on two other issues, the first of which is provision of wider access to the internet. Such access is clearly already being provided by means of commercial processes and e-commerce, and that is all very welcome. The Government—with their initiatives on ensuring that students have internet addresses by 2002 and on widespread availability within schools of internet-compatible personal computers—are doing much to ensure that the younger generation has internet access. Much is being done to raise internet awareness at that end of the age scale. I also read, this morning, that jobseekers will be given access to the system. Indeed, developments on access are emerging weekly.
I should like to know, however, the extent to which the Government have thought through the problem of those who are technophobic, particularly the problems of the elderly and those who have physical disabilities, to enable them proactively to counter the possibility of their being excluded from the system.
In my constituency, for example, a new system has been established—entitled "Hampton Online"—that has had 2,000 contacts since being established. It is an attempt to recreate "the old village" in my suburban constituency, and to enable everyone in the village to communicate through the internet. The problem with the system is that the 25 or 30 per cent. of the population who are elderly are wholly isolated from the new system. Unless something is done to help them—the people behind the website are doing something to help them, by making pictures more attractive and the system much less difficult—they will remain isolated from it.
Do the Government have any thoughts on how people in the older age range—who could perhaps derive enormous benefit from that type of system—and those who are less mobile may gain access in the same way as the younger generation? Is adult education considered a vehicle for increasing access, and how might that be provided?
What specific action is being taken to help the visually impaired or those who are deaf? There is, potentially, an enormous problem for them. If mobile telephony becomes the new vehicle for the internet, how will those who cannot hear cope with the new system? I have in my constituency someone named Julia Schofield. She is recognised as the international pioneer of online government, but she is totally blind. I am very concerned and frustrated by the fact that operators are extremely insensitive to the needs of people such as Julia Schofield. What is being done to ensure that the issue of access to new systems for people like her is being addressed?
Mr. Duncan: Given that looking at a computer screen will not be very productive if one is blind, what can be done to ensure access for blind people? I am puzzled about what can be done to help them. It would greatly benefit all of us if we could determine a way in which access could be provided for them.
Dr. Cable: It is possible, using combinations of touch and sound, to deal with lack of vision. Although it is a complex matter, those who are visually impaired know the problems that they face with such systems, and I am assured that there are technical solutions to those problems. Some of the more imaginative people in the sphere are developing software to cope with the problems. However, it is not necessarily the type of project that companies would embark on commercially, and it will probably require either active intervention or persuasion by Government.
The final issue that I should like to raise—I apologise for going a little over the 20 minutes that I had planned to allow myself—is online government. The Government have already set themselves some targets, such as that, by 2002, 25 per cent. of Government business should be done online.
In the past week, my parliamentary colleagues and I have had a bit of fun with Government targets, which seem to come and go and to have a slightly surreal quality—a bit like the Soviet planning system once demonstrated. Targeting is fine, but the much more important issue is to determine how the Government will benchmark their own performance. What criteria will they adopt? To what extent has benchmarking in Government services been developed?
Perhaps a few anecdotes will illustrate the point. A couple of days ago, I saw that an evaluation of the Government's websites has recently been conducted. The sites were said to vary from excellent—such as that operated by the Department for Culture, Media and Sport—to the abysmal, which was the verdict given by users of most of the sites. However, very little attention has been paid to the problem.
To what extent have online processes, such as obtaining a television licence, car licence or passport, been accelerated? One would have thought that obtaining a car licence, for example, could be done fairly easily on the internet. Does online government mean more than simply downloading a form to fill in? Can the process be completed online, and completed quickly and efficiently? I am told by people who have used other systems that countries such as Australia are far ahead of us in developing those systems.
I ask the Minister to go a little beyond the controversies that we have had in the past week and to think a little more into the future, to give us some indication of how far Government have thought ahead to the next big challenge that they will face, which is not simply chivvying and regulating the private sector, but implementing change themselves.
11.29 am
Mr. Derek Wyatt: I thank the hon. Member for Twickenham (Dr. Cable) for bringing this debate to the Chamber—on the very morning on which, for the first time, the FTSE 100 valued dot.com companies above some of the older, more traditional industries. I should say that I have a few interests in this sphere, all of which are in the Register of Members' Interests. Although I am not paid for it, I sit on some advisory boards in America and in Great Britain that are involved in the matter.
I think that this debate is about the future and culture of BT. As BT controls so much of the market, unless it changes its culture to be more like that of a dot.com company, it will hold back the rest of Britain.
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On Friday, the Liaison Committee met and suggested that the Committee should perhaps have more authority and power. It would be wonderful if, one day, regulators were allowed to speak in this Chamber, so that not only Select Committee members, but all hon. Members could question them. Until we are able to discover what they are doing, we shall not be able to hold them accountable.
Several issues worry me. The first is about IR35, which has been a Treasury concern. One of my constituents, Andrew Crayford, works in the industry and he says that he faces the prospect either of going on the dole and withdrawing all his services or of taking an attractive contract in Germany. That means that the intellectual ability of many people in this sector will be lost. We have had debates on IR35 elsewhere, but I have received three different sets of advice from the Department of Trade and Industry, the Treasury and the Cabinet Office about its impact. That is not helpful.
The performance of BT has been frustrating. I wish to refer to the website edex.co.UK, which is one of the organisations that work between schools and BT. It is an internet service provider. The following news appears on the net today:
It transpires that the problem was caused …by BT running out of capacity at the Wimbledon Exchange to the extent that the 999 services were endangered. I believe they even had to physically enlarge the facility at the exchange to bring in that extra capacity.
At no point did BT publicly acknowledge that the problems schools were experiencing were down to them.
I could go on and on, but the message continues:
We have also experienced instances where groups of schools in certain parts of the country have lost connectivity (e.g. certain areas of Manchester). This has been traced to problems at the local exchange. Once again, BT did not admit that they had any problems, but their engineers acknowledged that they had exchange problems.
The culture, organisation and ownership are not the only things that worry me about BT. I am also worried about the middle management structure and the transparency of the company. That is a concern, especially as BT's share price went down yesterday.
My right hon. Friend the Prime Minister has made one or two speeches about the internet this week, but yesterday he said that he hoped that everyone would have internet access within five years. As I am sure that my hon. Friend the Minister for Small Business and E-Commerce knows, five years in internet years is 35 years. Some of us have been in the House for nearly three years, which is 21 internet years—a generation of change to which we have not yet adjusted. Five years is far too long. We cannot continue to say that everyone will have internet access in another five years. I hope therefore that my hon. Friend will tell us what initiatives will enable the Government to achieve their aims.
We have had so many initiatives that I have lost track of where we are. We have had the Prime Minister's speeches this week and my right hon. Friend the Chancellor of the Exchequer made a speech on the cost of the internet for small and medium-sized enterprises, and also made a speech to BT two weeks ago. Last week, the Department of Trade and Industry talked about the utilities and there have been many e-commerce initiatives. In addition, late last week, the Department for Education and Employment announced its plans for learning direct hubs, and the Cabinet Office has announced other measures.

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I have said for some time—it is not necessarily an employment opportunity for me—that we need a Minister for the internet. In the larger companies in America on the Nasdaq index, the third most important person after the chief executive and the finance director is now the internet director. There must be a sea-change in the way in which business and government work in this country. The person responsible for the internet is the third most important person in an organisation.
The problem of blindness was mentioned. There is the most wonderful woman in Richmond—her name escapes me at the moment—and the hon. Member for Twickenham referred to her. She is blind, but that has not stopped her designing the site "Melbourne Public Services On-line". Her problem is that if she asked British Airways to take her dog to Melbourne, it would not be able to return to this country. So she now has a coterie of dogs in Melbourne and in this country to help her, and her website has enabled her to do that. I pay tribute to her. A strong group of people who use Braille online have made presentations to me. What they can do is fantastic, considering that they cannot see.
There are initiatives for computer centres and 1,000 are planned. Two separate parts of government have initiatives for homework clubs, but they could be organised by one body. If we were really serious, the computer centre concept would have been a public-private partnership worth billions of pounds. Not in five years, but overnight we could have found the money—that is the issue—to put hubs and centres into the poorest parts of the country. The divisiveness of internet provision worries me most.
New applications are being made to run the lottery. The trouble with sub-post offices that currently have terminals to sell lottery tickets is that they must guarantee 3,000 sales. If they cannot do that, they cannot have a terminal. Given that a post office—and especially a sub-post office—is so important to a community, would it not be wonderful if the new lottery provision could include a hub connected to the terminal? People would go to a post office not just for a lottery ticket, but perhaps to pick up their e-mails or to check a few things on the net. We could be clever and skilful and make just a few changes to enable post offices to remain open.
The national grid for learning and learning direct initiatives are amazing. We talk about social exclusion and social inclusion. It is estimated that 20 per cent.—or 12 million people—are excluded from access, but how many learning direct hubs are in socially excluded areas? One might be surprised to hear it, but there are none in Kent and that creates a struggle. We must close the social divide, but especially the social divide with respect to the internet.
There are initiatives to open the schools and the libraries and to have network classrooms and terminals in libraries. That is happening, but the trouble is that schools close at 4.30 pm, and libraries, by and large, close at 5 pm and do not open on Sundays, which is just when the children without computers at home or access to the internet need to be able to get into public buildings. A bit of joined-up government would be so important. School initiatives, library initiatives, computer centre initiatives and homework clubs make up four initiatives involving huge sums of money.
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However, if one person had put them together, he would have not created the jumble or the jungle that we have now.
I am disappointed with the BBC, but I am not sure that you, Mr. Deputy Speaker, will agree with me. It could have been the public service face of the internet and a multi-media hub. It could have a policy that said, "We will do BBC 1, BBC 2, but we will do BBC hubs and we will take control of computer centres. We will be part of the public-private initiative and develop a public service for the internet beyond anything that we have yet seen." However, the BBC has been quiet about the internet and it has not met its responsibilities as a public service. I am not saying that BBC Online is not good, but it is not exactly what our communities need.
As regards the UK Trust, I am concerned that the Consumers Association is on the trust itself and is bidding for trust status. Will my hon. Friend the Minister comment on that?
In the near future, a key thing would be to use the lottery for the internet's infrastructure. We have seen big projects, such as that for the millennium dome, but many small projects worth £50 million to £100 million have not worked. I could go through them, but I wonder whether the best prize for the 21st century would not have been an internet infrastructure. The lottery provides huge sums of money, so is that not something that we could think about in the future even though the lottery is not part of my hon. Friend's brief? However, for the sake of joined-up writing, I ask the question.
At the end of this year, the satellite systems for Teledesic, the Seattle-based company, will be launched. There will be about 350 low-orbit satellites and they will create a fundamental change to the internet, because they will provide mobility. For once, would it not be great to have initiatives with Teledesic to work out whether, with the appropriate security, we could use those satellites for our social security and pensions systems? What conversations have we had with the company? We argue about land lines and unmetered calls, but they might be old-fashioned analogue arguments. Teledesic will change the whole way we consider the issue.
It would be great to have a debate soon about what gov.com means. People may think that it is about the transfer of services, without fundamentally understanding what the internet does to government. I have been trying to understand it. We may want league tables, but what does the internet fundamentally do to government? The internet changes the way in which we work and play, threatens the concept of the nation state, and is a horizontal not a vertical structure. Most of us have come up in vertical structures and a horizontal structure threatens the civil service system. It creates a completely different working environment, so it means fundamental change.
I read the papers that Sir Richard Wilson gave the Prime Minister before Christmas, which are on the net. The two-day awayday in Sunningdale came up with six changes for a modern civil service, but nothing was said about gov.com. If the civil service have not got there, we will not.

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The internet threatens the age-old Government power structure. I was lucky to be in Washington two weeks ago and I saw a bit of McCain and Gore, but the way in which the groups are working on the net in America represents a fundamental change in democracy and power, and we have not got there yet.
11.41 am
Mr. Bob Laxton: I congratulate the hon. Member for Twickenham (Dr. Cable) on securing this timely debate. I intervened to ask whether there was a case for a far wider regulatory framework than that provided by the Utilities Bill, encompassing the totality of broadcasting and telecommunications, and the hon. Gentleman replied that telecommunications should have been retained in the Utilities Bill and built upon. With the great pressures on parliamentary time and the speed at which technology is developing, it is better that it should have been taken out of the Bill and a specific telecommunications Bill introduced quickly.
This is an interesting debate. It is constantly said that BT has 81 or 83 per cent. of the fixed-line network, and that is true. However, we should consider some of the other technologies that are around. Some of the statistics are pretty amazing. For example, mobile penetration in Britain is at about 35 per cent. and is expected to rise to 26.5 million, which is nearly 50 per cent. of the fixed-line market. Those statistics may be wrong, but the growth is huge and will continue rapidly. It is a competitive area which, in many respects, will start to diminish the role of the fixed-line network.
As a nation, we need to ensure that we have in place regulation that will not inhibit or hold back our economic growth. We should bear in mind the fact that BT has to pay close attention to the universal service obligation, which, under the current regulatory framework, is placed upon BT, and BT alone. If that were to be imposed upon other service providers—I am not advocating that it should—we might see some ongoing restriction in telecommunications.
I want to consider internet access and some of the existing technologies—I must ensure that I get the terminology spot on—which include digital subscriber technology, wireless application protocol, universal mobile telephone services and digital television. DSL provides an opportunity to enhance the performance of the existing copper line network—local loop unbundling. Part of the debate on that concerns the speed at which BT is introducing its version of that—asymmetric digital subscriber line technology—to support platforms for other internet access providers across the network. There has been an on-going debate about the speed, or some would say the slowness, at which BT is putting the technology in place, but it will be put in place, as it is required to be, and the date that has been referred to is July 2001. However, there is considerable pressure on BT to move faster.
The future of mobile technology is about not just telephone and voice messages, but a plethora of technologies. UMTS, third generation mobile phones, will bring in a system whereby people can send and receive e-mail, draw down digital music, surf the net and even, if they want to, dial people up and hold verbal
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conversations. The technology is moving apace. It is with us now, but it will soon be out on the street when we will all be able to buy into it. We need to consider that in relation to the fixed-line network. That is why I take the view that the mobile technology is the technology of the future. Whether BT has 60 or 90 per cent. of the fixed-line network begins to be pretty irrelevant.
BT made an announcement this morning on internet pricing—
Mr. Michael Connarty: My hon. Friend did not draw the conclusion that seems to be waiting to be drawn, although he may have been being his usual moderate self. The companies associated with the mobile technologies seem to be allowed to cherry-pick the BT network for their own benefit, while the future appears to be satellite based. Therefore, they are depleting BT's profit margins, and, at the end of the day, BT is the only company that has any interest in maintaining a fixed-line system which we hope will reach all our people and make them part of the information society. Therefore, matters are weighted towards those who will take off into the stratosphere by satellite, leaving behind a damaged fixed-line network in Britain.
Mr. Laxton: Cherry-picking has been common in many services, with companies wanting to cream off the lucrative areas, leaving the regulated companies, such as BT, which have to provide a universal service, unable to make much profit or to cross-subsidise with the profitable arms of the business that have been taken away from them.
I will not say that I heard the morning news at 5 or 6 o'clock, but I may test hon. Members' imagination by saying that I heard it shortly after 7 o'clock. In my half-awake state, I think that I heard about fixed-price internet access for £6 a month for residential customers and about £29 for business customers. There is no doubt that some of the new companies, such as Alta Vista, are concentrating BT's mind.
All the communications companies operate in a highly competitive environment. BT would argue that it has been prevented by regulation from providing services such as surf packages quickly, which has hindered its ability to compete. As the days move on—it will be days, rather than weeks, months or years—we need to be conscious of the fact that the internet and original voice technology should be available to everyone throughout the land.
It has recently come to my attention that probably more than 70 per cent. of small and medium-sized companies in the south-east are wired up to the internet, whereas the figure in the north-west is probably 18 or 19 per cent. In Scotland, surprisingly, the percentage is probably down in single figures. It is not a north-south divide, but society and business are being segmented into those who see the sense of getting wired up and those who do not, and those who can afford it and those who cannot.
Mr. Connarty: I hoped that my hon. Friend would mention the problem that the providers of mobile telephone services do not universally cover large areas of Scotland because of the difficulties of access. In fact, even some of the central areas are sporadically blanked

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out because of the technology that is used. That has always been a problem. The universal delivery that we get from the postal services and from BT is not being replicated by those who are cherry-picking the mobile networks.
Mr. Laxton: My hon. Friend has far more experience than I do of the difficulties experienced in Scotland. I can envisage the difficulty of putting communications towers on mountain tops all over Scotland. That would not go down too well with much of the environmental lobby, and rightly so.
The regulation imposed on BT can inhibit its ability to move rapidly in response to some of the issues that it faces. None the less, it must move faster. We must also bear it in mind that some of the new technologies that are coming on stream and will be with us in the next 12 to 18 months will further open up the market. We must push to ensure that, from a regulatory viewpoint, Britain is as well placed as it can be to thrive in this new era of technology.
11.55 am
Mr. Alan Duncan: On behalf of all hon. Members, I thank the hon. Member for Twickenham (Dr. Cable) for initiating this debate on an important topic. There is broad cross-party agreement in wanting information technology and the internet revolution to continue apace and help society in the broadest possible way, but some political disagreement about the nature of regulation. I am very sorry that there are not more hon. Members present to take an interest in this matter.
The leaders of all major parties are expressing opinions, but the speech of the hon. Member for Twickenham was a tour de force and he has perhaps single-handedly given a new meaning to the brand image of Cable and Wireless. He has effectively dissected the current state of Government policy, and especially the manner in which consultation has or has not taken place with consumers and producers. At the kernel of his argument is the question of where regulation and competition clash or separate. That is the basis on which Government policy is being scrutinised.
As the hon. Member for Sittingbourne and Sheppey (Mr. Wyatt) rightly said, this debate takes place on the very day on which some .com companies have displaced traditional corporations in the FTSE 100. Sadly, it also takes place against the background of significant disarray in Government policy affecting the regulation of the whole of telecommunications and the internet.
I remember sitting as a spotty youth in 1976 in Committees and the Strangers Gallery—you were a fiery young Back Bencher, Mr. Deputy Speaker—watching the collapse under the previous Labour Administration of the Shipbuilding Bill. We had not since then witnessed an equivalent collapse of such a major flagship piece of legislation, until the crumbling last week of the Utilities Bill, which has proved itself an unhappy mixture of intent.
The Labour party's general election manifesto said:
We recognise the need for open and predictable regulation which is fair to both consumers and to shareholders and at the same time provides incentives for managers to innovate and improve efficiency.
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That was echoed two and a half years later when the Utilities Bill was introduced, but it hardly represents what happened subsequently. Shareholders and customers in two major sectors are now in limbo and the Government's overall policy on regulation is extremely uncertain and in complete disarray. The shambles has left a lot of people in the lurch. At a time when we all want progress to continue apace, there is an uncertainty that this country can ill afford.
Such is the disarray in the Department of Trade and Industry that my hon. Friend the Member for Tiverton and Honiton (Mrs. Browning) tabled a parliamentary question to the Secretary of State asking whether telecommunications would be withdrawn from the Utilities Bill and on the day after the Bill had collapsed received a holding reply saying that he would get back to her in due course. Such is the lack of co-ordination in the Minister's Department that people are rightly considering its conduct extremely critically.
Although the Government speak the language of wanting to champion competition, in fact they remain a champion of regulation. Between the two, they are schizoid, to put it mildly. The Conservatives want to see a major shift away from regulation to competition. Competition is what happens naturally and it is beginning to happen with some force, although it is being hampered by an old-fashioned system of regulation that the Government are not prepared to tackle.
We have already seen in the drafting of the Electronic Communications Bill a two-year turf war between the Department of Trade and Industry and the Home Office on the nature of the regulation involved. Now, as technology takes a quantum leap from fixed wire links to an explosion of wireless technology, which also implicitly includes broadcasting, we are seeing a new turf war between the Department of Trade and Industry and the Department for Culture, Media and Sport about which one should regulate those communications.
We desperately now need a clear statement of policy from the Government about the regulation of all those telecommunications matters. However, all we were promised in the mess of a statement last week at Trade and Industry questions was a communications White Paper, which I understand—the Minister will correct me if I am wrong—will be published only in November. That means that we will have six months of limbo and uncertainty, while the country cries out for a clear statement of Government policy on that rapidly moving sector. Even when the statement arrives in November, no action is likely to take place in what will be left of this Parliament. Although the country demands speed, we probably will not see any proper Government action until the next Parliament.
Mr. Connarty: I am fascinated by the hon. Member's analysis that the country is demanding speed. In the past few months, I have attended several symposiums in Europe on e-commerce and the information age, and the feeling is that we have to get it right. Debate in Europe will continue at the Lisbon special council, but we should not rush it in case we get it wrong. The Government should be commended for admitting that the scene is changing so quickly that they must gain a clear view before rushing in. The previous Government pushed through regulations on the masts for the new

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mobile technology, and now everyone is complaining because those masts are stuck outside their doors. The planning authorities cannot stop that happening, because of the laws passed by the Tories when they rushed the issue.
Mr. Duncan: The hon. Gentleman has obviously not been following what we have said in Committee on the Electronic Communications Bill. We have clearly held out against the sort of fossilised regulation that was likely to emerge from that Bill. For the reasons that the hon. Gentleman mentions, we believe that the Government should not fossilise a system of regulation on a technology that is changing apace. We need the minimum light touch of regulation to safeguard certain standards and disciplines. However, the obverse of that is that we do not want the increasingly fossilised system of regulation to remain in place. We need a clear statement of policy from the Government that allows all the companies to compete fully with each other to bring about the benefits that we want to see. Therefore, I respectfully suggest to the hon. Gentleman that he has missed the point.
One needs only to consider the actions of the Department of Trade and Industry and, in particular, the Secretary of State to see that what I say is true. For instance, at a time when companies are attempting to develop cable technology as a powerful competitive force, the Secretary of State referred the NTL-Cable and Wireless merger—against the advice of the Director General of Fair Trading. He should not have done so. Even now, the Secretary of State is sitting on the report that he instigated, to the companies' great annoyance. He should probably have kept his nose out of the issue altogether, but the Government's track record is over-intrusive.
Mr. Wyatt: On the issue of NTL and Cable and Wireless, does the hon. Gentleman understand that the digital box would be a closed box, so that it would be open only for cable, not satellite or digital terrestrial services? That is a negative and dangerous approach, because we need open and transparent platforms.
Mr. Duncan: I agree that we need openness and transparency wherever possible. I do not want to go into the detail of that point, because I might be ruled out of order, given that it is sitting on the Secretary of State's desk—
Mr. Deputy Speaker (Mr. John McWilliam): Order. The hon. Gentleman should feel free to make any point he likes, because the issue is not sub judice.
Mr. Duncan: I am grateful for that guidance, Mr. Deputy Speaker. However, in the interests of time, I shall restrain myself.
The other event of the past week was the unnecessary intrusion by the Chancellor of the Exchequer that led to an unfortunate decline in BT's share price, and he must choose between an independent regulator or in competition. The ambiguity of his position has caused unnecessary harm.
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I hold no particular brief for BT, but, in the interests of fairness and justice, I must state that the Government's emerging attitudes to BT are rather distasteful. BT has become a whipping boy, and some politicians are trying to score political points by having a go at BT. As hon. Members have said this morning, BT has been in a different category because it had an obligation of universal provision imposed on it in the years following privatisation. Now that we have that universal provision, it borders on the unjust to attack BT for the way in which the regulator is regulating it. In fairness, all hon. Members should accept that BT's case should be fairly heard and it should be set in a proper understanding of where we want to be and of where we and BT have come from.
BT is in a unique position. It was the pioneer of privatisation, since when many other companies have followed, and it is unfair to attack BT in the way that the Chancellor and other politicians have done. BT has supplied me with a brief, and I shall read out a couple of paragraphs simply to put its point of view on record. It states:
BT has always been keen to play its part in driving down prices—supporting the vision for a UK world-leading role in e-commerce.
We should remember that BT has been subject to price-reduction regulation since privatisation. It continues:
However, unlike its competitors, and indeed unlike its European counterparts, it is prevented from swift action through a burdensome, slow and outmoded regulatory regime.
Perhaps the Minister could say whether she thinks that that is a fair point. BT also says:
BT supports the removal of telecommunications from the Utility Bill and is pleased that the government recognises the competitive and converged nature of the UK communication market. This review must be underpinned by a robust analysis of the competitive framework of the future UK market. Any review that relies on an extrapolation of history will not create a durable and effective policy framework.
I read that this morning, and have been briefed no further, but it struck me as a reasonable point of view. The recognition that BT has a fair point reinforces our call for a swift and urgent statement of the Government's policy on telecommunications regulation. To have to wait for the White Paper until November, when it will doubtless be kicked further into the long grass until the next Parliament, is unacceptable. The Minister must answer those concerns in some detail.
I wish to leave the Minister time to answer the questions posed by hon. Members, especially by the hon. Member for Twickenham, but I have a few more points to make. It is good news that a sudden and vicious price war has broken out. Of course, some will fall by the wayside and others will become champions of the sort of access that the consumer is crying out to enjoy, but that competitive outburst is good news for the consumer and will also flush out the progress that we want at the speed that we want. However, the climate of regulation, for which the Minister is responsible, must not jeopardise that, or disadvantage any particular player in that competitive market.
Reference has been made in the debate to the way in which Government can use the IT revolution to improve service delivery. I have always considered that the matter divides into two distinct categories—e-commerce and e-government. They are allied, but

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different. On the one hand, trade, retailing and communication between individuals and corporations must be encouraged to develop through e-commerce and the internet. On the other, the Government are responsible for form filling, tax returns, and the promulgation of views and information, and we want that to improve dramatically through a parallel use of technology.
It is of great regret to Conservative Members that the Government have mouthed words of support for the internet, but have continued to fail to make decisions that would keep Britain at the leading edge of that development. The IR35 tax rules will drive people out of this country, just when we need their expertise. That is an utter disgrace.
Although one cannot believe everything in the newspapers, it is clear from them that Germany is likely to import 3,000 technicians to help meet staff needs. It therefore seems doubly absurd that Britain, a competitor country with many such technicians, should have an idiotic tax policy that will drive 10, 20 or 25 per cent. of them abroad, or out of business altogether.
Mr. Connarty: Remarks like that make me angry. The hon. Gentleman is saying that people should enjoy a tax advantage. My son is a software engineer and has his own company. He admits that he has a massive advantage over people who pay their fair share of tax. He says that regulation is long overdue. If it were available, he would use it, as would all his colleagues. The hon. Gentleman is simply making a protest on behalf of tax dodgers.
Mr. Duncan: There is no dodging whatsoever. The comments from the Minister and the hon. Member for Falkirk, East (Mr. Connarty) illustrate a failure to recognise the changing structure of risk taking in this country. Much of the gain for risk takers at the leading edge of technological development is on paper rather than in cash. They face unacceptable bills when it comes to paying national insurance, for example, and they are finding them very difficult to meet.
It is distasteful that the Prime Minister should seek publicity by jumping on the internet bandwagon, as if to claim the credit for gains that so obviously are the product of others' work. The Government should make a clear statement of policy on regulation. We want less interference from the Department of Trade and Industry, and from legislation. After the shambles of the past week, there needs to be a greater sense of order in the way that legislation passes through the House, so that this country can remain at the leading edge of what is a very important technological revolution.
12.13 pm
The Minister for Small Business and E-Commerce (Ms Patricia Hewitt): I begin by congratulating the hon. Member for Twickenham (Dr. Cable) on securing the debate which, by a happy coincidence, takes place in a week of such fast developments in the matter of internet access and charging.
The first challenge to Government is to get the market framework right. I shall begin my response to the debate by saying something about the nature of the framework that we are seeking to create. Our approach is summed up
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in a simple rubric: competition where possible, regulation where necessary. Through the Competition Act 1998, the Government significantly strengthened the competition framework that we inherited. That Act came into effect last week, and it applies to all sectors, including telecommunications. It significantly strengthens the prohibitions on anti-competitive behaviour, on cartels and on the abuse of dominant and monopoly positions by companies in any sector. By doing so, it will bring real advantages to British consumers.
The Government inherited a telecommunications sector in which competition was not driven entirely by the market. There remains a need for sector-specific regulation. I want to pay tribute to Oftel and its director general for the work done in discharging that regulatory function. However, competition and regulation are not mutually exclusive. As far as possible, regulation must be used to promote greater competition.
The policy strategy document recently published by Oftel makes it clear that organisation's determination to use its regulatory powers to promote fair competition, and to withdraw from regulation as competition takes effect in different parts of the telecommunications market. However, BT retains its dominant position with regard to the local loop. Interconnection is at the heart of moves by competitor retail operators to create a more competitive market. It is therefore essential that Oftel uses the powers available to it under the legislation covering telecommunications and competition.
I shall return to the specific questions of charging and the local loop in a moment, but I shall first say something about the Utilities Bill. It was designed to deliver—and will deliver—an improved system of pro-competition regulation in the electricity and gas sectors. I regret that the hon. Member for Rutland and Melton (Mr. Duncan) has denounced the Bill again today. I presume that that means that the Opposition want the Bill to be withdrawn completely, even though that would mean abandoning the real benefits for consumers that will stem from greater competition in the wholesale electricity markets.
The Utilities Bill contained a general provision that the Government will provide social and environmental guidance to the telecommunications industry regulators, to ensure that they take account of wider policy objectives.
Mr. Connarty: My hon. Friend mentioned the environment, and I hope that she will allow me to raise the matter of the lack of control over the erection of masts for mobile telephone networks. The New Roads and Street Works Act 1991 covers such installations, which have aroused great public concern. Do the Government intend to have a dialogue with the regulators to ensure the regulation of that activity? Would it not be even better to amend the legislation, so that planning authorities would be able to control the spread of sites that are highly unacceptable? In my constituency, for example, a mast was erected just outside the bedroom window of a child suffering from leukaemia.
Ms Hewitt: My hon. Friend earlier complained— understandably—that mobile telephones do not work properly in many parts of the highlands of Scotland.

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However, there is a tension between the desire to achieve near-universal mobile telephony and worries about the siting of the masts that would make that possible. The specific health issues involved are being considered by the Stewart inquiry, and by a Committee of the Scottish Assembly. We will examine those matters in due course.
The Utilities Bill contained no proposals to deal with environmental issues by means of the guidance to the telecommunications regulator. However, the social guidance that we published for consultation some time ago covered the question of establishing a universal service for the sick and the disabled, and for elderly or poorly paid people, and dealt with issues of universal access in rural areas. It also covered the matter of access to the networks for emergency services.
Those are enormously important principles, and the Government stick by them. However, we will consider their implementation in the context of the communications review, to which I shall return in a moment.
The hon. Member for Rutland and Melton also raised the matter of consumer councils. My understanding is that they cannot be introduced without legislation. That is one reason why we originally decided to include telecommunications in the Utilities Bill. We still want to see strong and effective consumer councils for telecommunications, and we will look at the issue in the context of the overall review. I understand that the National Consumer Council and the Consumers Association suggest that, as a stopgap measure, existing bodies such as the advisory committees on telecommunications should be given more resources. We will certainly have a look at that.
We have been in touch with the consumer bodies throughout the Bill's progress. However, in the light of our decision on the whole telecommunications review, the decision whether to retain the telecommunications element of the Bill had to be made very quickly given the progress that the Bill was making in Committee. We were therefore not able to take that decision in consultation with the consumer bodies or the industry. We had representations from the industry arising from the announcement about the White Paper on communications, and we took those into account.
Let me say a word or two more on the White Paper. It is at the heart of the revolution that is taking place in the economy and in society that telecommunications, broadcasting and computing are converging. We considered that issue in the Green Paper that we published in 1988 and the consultation exercise that led to the joint report last June of the Department of Trade and Industry and the Department for Culture, Media and Sport on the way ahead for regulating communications.
We have now decided that, although the industry has benefited from much closer co-operation between the different regulators, it makes sense to look afresh at what is the best legal and regulatory framework for a sector whose boundaries are changing so very fast. We will do that properly. Rather than simply saying, "This is what the policy will be", the Government will do it through a process of consultation and dialogue, first
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leading up to the publication of a White Paper and then before the introduction of any Bill that may be necessary.
The White Paper will be very broad: it will consider the infrastructure and the appropriate framework for regulation of economic and access issues. It will consider the issues raised on broadcasting in particular about the regulation of content, just as it will look at media ownership rules and the role of public sector broadcasting. It is an essential piece of work, and I hope that many hon. Members will be closely involved.
The White Paper, which will be published later this year—not as late as November, I hope—will be an important milestone in ensuring that, as the industry and the market move very quickly, we have a regulatory system that is built for that purpose.
Mr. Connarty: I would like my hon. Friend to accept that, although Members on both sides of the House have made silly political capital out of the decision to withdraw telecommunications from the Utilities Bill, it was a very bold move and in line with what is required. I commend her for it, and I am sure that many other hon. Members will do so as well.
Ms Hewitt: I am very grateful to my hon. Friend, who has made an important point.
On charging and access, my right hon. Friend the Prime Minister said yesterday that we want to see access to the internet for everybody who wants it by 2005, and earlier if possible. It is important to understand that universal access will come through various means. It will come through telephone lines, cable, wireless and satellite. It will come through a variety of devices—computers, televisions, mobile telephones and other devices that are only now coming out of the research laboratories and on to the market.
Competition is driving down internet access prices and gives consumers much greater choice of new tariff packages. That policy of competition is working. We have seen in the past two weeks announcements from BT, Telewest, AltaVista and, yesterday, from NTL, all offering free or very cheap internet access with a variety of models and packages.
Mr. Wyatt: The Minister may just recall—or perhaps not—that, in 1936 when television was launched, there was competition between lines 205 and 405. Finally, the civil service decided on 405. We could help the community in Britain by saying, "Here is a basic internet system. This is all it needs", rather than having the hundreds of different systems that are available.
Ms Hewitt: I do not remember 1936. My sense is that different consumers and businesses want different levels of access and packages of content. Rather than the Government saying, "This is to be the standard, the package or the tariff", it makes sense to create a competitive marketplace in which there will be different offerings, and consumers will have the choice to get what they need. In many cases, consumers will access the internet through different means at different times of the day and for different purposes.

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We are driving towards competition between BT and other operators connecting to the local loop. There will be competition between the local loop and cable. There will be competition on the local loop, with the advent of local loop unbundling. There will be competition between wired—local loop and cable access—and wireless access which, in turn, will come from satellite, third-generation—indeed, second and a half generation—mobiles and from broadband wireless.
On Monday, I launched the first world auction for third-generation mobile spectrum, with 13 bidders. I believe that that auction will help to keep the United Kingdom ahead of the game.
Mr. Connarty: Has the Minister given further thought to what seems to be the contradiction that Vodafone and Orange, which are now one company, appear to be able to bid separately?
Ms Hewitt: That was a matter to which my right hon. Friend gave very careful thought before the auction rules were finalised. It would have been quite wrong for Orange, through no fault or action of its own, to have been debarred from taking part in the auction simply because of the coincidence of timing of the VodafoneMannesmann merger and the third generation auction. We have put in place extremely stringent safeguards to ensure that there is no collusion between Vodafone and Orange in their bidding in the auction. It will not be possible for both companies to hold licences, should they both succeed in getting them through the auction, if they remain part of the same merged company. So we have taken care of that point.
I hope to make an announcement shortly about the allocation of further wireless spectrum at the 28 to 40 gigahertz spectrum band for purposes of broadband fixed wireless access. That is very important.
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Let me say something about the digital divide, which several of my hon. Friends have mentioned. We are determined to ensure that access to the internet is not reserved for the young, the techie and the wealthy. That is why we have worked so hard and fast to connect up schools, colleges and libraries across the country. That has been very successful. It is why, this year, we will be rolling out learning and access centres, particularly in the most disadvantaged communities, which many of my hon. Friends represent, as, indeed, do I.
In another month or so, we will be publishing the report of one of the social exclusion policy action teams on how to exploit information and communications technology to overcome social exclusion. An enormous leap forward will come from internet access through digital television and through third-generation mobile. It will bring the internet and interactive digital services generally within the reach of people who are never likely to want, or could never afford, a computer at home. It will be a very different world.
We are also looking closely at how to exploit the new technologies to open up access to employment, learning and other services for people with disabilities. Like the hon. Gentleman and my hon. Friend, I pay tribute to Julia Schofield, the extraordinary woman who is blind and has done so much to advance the cause of user-friendly internet and web access. In Leicester, I saw a person with a very severe sight disability using voice recognition technology on a laptop to fulfil a demanding job at Voluntary Action Leicester.
In terms of online government—
Mr. Deputy Speaker: Order. Time is up. May I ask hon. Members who do not wish to remain for the next debate to leave quickly and quietly?

Housing (Norfolk)
12.30 pm
Mr. David Prior: In view of the Government's announcement yesterday on housing in the south-east, this debate is timely and the Government will probably be making decisions about housing in Norfolk in the next 10 days.
Any policy for housing in Norfolk or any other essentially rural county presents two key, and often contradictory, issues. The first is that current plans based on predict and provide, or more fashionably, in that wonderful Sir Humphreyish phrase, on "plan, manage, monitor", require a massive expansion in the number of new houses in rural areas. If that happens, much of our countryside and rural environment will be irreparably damaged.
The second issue is the high cost of housing, which makes it increasingly difficult for local people to afford to buy or rent their own homes. The 1999 survey of rural trends by the Countryside Agency noted that throughout the 1990s the gap between the need for affordable homes and those being built widened significantly.
I want to address both those issues. I turn first to the need, or perceived need, for new houses. The new housing requirement for Norfolk in the period from 1991 to 2016, as assessed by SCEALA—the Standing Conference on East Anglian Local Authorities—which represents the local authorities of Norfolk, Suffolk and Cambridgeshire, is for 86,000 new houses. That is made up of net inward migration from outside Norfolk of 54,000 people, a net natural loss of population, which is the number of people dying over the number being born, of 5,000, and an increase of 37,000 due to a reduction in the size of households, which is an increase in the number of single-person homes.
The Government's panel subsequently increased the number of houses needed from 1995 to 2016 by 5,500. That gives a total of almost 100,000 new houses, which is a huge increase. Building those houses is a self-fulfilling prophecy. If they are built, they will of course be lived in, and people will move into Norfolk, often from more urban and developed areas. That flies in the face of the Government's protestations that there is an urban renaissance and that they are encouraging more brownfield development.
Moreover, the Government's apparent conversion from predict and provide to plan, manage, monitor, which they announced yesterday, rings a little hollow in view of the plan for the south-east, which I hope will not be duplicated in East Anglia.
Most of Norfolk's countryside is still unspoiled and special. The countryside should not of course be preserved as it is in perpetuity—it will evolve—but it should not be built on and concreted over for all time. Housing brings with it more cars, wider roads, new roads, more pressure on schools and hospitals, more employment problems and more pressure on natural resources and, especially in Norfolk, on water.
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New development must be sustainable. Sustainable development is not, as Professor Crow dismissively described it, merely a fashionable expression used as a device for saying no. Let us take the example of water. Norfolk is one of the driest and lowest-lying parts of Britain. The available water depends on aquifers, which store winter rain and are a finite resource. As the demand for water increases, the water available for the environment decreases. The expanding population of East Anglia, together with a per capita increase in water consumption, had led to a doubling of public water supply in the past 30 years.
Although there is still much that can be done to prevent wastage and to encourage more judicious use of water, there is only so much that can be achieved by managing water demand. In addition, given that part of the demand for water in Essex is met by the River Ouse in Norfolk, it has yet to be demonstrated that development levels in Essex will not have an adverse impact on Norfolk's water environment and resources. There will therefore be genuinely unsustainable growth in the demand for water if housing development is not kept to lower levels in Norfolk and Essex.
I do not want to see Norfolk becoming suburban and its rural character being eroded. I would not want a latter-day John Betjeman to write a poem about Norfolk in the same vein as his poem about Slough, but I fear that if the Government's housebuilding plans proceed apace, that is precisely what will happen.
There is a further problem with new housing in Norfolk. The Government have rightly stated that 60 per cent. of all new housing should be built on brownfield sites. I support that requirement, but in a rural county it will be much more difficult to achieve that proportion. SCEALA estimates that only 36 per cent. of new housing will be built on brownfield sites in Norfolk, with the remainder being on greenfield sites. That is another strong argument for reducing the number of new houses in Norfolk so that the brownfield percentage can increase.
It is also important that the release of greenfield land should take place only after what is called sequential testing. In simple terms, urban and brownfield sites should be used first, and greenfield last. So long as greenfield development is an easy option, developers are bound to avoid more difficult investment in brownfield sites. In that regard, I hope that the Government will consider reducing VAT on repairs and developments on brownfield land.
I hope that hon. Members will forgive me for adding that it is not only the location of new housing that is important, but its design and quality. Planners currently have the powers to prevent unsuitable alterations to listed buildings, but if buildings are not listed planners are powerless to prevent such alterations as putting PVC window frames into a Victorian house. Councils can do no more than give advice. As one of my constituents, Miss Fran Weatherhead, has aptly expressed it, at present it is a matter of hoping that owners will be sensitive to the appearance of their property and are not out for a quick fix. The planning rules for conservation areas in particular should be tightened to prevent inappropriate modifications being made to older houses.

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To summarise, there is a danger that we are building so many new houses that Norfolk's character will change. Policies must take more account of sustainability, protection of the countryside and the regeneration of brownfield land. The Council for the Protection of Rural England said:
Planned expansion of the south-east—
and, I add, the whole of East Anglia—
spells sprawl and congestion in the region and continuing decay and social exclusion in other parts of the country.
I turn now to affordable housing. The Prime Minister's performance and innovation unit drew particular attention to this, and I hope that the Government's much-delayed rural White Paper will address this vital issue. In my constituency, many local people can no longer afford to live where they were born. In part, that has been caused by the number of second home owners, who own up to well over 50 per cent. of the houses in some villages. That has an effect on prices and on the viability of the local community.
There is no easy solution to high house prices, although I appreciate the force of the argument that local people should be able to get on to the housing ladder. I believe strongly that second home owners should pay the full council tax, not 50 per cent. as at present. That should be at the discretion of the local council, and the additional tax raised should be ring-fenced and made available for low-cost, affordable housing. That would be fair and would remove any local resentment. It would be levied only in districts where there is a concentration of second homes, and the proceeds would help local people on low incomes or with special needs who want to live locally. I am pleased that North Norfolk district council shares that view, and I am disappointed that the Government have so far shown such little interest in it.
In 1999, North Norfolk district council commissioned a housing needs study. It concluded that there is a need in North Norfolk for between 2,250 and 3,200 additional, affordable dwellings. The survey had similar results to those of the earlier and much wider-ranging CPRE report "Housing with Hindsight", which was published in 1996.
It has become clear to me that greater provision of social rented housing is the only practicable means of providing affordable housing for local people. I therefore support the efforts of North Norfolk district council to secure between 25 and 30 per cent. of social rented housing on eligible developments of more than 1 hectare or 25 dwellings. It is also right to adopt a flexible, negotiated stance with the developer, and not just a uniform, dogmatic one. There will of course have to be proper and transparent safeguards.
The Government are also suggesting exceptional developments of affordable housing in villages, outside agreed structure plans. For transport, employment and environmental reasons, those should be very exceptional and treated with great caution unless it can be shown that there is both overwhelming need and acceptance among the local community.
I have drawn attention to the dangers of building too many houses in the countryside and to the need for affordable housing for local people. I make one last point: please will the Government leave local authorities alone and allow them to make their own decisions? Yes,
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they should give guidance, but they should also trust locally elected councillors to make the right decisions and stop second-guessing them. Let the housing policy for Norfolk, which will so much shape the county in future, be determined by people living in and representing what is still the finest county in Britain.
12.42 pm
The Parliamentary Under-Secretary of State for the Environment, Transport and the Regions (Mr. Chris Mullin): As the hon. Member for North Norfolk (Mr. Prior) rightly said, this is a very timely debate. He has raised important issues and represents a beautiful area of the country. I greatly sympathise with much of what he said; indeed, much of it is Government policy.
It always cheers me up to hear a Tory Member calling for more public spending on social housing. I gently point out—I do so only gently because he made a very moderate and sensible speech—that the problems that he described are in part a consequence of the social and economic policies pursued by successive Conservative Administrations, whom perhaps he and certainly many of his friends still support.
If you deliberately set out over a long period to redistribute wealth from the less fortunate to the fortunate, you are not entitled to be surprised when you find that some people can afford two houses and many cannot afford one. If you enthusiastically promote the sale of council housing—in Norfolk, a huge part of the housing stock has been sold in the past 15 or 20 years—and at the same time discourage the building of any more, you are not entitled to be surprised that there comes a day when many people can no longer afford to live in some of the more attractive areas of the country. That of course has implications for the provision of services—
Mr. Deputy Speaker (Mr. John McWilliam): Order. I have never promoted the sale of council housing, particularly in Norfolk. When the hon. Member uses the word "you", he refers to me.
Mr. Mullin: I certainly would never suggest that, Mr. Deputy Speaker, although I recall—I am sure that it is within your recollection—when we had four successive Governments who did so. All I am doing is gently pointing out that that policy had advantages and that it is no part of the present Government's policy to reverse it. Indeed, the genie is out of the bottle; it is impossible to reverse. However, there were consequences, and the hon. Gentleman referred to some of them.
The hon. Gentleman raised three issues. The first was about the policy of predict and provide, which is no more appropriate to housing than it is to motorways, and of which my right hon. Friend the Deputy Prime Minister formally announced the death yesterday—although I think that it died some years ago. Secondly, the hon. Gentleman mentioned the shortage of affordable housing in Norfolk. Thirdly, he touched on the possibility of increasing the council tax on second homes.
Yesterday, my right hon. Friend set out the Government's position on predict and provide. We are abandoning it in favour of a more flexible and

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sustainable approach which takes account of a range of factors, including demographics, the capacity of the region to absorb growth and the impact of our policies on urban renaissance. We shall regularly monitor the indicators of housing provision instead of setting a target that will apply over 20 years. We shall monitor the market and demand for affordable housing and review the situation in order to adjust provision if indicators show that more or less housing is needed.
The new planning policy guidance note sets out the key elements of the Government's policy, which encourages greater choice for different sizes of household, greater affordability and more mixed development. It encourages the less profligate use of land—we have seen some very profligate use of land in many modern housing developments—and of course the use of brownfield sites before greenfield sites.
As the hon. Gentleman said, the national target for the use of brownfield land is 60 per cent., although there will obviously be local and regional variations. I understand his point that there is likely to be less brownfield land in his area of the country than in others, although substantial brownfield sites in Norwich, King's Lynn and Great Yarmouth are an obvious place to start. We are also anxious to see high-quality housing development and more imaginative thinking among planners and developers about designs and layouts.
That represents the most fundamental review of planning and housing for a generation, and sets what we hope will be a new, sustainable approach to planning, which demands the integration of planning, housing and transport, which is desirable, just as the hon. Gentleman said. I entirely agree with him.
On affordable housing, we are providing an additional £5 billion of resources in England over this Parliament to provide new social housing and to improve existing stock. That of course includes investing receipts from the sale of council housing, which the previous Government declined to do.
This matter is not just for the Government. Local planning authorities have an important part to play in increasing the provision of affordable housing. Unduly restrictive planning policy can drive up house prices and force more people to seek social housing, besides increasing the cost of providing it. Planning policy can also operate constructively to promote sustainable development by, for example, promoting re-use of derelict urban land and buildings, increasing housing densities and reducing the need for the use of the car.
Planning policy guidance note 3 recognises, however, that unmet need for affordable housing is a material planning consideration that may be taken into account in formulating development plan policies and in deciding planning applications. Planning authorities are encouraged to adopt policies that indicate targets for major sites and the intention to negotiate with developers the inclusion of affordable housing on sites above a given threshold.
Affordable housing policies may also be used to influence the mix of market housing, to ensure that more of it is in reach of people on modest incomes and to deliver housing for shared ownership or social letting. For the latter, Government guidance is that transfer of
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serviced land or completed houses to a registered social landlord is the best way to ensure that they remain available for social letting.
Norfolk county council obviously recognises such guidance. The county has recently adopted a structure plan, which says:
Where there are local jobs and services or adequate public transport is available, affordable housing for those in need may be provided by seeking a proportion of affordable housing in larger schemes; and exceptionally—
the hon. Gentleman referred to this—
granting planning permission for affordable housing on the edge of or within villages on land not otherwise identified for development.
The county and district councils may seek to build on such an approach in their local plan as it comes up for revision. The North Norfolk local plan already contains such policies, but the council needs to take account of the new framework set out in PPG3 when it comes to revise the local plan. However, I accept that the planning system can make only a limited contribution—initiatives are required from other parties, including landowners and developers.
For 2000–01, the county of Norfolk has been allocated £25.4 million for its housing investment programme, which is a 46 per cent. increase on the previous year. North Norfolk has had an increase of 61 per cent. Those are substantial increases. As I said, one of the reasons for the shortage of affordable housing is that so many council houses were sold off under the Conservatives.
On giving local authorities discretion to charge full council tax on second homes, there is a case for reviewing the 50 per cent. discount. That matter was considered as part of a general review of council tax in the local government White Paper published in 1998. The conclusion at that time was that, generally, council tax was working. There are no plans to make changes in this Parliament, but the hon. Gentleman's point has been raised by other hon. Members representing areas in which there are large numbers of holiday homes and we shall keep the matter under review.
Incidentally, it always makes me nervous when Tory Members of Parliament ask for tax increases because I know that, were the Government to do as the hon. Gentleman suggests, his right hon. and hon. Friends on the Front and Back Benches would jump up and down claiming that we had imposed another stealth tax. I hope that he has cleared his suggestion, which struck me as sensible, with the shadow Chancellor.
The hon. Member for North Norfolk made a sensible speech containing useful suggestions, many of which are contained in current Government policy. Many but not all of the problems that he describes are the consequences of social and economic policies pursued in the past by Governments whose members have, even now, not entirely repented of their ways. The Labour Government are doing their best to grapple with those consequences, but success will take some time. The genie is out of the bottle, but we are working on the problem and making progress.
Mr. Deputy Speaker: I call the hon. Member for Poplar and Canning Town (Mr. Fitzpatrick) to start the next debate.

Fire Safety
12.53 pm
Mr. Jim Fitzpatrick: You took me by surprise by calling me to start the debate early, Mr. Deputy Speaker. My apologies if I was slow to rise to my feet.
I should declare an interest in that I am a non-executive director of the Fire Protection Association, a not-for-profit organisation whose aim is to reduce the number of deaths and injuries and the huge costs incurred as a result of fire—an objective that I am sure all hon. Members share. I also helped to establish the all-party group on fire safety, of which I am co-chairman. In addition, I was a member of the London fire brigade for 23 years—for 13 as an operational firefighter, and for 10 on secondment as an official of the Fire Brigades Union. I can therefore claim to be familiar with the subject.
United Kingdom fire authorities, supported by the Home Office, the Department of the Environment, Transport and the Regions and many private sector partners, are successfully raising public awareness of the value of fitting smoke detectors in the home. In its report "Safe as Houses", which was published by the Home Office in November 1997, the national community fire safety centre made several key recommendations, central to which was the recommendation that the primary focus of the fire service be shifted from firefighting to fire prevention. The report also recommended that community fire safety should become a statutory duty and that the prevention work of brigades and the Home Office should be united under a single umbrella in terms of programmes and objectives. That is now happening.
Notwithstanding all that, fire statistics remain a cause for concern. In 1997—the latest year for which UK figures are available—723 people died in fires and 18,600 were injured as a result of fires. Previous figures are just as worrying: in 1994, there were 641 deaths and 17,000 injuries; in 1995, 736 deaths and more than 17,000 injuries; and in 1996, 709 deaths and more than 18,000 injuries. The majority of those deaths and injuries resulted from fire in the home, which accounts for more than 60 per cent. of all building fires and more than 75 per cent. of all casualties. Someone is three times more likely to die in a fire at home as they are anywhere else. Insurance claims arising from fires totalled £615 million in 1994, £700 million in 1995, £707 million in 1996 and £739 million in 1997. Those figures do not take account of the many fires that occur in uninsured buildings. The latest total estimated cost of fire to the UK economy is £4 billion.
Fire is indiscriminate about where it strikes, as the tragic deaths of the late Member for Romsey and his wife show. Thirty per cent. of those who die in fires are over 65—the hon. Gentleman fitted that profile. However, those most at risk from fire are the less fortunate members of our society—those at the bottom end of the social scale: the very young or old, those who are physically or mentally incapacitated and who cannot help themselves, and those who are under the influence of drink or drugs account for more than 50 per cent. of all fire casualties. The politics of fire mean that people at the bottom end of the social scale are more
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likely to suffer injury or worse by fire than the more fortunate. As in health and education, it is possible to buy one's way out: double glazing and good insulation are far safer than paraffin heaters, poor wiring and candles.
A category of building that would benefit greatly from the introduction of residential fire sprinklers is houses in multiple occupation—HMOs. That category encompasses bedsits, shared housing, households with lodgers, purpose-built HMOs, hostels, guest and boarding houses, bed and breakfasts and self-contained converted flats. In the UK, 6.25 per cent. of the population live in HMOs, but statistics reveal that 28 per cent. of all fire deaths and 36 per cent. of all fire injuries occur in HMOs. In real terms, those percentages translate as 227 people dying and 6,240 being injured by fire each year in HMOs.
I welcome the announcement by the Home Office of the setting of targets for raising public awareness of fire safety and for reducing the number of fire deaths in residential buildings by 20 per cent. by the end of 2003. However, some would say that we should be more ambitious. The efforts of many individuals and organisations to reduce the number of fires should be applauded: those include the lobby for a fire safety Bill, the new national fire safety forum and the national smoke detector campaign. I have already mentioned the work throughout the country of the national community fire safety centre, which the Government have backed to the tune of £13 million to £14 million.
A less well-known but equally valuable tool in reducing the number of casualties and fire costs is the residential fire sprinkler. Although sprinkler systems have been installed in commercial properties for many years—the first being installed in the Theatre Royal, Drury lane in 1812—residential sprinklers are a relatively new concept in the United Kingdom.
Results from trials in the United States are encouraging. A large number of American towns and cities now require sprinklers to be fitted in new residential properties. The US Senate is considering a Bill promoting the installation of sprinklers in public and private college and university housing and dormitories.
In Scottsdale, Arizona, for example, all residential properties must have sprinklers fitted. Over a 10-year period there have been no fire deaths. During the same period, injury and property damage have been reduced by more than 80 per cent. In addition, there has been a 95 per cent. reduction in water usage for fire control.
Available figures also show that in the UK there is not one recorded case of multiple death by fire in buildings protected by sprinklers.
Recently I was fortunate enough to be invited by the Wiltshire fire brigade to view a demonstration of a domestic sprinkler installation at Westlea fire station. I understand that Ministers and local Members of Parliament have had the opportunity to witness similar demonstrations. I have also seen the video available from the Wiltshire fire authority, showing the comparison between a sprinkler-protected and a non-protected property. I shall return to that shortly. The installation at Westlea fire station has been in operation since 1990 and has been visited by hundreds of people. To date, not one demonstration has failed.

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On the same day, I visited a project in Studley Green, an estate in Trowbridge, Wiltshire. Studley Green was considered a sink estate, with all the social difficulties associated with large, rundown estates. There had been many costly fires there and I was told that the estate was well known to the local fire brigade.
I should make special reference to the chief fire officer of Wiltshire, Mr. John Craig, who has been actively pursuing the case for residential sprinklers for the past 10 years and is making significant progress. In 1998, Mr. Craig, who is also a member of the Residential Sprinkler Association, became aware that 212 homes were to be demolished and rebuilt on the estate. With his knowledge of the American trials, Mr. Craig suggested that the rebuilt homes should be fitted with sprinklers. Agreement was reached with the appropriate bodies—McAlpine, the builders, the local housing association and the local fire authority—which recognised that that was the first step in developing the first sprinkler-protected major housing estate in Europe.
The tenants on the estate were consulted about the project at an early stage. The proposals were met with initial scepticism and hostility because of widespread misconceptions about sprinklers. Local residents were therefore invited to witness the test that I mentioned earlier, in which two identical properties with the same furnishings inside were set alight, and the local fire brigade was notionally called.
After seven minutes, one of the properties was a torch: wind had got into the front room and the entire building was ablaze. Not surprisingly, that was the nonsprinkler-protected property. In the sprinkler-protected property, the fire was contained in one room and was extinguished when the fire service notionally turned up. The hostility and scepticism of the local residents entirely evaporated.
The hostility is simply explained by the misconceptions regarding sprinklers. People think that they will have to put up with unsightly pipework and obtrusive sprinkler heads, like those that they see in buildings such as multi-storey car parks. In reality, domestic installations have no visible pipework or sprinkler heads. The heads are installed in a fitting no larger than the average ceiling rose.
People fear that the system will be activated accidentally by cigarette smoke or burning toast, but sprinklers are activated only by high temperatures. Accidental activation does not happen. It is commonly believed that, in the event of fire, the sprinklers throughout the building are activated, causing huge amounts of water to flood the household. In fact, sprinklers use between one 25th and one 100th of the amount of water used by a single fire brigade hose. Only the sprinkler head situated directly over the fire would be activated, not the entire system.
When fire broke out at the Queen's residence at Windsor, a Minister in the previous Administration was quoted anecdotally as saying, "Thank goodness the property was not sprinklered." In fact, had sprinklers been installed, the fire would have been contained within the single area of Windsor where it started until the fire brigade arrived, and we would not have lost so many national treasures.
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Installation work in Studley Green is well under way, and the tenants in the protected buildings are expressing great confidence in the system. From being seen as a group of people near the bottom of the social scale, they now see themselves as being valued, because their safety is being taken seriously, and also because of the attention that the project is receiving. A commonly expressed view is that the residents now have peace of mind with regard to fire safety.
I met two of the residents. One was a lone parent with three kids, and the other was the parent of a child who was a fire-raiser. The parent of the three children told me that she slept in her bed easily. Had the building been protected by a smoke detector, her fear was that she would have had to choose which of her three children she would rescue if a fire broke out in the middle of the night. She now knows that every room in the house is protected, and that all her children can sleep in safety.
In the other family, the child had a record of arson, having burned down his previous home and damaged one of the local schools. The parents used to go round the house every night confiscating all items that could have led to combustion —matches, lighters and so on. They still do that, but they know that if the child manages to find such an item and continues in his dangerous habits, he and their home will be protected.
Despite residents' initial reservations about sprinkler installation, they are now convinced of the benefits. On a private estate being built next door, new residents are asking why their homes are not protected in the same way.
I ask the Minister to consider several points. Should the Government do more to promote the installation of residential sprinklers on target estates as part of regeneration schemes, with encouragement being available, for example, through the Housing Corporation, by way of grants to housing associations, particularly where there is a history of fires? In my area, there was a fatality only 36 hours ago, which is being investigated.
What progress is being made in the award of a British standard for residential sprinklers? That would be valued by the industry as demonstrating recognition, and would ensure that, across the country, when people install residential sprinklers, they are buying a product that has been tested to the appropriate standard.
Should the building regulations in due course require the installation of residential sprinklers for new build and regeneration schemes? The cost in the new build in Wiltshire is £1,000 per dwelling on average. The benefits are priceless. The cost of a retrospectively fitted system is about £1,500.
In conclusion, I shall quote from the paper presented by Chief Fire Officer Craig to this week's local government conference in Southampton. Referring to the first life saved by a residential sprinkler system in the UK, Mr. Craig reported:
It only recently came to light that the first activation of a domestic sprinkler system in the UK happened at Piddletrenthide Vicarage in Dorset in June 1997. The vicar's three year old son was playing with matches and set fire to a dog's bed. The bedding was filled with plastic granules. The sprinkler system operated faultlessly and quickly extinguished the fire in the utility room, raising the alarm automatically at the same time.
The family were at the bottom of the garden at the time, and took a moment to get back to the house.

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Mr. Craig continued:
The child was wet but unharmed and his father has stated that he thinks it possible that the boy could have died or, at least, suffered injury, but for the effectiveness of the sprinklers. Damage to the room was very slight. There was no damage to the rest of the house.
I congratulate the Residential Sprinkler Association and Sir George Pigot, and the British Automatic Sprinkler Association and its secretary, Bernadette, on promoting a cause that I believe will be part of the future of fire safety. We are making progress in developing safer homes. I know that the Minister is personally responsible for much of the regeneration of estates that have been neglected for decades, particularly in constituencies such as mine. Residential sprinklers are a tool for the future, and I would welcome any encouragement that the Government can give to promote them.
1.10 pm
The Minister for Housing and Planning (Mr. Nick Raynsford): I congratulate my hon. Friend the Member for Poplar and Canning Town (Mr. Fitzpatrick) on securing the debate and on the way in which he introduced the subject. He has considerable expertise and practical experience based on many years of working in the cause of firefighting, and he introduced the debate in an exemplary manner.
My hon. Friend has given me pause for thought. His historical anecdote about the first recorded installation of a sprinkler in the Theatre Royal, Drury lane in 1812 made me reflect that if the Muscovites had been slightly quicker off the mark and up to speed, the course of world history would have changed and Moscow would not have burned when Napoleon reached it in that same year. However, such speculation will not yield practical consequences, and I shall revert immediately to the subject of our debate.
I am concerned about the number of deaths and injuries that occur each year in fires in residential accommodation. It is a serious matter, and it is important to learn lessons from fires that have occurred and to take all reasonable steps to prevent loss of life and injuries through fires.
The Department has a contract with the fire research station, which is part of the Building Research Establishment, to investigate fires in buildings, including residential accommodation, that could have implications for building regulations, to which my hon. Friend referred.
The contract with the fire research station enables us to consider amendments to the building regulations that could have a bearing on life safety. My hon. Friend knows that building regulations are made primarily to ensure the health and safety of people in and around buildings; they do not cover property protection. My hon. Friend rightly focused his remarks on the safety of people.
Guidance that will tend to satisfy the fire aspects of the building regulations is given in approved document B on fire safety. The guidance aims to ensure that buildings are as safe as can be reasonably expected while giving designers as much flexibility as possible. As my hon. Friend knows, a revised edition of approved document B was published at the beginning of this year. It will come into force on 1 July.
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The 2000 edition of approved document B was produced after widespread consultation and with extensive input from many people, including a working party of the Building Regulations Advisory Committee. As with any amendments to regulations, the cost implications have to be calculated, and they are documented in a regulatory impact assessment.
We have progressed a long way with many life-safety issues through the 2000 edition of approved document B. For example, the latest edition suggests that all single-storey retail buildings with a floor area of 2,000 sq m or more must be provided with a sprinkler installation. It replaces current guidance, in the 1992 edition of the approved document, which suggests that a building can be of unlimited size without sprinklers being fitted. Our decision to amend the guidance was taken in response to representations from many hon. Members, including my hon. Friend the Member for Poplar and Canning Town. It has been warmly welcomed by those concerned with safety and the risks of fire in such structures.
It was suggested that smoke alarms, which are essential for giving early warning of fire, should be provided in new dwellings. That proposal was incorporated in the 1992 edition of approved documents. We have considerably strengthened that guidance in the 2000 edition to include the provision of smoke alarms in loft conversions in existing two-storey houses. The guidance has also been extended to cover most other non-domestic buildings. We have also updated the guidance so that it falls in line with the relevant British standards on smoke alarms.
Early warning of fire in domestic properties is an important life-safety feature, which should enable people to escape from a fire before it escalates into a threat to life. By giving guidance on smoke alarms in approved document B for dwellings and other buildings, we fully acknowledge the need to take account of life safety.
My hon. Friend referred to the Studley Green project, which had already been drawn to my attention. I know about the residential sprinkler installation project that is taking place in Studley Green in Trowbridge in Wiltshire. I understand that 212 new houses are being fitted with sprinklers. I fully support the initiative and I look forward to seeing the evidence of the outcome of the installations and any reports that may be produced as a consequence of the project. I noted my hon. Friend's comments on his visit and experience. I hope to hear many more reports and to draw the necessary conclusions.
I fully understand that more widespread installation of sprinklers in domestic property could be beneficial to safety and property protection. Although we currently have no plans to include in the building regulations the provision of sprinkler installations in residential or domestic buildings, I am aware of the growing support for the use of such systems in higher-risk residential properties, such as houses in multiple occupation, to which my hon. Friend referred. We intend to consider that in future.

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As with the provision of sprinklers in large single-storey retail buildings, any decision would need to take full account of a range of views and expert advice; it would also require a regulatory impact assessment. In the meantime, the Department has informally supported domestic sprinkler installations when they are considered necessary as a compensatory feature.
Sometimes the normal fire safety recommendations, especially on alterations and extensions, that approved document B provides cannot be effected in older or listed buildings. Such circumstances can arise, for example, when a loft conversion is made to a two-storey house and a protected stair cannot be provided in accordance with the guidance in approved document B. That usually arises because the existing stair leads to a ground floor living room, which is too small to accommodate a protected route to the final exit door. In the case of listed buildings, considerations of heritage and the preservation of historic buildings militate against such provisions. In such cases, Department officials suggest that the provision of a domestic sprinkler installation on the ground floor of the property may be a solution. I support that pragmatic approach.
Sprinkler installations are a useful compensatory feature in residential accommodation such as nursing homes, where the more usual passive fire precautions such as fire separation and compartmentalisation cannot be provided.
I have already referred to HMOs, and I accept that they represent a high fire safety risk. Often, that unfortunately reflects the occupancy profile that is associated with such properties. As my hon. Friend knows, fire is only one of many hazards in such accommodation where tenants are often exposed to a variety of problems that relate to the poor quality of the accommodation and, often, the management. The Government are therefore committed to introducing a
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mandatory licensing scheme for all HMOs. The Department also commissioned a report on fire risks in HMOs. That report recommends that the provision of sprinkler installations in HMOs should be considered. We are carefully considering that recommendation.
My hon. Friend referred to British standards. There is no British standard for domestic sprinkler systems. The Department and the Home Office have been considering the matter and working closely with the British Standards Institution to produce such a standard. The standard is being developed in two parts.
The first part deals with sprinkler systems for residential occupancies. It will make recommendations on the design, installation, components, water supplies, commissioning, maintenance and testing of fire sprinkler systems that are installed for life-safety purposes, with obvious additional benefits for property protection. The first part is due to be published in draft next month.
The second part covers components, including sprinkler heads, test methods and the specification for residential and domestic sprinklers. I understand that work on the drafting has begun and, following a proper consultation, I hope that both parts will become full British standards in due course.
I hope that my hon. Friend appreciates from my remarks that we fully recognise the importance of fire safety in all buildings, including domestic and residential properties. We have recently issued a revised edition of approved document B, and draft British standards will be published shortly. We are preparing arrangements for a mandatory licensing scheme for HMOs and I can assure my hon. Friend that the merits of residential sprinkler installations will be a proper subject for consideration in future revisions of the building regulations.
1.20 pm
Sitting suspended.

Pathology Services
1.30 pm
Mr. Mark Oaten: I am pleased to have a chance to revisit the issue of the quality of the working conditions for staff in pathology departments throughout the country. I acknowledge that the Minister has already responded to this issue. I am pleased that my hon. Friend the Member for Twickenham (Dr. Cable) last year raised concerns about work in this field. My aim is not to repeat those points, but to raise issues that have come up since then, and to urge the Minister to act swiftly and decisively.
Mr. Deputy Speaker (Mr. John McWilliam): Order. I am sorry, but I think that the Minister has an adviser sitting beside him.
The Minister of State, Department of Health (Mr. John Denham): No, he is my parliamentary private secretary.
Mr. Deputy Speaker: I beg your pardon.
Mr. Oaten: I am delighted that there are more than two people in the Chamber. It is welcome to see the Minister's parliamentary private secretary in his place.
I am seeking from the Minister an update on conditions for pathology staff, and some decisive remarks about the timing and the process for improving their working conditions. It is encouraging that there has been cross-party support on this issue. I was pleased yesterday to sign the early-day motion proposed by the hon. Member for Erith and Thamesmead (Mr. Austin), which notes that NHS scientific staff have received pay increases less than those awarded to comparable staff covered by the pay review body.
My personal involvement in this issue followed my visit a couple of weeks ago to the pathology department at the Royal Hampshire County hospital in my constituency. I confess that I went there with some trepidation. I usually pass out at the sight of blood, so the prospect of being shown lots of test tubes filled me with some dread. It was a squeamish experience, but I got over it by listening to staff and watching them perform their high-quality work.
During my visit, I met many of the pathology staff at all levels. My local Echo newspaper was right to describe them as
the hidden army of the NHS.
Laboratory scientists work behind the scenes, and are regarded as backroom men and women whose work in pathology saves lives.
A common public perception of pathology is that it is about post mortems and cutting up bodies. Endless television programmes reinforce that view. But pathology provides many vital services for the living—it is not just about examining why people have died. It is the branch of medicine concerned with the cause, origin and nature of disease. We need only cast our minds back to the recent flu outbreak to realise the pressure that those departments can be under and the importance of their work. The pressure is enormous.
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In the Royal Hampshire hospital, 22,000 tests are carried out each week. I understand that that is typical of hospitals of a similar size throughout the country. Through such tests, biochemical scientists are able to diagnose hundreds of conditions, including life-threatening illnesses such as cancer, meningitis and, sadly, HIV. Figures suggest that demand for their services is on the increase. In the Royal Hampshire, the work load has increased by 60 per cent. in the past 10 years. Other hospitals have experienced similar increases.
Against that backdrop of an enormous throughput of tests and the massive rise in demand for pathology services, the NHS owes a tremendous debt to staff who work under these conditions and whose pay has not increased to reflect their increased work load.
During my visit to the Royal Hampshire hospital I spoke to science graduate Alex Walster, aged 22. He is one of three scientific officers who are training in the pathology department. His salary falls short of £9,000, which is £2,000 less than the salary that he was earning a few weeks before he took up that job, when he was working in a chicken factory testing chicken for salmonella. I think that that is a tragic story. A graduate who wants to use his skills to benefit sick people and to cure illnesses earned more when he was diagnosing salmonella in chicken.
I heard from another trainee, Sarah Lowdon, aged 23, who is suffering similar hardship. Sarah showed me a petri dish and told me that she was called out at 3 am to diagnose meningitis in the blood. That same evening, she went to work in a bar, which she must do to supplement her income. She received a call-out fee of £13 to do that test, which helped to save a child's life by monitoring the meningitis. She works four hours in the pub in the evening and earns the same money. She looked exhausted. I assumed that that was because of the pressure of work, but it was because she has to work in a bar most evenings to supplement her income.
I represent a constituency where accommodation is unaffordable for people on such low salaries. Even with the extra income that Sarah earns from her bar work, she cannot afford to live in Winchester near her place of work. She must commute daily from Portsmouth, which adds to the length of her working day. That problem was also experienced by the third trainee to whom I spoke, who could not keep up the costs of shared accommodation in Winchester. Not long after he started work at the hospital, he was forced to move back home with his parents, and now faces a 40-mile daily journey to work.
I should like to remind the Minister that in his response to the debate that took place in December, he touched on the question of salaries for trainee biomedical scientists. He said that they had been offered a 26 per cent. pay rise. It was welcome that the Government had recognised that they needed to support trainees at the lower end of the salary scale. Will he comment on the claim by the Institute of Biomedical Science that the 26 per cent. increase affects no more than 100 trainees out of a total work force of some 22,000? Even with that 26 per cent. increase, trainees still earn less than £9,500. Although welcome, the increase has not gone far enough and has not been broad enough to have made the difference that I am sure the Government intended.

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We are all aware of the debate about the quality of pay for NHS staff. It is easy for Opposition Members to argue that more money should be thrown at the problem. In this case, however, biochemical scientists have, for the past 20 years, received lower rises than other NHS staff. Like my constituents, many of them rely on overtime payments and have to work 50 hours a week to supplement their salaries.
I am sure that the Minister will remind me that through the "working together" programme, the Government are rightly reviewing the pay system in consultation with the Manufacturing, Science and Finance trade union. That process is expected to produce an agreed package later this year. I hope that the Minister will give more details on the timing of that, and tell us how those negotiations are going.
Although that review is welcome, it is odd that other professional staff in the NHS have already had their pay reviews completed in advance of the "working together" programme. Why is it proving so difficult for this particular group of individuals? It is making morale in the profession much worse.
Ultimately, if these issues are not tackled patients will suffer. If hospitals cannot recruit and retain suitable trained staff, there will be a knock-on effect on the throughput of work, which will not be delivered effectively. Indeed, alarming new evidence clearly shows that NHS trust laboratories are already experiencing recruitment and retention problems.
Research published in January by the Institute of Biomedical Science found that 88 per cent. of all trust laboratories were understaffed, and 66 per cent. had unfilled vacancies. There was a large shortfall in staff throughout the country, and 97 per cent. of respondents to the survey said that pay levels were the key to recruitment difficulties. When interviewed, 61 per cent. of individuals who had left jobs in pathology in the health service said that low pay was their reason for leaving.
My hospital is lucky that it has suitable trainees who are prepared to suffer financial hardship to pursue what they regard as a worthwhile career. Other hospitals are not so lucky. There are similar recruitment problems at higher levels of pathology. A recent national advertisement issued by my hospital for the position of area manager received just three applications. A potential applicant from Swindon was put off applying by local house prices. The successful candidate from Worksop turned the job down because she could not afford the price of accommodation. I know that the Government have recognised that problem through London weighting allowances, but could the Minister comment on some of the difficulties that regions outside London have with high prices?
Seven years ago, a study of pathology services by the Audit Commission concluded that improved communication was needed between those working in pathology and health managers, and recent research suggests that the problem still exists. About half the trusts that responded to the survey believed that biomedical scientist recruitment and retention problems were not being recognised by human resources directors. Even fewer thought that their problems were
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being recognised by trust chief executives, and only 10 per cent. of those working in pathology believed that their local authorities understood their difficulties.
Perhaps the most worrying conclusion of the research was that 76 per cent. of NHS trusts were using inappropriate staff groups to cover biomedical scientist duties. I have heard alarming suggestions that in some hospitals pathology departments are close to being run by agency staff. I fear that, as work load pressures increase in laboratories, the number of mistakes will also increase as staff members are continually chopped and changed and, owing to recruitment difficulties, agency staff are brought in.
It is time that pathology staff were fully recognised and rewarded for their major contribution to patient care. It is wrong to pass off well-qualified, dedicated young people as trainees, on salaries of less than £10,000 a year. It is wrong for people who are responsible for diagnosing life-threatening illnesses, and who work exhausting hours, to be forced to take second jobs.
The issue of the welfare of biomedical scientists in the NHS has been ducked for far too long. I hope that the Minister will refer specifically to the pay and conditions of biomedical scientists, rather than just to broader NHS salaries, and will give a clear indication that the Government value the contribution of those working in what I fear is increasingly becoming a Cinderella service.
1.42 pm
The Minister of State, Department of Health (Mr. John Denham): I congratulate the hon. Member for Winchester (Mr. Oaten) on securing the debate, which gives me an opportunity to stress the importance of NHS pathology, to speak of the improvements that we are making in staff pay and conditions, and to draw attention to the excellent services provided by pathologists and laboratories.
Pathology services play an integral part in effective NHS treatment, the diagnosis of illness and the early detection of disease, the provision of evidence-based care and the protection of public health. The quality of the service is paramount, and we are taking wide-ranging action to ensure that the performance of laboratories meets national standards. Since December 1997, quality assurance measures have been strengthened and most laboratories have succeeded in obtaining accreditation. That is a testament to the hard work and commitment of the staff involved.
Nevertheless, laboratory performance is kept under close review. Pathology services are not perfect, and there will always be particular elements that need attention. In the very few cases in which concern has been expressed about a laboratory's performance, swift action has been and will continue to be taken.
Quality in pathology services is maintained at three levels: by laboratory accreditation, by state registration of staff, and by the underpinning of education and training programmes. The accreditation procedure is part of an overall quality assurance programme, and shows that a laboratory is operating according to defined standards of practice that have been independently confirmed. The application process itself entails exacting work on the part of the laboratory, and requires it to examine a number of aspects of its operation ranging from health and safety to staffing. As

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a result of engaging in the process, laboratories gain detailed knowledge of their strengths and weaknesses, and can begin to address the weaknesses. The hon. Gentleman will be pleased to know that the pathology service at Royal Hampshire County hospital is fully accredited in all six areas of pathology: microbiology, histology, haematology, biology, immunology and public health.
We are not complacent, however. We are determined to modernise the NHS as a whole, and pathology is no exception. Successive reviews of pathology services conducted over the past 10 years by the Audit Commission and the NHS executive have identified a long-standing need for us to reconfigure and invest in pathology provision in England. We are acting on those reviews; we want to reconfigure the service, improve quality and efficiency and meet the changing demands of a modern NHS.
Last year, we embarked on a long-term pathology modernisation programme, overseen by an independent steering group representing a broad range of professional expertise, in order to ensure that developments are in tune with the many diverse facets of the NHS pathology service. To launch the programme and to put in train exemplar initiatives, we allocated £5 million of capital in the current financial year for pathology modernisation projects. We have identified five areas requiring modernisation: the needs of inner cities, the needs of isolated rural areas, the need for innovation in pathology provision, the role of information management technology and the need for modest modernisation initiatives. We intend to allocate a further £15 million in the next financial year to enable larger rationalisation to take place.
I hope that the hon. Gentleman finds that information useful as a context, reinforcing our central commitment to quality and our measures to bring about accreditation and investment. Recent media concern about staffing levels will have undoubtedly led to public concern about the quality of services. We should also bear in mind what is currently available, so that public confidence is not damaged.
One report was alleged—not, of course, by its authors, but by its interpreters—to show that unqualified staff were conducting laboratory tests. That allegation is entirely untrue, and we considered it serious enough to issue a statement jointly with the Institute of Biomedical Science refuting it. A corresponding statement was made by Clinical Pathology Accreditation UK Ltd, refuting allegations that clerical staff were playing a role in reading and interpreting test results. It confirmed that NHS laboratories provide a high-quality service—indeed, I think that it said "second to none".
It is true that, at present, laboratories contain a number of support staff who are trained in-house to carry out a number of tasks under the supervision of qualified staff, but quality services can be provided only by quality staff, and work must be "signed or by them. There is a range of skilled staff: clinical and biomedical scientists—also called medical laboratory scientific officers, or MLSOs—and medical laboratory technical and support staff.
For the first time since the foundation of the NHS, our national service frameworks to deal with, for instance, coronary heart disease—in the case of one
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launched this week—and mental illness provide standards against which we can marry service, resource and staff planning. Pathology will play a crucial part in the work of the frameworks. We are determined to ensure that those three elements come together, so that we can make certain that the right pathology staff and services are in place to support the frameworks.
I agree with the hon. Gentleman that the issue of pay is important. Current pay for clinical scientists ranges from £13,000 to £54,000, and for biomedical scientists from £7,400 to £32,000. Our pay offer for the current financial year—now included in the offer of a three-year deal—seeks to address the problem of low pay at the bottom end of the biomedical scientists' scale by raising the salary to £9,400. That is an increase of 26 per cent.
All scientists have been offered at least 3 per cent., which is considerably higher than the rate of inflation. About half of all biomedical scientists—some 6,000, in the lowest grades—have been offered 7 per cent. to deal with special recruitment problems. Trainee biomedical scientists have been offered an enhanced deal as well. There are about 1,000, and, as the hon. Gentleman said, some 100 have been offered 26 per cent. The rest have been offered increases ranging from nearly 7 per cent. to 22 per cent. through a restructuring of their pay scale. That is a fair offer in current circumstances. We set out to target funds where the need was demonstrably greatest—in recruitment and retention. That is a bigger problem with some staff groups than others.
Last year, we carried out a survey of NHS staff vacancies in all staff groups. About 98 per cent. of people responded. It found that, across the board, pathology staff were in a relatively healthy position compared with other disciplines, and showed that hardto-fill vacancies—those lasting more than three months—accounted for only 0.9 per cent. of vacancies across the discipline as a whole. However, there is a problem in recruiting staff at the bottom end of the biomedical scientist scale. We recognised that and have offered larger increases to staff at that end of the profession. That means that some pathology staff will receive more than review body staff: biomedical scientists will receive up to 7 per cent., and trainees up to 26 per cent., which compares favourably with the 4.7 per cent. that was awarded to many, although not all, nurses.
Local employers already have some flexibility within the existing national Whitley system to offer pay rates that are attractive enough to get staff with the skills that are needed. There is, for example, the provision within Whitley to restructure on-call and call-out payments to suit local service organisations. That action has been taken by NHS employers, including those at Winchester and Eastleigh Healthcare NHS trust, to pay staff more attractively to ensure key services are provided when they are needed.
At Winchester, that means that staff working in biochemistry and haematology may have their annual pay increased by £3,744 for providing on-call services twice a month. I am informed that the extra increase is paid to 13 out of the 15 biomedical scientists at Winchester who work in biochemistry and haematology. Having said that, as the hon. Gentleman rightly said, the current pay system is out of date and in need of review. That is why, last year, we published "Agenda for Change", which gives detailed proposals

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for modernising the way in which the NHS rewards its staff. We want a new system based on efficiency, fairness, flexibility and partnership.
To free the time to design that new system properly, among other reasons, we have made a pay offer well ahead of inflation for 1999 to 2002. Our intention is to give staff security about their pay over that period while we continue to negotiate a new pay system that will give all staff better career progression, will give them fairer rewards for taking on extended roles, and will widen their skills and encourage people to work in teams. We want the new pay system to deliver modern conditions of service and to provide a fair basis for pay rises in the security of a national pay system.
Modernising the pay system is one of our key priorities. It will be fair for staff, but, critically, also help to deliver new patient-centred services that both the Government and staff want. Our discussions have been constructive and positive. We recognise that, for various reasons, some smaller groups of highly qualified health professionals are outside the remit of the Nurses and Midwives Pay Review Body. Talks are under way with staff and employer representatives around "Agenda for Change." Those will include discussion on whether any new groups should come under the pay review body. It is not intended to change in any way the fundamentally professional coverage of the body.
I understand why the hon. Gentleman wants further information about where and when decisions and announcements will be made. As I have said to the hon. Member for Twickenham (Dr. Cable), it is too early to comment on proposals for specific staff groups. The negotiations are being dealt with as a package—as a whole. However, I am confident that pay modernisation will bring benefits to all NHS staff, whether or not they are covered by a review body.
Consultations and discussions are going ahead. They are constructive and useful. The MSF union—I declare an interest as I am a member—is, I am pleased to say, playing an important and major part in the talks and ensuring that scientists' views are well represented. The hon. Gentleman asked about time scales. I like to feel
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that, if our negotiations are successful, we could have a fully agreed package by the summer, with implementation starting next spring, but clearly that depends on the progress of the negotiations.
To get the work force we need in pathology, as elsewhere, we need to attract the right calibre of staff to employment. When we do, we need to ensure that we can keep them. Our wider human resources "working together" programme concentrates on providing a better human resources framework for the whole work force. That includes scientists and technicians. They are not one of the largest staff groups, but they are vital, as the hon. Gentleman said, to a first-class health care system. That means looking at issues such as flexible working patterns, flexible working life and staff participation.
We will target recruitment and retention at wider groups of staff. For understandable reasons, to date the more visible focus of recruitment and retention work has been on larger staff groups such as nurses, but the new recruitment and retention unit has met leading members of the scientist professional organisations and is working with them and NHS employers to draw together a new strategy to raise the profile of the work of scientists and technicians in the NHS. That will publicise the work and career prospects available. It will help to underpin effective national recruitment activity, to promote return to practice and to ensure that there is modern, up-to-date careers advice. We have established an annual recruitment and retention survey, so that we always know that we have the right information on which to act.
Pathology services are too important for us to be complacent about the issues that have been raised by the hon. Gentleman. The basic pay of some biomedical scientists, including trainees, is low. Employers can and do supplement that in a variety of ways to attract quality staff. There is an offer on the table that would make a significant difference to some key groups of staff. What is key is to recognise that accreditation of NHS pathology laboratories is high both in quality and coverage. That provides safeguards for patient services.
Question put and agreed to.
Adjourned accordingly at three minutes to Two o'clock.