Westminster Hall Sitting of 19 December 2001

Preamble
[SIR MICHAEL LORD in the Chair]

Shipbuilding
Motion made, and Question proposed, That the sitting be now adjourned.—[Mrs. McGuire.]
9.30 am
John Robertson: Given that this country is an island, it may not be surprising to learn that shipbuilding has been one of our main industries for many centuries. This country built its standing through its naval strength and its merchant trade throughout the world. Although times have changed, ships are still a necessity in Britain and the world. Someone once said, "If you wish to see the future, then look at the past." If anyone does not understand that saying, it means that history has a way of repeating itself. In this case, I certainly hope that it is true. In today's debate, I want to consider the need for shipbuilding in general, why we in Britain need to build ships, the impact of current Government policy and the direction in which it should go.
Some hon. Members will consider shipbuilding from the perspective of their own part of the country, and with that in mind I shall use the Clyde as my main point of reference. At its peak, shipbuilding on the Clyde employed more than 100,000 men. During the end of the 19th century and the early 20th century, the yard constructed some of the world's largest ships. In 1879, it showed its skill in building transatlantic liners such as the Arizona. Two years later, it built the Alaska, followed by a host of other ocean-going vessels of the same brand. By 1914, it was fully integrated into the war effort, and was to build 50 warships, 24 destroyers and 9 submarines. Even during the inter-war years and the great depression, the yard remained an important part of Britain's economy. In the 1930s, it built 24 destroyers and a string of other vessels, and was to make a huge contribution to the war effort.
In modern times, the picture is rather different. As recently as 1960, nearly 200,000 workers were employed in British shipyards, but by 2000 that figure had declined to some 30,000. Before the first world war, the UK merchant fleet was the biggest in the world, accounting for 42 per cent. of the world's tonnage. By 1938, it accounted for 26 per cent., and rapid decline led to the building of only 1 million tonnes of commercial shipping in 1965. By 2000, that figure was down to 104,000 tonnes. The history of shipbuilding in Britain in the past century is therefore one of sad decline.
If one compares those statistics with worldwide figures, a rather disturbing picture begins to emerge. In 1995, Spain built 47 ships, but in 2000 it built 91. In 1995, the United States produced 26,000 gross tonnes of shipping, but in 1999 it produced a staggering 185,000 gross tonnes. Although it is true that countries other than the UK have also experienced decline, overall worldwide figures show a steady rise from more than 22.5 million gross tonnes in 1995, to 31.5 million gross tonnes in 2000.
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Although, as everyone in the industry knows, those figures do not take into account the problem of excess supply, we must recognise the fact that the industry is growing worldwide. A White Paper written by the shipbuilding forum in 1998 describes the UK industry as a
"small industrial sector consisting of 11 companies concentrating on niche markets for specialist and high value added ships, such as offshore oil exploration vessels, local ferries, dredgers and tugs."
In today's market, there is not much requirement for such work in Britain, but there are reasons for it. Various problems have led to a decline in the industry. In 1983, the then holding company British Shipbuilders was privatised under the British Shipbuilders Act 1983. Subsequent events in the industry saw the piecemeal sale of British Shipbuilders' individual assets. The privatisation of Scott Lithgow in 1984 was followed swiftly by the sale of other yards to the private sector. In July 1984, the then Secretary of State for Trade and Industry announced his decision that British Shipbuilders should dispose of those parts of the corporation engaged wholly or mainly in warship building. They included Vickers, Yarrows, Vosper Thornycroft, Hall Russell, Brooke Marine and the composite yards, Cammell Laird and Swan Hunter.
A big problem facing the warship yards in the early 1990s was a significant reduction in Ministry of Defence orders as part of the peace dividend and the collapse of the Soviet threat that had once been perceived. Companies sought to survive the new era. Cammell Laird, for example, responded by changing its status to a mixed yard to allow it to tender for non-naval work. It could therefore apply for European Union grants for aid to shipping. Two years later, however, its owner, VSEL, announced that it would not be seeking orders once the current ones had expired.
Who can tell, in an uncertain world, especially in the light of recent events, when we might need to use our naval forces? The problem is that we privatised but did not modernise. Our yards are in poor condition, which does not help them to seek new contracts. Let us look at the situation in Germany. Its yards are of good quality and, under EU regulations, it has applied for subsidy. That is to subsidise not the industry, but the yards, which has been crucial. Does the Minister agree that it is time for the UK to follow that example?
Because the yards in Germany are in better shape, it costs less per person to produce each tonne, and the process is quicker. Fewer people are needed, and Germany can undercut the UK in its bid for contracts. Arguably, the strength of the pound has also played a part in that. Joining the euro, and stabilising the comparative costs, would also help.
In October last year, the MOD ordered six vessels, worth £240 million in total. Two went to the Belfast shipyard Harland and Wolff but the other four went to Germany. I understand that the two ferries that went to Harland and Wolff are the only orders that it has on its books—a further example of the industry's sad decline. The Govan and Scotstoun shipyards missed out on the bid, and although they won an order to build two MOD ferries worth £150 million there were doubts about the Clyde's future.
At the time, concerns were expressed that, although Govan and Scotstoun had been handed something of a lifeline, the old problems remained about when the work

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would commence, and whether there was already sufficient work on the books to bridge the period until it did. As a result, last summer, 1,000 redundancies were announced just as the orders were awarded for the type 45 destroyers.
Another competitor, South Korea, is the world's largest shipbuilder with some 40 per cent. of the world market, compared with 29 per cent. in 1997. It has been suggested that South Korea has won orders at prices below production costs, by using funds from the International Monetary Fund. Although those allegations have been strongly denied, the EU has agreed that member states need to collect evidence of any anti-competitive behaviour. Can the Minister tell me what those investigations have achieved so far, or whether, as has been suggested, they have been swept under the table so as not to cause offence?
The UK must be in a position to compete on a level playing field, which, at the moment, is not the case. In March 2001, my hon. Friend the Minister for Employment and the Regions, then the Minister for Competitiveness said
"We are working closely with the shipbuilding industry to help it to improve its competitiveness"—[Official Report, Westminster Hall, 28 March 2001; Vol. 365, c. 321WH.]
In his reply, I would appreciate an update on that point so that I can ascertain the progress that has been made.
European shipbuilding regulations are important. In 1997, the Commission proposed refocusing aid for shipyards to improve competitiveness by moving away from operating aid towards other types of support. The measures include restructuring aid for structural adjustment, closure aid including aid to mitigate the social effects of shipyard closure, regional investment for upgrading existing yards—I suggest that the Minister looks at that—and investment aid for innovation and environmental protection.
Our shipbuilding industry, especially on the Clyde, is dependent on military orders. The Clyde was once the name in world shipbuilding, but after the latest job losses there are fewer than 3,000 workers in two yards. The loss of the roll on/roll off ships to the German yards was a body blow to shipbuilding, as they were for military use, but under EU rules they were classed as non-military vessels and were put out to tender both inside and outside Britain. We cannot compete with German yards because they are more efficient and competitive than ours. Would those orders have been lost if 1980s Governments had invested in yards instead of closing them? Although the Government have helped by placing orders for type 45 frigates and alternative landing ships logistics, the size of the industry is shrinking year by year on the Clyde.
My questions are open to all, but the Minister and the Government must answer them. Has the time come to subsidise our industry and break EU rules? Should we consider ring-fencing our shipbuilding? Should we copy the Germans and upgrade our yards? Should we accept the ultimate demise of the industry and buy from the cheapest market? What do other countries do? We must examine other European countries, America and Japan, which have all grasped the obvious advantages of subsidy and investment. Our failure to do so has left UK yards at a competitive disadvantage.
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How can we compete? Do we want to be at the mercy of market forces or shall we dictate what happens? Is it time to consider the industry as a whole and put together a policy for the 21st century? Skilled labour cannot be replaced because training takes years. If we lose shipbuilding's skilled workers the industry will not be resurrected. A decision must be made now, not later, on whether we want a shipbuilding industry. If we do, we must take control and support it by working in partnership with companies and the work force. We shall be able to compete only when we have modern equipment and the best-trained work force in situ as that would allow us to see how or whether shipbuilding works.
The alternative is to have no shipbuilding in Britain, which would mean the loss of an industry that once had tradition and pride. What price can be placed on the loss of our greatest heritage? We must look at the overall picture to ensure sustainability in the long term.
Mr. John Lyons: I am grateful to my hon. Friend for giving way. In terms of sustainability of the industry, does he agree that diversification is important? For example, sustainable energy and the wind farms will be important issues in the next 10 years. We currently import all wind farming equipment from Scandinavia. That could be an important consideration in terms of diversification.
John Robertson: I thank my hon. Friend for making a good point. He is right that we must examine diversification, but how can we provide financial support for that under European rules? I agree with my hon. Friend, but at the end of the day we still have to concentrate on shipbuilding.
We need to look at an overall picture to ensure sustainability in the long term. We also need to ensure that there is sufficient work available so that lifelines do not need to be thrown. We need to examine all the issues that lead to decline, as well as subsidy and financial support, training and productivity, the quality of our yards and future sustainability.
Shipbuilding has a proud history, but that does not mean that we do not need to apply modern practices to ensure its survival. In fact, not doing so could mean that there is no future for the industry at all. The costs to this country of losing the industry are manifold. The first, and perhaps most obvious relates to job losses, which I have already discussed. There is also the issue of national security if our naval vessels are built abroad. We do have a proud shipbuilding heritage and we need to keep it alive.
The Government are taking the issue seriously. The Ministry of Defence has said that the forward shipbuilding programme for the Royal Navy is going to be the largest for many years, reversing the decades of decline. There is a plan to bring 30 new ships into service over the next 15 to 20 years. These will include two large carriers, up to 12 type 45 destroyers and three new Astute class nuclear-powered submarines. The procurement programme also involves major enhancements to our naval support. In 2003 there will be two new multi-role survey vessels in service, and two new landing platform docks. What pleases me most is that the Ministry of Defence has said that these vessels will be built in the UK yards.

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Britain was once the master of the waves; we were the seafarers others aspired to be and the yardsticks by which others measured themselves. We have given up that leadership. Do we want to be just another buyer, or do we still have aspirations to lead by example? If we can resurrect the industry, and make it once again the envy of the world, then let us do it. If we cannot or will not, then it is time for the Government to say so.
9.47 am
Mr. Michael Weir: I congratulate the hon. Member for Glasgow, Anniesland (John Robertson) on securing this debate. It might surprise him that I agree with much of what he said.
It may seem strange to hon. Members that someone from a predominantly rural constituency is speaking in this debate. The biggest ship that was ever built in my constituency was a fishing boat, and it has been years since many of those were built. I would say in my defence that my grandfather worked in the shipyards in Dundee, when they existed. Nowadays, however, as the hon. Gentleman has pointed out, most of Scotland's shipbuilding is concentrated on the Clyde in the two yards in Govan and Scotstoun.
One of the problems affecting shipbuilding nowadays is an undeserved image problem. Many people seem to think that shipbuilding is what used to be referred to as a smokestack industry, something old-fashioned and out of time, a throwback to a lost industrial age. Indeed, in the not too distant past one Minister referred to it as a metal bashing industry.
I came across a good example of this recently. Members from the west of Scotland will know that there is a plan to develop the former John Brown yard in Clydebank for retail use. A newspaper report stated:
"The area has suffered in recent hard times as shipbuilding followed other manufacturing industries and gave in to recession, with several famous companies folding and giving way to acres of derelict space."
That speaks of shipbuilding almost in the past tense, but as the hon. Gentleman pointed out, nothing could be further from the truth. Shipbuilding is and should be very much a part of a modern high-tech industrial landscape. Indeed, it should have a bright future. The shipbuilding industry on the Clyde has problems with the modernisation of its yards, but it is a modern industry employing very highly skilled and flexible workers. Some 4,000 people are employed directly in Clyde shipbuilding and many more are dependent on it.
When we think of shipbuilding, we seem to see grainy old films of John Brown's and launching the Queens. However, in recent years the yards in Govan have built a prototype command ship for launching communications satellites into space and an oil drill test well vessel for drilling and processing oil on board. That is very much at the forefront of Scotland's high-tech economy, and shows that shipbuilding can move into the 21st century and be viable. However, it needs help from the Government, which is where Government policy comes in.
The shipbuilding industry, like many of Scotland's high-tech industries, is under threat. The recent announcement of the orders for type 45 destroyers and ALSLs was welcome, and it would be churlish not to say so. However, there are still to be redundancies at the
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yards at Govan and Scotstoun, the exact scale of which is not yet clear. It is also not entirely clear how much work is guaranteed to those yards. At the time of the announcement of the type 45 contract, it was stated that it would guarantee work for the next decade, but more recent estimates have given a shorter time scale. How do the Government envisage that current work on the Clyde will provide employment in the future?
We must ask ourselves why an efficient, high-tech industry with a skilled, flexible and dedicated work force is facing such difficulties. There are many reasons, as the hon. Member for Glasgow, Anniesland said. Some are under the control of the Government but, to be scrupulously fair, some are not. It is noteworthy that when Kvaerner announced its withdrawal from shipbuilding back in April, a spokesman stated that the strength of the pound had had
"a negative impact on our ability to be competitive".
That problem may become more widespread with the introduction of the euro into much of mainland Europe next month, and it will go far beyond shipbuilding. The Government must give serious consideration to the impact of the euro on our manufacturing industry.
When the Secretary of State for Defence announced the contract for type 45 destroyers earlier this year, he said
"The key point for our shipbuilding industry is that our shipbuilding companies should be given a platform from which they can properly invest and that—crucially for them—allows them to compete for the many orders that exist throughout the world."—[Official Report, 10 July 2001; Vol. 371, c. 678.]
In other words, our shipbuilding industry cannot rely on Government orders alone. As I understand it—the Minister will correct me if I am wrong—the Government can favour UK yards only if the order is predominantly military. As the hon. Member for Glasgow, Anniesland said, that creates problems where there is a mixed use for the ships that are being ordered—for example, ro-ro ferries.
Many shipbuilders in Scotland and other parts of the UK complain about the fact that they do not compete on a level playing field. I am sure that the Minister is aware that the global competition faced by other shipbuilders is often seen as unfair. For example, it has long been alleged that South Korea is illegally subsidising its shipbuilding industry using IMF loans and allowing yards to run at a loss. However, it seems to be difficult to substantiate that, so can the Minister tell us what progress has been made by the European Union in investigating the matter? It is of great concern for Govan, because it is part of a consortium bidding for an extremely valuable contract for ro-ro ferries and one of the other bidders proposes to build the ships in Korea.
Shipyards in Scotland do not have the ability to get such help. The shipbuilding intervention fund expired at the end of last year, and there is now, officially at least, no Government funding for shipyards available anywhere in the EU. Scottish shipyards are still at a disadvantage, as Germany was able to invest in shipyards in the former East Germany following reunification. That gave their shipyards a much more modern infrastructure by which to compete with Scottish and other UK yards. We are often told that the industry is held back, so it is essential that the European Union takes up the matter of Korea if Scottish and other European shipyards are not to be put in jeopardy.

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Like many other hon. Members, I have met representatives from Govan and Scotstoun during the past months and have been impressed that the shipbuilding workers have bent over backwards to ensure that yards remain viable and efficient. Clyde ships are renowned throughout the world, and have been for nearly two centuries, for being superbly built. There is still a future for that industry provided there is a level playing field, which is not asking too much for shipyard workers. If Government policy is anything it should be to work with the European Union to get rid of the perceived unfair practices operating in other nations so that everyone is on a level playing field. If that happens, the Clyde and other UK yards will get the orders and be able to survive as a high-tech industry into this century and beyond.
9.55 am
Mr. Frank Field: I congratulate my hon. Friend the Member for Glasgow, Anniesland (John Robertson) on winning time to talk about shipbuilding. He presented the subject so comprehensively that many of our speeches will be shorter than they would have been. However, that allows me to concentrate on the absence of shipbuilding in my constituency. If my hon. Friend the Member for Redcar (Vera Baird) contributes to the debate, I know that she, too, will want to comment on its absence in her constituency.
The background to the closure of shipbuilding on the Mersey is as follows. Cammell Laird went into receivership and there is no dispute over whether the Royal Bank of Scotland should have sent it into receivership. However, I want to discuss the bank's role in the closing down of shipbuilding in Merseyside and in the destruction of highly skilled jobs in my constituency from that point onwards.
Before I acquaint hon. Members with this sorry and horrid tale, I have two comments. First, the Cammell Laird yard and its businesses were sold to A&P shipbuilders, which is responsible for a number of jobs around the country. I do not want to harm the well-being or future of that company, because it is totally separate from the charge that I want to make against the Royal Bank of Scotland. Secondly, I want to highlight the role that the trade unions played in our yards when they were told that closure was inevitable. They were led by the chairman of stewards, Dave Hulse, and a small team of fellow stewards. I think that I can say, without contradiction, that had our trade union movement been led by people of that quality in the 1970s and 1980s, we would not have needed the Thatcher reforms and this country would have been even richer than it is today. Those people are the silver lining to the black cloud that I am about to describe.
Once the receivers, PricewaterhouseCoopers, were appointed by the Royal Bank of Scotland, they were called in and began their work. Hon. Members should also know that the Royal Bank of Scotland not only sent in the receivers, which it had the right to do, but that, through its equity arm, it owns 85 per cent. of A&P. The receivers then asked for a series of bids. Towards the end of that process, one of the groups bidding for Cammell
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Laird's Birkenhead yard was told by the receivers that they were mindful to go for a bid that embraced not only the Birkenhead yard but the yards in the constituency of my hon. Friend the Member for Redcar. That bidder, who was backed by the Mersey docks and harbour board, then asked whether the receiver would allow it to go into the Redcar yard and it agreed to do that within days of learning that the receiver wanted to sell the yards on both sides of the country to a single bidder. I believe that that was arranged on the Wednesday or the Thursday. The following day, despite the receiver having agreed that the Mersey docks and harbour board would go over the other yard on Sunday evening so as to begin its work, to value it on Monday and then, on Monday evening or first thing Tuesday morning, to submit a new bid, the receiver decided to sell to A&P on the Friday, a day or so after agreeing that timetable. I remind hon. Members that 85 per cent. of A&P is owned by the equity arm of the Royal Bank of Scotland.
I therefore asked two questions: one of the receiver and one of the Royal Bank of Scotland. I asked the receiver whether he was satisfied that he had accepted the most generous bid for the assets he was selling. The receiver declined to give an answer. I also asked the Royal Bank of Scotland a simple question: did it directly or indirectly try to influence the receiver in the decision to which he came on the sale of the yard and, particularly, did it influence him to sell to A&P knowing that the bank had not only appointed the receiver but owned 85 per cent. of A&P through its equity arm? The Royal Bank of Scotland also refused to answer the question. I suggest that it did not answer it because it did not wish the answer to be made public. My charge against the Royal Bank of Scotland is that behind the scenes in a squalid, dirty little move it decided that it was in its best interests to sell the Cammell Laird yards to A&P, although that may not have been in the best interests of my constituents or the shareholders of the Royal Bank of Scotland.
I am raising the matter now not because companies do not behave in that way, but because the Royal Bank of Scotland dines out on a particular image. It sells itself as the bank that cares about its customers, the bank that cares about the industries that it supports and the bank that cares about the people who work in the industries for which it holds the purse strings. As the Member for Birkenhead, I find that image high cant and I give notice that this is merely the first occasion on which I shall raise the matter in the House of Commons. Henceforth, I shall seek every opportunity on the Floor of the House and in this Chamber to raise the conduct of the Royal Bank of Scotland and its squalid little moves that destroyed jobs in my constituency.
If anyone believes that this is merely a one-off performance, I beg them to look at my track record. Most of the campaigns with which I have been involved have lasted 10 years or more. If necessary, I will continue this campaign for 10 years or more and to see out the present occupants of the board of the Royal Bank of Scotland. As the campaign gets under way, I shall seek every opportunity to raise questions about their conduct and every opportunity open to a Member of Parliament of Member to highlight the difference between the image on which they dine out—on which they attempt to win extra business—and the reality behind that image and how it has operated in my constituency. The board may

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decide that it would be easier to get off the treadmill and allow those who wish to buy the Cammell Laird yard—and the yard in the constituency of my hon. Friend the Member for Redcar—to do so. There are bidders who want, almost immediately, to allow our constituents to return to work. The board will realise that that would be the more sensible decision and the House of Commons is quite good at providing a face-saving formula to enable it to do that.
I am grateful to be called to speak in the debate. It is not the first time that I have participated—in my 22 years in the House—in a shipbuilding debate when there has been no shipbuilding in Birkenhead. There will be shipbuilding in Birkenhead again, but we have to prise the dirty little fingers of the Royal Bank of Scotland off the assets of Cammell Laird. I will pursue—for as long as it takes—the Royal Bank of Scotland's wretched, squalid deal, that it thought it had got away with, and which destroyed jobs in my constituency. My aim is not to damage the Royal Bank of Scotland or its employees, but for the bank to behave properly, sensibly and nobly in its own interests and those of my constituents.
10.6 am
Vera Baird: I am grateful for the opportunity to speak. I, too, congratulate my hon. Friend the Member for Glasgow, Anniesland (John Robertson) on securing the debate. His excellent exposition will shorten my speech considerably. However, I urge him to be more optimistic. Twenty-four thousand people are directly engaged in shipbuilding, ship repair and conversion in the United Kingdom. A further 50,000 are employed in the subcontract, supplier and support industries. The UK shipbuilding and repair industry generates between £1.6 billion and £2 billion per annum for the economy. United Kingdom yards compete strongly for orders, and build between 25 and 30 merchant vessels a year. I have been informed by Mr. Brian Slade of the Association of European Shipbuilders and Shiprepairers that there are, in total, more than 100,000 seagoing merchant ships. The association has assessed that, for the remainder of the decade, there will be a need for some 2,000 vessels to be delivered annually and that 80 per cent. of those will replace vessels that are no longer seaworthy or capable of economic operation. Ship maintenance, repair and conversion on a global basis is thus worth about £6 billion per annum and continues to be big business. It is important that the United Kingdom has an appropriate share of that.
The British shipbuilding industry, along with other traditional heavy industry sectors, has changed enormously over the past 30 years. It has declined, and is no longer the world market leader. However, I agree with what the hon. Member for Angus (Mr. Weir) said earlier. Decline is far too frequently uppermost in people's minds when considering the industry. That is an unhelpful approach. There is a perpetual danger that the fact that we are no longer the world leader will prejudice those who could support and encourage the industry into thinking that it is a sunset industry. It is not.
In the face of overwhelming market forces, primarily that of Korea—which has already been adequately alluded to—the industry in Europe has retrenched into more sustainable market sectors, and has moved away
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from that competition. Leaving aside warship production, in which the UK is a world leader, the industry in Europe covers the highest technological segment of world ship production. There are many examples, such as sophisticated passenger ships, advanced container vessels, ferries, ro-ro ships, multipurpose and shuttle tankers, offshore platforms and floating production, storage and offloading units, chemical and gas carriers, high standard fishing vessels and the manufacture of small and specialised ships.
The United Kingdom has a worldwide reputation for repair and conversion work. Europe is a world leader with about 40 per cent. of the global market and the UK is now one of the top three converters in Europe. Conversion is often a viable alternative to new build, especially in some specialist market sectors. There is no doubt that the United Kingdom can continue to be strong in shipbuilding and that shipbuilding can continue to make a positive contribution to our economy. That is particularly so in regions such as my constituency, where such work has been traditional and skills and expertise continue to subsist. While building 25 to 30 ships a year, British yards have the overall capacity to build as much as that again. If the Association of European Shipbuilders estimates that about 2,000 new ships per annum will be required over the decade, it is reasonable to aim to increase the UK's share of that to more than 50 ships a year.
My primary interest is the South Bank shipyard in my constituency. That working shipyard was closed last April when Cammell Laird fell foul of the Costa Classica fiasco and went into receivership. That had nothing to do with such a viable yard. A short time after Cammell Laird went into closure, a local business man who had managed the shipyard successfully for many years before it became Cammell Laird had offered to purchase it and restart it immediately. It was not a thriving yard at the time of its closure, but he had clear views about the reason for that. The business man had a management team and a pool of skilled labour that he was sure would attract business back to the yard quickly and said that, with some recapitalisation, the South Bank yard could strongly succeed. Smith's dock, as the yard was known formerly, is a byword in the north-east for shipbuilding skills of the highest order. An apprenticeship at Smith's dock was much sought after. The local business man, Mr. Welsh, was a former apprentice from Smith's dock.
Mr. Welsh's bid was not successful. All of a sudden—it seemed to us in Redcar as it clearly did to those in Birkenhead—the yard and other former Cammell Laird assets were sold to A&P. As hon. Members know, A&P is an 85 per cent. subsidiary of the principal Cammell Laird creditor, the Royal Bank of Scotland. The role of the bank in such events has been fully canvassed as an opener by my right hon. Friend the Member for Birkenhead (Mr. Field), who has said clearly that action will not stop. For the Mersey docks and harbour board standing ready and willing to purchase on the Mersey, read Mr. Welsh standing ready and willing to purchase on the Tees when something strange suddenly happened and the opportunity was lost.
There is a clear division between the Mr. Welsh's optimistic view of the yard's immediate potential and that of its current owner, A&P, which has wider company interests and no doubt wider shareholder

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interests. It has a yard on the Tyne and insists that it will be faithful to its employees. It says that it will not put them at risk for the sake of assisting the Tees. It is sometimes accepted and sometimes denied by A&P that it has removed from the South Bank yard all that can be moved, such as welding equipment and the contents of the stores and buildings, including the cutlery from the canteen. I have been told that that was not in order to sterilise the premises, so that no one else can commence a business there and compete with other interests and, still less, that that was asset-stripping.
A&P's management has explained that it makes common sense to use equipment from the South Bank yard in Redcar, instead of buying new equipment for its other premises. Taking that at face value, we hope that the employees of A&P in Falmouth and Southampton, who were clearly unable to eat their food satisfactorily hitherto, are now feeling much better with the assistance of the cutlery that was taken from the South Bank yard in Redcar. They must be glad that Cammell Laird went down just in time so that our cutlery could be trucked down the motorway to them, while they still had the strength to lift their food to their mouths.
Mr. James Wray: Does my hon. Friend understand our anxiety? One of the reasons for securing today's Adjournment debate was that 1,000 people have lost their jobs in Scotland. There has been no scheme for shipbuilding or repairing since 1997. That makes folly of new deals. It costs maybe £1.2 million to keep those 1,000 people on the dole. Surely we should be investing. She says that the shipbuilding industry is growing in the United Kingdom; it is certainly not growing in Scotland.
Vera Baird: That was a helpful intervention for which I am grateful. I must consider the position in Redcar, although there is not a word that my hon. Friend has said with which I do not agree.
A&P says that it will open a shipcare project at the Redcar yard next year. It intends to turn the yard into a depot from which skilled workers will go out to repair and maintain ships while at sea or during their charter, in order to minimise the time that ships spend being expensively maintained and repaired in dry dock. That will employ a few people. I am told that, if the market grows, A&P hopes to work the yard fully again in due course, which does not seem to mean soon.
According to A&P, excessive competition in the European market is holding it back. As hon. Members will appreciate, despite the reservations and caveats that have been expressed about the Royal Bank of Scotland and my scepticism about A&P, the function of a Member of Parliament in such circumstances is to support whoever will generate new business and create jobs. A&P says that the market for ship work in northern Europe is highly competitive and that Governments elsewhere seem far more prepared than the United Kingdom Government to find ways of providing systems in one form or another to help yards win work.
In addition, in Redcar and, I believe, elsewhere, there is a legacy of contamination around dock areas, because earlier generations paid less heed to environmental
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protection than we do today. The clean-up burden can be onerous. A&P makes a case for Government help in both sectors that seems to have a strong and sensible foundation.
We on the south Tees seem to have locally the entrepreneurialism, capital, management, labour and skills to operate a profitable shipyard, yet we do not. The factors that the right hon. Member for Birkenhead explained suggest that we are not allowed to have ownership. Those who do have ownership have an overview of the industry that suggests that if help can be provided soon, the picture for the Redcar shipyard is not pessimistic. I add from my small, local point of view my support for the notion that the Government should reconsider the support that they give the shipbuilding industry.
Mr. David Amess (in the Chair): We have just 42 minutes left. Christmas is approaching, and I should like to call all hon. Members who are trying to catch my eye. I should be grateful if in making contributions they would bear that in mind.
10.18 am
Jim Sheridan: I add my congratulations to my hon. Friend the Member for Glasgow, Anniesland (John Robertson) on having secured the debate. His campaigning work in the field is well recognised by his constituents and mine, and they are deeply appreciative of it.
I may be unique in the Chamber in that I have spent a significant period of my working life in shipyards. I have family and many comrades still working in the industry. Shipbuilding is an industry in which skills have been developed over years. Apprenticeships have been formed, and training has been at the forefront. The people who work in shipbuilding, both men and women—several women work in shipyards now, and make a valuable contribution—have faced up to many challenges. There is little, if any, demarcation in the shipbuilding industry now. That is why it is at the leading edge of competition.
Shipbuilding is a craft of which our country should be proud, and we should support it. For an example of naval work that we depend on, we need look no further than at what our naval personnel are doing in Afghanistan. They are playing a valuable role using ships that were built by British workers.
I should like to focus on defence diversification in the shipbuilding industry. I strongly believe that our industry is too dependent on naval orders. I have argued long and hard for a Government procurement strategy. When the Government are placing defence orders, they should also place a responsibility on the companies to consider defence diversification. Our industry cannot continually depend on defence work. We need to encourage companies to break into and exploit the commercial market, as some of our competitors are doing.
Shipbuilding includes ship repair. Last week, in this Chamber, my colleagues and I met with the trade unions involved in naval bases throughout the United Kingdom. They are extremely concerned about the proposed privatisation of some of the work done on naval bases. Regardless of whether the trade unions are

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luddite in their approach to privatisation—there are arguments for some privatisation—they have a pragmatic view of the issue and they want a level playing field.
The trade unions are happy to meet Ministers and have produced a document that states that they would like to discuss privatisation with the Minister. They strongly believe that their work and that of the naval bases can continue, but privatisation is not a panacea. Will the Minister consider the document produced by the trade unions? Will he meet with trade unions involved in ship repair so that they may put forward their case?
John Robertson: Does my hon. Friend agree that the trouble in the shipyards started in the early 1980s with privatisation?
Jim Sheridan: My hon. Friend is right. Privatisation started the decline in the shipbuilding industry. We need look no further for an example than companies such as Kvaerner, an asset-stripping company that was on the verge of closing shipyards in Glasgow. It was only the Government's help that saved those yards from closing. My hon. Friend is right to say that privatisation is not a panacea in the shipbuilding industry; indeed, it caused the industry's decline.
Those involved with naval bases would appreciate it if the Minister would meet the appropriate trade unions to talk through their concerns and listen to their offers about what they can do to keep the yard open.
10.23 am
Mr. Bill Tynan: I, too, congratulate my hon. Friend the Member for Glasgow, Anniesland (John Robertson) on securing the debate, and on the way in which he has presented his case on the shipyards. My hon. Friends the Members for Glasgow, Pollok (Mr. Davidson) and for Glasgow, Govan (Mr. Sarwar) have worked tirelessly on behalf of the shipbuilding industry in Scotland, and I pay them tribute.
The previous excellent contribution contained many serious questions and, I believe, solutions to the problems facing the shipbuilding industry. I declare an interest; I am a member of the Amalgamated Engineering and Electrical Union. I was involved in the shipbuilding industry in Glasgow. It had to reinvent itself to ensure that it is relevant today. The old demarcation lines have been put aside, and the workers have joined together to ensure that they can compete in a world market.
We are talking about history, and the history of the Upper Clyde Shipbuilders. We had a tremendous campaign to save the UCS; it was absolutely vital. I am concerned that we are in the same position today. I listened to my right hon. Friend the Member for Birkenhead (Mr. Field), who said that some of his campaigns had lasted for 10 years. I am here to tell hon. Members that the shipbuilding industry campaign has lasted for 30 years. I wish him well in his campaign in the future. The shop stewards have been here on many occasions to discuss with Members of Parliament the questions and problems that the industry faces. It is right to recognise how important shipbuilding is to the
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people of Scotland and the United Kingdom. Although the Amalgamated Engineering and Electrical Union is campaigning in Scotland, it recognises that a viable shipbuilding industry in the UK is essential to the economy of this country—24,000 people are directly involved in the industry, and 50,000 are involved in subcontract work.
Mr. Ian Davidson: Is my hon. Friend, like me, the proud possessor of a Bank of Scotland card, rather than a Royal Bank of Scotland card, and therefore unlikely to be attacked by my right hon. Friend the Member for Birkenhead's fatwa? Would he agree that the problem with shipbuilding is not only a British one but is partly a failure of the European Union to take the case of British shipbuilding and European shipbuilding to the World Trade Organisation? That failure is preventing us from competing with South Korea, which currently sells ships for 40 per cent. less than it costs to make them.
Mr. Tynan: My hon. Friend makes an excellent point. I was going to come on to that in my speech, but I am conscious of time. The South Korean yards have been producing ships on the basis of cost price. We must embrace the argument that the EU should take the matter to the World Trade Organisation. However, I am concerned that we will not do that quickly enough to save the shipbuilding industry. We must consider other methods. The EU does not ensure recognition of a level playing field, and we must convince the EU and the UK Government that there is a need to create such a level playing field when unfair competition has taken place. Unlike my hon. Friend, I do not have a Bank of Scotland card; I have a Royal Bank of Scotland card. Therefore, I may be subject to the campaign, and I shall consider changing it.
Serious concerns exist about the shipbuilding industry, which is a lifeblood for people in Scotland and the UK. We can make progress if the Minister will accept the reality that South Korean yards and other yards in the far east are creating unfair competition for the shipbuilding industry in this country.
10.27 am
Mr. Mohammad Sarwar: I am grateful for the opportunity to take part in today's debate. I congratulate my hon. Friend the Member for Glasgow, Anniesland (John Robertson) on securing such an important debate and on raising key issues affecting industry on the Clyde and across the UK.
I have a great interest in shipbuilding. Govan is home to Britain's biggest merchant shipbuilder, and has a proud heritage and a reputation for Clyde-built quality. It is the major employer at the heart of my constituency. This year, the rollercoaster ride has continued for the skilled work force in Govan. After a long campaign across Scotland last year, involving Members of Parliament and shop stewards led by yard convener Jamie Webster, we secured its future by winning a major order for landing ships from the Ministry of Defence. Delays in design meant that the gap in the order book was not filled as quickly as planned. Despite being awarded the lion's share of the type 45 orders in July, BAE Systems announced its plan to cut 1,000 jobs on the Clyde at Govan and Scotstoun. Since then, after a

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great deal of effort by Ministers, unions and management, that number has been brought down to 450, and no redundancies will be finalised until next year. None of us wants to see redundancies in shipbuilding. However, two years ago, Govan shipyard did not have an owner. There were no orders in Govan shipyard's order book. There was no future for Govan shipyard. However, because of the Government's help, we managed to secure the future of Govan shipyard, and of jobs on the river Clyde. Steel work began this week on the two ALSLs, providing continuity in employment until July, when work will begin on the six type 45 destroyers on the Clyde. I pay tribute to the skilled and dedicated work force at Govan and Scotstoun, and to their families, for the resolve and strength that they have shown again this year. They worked tirelessly to demonstrate that shipbuilding is not out of date, but that it is a competitive high-tech industry.
I congratulate my hon. Friend the Minister, and the Government, for showing active commitment to shipbuilding in Britain. Shipyards across the United Kingdom have benefited: major orders have been made, and a secure foundation has been laid for the coming decade as a result of the Ministry of Defence's procurement plan, which has led to the type 45 orders, and the refit work at Rosyth on HMS Illustrious and HMS Invincible. However, although that provides a strong foundation for the healthy future of our yards, they cannot thrive on British defence contracts alone. They must compete effectively in overseas markets. Last year, there was an increase of 56 per cent. in global orders for new ships, compared with the previous year. There are real opportunities, if we can win more work from the growing number of contracts. If we are successful in that regard, our shipbuilding capacity could more than double by 2006.
Our shipbuilders are adapting to meet that challenge. Vosper Thornycroft recently announced an increase of almost a third in sales of support services, such as training and fitting. Swan Hunter has brought shipbuilding back to Tyneside. Govan's partner for the ALSL order has 250 apprentices, and does not see any sign of orders slowing down.
On the Clyde, we also take great pride in the fact that apprentices are being taken on for the first time in many years to learn their skilled trade, but there is a real threat to the future of all of our yards. We do not have a level playing field with our competitors. The row over subsidies to Korean shipyards has rumbled on for too long. I recognise that we have been involved in tough negotiations, alongside our European partners, on this issue for the past three years, but unfair trading practices have caused severe difficulties for our shipbuilders. The European Commission has found mounting evidence that state owned and state controlled banks in South Korea have been instrumental in financing unviable shipyard operations, with average losses on orders of 14 per cent.
Last year, Europe won 16 per cent. of orders, compared with Korea's 38 per cent. We do not always bid for construction of the same vessels, but without fair trade our yard will never be able to compete. I urge the Minister to work closely with colleagues across Europe,
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and to continue to exert pressure on Korea to stop unfair subsidies and to encourage real competition in the industry.
Mr. Davidson: Does the hon. Gentleman accept that the case that the industry has presented to the European Commission clearly establishes that the Koreans are cheating in this market, and does he agree with me that it is a failure in European Union policy that the Commission has so far refused to submit the case to the World Trade Organisation?
I also suggest that the hon. Gentleman considers changing his bank to the Bank of Scotland, because I suspect that the transfer of his business will have more impact than the transfer of mine.
Mr. Sarwar: My hon. Friend has made a good point. It is important for the shipbuilding industry that there is a level playing field. The European Commission has done very little.
With regard to the question about banks, my hon. Friend has a card from the Bank of Scotland, but I am glad to tell him that I do not have a card from that bank, or from the Royal Bank of Scotland. Only rich people can afford to have them.
In the past year, concerns have also been expressed by our shipbuilding unions over the differences in support across Europe itself, particularly when Britain is compared with Germany and Italy. I know that the Government will continue to examine measures to address the issue without hindering the competitive edge needed for our yards to flourish in the future. We have a shipbuilding industry with a proud past. We also have a Government that will ensure that our yards have a bright future.
10.34 am
Dr. Vincent Cable: I add my congratulations to those given to the hon. Member for Glasgow, Anniesland (John Robertson). I have a sense of the depth of feeling and knowledge that he and his Clydeside colleagues share. About 30 years ago, I represented a part of Glasgow on the city council that contained workers from Scotstoun and other yards. As the hon. Member for Hamilton, South (Mr. Tynan) reminded us, that was a time of hope because it was a period when Upper Clyde Shipbuilders was occupied and then saved. Alas, that was a false dawn, and the industry has continued to decline. We are all prisoners of our history; I still carry a Bank of Scotland card that was taken out from the Maryhill branch.
An irony of the debate is that I suspect that my constituency in suburban London has more shipbuilding workers than many yards on the rivers Tyne, Mersey and Clyde. That is because we make virtual ships, not real ships. The high value added end of the industry is about computers, simulation and software. Much of that work comes to companies such as British Maritime Technology, which is in my constituency and employs hundreds of workers. My constituency, like the Clydeside yards, hinges on successful British industry.
I turn to the wider context and the underlying competitiveness of the United Kingdom industry. Is the problem that of competition with Europe, or of

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European competitiveness with Korea? The answer is more the former. The brutal truth is that the pound appreciated against all other currencies by roughly 30 per cent. at the end of 1996. It has remained at that level and is, frankly, hopelessly uncompetitive for manufacturing industries that produce price-sensitive products such as bulk ships. There is no way in which British yards can win contracts against other European countries, let alone the far east.
When considering Korea, there is a misunderstanding about the IMF. The IMF does not lend money for shipbuilding but for countries' balance of payments support. During the 1998 crisis, the Koreans got an IMF loan that led to a large devaluation of their currency, which has made Korea competitive. The hon. Member for Glasgow, Pollok (Mr. Davidson) may be correct that cheating and, effectively, dumping is going on. If that is occurring, the case should be brought to the World Trade Organisation.
Mr. Davidson: I assure the hon. Gentleman that the industry has produced a case that European Commission experts accept demonstrates that the Koreans are selling ships at 40 per cent. less than it costs to make them. The money that comes from the IMF allows the Korean banks to write off loans to the Korean shipyards. That allows them to start with a clean sheet of paper. It is a hidden subsidy.
Dr. Cable: If the hon. Gentleman is correct that there is blatant dumping, it is the Commission's job to bring a case to the World Trade Organisation, which exists for that purpose and is a court of law. No doubt the Minister will explain why that action has not been taken.
The constituents of the right hon. Member for Birkenhead (Mr. Field) sent me a bundle of papers about Cammell Laird, and they were extremely complimentary about his role in the matter. There are conflicts of interest that probably require further information. I am sure that what the right hon. Gentleman said about the Royal Bank of Scotland's role is right, but the issue goes further than that. I understand that the matter has been referred to the Office of Fair Trading on the rather narrow issue of whether a threat to competition was created in the shipbuilding industry because A&P has interests in Southampton as well as Birkenhead.
Is there a wider conflict of interest? I was especially worried about the role of the receivers, PricewaterhouseCoopers. It had a serious conflict of interest because it acted on behalf of the Royal Bank of Scotland as receivers and, additionally, it is the auditor for A&P—it was working for the poacher and the gamekeeper.
I asked about the conflicts of interest with the directors of PricewaterhouseCoopers a week ago. I asked about a wider issue, because the matter does not apply only to Cammell Laird. We have probably two or three leading international accounting companies. Ernst and Young has the same problem in relation to Equitable Life and the Financial Services Authority. It is monopolising all the big contracts for audit and receivership, and in many cases it is acting for opposing sides of the same argument. That gives rise to the serious issue of competition policy. I am sure that it is entirely
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honest and professional in the way that it goes about its business, and it has its chinese walls. None the less, the enormous temptation exists to behave improperly, and I hope that the Department of Trade and Industry will look carefully at this issue, not simply in relation to Cammel Laird but in terms of the wider conflicts of interest.
My final point also relates to competition policy, and to a key issue in shipbuilding that has yet to be raised: potential conflicts of interest in the type 45 contract, for which BAE Systems has won the bulk of the business. When we debated the shipbuilding industry in March of last year, the major concern was expressed that, as the prime contractor, BAE Systems could squeeze out Vosper Thornycroft and other smaller companies. The DTI and the Ministry of Defence have subsequently worked on that issue. The Rand Corporation was called in to devise a new strategy, and it has found a role for Vosper Thornycroft. However, those who have read the correspondence on this subject will know that serious concerns remain. Vosper Thornycroft is asking basic questions such as whether it will be given a minimum amount of business, whether it will have a stake in derivative boats, and what will happen to unpredictable cost elements.
The underlying problem, which I hope the Minister will address, is whether the Government have a proper strategy for handling the relationship between BAE Systems—a world-class company that is increasingly taking the bulk of defence contracts—and its many British subcontractors. Exactly the same debate arose in relation to the A300X airbus. The suspicion is beginning to grow that the Government formulate contracts in such a way as to protect the interests of the prime contractor, rather than those of the many other companies down the supply chain. I hope that the Minister will explain how the Government have dealt with the enduring concerns of companies such as Vosper Thornycroft.
10.42 am
Mr. Robert Key: I congratulate the hon. Member for Glasgow, Anniesland (John Robertson) on securing this debate. It is important to have an opportunity to air such issues. For more than a year, my party has requested a debate on shipbuilding on the Floor of the House, but the request was rejected on the ground that there is too much parliamentary business. Such an opportunity would have enabled the many Members of Parliament who represent shipbuilding interests, but who are not here today, to have participated in the debate.
I have a nomadic interest in shipbuilding. I was born in Devonport in 1945, which built quite a lot of ships at that time, and moved to Salisbury in 1947, where ships are not built even though the town is at the confluence of five rivers. However, Dunlop Hiflex and Woven Electronics, which are in my constituency, respectively make the hydraulic piping with which most Royal Navy ships are fitted, and much of the electronic cabling that is used in submarines in particular.
My real knowledge of shipbuilding began in 1967. On leaving university, I was appointed to found an economics department at Loretto school, in Musselburgh. The chairman of governors, Sir lain

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Stewart, who was also chairman of Upper Clyde Shipbuilders, charged me with the job of ensuring that sixth formers were taught by people who really knew about all aspects of the shipbuilding industry in Scotland. The first guest whom I invited was Jimmy Reid, who became a regular visitor thereafter.
Like other hon. Members, this Christmas I shall be singing "I saw three ships come sailing in on Christmas day in the morning," but when I do I shall be thinking, "Where were they made?" People do not recognise that the British shipbuilding industry is a high-technology industry. I have seen as much for myself on the Clyde, at Barrow and on Tyneside. The Secretary of State for Defence disparagingly described it as a metal bashing industry, but there is no doubt in my mind that it is a high-technology industry that should be given a fair chance. It is important to put on the record that only this week the former John Brown shipyard, which built the Queen Elizabeth, the Queen Mary and the QE2, has been sold in an £8 million deal. The land ended up being owned by the UK-Norwegian engineering firm Kvaerner and UIE shipbuilding, which is French. Now we are to see a massive redevelopment of that site.
There are still many great shipyards, however, around the shores of the United Kingdom and on the Clyde in particular. Britain is still an important maritime nation. People have the idea that most of the freight coming into or going out of the country travels by jumbo jet, but it does not. Some 95 per cent. of the UK's trade still arrives and leaves by sea. We should never forget that the UK shipping industry as a whole is the fourth, or perhaps the fifth, biggest service sector exporter for the UK. It is bigger than communications, films and television and computer services. The shipping industry, in the widest sense, is extremely important to the future of our country's economy.
We have heard one or two stories of unfortunate incidents, including about Korea, to which I will return in a moment, but that is not all. UK shipyards have been very good at specialist high-technology ships. I was, therefore, very sorry to see an item on BBC News Online on 3 December about UK shipyards having lost out to China. The story was about the £22.5 million ship that was to be commissioned by the engineering firm Mayflower. It was to be a high-tech ship that would have been important in the installation of wind turbines, a point referred to earlier in the debate. In my view, that should not have gone to China.
Whether we are discussing the Clyde or the other shipbuilding yards around the country, one or two common threads run through the discussion. We have heard a lot of talk about A&P, which is based in Southampton and has yards all around the UK, including in Falmouth, Southampton, Wallsend, Chatham, Dover and Ramsgate. I do not see any of the Members of Parliament who represent those constituencies here today, another reason why the debate should perhaps have been held on the Floor of the House. A&P is an interesting company. I do not want to disparage it, because I think that it is struggling in the best interests of shipbuilding in this country. However, the Government should get closer to it.
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The Government should also sharpen up on their naval procurement programme. It is one thing to announce a very substantial increase in naval shipbuilding, but the laying of the first steel is another and there is a gap between the two. That problem is faced by many of our shipyards today. I have seen that for myself, around the country. That gap is what particularly concerns the trade unions.
Other aspects that worry me very much include what has happened with Vosper Thornycroft in Southampton. It was originally hoped that Vosper Thornycroft would receive a legally binding commitment from the prime contractor, BAE Systems, by the end of September this year, with a detailed contract for the type 45 ships being placed by the end of March. That has fallen by the wayside. I had hoped that there would be an announcement before the House rose today. Vosper Thornycroft desperately needs a legally binding commitment before it can commence work on its planned investment. The situation is very serious and deteriorating.
We have also seen problems with naval procurement from Spain, where state-owned naval yards, in particular the Bazan yard, merged with a civilian yard to form Izar. The European Commission has decided to investigate whether that purchase, at a token price, was a hidden subsidy. I also flag up the problems of the Gibraltar shipyards, for which the MOD no longer has direct responsibility. They are a remarkable facility, and we should not neglect the people who have worked in them for many years.
The situation in Korea is perhaps not as simple as some hon. Members have suggested. From its point of view, Korea has been engaged in an argument with the European Commission, which has been seeking to increase world shipbuilding prices in line with what it says that the market will take. This is about the trade barrier regulation. Can the Minister update us on the trade barrier regulation inquiry and participation in talks? The European Commission seeks to include ships in segments of the large container ships sector for example, as well as liquefied natural gas carriers—which will be crucial for our economy—and liquefied petroleum gas carriers. The Koreans see it as an attempt by the European Commission to rig prices in favour of European shipyards. The issue is rambling on and no doubt will do so for some time, but I would be grateful if the Minister would update us.
Finally, I would like to talk about what we might do in the future. I commend the Confederation of Shipbuilding and Engineering Unions on taking a remarkably relaxed and flexible approach. It is not calling for subsidies; it simply wants a more imaginative response from our Government. It wants the British Government to operate within the boundaries of European law in an imaginative way. Other European countries appear to be able to find more imaginative ways of favouring their yards. It was a tragedy when the ferries were not all built in Britain, as four of them went to German yards. If the French had been building them, they would have stuck a gun on the front and called them warships, and then circumstances would have been different.
I see the skills base in shipbuilding being lost if we do not do something to ensure that there is continuity. We need imaginative schemes, not only to procure orders

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but to maintain the skilled work force around the country. The focus is not just the Clyde, although that is the biggest and proudest shipbuilding tradition left in the UK now, but small yards such as Appledore at Falmouth, and others at Portsmouth and Southampton. The skills base of the country is at risk here as well as the big ships that sail the ocean. Let us make sure that the Government take this very seriously, and I invite the Minister to tell us some good news for Christmas.
10.51 am
The Minister for Employment and the Regions (Alan Johnson): I congratulate my hon. Friend the Member for Glasgow, Anniesland (John Robertson) not just on securing this debate but on his genuinely eloquent and interesting speech, which set the tone for an excellent debate. I hope that hon. Members will accept that in just eight minutes, I have to do justice to my hon. Friend's points, and I will not be able to get around to all the individual points raised.
My hon. Friend rightly emphasised the excellence of UK shipyards and the important role that they play in local economies within the UK, not least on the Clyde. The Government are confident that the industry has a sound future. I would like to mention a number of steps that we have taken since 1997 to help the industry achieve its potential.
I am aware that shipyards, especially those building merchant ships, face difficult challenges in a very tough world market. The estimate is that the current capacity globally exceeds demand by at least 33 per cent., so it is a tough competitive environment out there and UK yards are finding it difficult to win the orders against that fierce competition.
My hon. Friend the Minister for Industry and Energy, who has responsibility for this issue, cannot be with us today because of an unavoidable commitment abroad. However, as my hon. Friend recognised, he has been involved in numerous meetings with the unions, the industry and concerned hon. Members. We entirely share their worries about current difficulties and I can assure them that the Government remain absolutely committed to working closely with the industry to help it meet the difficult challenges ahead.
The key challenge that was recognised by my hon. Friend when he said that German yards have higher productivity and are much more competitive, and is recognised by everyone in the industry, is to improve its competitive performance. It is nothing to do with the work force, who have improved their performance extraordinarily over the past 10 to 20 years.
Let me set out briefly what we have been doing to help the industry. First and most importantly, in 1998 we set up the shipbuilding forum comprising trade unions, the industry, training bodies, the national training provider—the Engineering and Marine Training Authority—Government Departments, the Ministry of Defence and the Scottish Executive. It was the first time, in the history of this maritime nation that unions, industry and Government had ever sat around the table together. As a result of setting up the forum, we received the first report in December 1998, which concluded that the industry's long-term future depended on its ability to improve its competitiveness.
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The forum set challenging targets: doubling the number of merchant ships built over a five-year period and increasing the turnover of the repair sector by 30 per cent. during the same period. To achieve that, the forum's 1998 report made 43 recommendations, including improved productivity, better marketing, enhanced finance packages and improvements to training and skills. It is important to stress that these recommendations were aimed at all participants, and not just the Government. This debate concerns not only what the Government can do, but what the industry can do to help itself.
My hon. Friend the Member for Glasgow, Anniesland mentioned that we must look at other countries. When the forum was formed, one of the first things that the Department of Trade and Industry did was sponsor a visit to the Netherlands. It was an extraordinary visit on which the forum found no evidence of employees working harder than those in the UK. The productivity of the work force was no greater in terms of the effort put into the job, and there was little evidence of better yards or higher investment. The secret, if it is a secret, was that the Dutch yards were more successful because they co-operated with each other. They co-operated in order to be able to compete internationally, which is something that the UK yards have traditionally not done, and they had better marketing and extensive subcontracting. Following that visit, which was eye opening, the Shipbuilders and Shiprepairers Association set up a group to examine how the UK industry could co-operate to compete. We have taken several measures and I do not have time to discuss them all, but that one is important. We are improving competitiveness through the forum, which is bringing the industry around the same table as the unions and the Government.
The international situation is crucial. The international marketplace is difficult and we share the industry's concerns about Korean unfair trade practices—make no mistake; they are unfair trade practices. The best means of tackling Korea is to launch action in the World Trade Organisation as recommended by the European Commission's May 2001 trade barriers regulation report on which all member states are agreed. Unfortunately, WTO action has been delayed because the commission has insisted on linking such action to the reintroduction of limited shipbuilding subsidies for container ships and product chemical carriers.
My hon. Friend asked whether we should subsidise the industry. There is no evidence of illegal subsidy occurring elsewhere. I remember Brett Martin, who has sadly departed, of Cammell Laird, saying in the forum that he would produce evidence of illegal subsidies; it did not materialise. Germany had considerable state aid for reunification, but there is no evidence of illegal subsidies anywhere else. The shipbuilding intervention fund existed for 36 years and at one time it paid up to 33 per cent. subsidy, but throughout that period British shipbuilding and ship repair declined. It was the view of the industry and the unions in 1999 that we should abolish the SIF throughout the European Union, and that happened on 1 January this year.
The reason for the delay in pursuing the WTO claim against Korea is that it is linked to the reintroduction of a form of subsidy that will not help British shipbuilding

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because it concerns vessels with which we do not deal. The Commissioner is effectively proposing the partial reintroduction of operating aid, which was abolished at the end of last year. The commission proposal is likely to be difficult to operate in practice and risks undermining the EU position by opening up the possibility of Korean action. We must move ahead with the European Union agreement on taking WTO action against Korea, and we will work to that effect.
I must say a couple of words about the Clyde, and I apologise for not having more time to do so. As the hon. Member for Glasgow, Govan (Mr. Sarwar) said, if one looks back to what the yard faced as recently as a year ago, then looks at the position now, it is clear that it has the best prospects for many years, and we believe that it is secure for at least the next 10 years.

Camelot
11 am
Mr. Christopher Chope: The debate comes at a good time, because Camelot's new licence starts on 27 January 2002, by which time it will have a new chairman in Michael Grade, and the Government are considering their response to the recommendations in the Budd report on gambling. It is rumoured that next spring the Government will start a review of national lottery legislation that is relevant to the new licence that will start in 2009. That seems a long way ahead, but if we are to reach agreement on the legislative changes that will have to be implemented in time for bids for a fresh lottery licence to be invited on that new basis, we have to start quite soon.
The lottery licence runs to 164 pages. I shall not dwell on much of it, but emphasise two parts—condition 12, which relates to player access, and condition 15, which relates to distribution management.
Condition 12 requires that there should be a minimum of 24,250 online retail outlets and a minimum of 9,150 Instants-only outlets. For reasons that are not stated, in 2006 those minimums will be reduced to 23,750 and 4,500. I hope that the Minister can explain why the Government imposed the relaxation of that condition.
Condition 15 states:
"The licensee shall ensure that clear and fair criteria are specified and applied for retailers to qualify for selection and de-selection."
Those criteria must be available for public inspection. I submit that Camelot is not applying fair criteria for the selection and deselection of retailers, especially with the introduction of a minimum sales requirement of £1,500 per week. For Camelot, "reviewing the retail network" is tantamount to
"cutting back on the retail network of small independent retailers".
I shall illustrate my point with reference to the case of Mr. and Mrs. Smith, who run a small retail newsagents and tobacconists in Wimborne road, east in Ferndown. They sell between £1,000 and £1,200-worth of lottery tickets each week and have been told that if they do not raise their sales to £1,500 each week they will have their lottery licence taken away. As one would expect, before the licence is taken away they will be offered a period of counselling lasting 24 weeks to show them how to boost sales. Since they have spent the past seven years running their shop, the idea that somebody else can come in from outside and tell them how to do it better is surprising. Of course, at the end of the 24 weeks they will realise that they cannot magically increase their sales to £1,500 and will therefore lose their licence.
Some retailers are under the impression that the lottery licence imposes a maximum number of outlets for Camelot. Indeed, that is such a widely held misconception that a senior member of one of the national trade organisations recently repeated it to me. But the licence does not do that—it specifies a minimum. Why does not an organisation that wishes to maximise sales of lottery tickets and proceeds for good causes seek to expand, rather than contract, its network of retailers?

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It costs about £5,000 to install a lottery terminal, but after that the running costs are negligible. If the cost of installation is a problem, that has already been incurred because a condition of the new licence was that Camelot had to install 24,500 new terminals at a cost, I am told, of £120 million. That was to ensure that they could be operational before 27 January. If ever there was an example of a waste of money, that is it. The existing lottery terminals were perfectly adequate, but to establish a level playing field for the bidders of the new licence, the requirement was that whichever company won—even if it were the incumbent—would have to replace all terminals. That is a waste of £120 million.
What justification can there be for imposing an arbitrary minimum sales requirement? Provided that a lottery retailer's premises are open during the hours in which the public want to purchase tickets, and that the retailer acts with honesty and propriety, what is the problem? Mr. and Mrs. Smith have a supporting petition with 1,400 signatures. They have raised their concerns on radio and television, and during a Radio Solent phone-in, they received an unparalleled 98 per cent. support for their cause to be allowed to continue to retail lottery tickets from their shop.
Mr. and Mrs. Smith have wondered whether there are too many lottery outlets close by in Ferndown. However, that cannot be the problem, because Tesco, Sainsbury and one independent supermarket have outlets on Ringwood road, while Mr. and Mrs. Smith's outlet is the only one on Wimborne road. I have discussed the issue with the Federation of Small Businesses and the Federation of Retail Newsagents. Both are worried about the adverse impact of Camelot's policies on the retail network of small shops. The FSB told me:
"It is important that Camelot, in satisfying its duty to the local community, actually favours installing the terminals in as many independent, community based businesses as possible."
However, the trend is the other way, with Camelot favouring supermarkets, petrol forecourts and other multiple outlets. The Government have given the impression that they are not concerned about the retail network and I secured this Adjournment debate as a result of the negative response from the Minister to my questions. I hope that in today's response, he will link his remarks in with the Government's response to the better regulation taskforce shopkeepers' report, published on 17 October. In paragraph 3.1, the Government state:
"Nigel Griffiths as Small Firms Minister will champion the interests of small retailers."
He has a good opportunity to start fulfilling his role as champion of small retailers by challenging Camelot on its unfair review of the retail network.
The Minister should make the point to Camelot about the lack of incentive, under the present arrangements, for a small retailer to build up his lottery sales so as to add value to his business for when he retires or sells out. Why are lottery licences not transferable on a similar basis to liquor licences? No publican or licensee has an absolute right to transfer a licence because the transfer must be approved by the court, but the norm is that, where the transferee is a fit and proper person, the transfer takes place. Why does Camelot not operate a similar system for its licensed lottery retailers, who
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would then have an additional incentive to build up their retail business? Camelot told me that its objective in reviewing the retail network is to maximise income for good causes, but closing down outlets, rather than opening more, seems an odd way to go about it.
Miss Anne McIntosh: I have much sympathy with my hon. Friend's argument. Does he agree that the pressure on Camelot to contribute to good causes—I shall explore the reasons for that later— puts pressure not only on the organisation but on individual licensees such as Mr. and Mrs. Smith?
Mr. Chope: My hon. Friend makes a good point, but if the pressure is on Camelot, it is self-induced. Both Camelot and Mr. Branson's People's Lottery said that they could raise £15 billion for good causes during the lifetime of the new licence. The National Lottery Commission reckons that £10 billion is more realistic and, as my hon. Friend knows, £10.7 billion has been raised since the lottery started. The details of the licence show that there are no penalties on Camelot if it does not succeed in selling enough tickets to raise £15 billion for good causes, although it would not make as much profit as it would otherwise do, so there no justification for putting this enormous pressure on small retailers.
Small retailers are being made scapegoats for the steady decline in sales of lottery tickets. It was reported on 28 November that combined sales of lottery tickets and scratch cards fell by 5.4 per cent. to £2.4 billion in the six months to 30 September. Sales would have plummeted further but for a 6.8 per cent. increase in scratch card sales. Why are sales of lottery tickets falling? Could it be that there is increasing disillusion about the so-called good causes that the lottery supports? Today's news reminds us that £628 million of lottery money was wasted on the dome; some £120 million was given to the Football Association for Wembley stadium, which will not now be spent on that project; some £20 million was given to the royal armouries, which then went bust. Could it be that potential purchasers of lottery tickets realise that very little of the money they might spend would be used for what they believe to be good causes, and that even less is returned to their local communities?
On 11 December, total lottery sales since the launch on 14 November 1994 were £35.2 billion. Camelot has been unable to break down that figure between constituencies, but if the gross sum is divided by 659 constituencies, the average is £53.3 million per constituency. I am not making allowance for the fact that my constituency of Christchurch has a slightly larger number of constituents than average and a higher proportion of people in the older age group, who are apparently more likely to buy lottery tickets. We are told that people aged between 55 and 64 are most likely to do so, while young people aged between 16 and 20 are least likely to do so.
Taking the average, £10.7 billion has been raised for good causes and if good causes in the Christchurch constituency had received a pro rata share, they would have received £16.21 million. It will not surprise you, Mr. Amess, to know that they have not received anything approaching that amount. Indeed, the information that Camelot provided to me and other hon. Members this week, broken down by constituency,

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shows that the amount that has been given in national lottery awards to Christchurch is £3.9292 million—that is, less than 25 per cent. of the pro rata entitlement and less than 7.5 per cent. of the total sales of lottery tickets in Christchurch.
My constituents are contributing grossly disproportionately to good causes, and not-so-good causes, elsewhere in the country, and they now find that Camelot is trying to undermine the viability of small retailers in Christchurch through its retail network review. If Camelot wants to boost lottery ticket sales in Christchurch, I suggest that it puts pressure on lottery distributors to return more than 7.5 per cent. of gross sales to good causes in Christchurch. I have examined the figures for the past four years since 1 January 1998. During that period, my constituents have had just over £400,000 returned from the lottery—less than 1.5 per cent. of their gross expenditure on lottery tickets—and some £145,000 of that was given to an organisation called Adelphi Playclubs Ltd., which has gone bust and is in receivership. Is it surprising that there is growing disillusionment among my constituents and others about the way in which the lottery operates? I advise my constituents that, if they want to support local good causes, the last thing that they should do is play the national lottery.
That brings me to the Budd review of gambling, and the absurd letter from Camelot that I received this week that said that good causes in Christchurch would suffer to the extent of £500,000 if the recommendations for society lotteries were adopted. The reality is quite the reverse. If the people of Christchurch raised £53 million through a society lottery and a minimum of 20 per cent. had to be returned to good causes, as is proposed, Christchurch's good causes would be three times better off overall and 10 times better off than over the past four years.
Society lotteries have an important role to play. They could introduce competition, which is severely absent at the moment. Society lotteries are public lotteries promoted on behalf of a society that is established and conducted wholly or mainly for one or more of the purposes that are set out on page 156 of the Budd report. Those purposes are effectively charitable, and include sport, recreation and the arts.
Under present regulations, society lotteries may have prizes of up to 55 per cent. of their income. However, no prize may exceed £25,000 or 10 per cent. of ticket sales. It is not possible for an individual society lottery to have ticket sales that exceed £1 million. A minimum of 20 per cent. of the funds must go to deserving good causes.
There is much to be said for society lotteries, yet Camelot says that if society lotteries were introduced with larger prize payouts and the ability to attract gamblers who aspire to a lottery win that would be a life-changing event, sales would increase. However, owing to the language of Camelot's scaremongering letter, hon. Members may be surprised to hear that the figures for 1999–2000 show that for every £1 spent on the national lottery, only 2p was spent on society lotteries. Even if society lotteries increased twentyfold, they would take less money than the national lottery.
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Society lotteries could introduce the element of competition that is lacking. Retailers that are not permitted to sell tickets for Camelot could sell tickets for the local society lottery. If local people felt that Camelot and the national lottery distribution organisations were not giving their local causes a fair share of the resources raised, they could show their disapproval by supporting the local society lottery rather than the national lottery.
That recommendation in the Budd review is worthy of adoption as a Conservative party policy, although I do not expect my hon. Friend the Member for Vale of York (Miss McIntosh) to announce that in her response. I certainly hope that the Government will not fall for the extraordinarily protectionist line taken by Camelot in the literature that was sent to hon. Members this week.
Anybody would think that Camelot was not given the opportunity to make a submission to the Budd review. It made a written submission, and its comments must have been taken into account. Indeed, great passages in the Budd report show that Camelot's concerns about the impact of society lotteries are not well-founded. It is recognised that the advent of society lotteries could mean that a different range of good causes would benefit. However, the notion that there would be a reduction in the amount of money going to good causes overall is rejected.
Before I close my remarks, I want to say a little about the part of the Camelot licence that deals with under-age sales—condition 15(4). Under that condition,
"The licensee shall conduct or procure the conduct of such tests of retailers as the National Lottery Commission may require to establish whether sales have been or are being made or are likely to be made by retailers to purchasers under the age of 16."
A requirement exists that there should be a minimum of 10,000 such tests each year. We are told that Camelot has invested £1.2 million over the past two years in the prevention of problem gambling in the national lottery. On the basis of the evidence produced, it has not been successful in dealing with the problem. That problem centres around scratch cards, which are described by Camelot as
"the UK's leading impulse brand".
The odds of winning on a scratch card are about one in five. Most significantly, however, 96 per cent. of the scratch card market is taken by Camelot.
The National Lottery Commission has commissioned a report on under-16s and the national lottery. That report was dated February 2000, and was prepared by BMRB Social Research. It contains some interesting points. It shows that 11.6 per cent. of 12 to 15-year-olds had spent their own money on national lottery scratch cards in the previous week. That was in 1999, when the research was carried out, whereas in 1997 the figure was 7.7 per cent. Therefore, a substantial and steep increase had taken place in the incidence of people under the age of 16 illegally purchasing scratch cards. The report also found that 60 per cent. of problem gamblers agreed that it was easier to spend more money than they planned on national lottery scratch cards—61 per cent. agreed that some people are hooked on them.
For a Government who preach about social inclusion, the report contains some pretty devastating findings. For example, table 8c deals with the prevalence of problem gambling on national lottery scratch cards among key sub-groups. Looking at the issue of

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ethnicity, it shows that 1.6 per cent. of white youths are engaged in problem gambling with scratch cards—Instants—compared with 4.8 per cent. of blacks, and 3.8 per cent. of Chinese. We know that gambling is more a part of Chinese culture than British culture, but it is surprising and alarming that 4.8 per cent. of under-16s from black ethnic minorities are engaged in problem gambling with scratch cards.
Camelot is promoting scratch cards, which is why sales of scratch cards went up over the past six months while sales for the main lottery draw went down. We know that young people have the highest propensity to purchase scratch cards. It is not an exaggeration to say that we are now looking at state sponsorship of underage gambling. Such gambling is becoming worse, and it will become worse still if pressure is put on small retailers to attain minimum sales targets. How will they be able to increase their sales? They will be under tremendous pressure to sell more Instants scratch cards to the user group that enjoys them, namely the under-16s.
The issue is important, and is relevant to the retail review. Camelot has informed me that, in my Christchurch constituency, not one lottery retailer has lost his licence as a result of selling scratch cards to under-age people. However, I doubt whether that is the position throughout the country.
At page 413 of his autobiography, John Major wrote:
"The lottery has achieved so much in a very short period of time: arts centres here, new sports complexes there, restored churches, new village halls, festivals, new instruments for orchestras, cycleways, inner city parks and a thousand other benefits that give a new lease of life to all those Burkean 'little platoons', who make our country what I believe it to be: the best place in the world in which to live."
Recent experience in my constituency shows that the lottery is no longer delivering that vision. The current pressure from Camelot on small retailers and its monopolistic resistance to competition from society lotteries will be a further blow to the "little platoons".
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Mr. Richard Page: I congratulate my hon. Friend the Member for Christchurch (Mr. Chope) on securing the debate. I do not know how long it took him to obtain an hour-and-a-half debate, and I do not want him to tell me, because the last time that I tried to achieve such a debate, it took me about six months and that burnt on my soul.
I have always been a firm supporter of the lottery. Having been in the House for several years, I have discovered that if I stand still long enough the wheel will turn and the same scenery will go by again, at which time I can evaluate and compare what happened the previous time with what is being proposed now. At the time of the first contest for the lottery licence, I studied all the applicants. Without any doubt, Camelot was the most efficient and effective. It presented its case in the best manner. The worst applicant was the noisiest, and I leave it to hon. Members to work out which one that was. I had an added interest in that at least two of the applicants were to establish their headquarters on the edge of my constituency between Rickmansworth and Watford. I hope that they stay there for a considerable time.
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Camelot's is one of the world's most successful lotteries. Apparently, it launched itself to the outside world without a hitch and it worked smoothly. It then started to be knocked in the media, because it had brought out some of the worst characteristics of the British. The lottery was not knocked because it was doing so well, but some of the personalities involved were criticised for unjustifiable reasons. A characteristic of the British is that, if someone does well at something, we must have a go at it. However, I am wearing my Christmas tie, and given that seasonal charity has overcome me, I shall not labour that point.
I worried from the start about the Government's action, which widened the scope on which lottery moneys could be spent. My hon. Friend the Member for Christchurch touched on the expenditure on the dome. If anyone wanted to be turned off buying lottery tickets, to see the money squandered in such an horrendous fashion was ample justification for that. We do not know exactly what is happening about the dome's future—whether it has been given away or it is a special deal. We would love to hear the inside story. Perhaps the Minister will bring us up to date—and get himself some headlines—but I have a funny feeling that he will avoid discussing that problem.
The lottery suffers because it has a series of distribution bodies—they are listed in a document that Camelot has sent to hon. Members. All those bodies run publicity schemes and profiles, in which they seem to go out of their way to say, "Actually, our money comes from the national lottery." They seem to present it as their money, which reminds me of the way that the Millennium Commission—that glorious success—spent its money.
A parallel can be drawn with the European Union. When one drives around certain parts of the country, one sees lots of big blue boards adorned with a circle of gold stars and the slogan, "Project funded by the EU." There are never any brackets underneath containing the message, "By the way, it is your own taxpayers' money coming back to you." Similarly, some of the distribution organisations associated with the national lottery are not fulsome about stating that they are fuelled by lottery money—good causes money.
I have a wish list. The operation of the application process for the second licence was a shambles, and we must thank Lord Burns for rescuing the day by producing a result that got everything back on an even keel. We must ensure that that does not happen again. I do not know whether that can be achieved through the review of legislation that will take place, or through some form of internal diktat; I leave that decision to the Government. However, I wish clear-cut rules and procedures to be established before the third round of licensing applications takes place, because we cannot allow that appalling situation to occur again. It put the future of the lottery in doubt, and it did not give it a good image. That had nothing to do with the applicants for the licence; it was caused by the Government's attempt to control the way in which the licence was allocated.
Let me deal with new licences and the issue of timing. When the licence comes up for review, the entire staff of the operating company—which, in this case, was Camelot—get jittery about their future. Immediately before the review of its licence, Camelot had to spend a

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lot of money on bonuses to stop people going when it was thought that the company might lose its licence. Would it be possible for the people in charge of the application process to have closer discussions with the lottery operator, in order to reassure those working for it? Perhaps the new operator should be chosen much earlier, so that it could promise the old operator's staff jobs. That would ensure continuity of, and greater security for, staff.
Although I have been critical of the Government, I now congratulate them on going ahead with the betting review by sir Alan Budd, because it is excellent. Slot machines are the only problem. If that aspect were allowed to come through, it would ruin every British Legion club in the country.
The Minister for Sport (Mr. Richard Caborn): And Conservative clubs as well.
Mr. Page: The Minister is right: it would have a little impact on Conservative clubs as well. Perhaps there are slot machines even in Labour clubs, though not as many. [Interruption.] I am sorry, Mr. Amess, I am suffering, and I am finding it hard to go on because of my voice.
Gambling is a billion-pound industry throughout the world. This country has some of the most reputable bookmaking systems in the world and could receive a big chunk of overseas business.
Miss McIntosh: Does my hon. Friend share my embarrassment for the Minister, who, after a debate on the subject, felt unable to visit the Labour clubs in his area because of the validity of that point? He was too embarrassed to go.
Mr. Page: I thank my hon. Friend for causing what is known in American football as "interference". It gave me a chance to take a sip of water and get my voice back.
This country has a reputable gambling industry, and it is a business that can go forward. I welcome Sir Alan Budd's work on that industry and should like to make a couple of points before I collapse. First, the lottery operator should not be blamed for a fall-off in sales. If extra gambling opportunities are introduced, those should be taken into account. Secondly, Camelot should rethink its review of the retail network, because in some villages, just as the post office is under attack, the removal of lottery machines from small shops would have a disastrous impact on village life, which we want to keep going.
I have no objection to competition in the gambling industry—that is part of the industry's ethos—but I am concerned about side betting, which rides on the lottery's work and profile. Side betting would be damaging for Camelot and any other lottery operator. Only in Ireland is it legal; in the rest of the world, it is not.
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Nick Harvey: In introducing the debate, the hon. Member for Christchurch (Mr. Chope) focused on three issues: retail distribution of lottery tickets, under-age purchase of tickets, and the Budd report. I shall comment on each of those.
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The National Lottery Commission grants Camelot a licence that requires it to provide a terminal for each postcode district within which there are at least 2,000 residents. Camelot must also make available for public inspection its criteria for selecting, or deselecting, the retailers that it uses. It is up to Camelot to exercise its commercial judgment in applying those criteria, and the commission is responsible for overseeing that.
It is legitimate for the hon. Member for Christchurch to raise the specific example of Mr. and Mrs. Smith of Ferndown or any other example. However, whether the Minister can reasonably be held accountable for every decision that Camelot makes in exercising its commercial judgment is another question. I look forward to hearing what the Minister has to say about that.
There are 25,000 online lottery terminal operators and a further 10,000 scratch card retailers, so it is fair to say that Camelot reaches most parts of the country. Particular provisions are in place for sparsely populated areas that might not otherwise fulfil Camelot's commercial criteria. Reference has been made to the award of the second licence and certainly, as the hon. Member for South-West Hertfordshire (Mr. Page) said today, and as the Select Committee said at the time, that process was a shambles. The national lottery licence is a licence to print money and is, in that sense, a state-backed monopoly. It is interesting that the main business of De La Rue—one of the major stakeholders in Camelot—is printing money. The licence requirements must be taken seriously and drawn up carefully.
Despite the criticism that it has attracted, notably for some of the payments made to its directors, Camelot is one of the best lottery operators in the world. I noted the criticisms made by the hon. Member for Christchurch, but I am not sure that they are fair. A 1998 survey showed that Camelot was returning more to good causes—and, indeed, to the Treasury—as a percentage of sales than any of the other 34 lotteries that were monitored. The salaries of its board members have been trimmed. Despite falling sales, the proportion of income that goes to good causes continues to increase. As part of its social and ethical audit, bonuses have been reduced to a uniform level and linked to the national lottery distribution fund. Camelot operates on a margin of 1 per cent. That is worth remembering when people criticise it.
Despite its problems, Camelot has been a successful operator and it is against that background that we should judge the proposals in the Budd report. The hon. Member for Christchurch welcomed its recommendation that the monopoly should be broken, allowing others to compete with Camelot. Camelot has been stoically defending its position, and has argued that exposure to competition would be unwelcome. I urge the Minister to weigh up carefully that argument before proceeding.
The hon. Member for Christchurch was cavalier in his dismissal of Camelot's argument. I do not swallow hook, line and sinker everything that Camelot has said in its defence, but there are arguments that need careful consideration. A deregulated lottery market would probably be dominated by large national organisations with the means to invest in the relatively high capital and operating costs, and the strength to compete with the

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national lottery. The Budd report recommends that commercial companies should not be allowed to operate in competition with the national lottery. However, charities that are large enough to do so on a meaningful scale would, to all intents and purposes, be operating in the same way as a commercial company.
Camelot passes on a high percentage of its revenue to good causes. The Budd report proposes that competing companies would be required to guarantee distribution of 20 per cent. of their ticket sales. That is considerably less than the 40 per cent. that Camelot distributes. There is a genuine threat that, in total, the sums that find their way through to good causes would be smaller. Even if the variety of good causes that were benefiting was more widely drawn than at present, we risk diluting what we can achieve with the moneys.
Mr. Chope: I know that the hon. Gentleman listened carefully to what I said. In Christchurch, significantly less than 5 per cent. of gross sales is being returned to recognised good causes in the local community. Does the hon. Gentleman accept that it would be much better for the people of Christchurch to have the option of spending money on a lottery that delivered 20 per cent. for local good causes, as opposed to less than 5 per cent.?
Nick Harvey: Possibly, but not necessarily. The hon. Gentleman divided the revenues into equal amounts for constituencies and said that his constituency had benefited from less than 5 per cent. of the whole. If his constituency has been badly served by the distribution bodies, he and other public authorities should set about those distribution bodies with their cudgels. If the market were completely liberalised, the critical mass of the national lottery would be diminished and smaller proportions of ticket sales would go to charities as a whole. Thus there is no guarantee that the recipients in Christchurch would receive more than they do at present. On balance, it sounds as though the hon. Gentleman's constituency has been rather badly served by the distribution bodies. His energies might be better devoted to that end of the equation and to breaking the critical mass that the national lottery currently involves.
Camelot estimates that adopting the proposal could result in a loss of more than £1.28 billion to good causes. I am not taking its brief and suggesting that that figure is necessarily absolutely correct. I have no doubt that we shall take such matters with a pinch of salt. However, a substantial loss on that front seems possible.
The second report was on side betting. I do not know about the impact of that aspect. Clearly, it will divert some of the money that players currently pump into the lottery. The disadvantage is that none of that money will go to good causes, and not much will go to the Treasury, either.
Mr. Page: Unfortunately, I did not have the stamina to develop the point about side betting. There is probably more clear evidence in that case than in any other of the effect on Camelot. We have the Irish experience to draw on, and we are looking at a considerable reduction of some 20 per cent. The hon. Gentleman may agree that the only way for side betting to continue is for people to have to pay Camelot for a licence to side bet on its numbers.
Nick Harvey: It is an interesting proposition that that is the only way to guarantee that some of the money will be invested and ultimately go to good causes.
The third recommendation of the Budd report was a universal minimum age of 18 for all gambling. As the hon. Member for Christchurch said, young people are becoming addicted to the purchase of scratch cards. There is no doubt that that is a serious problem. In 1997, a hotline was established for those who suspect retailers of selling tickets to under-age players. The commission has discussed with Camelot how to patrol the matter, and Camelot is committed to 10,000 under-16 tests on retailers in the forthcoming year. Retailers must fill in a refusal register every time they turn away what they suspect to be an under-age player.
Serious issues are involved. We are all aware that the proceeds of the national lottery are waning and diminishing. I do not believe that anyone seriously blames independent retailers for that, as the hon. Member for Christchurch suggests. Whether those diminishing sales would be combated by competition, and whether people would be willing to donate more if they knew which cause their money was going to, are issues that are worth debating. However, I urge the Government to proceed with caution.
Another option is simply to increase the number of terminals. However, we must recognise that that would have serious cost implications, and whether it would pay for itself is a matter of doubt. Camelot must remain commercially viable, and in terms of extra sales it simply would not be worth connecting a huge number of extra terminals if only a small number of people used them. As I said, Camelot ring-fences up to 1,000 outlets in which the terminal allows a small business to serve a community as a shop or other useful commercial premises. That is very much appreciated, especially in constituencies such as mine.
I look forward to hearing the Minister's response. Clearly, not all is entirely well with the operation of the lottery, but Camelot has, I believe, been a successful operator. The licence conditions under which it operates are legitimate matters for us to debate, but I do not believe that some of the criticisms of it have been entirely fair.
11.49 am
Miss Anne McIntosh: I am grateful for the opportunity to wind up for the official Opposition. I am delighted to see the Minister in his place, and it would be most welcome if he would also respond to the points that I made in a previous debate on the Budd review. I shall certainly give him plenty of time to gather his thoughts.
I congratulate my hon. Friend the Member for Christchurch (Mr. Chope) on securing this welcome and timely debate. He has raised a number of very important issues, which I hope the Minister will address. It is also a pleasure to follow my hon. Friend the Member for South-West Hertfordshire (Mr. Page), who made some excellent points. The hon. Member for North Devon (Nick Harvey) might not realise that my married name is Mrs. Harvey. It is probably a good thing that I am speaking today under my maiden name, as that will avoid any confusion between the official Opposition and the rest

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I should declare an interest in respect of the lottery grant funding—almost £6 million—that the Vale of York has been fortunate to receive to date. The manual that we received this week from Camelot was impressive, and in that regard I am grateful to the previous Conservative Government. The lottery was a great Conservative initiative, and it is pleasing to learn that the hon. Member for North Devon shares the view of the official Opposition that it has been a huge success. It has made a significant contribution to sport, the arts and local initiatives.
A fundamental Conservative principle, which we always followed, was that good causes such as health and education should not be funded by taxpayers' money that they otherwise would not receive. In setting up the lottery, we had two guiding principles: arm's-length operation, free from Government interference; and additionality, whereby any money was additional to Treasury expenditure. It is with regret and disappointment that I record that the Labour Government reversed both those principles in their first term.
The renewal of Camelot's licence, over which the former Secretary of State for Culture, Media and Sport presided, proved shambolic. The 1997 Labour party manifesto—that dreadful document—states:
"When the current contract runs out, Labour will seek an efficient not-for-profit operator to ensure that the maximum sums go to good causes."
In January 1999, the former Secretary of State appointed a National Lottery Commission to oversee operation and regulation of the lottery, and to choose the next licence holder. The commissioners took up their posts on 1 April—a noteworthy date—1999. The Government then reversed their pre-election pledge and ruled that the next operator would be allowed to make a profit.
Mr. David Amess (in the Chair): Order. Those responsible for recording our proceedings advise me that we are not making ourselves clearly heard. If hon. Members could speak directly into the microphones, such technical difficulties might be sorted out. The problem has probably been exacerbated by the fact that various hon. Members have had difficulty breathing.
Miss McIntosh: I shall endeavour to be even more robust in my delivery than usual, Mr. Amess, and I hope that the technical difficulties will be dealt with as soon as possible.
The most shambolic of licence procedures was then adopted. The National Lottery Commission announced that neither the new applicants, The People's Lottery, nor Camelot, the then licence holder, would be awarded the next licence. Only the People's Lottery was allowed to proceed, and it had one month in which to improve its bid. Camelot then took the commission to the High Court, and won its case. It was not until 19 December 2000 that Camelot was eventually awarded the licence.
It matters not to me in which direction the Minister cares to look, but he cannot ignore the implication for good causes: that in future, the Government must respond by having a mechanism to protect lottery good
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causes from legal action. He must also recognise that the 5.4 per cent. slide in ticket sales—a reduction to £2.4 billion in the six months to 30 September—has had a knock-on effect. Camelot attributes that to the controversial licence competition and warns of a further decline for the second half of the year, up to 31 March 2002.
Hon. Members have referred to a threat. I would formulate it differently from my hon. Friend the Member for Christchurch, but I believe that the Budd review places an enormous dilemma before the Government. It is not for me, as a member of the official Opposition, to provide the answers. I merely humbly submit to put the questions. How will the Minister resolve the dilemma? In the Vale of York, the projected loss over the initial seven-year licence period alone would be almost £800,000. Projected lottery sales nationally would be £51 billion—a 13 per cent. reduction as a result of the gambling review.
Mr. Chope: Before my hon. Friend accepts hook, line and sinker the quotation from the letter about the Vale of York, will she compare the figure of £6 million, which I think she said good causes there have received from the lottery so far, with total sales in her constituency of more than £50 million? The good causes there have been getting far less than the 20 per cent. minimum that would be required were there a society lottery instead.
Miss McIntosh: My hon. Friend raises a pertinent point, and I accept what he says. However, no matter how frustrating we might find its conclusions, we are looking at independent research commissioned by the Henley centre and PricewaterhouseCoopers, which developed models to predict the impact of the recommendations of the gambling review. I shall say later why I think that there might be further losses in ticket sales.
The independent research brought to our attention this week, in excellent timing for my hon. Friend's debate, suggests that the good causes will lose £2 billion nationally during the seven years. I entirely accept the arguments of my hon. Friends the Members for Christchurch and for South-West Hertfordshire that there are many good recommendations in the Budd report. That was the subject of a separate debate, and we look forward to hearing more on it. However, we must not lose sight of the losses mentioned by many hon. Members in that debate, which could have a huge impact, especially on seaside resorts. They have suffered a huge fall in income from tourism generally this year.
Mr. Chope: Is my hon. Friend completely discounting paragraph 35.9 of the Budd report? It says:
"The effect will largely be a shift from good causes supported by the National Lottery to other good causes. The effect on total income for good causes will depend on any differences in the proportion of lottery proceeds paid out".
It suggests that there will be no significant effect on good causes overall, just competition among good causes.
Miss McIntosh: That is very interesting, and the Minister must weigh up any disagreement between the conclusions of the Budd report and those that face us today.
Mr. Caborn: The hon. Lady was asked the question.
Miss McIntosh: The Minister challenges me, and I shall respond to that by using some figures with which I was provided by the Library in preparation for today's debate. The figures make no recognition of any contribution that was the subject of the gambling review. I could almost argue for a different debate, but I would hate to see my hon. Friend ruled out of order. The figures provided by the Library compare national lottery sales with those of leading market brands sold through normal retail stores. National lottery sales, at £4.532 billion, top the table, followed by Coca-Cola with £640 million, closely followed by Instants with £561 million. I share those figures with hon. Members as I welcome Mr. Conway to the Chair.
How will the Government respond to the drop in sales? Will the Minister specifically consider the impact of the new opportunities fund? This is a classic case of the Labour Government raiding the lottery and taking money away for purposes such as sport, the arts and village hall projects. I have heard about several applications that have regrettably been turned down by the community fund because the money is no longer available under the national lottery. Many such bodies fear that there will be even less money in future. The new opportunities fund is being used to distribute money to pay for Ministers' pet projects in health, education and environmental projects. It takes 13 per cent. of lottery money, and that will rise to 33 per cent. once the Millennium Commission has been wound up. One third of all lottery income for good causes will be siphoned off to Labour's pet projects.
The Government must be aware that they are seen to be increasingly prescriptive about how lottery money is distributed. They are dictating strategies and priorities to bodies that are meant to be independent. To take sport as an example, Sport England will be made to ring-fence 20 per cent. of lottery funds for allocation to youth sport, the bulk of which will be spent in schools. That amounts to putting £750 million into school sport over three years. That approach is wrong. Using the lottery to fund health projects means that it works like a regressive tax, for the simple reason that poorer people spend disproportionately more on the lottery than wealthier people. Moreover, lottery money was meant to provide additional funds to the Treasury, not to substitute funds that would otherwise be spent by the Treasury.
I shall conclude in order to give the Minister ample time to respond both to this debate and to the comments that I made in the Budd recommendations debate a short time ago. The debate is timely and I congratulate my hon. Friend the Member for Christchurch on securing it and on introducing it so eloquently. He was ably supported by my hon. Friend the Member for South-West Hertfordshire and gained the recognition of the hon. Member for North Devon regarding the success of the national lottery.
The debate raised several issues to which the Minister must respond as a matter of urgency. First, the loss of ticket sales must be reversed. Last year, the shambolic licensing procedure led to six wasted months, uncertainty, legal action and the resignation of two commissioners. Secondly, the potential loss of lottery money to good causes through the Budd recommendations poses a dilemma. Thirdly, the new opportunities fund substitutes Treasury expenditure
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rather than adding to it, and the Minister must accept that that was never the original intention of the national lottery.
12.4 pm
The Minister for Sport (Mr. Richard Caborn): I have enjoyed the debate because it has shown the great divisions between Opposition Front Benchers and Back Benchers. It was quite enlightening. I have no doubt that those differences of view about how the lottery should be run will be taken into consideration when we carry out the various reviews.
I thank the hon. Member for Christchurch (Mr. Chope) for allowing us to debate this important subject, as it gives me the opportunity to put one or two things on the record. I had understood that the debate would be about Camelot's licence, not the Budd report or the distributing bodies. That is what I shall respond to, although I acknowledge that there are wider concerns.
The hon. Member for Christchurch cited three major capital projects: the dome, the royal armouries and the national stadium. All of those were set up in terms of the major capital spends while his party was in government; it was not this Administration who set them in train.
Mr. Chope: It is certainly true that the original sum of money for the dome was established under the Conservative Government. However, the money that was put in subsequently—about a 50 per cent. Increase—which was then qualified by the auditors as being not good value for money, was put in at the insistence of the Labour Government.
Mr. Caborn: The hon. Gentleman might be able to enlighten the Chamber about the national stadium and what his Government did in 1996, and about the armouries. However, perhaps we should leave that for another debate.
There have been many references to the Budd report, and we are considering all the responses to it. It would be premature for me to second-guess what the conclusions will be. We have had a good debate on that as part of the consultation process. We allowed three months for the consultation and made no comment on the Budd report, or the commission's recommendations to the Government, which we put into the public domain. As the hon. Member for Vale of York (Miss McIntosh) said, we have had discussions here in Westminster Hall, and questions have been asked on the Floor of the House. All of that will be factored in to our conclusions. We have given an undertaking that early in the new year we shall come forward with both our considered reply and a timetable for implementation. I have no doubt that there will be further discussions on the conclusion that we draw.
Many of the comments made today have been about the implementation of the Budd report, yet it will not necessarily be implemented in its entirety. It makes recommendations to the Government, but we are mindful of the fact that the lottery could be affected, as the hon. Lady said.
It is amazing how people become such experts on these issues. I was interested to read Polly Toynbee's article in one of our national newspapers. I had never

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realised that she was such an expert on working men's clubs, but obviously people read up on those issues from time to time, even if they do not experience them. I read her article with interest, as I did the Henley report and other submissions that have been made. There is no doubt that this is a serious issue, and the Government are taking it seriously in responding to the Budd report.
This morning's debate has clearly shown that there are differences in approach to the national lottery, vis-a-vis Budd—even within the Conservative party. I accept that that is quite genuine, and we shall take it into consideration.
Mr. Chope: Does the Minister agree that the debate is not so much between individual members of the Conservative party, but between those Members of Parliament whose constituencies have received far less of the pro rata return from the good causes fund?
Mr. Caborn: If the hon. Gentleman wanted to discuss lottery distribution, he should have made that the subject of the debate. I understood that the subject of the debate was Camelot's licence. Camelot has no responsibility for distribution, which is dealt with by the national distribution bodies. If one wants to criticise distribution, that is fine and justifiable, but it is the not the subject of today's debate.
Mr. Chope: I take the Minister's point, but surely the national distribution bodies are independent of the Government. My concern is that, because of the way in which they operate, they create a disincentive for my constituents to use the lottery.
Mr. Caborn: There is an old saying: one should throw the shovel away when one is in a hole. Whenever the hon. Gentleman wants to introduce a debate on the distribution of national lottery funds, that will be fine and I shall debate it, but it is not the subject of today's debate. The debate is about Camelot's licence.
I give credit to the previous Administration for introducing the national lottery. It was not popular at the time, but since 1994 it has probably become the most successful lottery in the world. Many people have gained from it and nearly three quarters of the population of the United Kingdom participated in it last year. That shows its popularity. I do not think that those people play for good causes—they play to win—but that nevertheless provides a good mechanism for producing the £10.5 billion that has been raised over the past seven years, which is commendable. That income may not be protected, in the strict sense of the word, but we want to ensure that despite modernisation—and regardless of what happens about the Budd recommendations—such income is maintained for good causes. We shall take that point into careful consideration when we review the Budd report.
The success of the lottery to date has not been inevitable or preordained, so credit must be given where it is due. A key point about the lottery is that the operators operate at arm's length from the Government. The hon. Member for Christchurch did not factor in the new role of the National Lottery Commission. The
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commission was created under the National Lottery Act 1998 to take over the functions of the former director general of the National Lottery. Its statutory duties are to ensure that the lottery is run with due propriety and that the interests of players are protected. Subject to those two conditions, the commission also has a duty to maximise the returns to good causes.
Exercising its own independent judgment, the commission awarded the second licence to operate the lottery to Camelot 12 months ago. We all remember the difficulties and I acknowledge, as the hon. Member for Vale of York said, that they undoubtedly did a lot of damage to the lottery. One can see how ticket sales fell off. The procedure was not good and we must review it, but although the damage was considerable, we have come through it. It is true to say that lotteries need to refresh themselves from time to time, and have new innovations and creativity. The debacle that took place during the awarding of the licence damaged the lottery, but I hope that it is now recovering. Many people jumped on the bandwagon of bashing Camelot and the lottery, which was unjustifiable at that time.
The licensing included not just a choice of operator, but the terms and conditions of licence. The new seven-year licence starts at the end of January 2002 when the current interim licence expires. The new licence includes a number of changes, which the commission believes are significant improvements. The most noteworthy change addresses the incentive for Camelot to increase sales to maximise the proceeds for good causes. I am concerned, as is Budd, about young people having access to gambling, and that has been acknowledged through the new licence. I remind hon. Members that Camelot must establish at least 10,000 under-16 tests each year and the commission can increase that number if it can show grounds for doing so. There is a minimum threshold, and a regulation that relates to young people having access to the lottery and scratch cards, and I know that Camelot will take those seriously.
The gambling industry now recognises the problem of under-age and problem gambling. The Budd report recommended that a charitable trust of £3 million be set up and I am pleased that the industry is now responding positively. It has set up the trust, in which the whole industry is participating, and I understand that funds are approaching £1 million. The gambling industry, including Camelot, is being socially responsible and wants to find the cause of under-age and problem gambling generally. The hon. Member for Christchurch referred to under-16s having access to the lottery. Camelot will take that seriously in the new licence and I know that the commission will be watching what it does.
Mr. Chope: What will the sanction be if, as happened between 1997 and 1999, under-age sales of scratch cards increase?
Mr. Caborn: I imagine that the commission would take whatever action it has the power to take. I do not know exactly what that is. If it believes that its power is not strong enough and young people continue to have access to the lottery, doubtless the commission will bring that to the Government's attention. We would then have to consider how to strengthen that power in any subsequent licensing. The concern relates not just to the lottery and Camelot; the Budd report raised a wider

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concern and the industry is responding to that. The discussion will continue and I hope that we shall eradicate the worst excesses to which the hon. Gentleman referred.
If Camelot's after-tax profits exceed those in the principal forecast included in its bid, the excess will be shared evenly with the national lottery distributors fund. Pages 23 and 24 of the commission's annual report for 2000–01 includes a table listing other improvements, which covers issues ranging from advertising to intellectual property to software testing. The important point is that Camelot will have even more incentive than previously to increase sales. However, the licence to run the lottery does not set the terms of the relationship between Camelot and the network of retailers. That is essentially a commercial relationship for Camelot to manage. Approximately 24,750 retailers have an online lottery terminal and around 10,400 sell scratch cards only. Camelot estimated that 94 per cent. of the population live or work within a couple of miles of a lottery outlet. Retailers take about £250 million a year in commission on national lottery sales, which is approximately 5 per cent. of total turnover.
In its bid for the second licence, Camelot set out plans to review its network of retail outlets. As part of that process, it intends to introduce an improvement programme, which will take account of consultation with the commission and its own retail forum. It will introduce a minimum weekly sales target of £1,500 for online ticket retailers. The target is a weekly amount of sales, covering all national lottery games, which each retailer will be expected to meet or exceed. Each outlet's sales will be averaged over 13 weeks to determine whether it is performing under or over the minimum weekly sales target. That will ensure a reasonable spread of sales, levelling any unusually high or low performance.
Retailers performing below the expected level will be placed on a sales improvement programme lasting 24 weeks, during which time they will receive practical advice, assistance and support from Camelot staff. The hon. Member for Christchurch was derisory about that, but he then said that we should help retailers to sell more tickets.
Camelot is being responsible and allowing a fair spread of time in which sales can take place. If they are not sufficient, Camelot will try to help the retailers by sending its experts to assist, and there is nothing wrong with that. That is welcome because it covers issues such as shop layouts, staff training and increasing sales. After an initial period for retailers to implement their improvement plans, Camelot intends to monitor sales on a weekly basis for about 16 weeks. It has made its expectation clear: that sales should achieve the £1,500 a week target over that period, and that it will give notice of termination to retailers who fall short of that. The period of time and the consultation are both reasonable. One hopes that it will be a win-win situation, because if a retail outlet can be improved in terms not only of lottery ticket sales but of activity in the shop, the retailer will be in a better position.
Mr. Page: I thank the Minister for giving way. I agree with everything that he has said, and I understand that Camelot wants greater efficiency and through-put—amen to all that. However, in small villages with limited
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populations, retailers cannot generate sufficient sales to meet Camelot's criteria. If those outlets close, we shall be confronted by the post office argument.
Mr. Caborn: Camelot has said that it will take account of mitigating circumstances, such as those mentioned by the hon. Gentleman. Certain categories of retailers will be excluded from this exercise, and Camelot is committed to ensuring that the isolated communities to which he referred continue to have access to the national lottery. It has made provision to ring-fence up to 1,000 "community outlets", which will not be subject to the general sales target, and it has identified several other special cases.
Camelot has established arrangements under which retailers will have the opportunity to ask an appeals panel to review a decision to terminate their agreement, which means that there is a safety mechanism in the system. That will be an internal company procedure, but Camelot intends to make it fair and transparent. I have described the intended measures, but I must make two points about them. First, these are not matters for the Government to approve or disapprove. Secondly, the measures appear to be consistent with the commission's aim in setting the new licence terms of getting Camelot to focus on sales improvement. The new licence will be the basis for operation of the lottery over the next seven years.
The Government have decided that it is time to reconsider the licensing structure and system, because we want to ensure that when it comes to the third licence there is effective competition. There are several options for change, some of which would involve legislation, but I said at the outset that the lottery has been successful and we want to keep it that way.
Mr. Chope: The Minister has been generous in giving way. He seems to accept that it is reasonable for Camelot to impose a £1,500 minimum for sales. If the objective is to increase sales, Camelot should tell all its retailers that they must increase sales by 10 per cent., rather than expecting small shopkeepers to increase their sales by as much as 50 per cent., which is surely unreasonable.
Mr. Caborn: Ultimately, those are commercial judgments, and the Government do not interfere with them. The hon. Gentleman is being hypocritical: on the one hand, he is arguing that the Government should get out of the lottery; on the other, he is trying to get the Government into it. The Government are not involved and it is a commercial decision. We have imposed conditions on Camelot through the commission, and the system is fair and transparent. If difficulties arise, there are several safety valves in the system that his constituents can use.
The commission oversees the operation, and I hope that Camelot will increase sales because that will benefit everybody. An increase in sales of lottery tickets could mean an increase in activity for individual retailers.
Miss McIntosh: When the Government consider the national lottery review, will they bear in mind that the thrust of proceeds to good causes should be shifted from major national projects to smaller projects, especially those that will have an impact on local communities?
Mr. Caborn: Although we have been criticised this morning for our actions, the hon. Lady will know that, since we came into power, we have moved significantly from capital to revenue. One of the present difficulties is the major capital investments that were made in the past with lottery money. I am not criticising the Conservative Government; what they did at the beginning was fair, but we have now reviewed the matter and have moved to a position where capital is 49 per cent. and revenue is 51 per cent. We have moved from big projects, such as stadiums, domes and armouries, to local schemes that deal with the needs of the community.
I do not disagree with the hon. Lady. We shall continue to take such action, but such a transition takes time. There has been a significant change from capital to revenue, from large to small. Although the new opportunities fund has been criticised this morning, it takes account of what is happening at the grass roots and is responding to that, as did the coalfields community fund through the lottery.
As for changing the licence, we shall consider what has been said this morning and what will be said in other debates. It is in everyone's interests to ensure that the lottery is successful. We have been through the debacle of the licence, which did neither the lottery nor good causes any good. That can be in no one's interests, and we must get it right next time. We shall consult on such matters; we shall listen to what people say and incorporate those views into our decisions.

Euro
12.26 pm
Mr. Graham Allen: It is a great pleasure to serve under your chairmanship, Mr. Conway, in such an important debate. It seems that we have had the mantra about the euro—the referendum and the five tests—for ever. It has been necessary and important. I do not underestimate it. However, the introduction of the euro on mainland Europe and its creep into the United Kingdom must be taken into account.
My right hon. Friends the Prime Minister and the Chancellor of the Exchequer need to discuss the new situation and to agree a new way forward. Incidentally, I hope that they disagree. It is ludicrous for the media to pretend that Britain's two most powerful political personalities, when discussing the most important issue before the nation, will synchronise immediately. I hope that they have serious discussions, and as an adult, I expect them initially to disagree, but then to reconcile their views. I hope that we all play a mature part in those discussions and I appeal particularly to my friends in the media to allow a sensible debate to take place.
History offers the Government a chance to consider soberly a subtle addition to the black-and-white choice of joining the euro outright and abolishing the pound, or rejecting the euro and clinging to the pound. That has hitherto been on offer at the end of the barrel of a referendum. I propose instead that the euro be accepted in our economy as a parallel currency to the pound, to be used by businesses and customers—by choice—in the marketplace. That proposal would offer significant advantages to the nation, to businesses and to our economy. In addition, it would avoid major political and economic risks that are associated with joining the euro outright in one fell swoop.
The process of creating a parallel currency has already begun. A recent survey showed that 83 per cent. of retailers in tourist areas will accept euros. Remarkably, those retailers include such normally anti-European retailers as Dixons and JD Wetherspoon, as well as household names such as Marks and Spencer. At Sainsbury's, the euro coin will release a supermarket trolley.
I have tabled questions asking whether Parliament's bars and canteens will accept euros in the new year, and whether Members of Parliament or even Ministers could be paid in euros if they wish. The London Eye will accept euros, although Buckingham palace still requires convincing. In Northern Ireland, where businesses have been working with two currencies for many years, the Assembly takes it as read—a couple of weeks ago, there was a debate there not dissimilar to this one —that there will be a parallel currency. Businesses currently work with pounds and punts, but after 1 January, that will be pounds and euros. According to a recent survey in Marketing, two thirds of electors think that it would be useful and appropriate to have dual pricing so that the price of goods in our shops is shown in euros and pounds.
This time next year, everyone will have been on their continental holiday. Everyone will have bought their margaritas by the pool using euros, whether they went to Greece, Italy, Spain, or anywhere else in Europe.

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That will turn this year's euro fear into next year's cool fashion accessory. can imagine you Mr. Conway, in the bars—not that you frequent the bars—paying proudly with your new, crisp and colourful euro notes and expecting, or even requesting, that your change be given in euros.
Of course, it is open to any business in the United Kingdom to accept any currency, be it dollars, yen or Guatemalan quetzals. Will our Government nimbly respond to the changing situation and encourage, or discourage, the process? Alternatively, will we sit tight and marooned as events change around us and we keep our euro mantras intact? Can we get our act together sufficiently to respond to the new situation?
Our Government should not sit and watch as the situation develops. We should go with the flow and encourage and support the changes. For example, for a small outlay, we could issue free pound to euro calculators to every household and school in the UK. The French chambers of commerce did that successfully. If hon. Members went to Calais to do Christmas shopping over the past two years, they would have found people proudly holding French chamber of commerce euro calculators.
Mr. Kelvin Hopkins: Will my hon. Friend give way?
Mr. Allen: I will, but I ask my hon. Friend to allow the Minister plenty of time to reply.
Mr. Hopkins: How would my hon. Friend's system work if there were significant fluctuations in the exchange rate between the euro and sterling? If he proposes a rigid, fixed exchange rate, will that put us back into the exchange rate mechanism and effectively inside the euro?
Mr. Allen: I will deal with that question later. Economic arguments are on my website, which I shall give details of later. The precise answer to my hon. Friend's question is that I would expect individuals to deal with the market rate on a per day basis. Indeed, it may be possible for entrepreneurs, be they landladies of a boarding house or arbitrageurs of the City of London, to make a turn on the exchange rate. That may be more encouragement for those who want a dual currency in the UK.
Last week, I introduced the Euro and Sterling Choice Bill. The Bill provides for the Government to make the euro legal tender alongside the pound for the settlement of debts above a certain value. It also provides for dual pricing in pounds and euros of goods and services above that value. The choice of the value is left to Parliament and the Government. Initially, I would envisage a level of £1,000 to exclude everyday transactions in shops and vending machines. However, the level would be sufficiently low to include financial purchases such as cars and consumer durables. Dual pricing would help us to discover the often cheaper prices that are available elsewhere in the European Union. When people travel next year and compare the euro price in a showroom in Athens or Madrid with the euro price in the UK, that will have a beneficial downward effect on consumer prices in the UK, which all too often are concealed
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behind the myriad exchange rates in Europe. Parliament would be free to lower the £1,000 figure if and when business and consumers—without being forced or pushed—welcomed and started to use the euro and wanted to extend its use. My Bill would also provide Government help for businesses and consumers who want to take advantage of the euro as an alternative means of payment.
Some hon. Members may find the idea of a parallel currency inconvenient or even outlandish. In fact, it is extremely commonplace. All over the world, businesses operate routinely with a parallel currency. Some of those businesses are tiny and their owners and employees have little formal education. If a street trader in India can switch effortlessly between currencies, it should not be impossible for British businesses to do likewise.
The motive for accepting another currency is simple and universal—to make more money. A parallel currency and a legal framework for using it are not an inconvenience to business but a resource. British businesses and British people are capable of using more than one currency if they wish. They should be allowed and encouraged to discover for themselves whether the benefits outweigh the costs.
Serious risks are attached to going cold into the euro and abolishing the pound without effective familiarisation beforehand. The political risks begin with the need to pass a referendum Bill. In that regard, I am happy no longer to be in the Government Whips Office. I may be wrong, but I suspect that the Leader of the House and the Home Secretary are not exactly gagging for the challenge of putting that Bill through Parliament. It will have a difficult passage through both Houses, delay more important and popular legislation, and expose the Government to endless argument and recrimination over the perceived fairness of the referendum question and procedures.
What is the rush? Our European colleagues need us in the euro more than we need to be in the euro. They need us to join, not least to legitimise the euro in the eyes of the United States and the global financial markets. Rather than falling for any euro tosh about missing the boat, train or whatever transport analogy comes to mind, we should consider whether the UK's price for what some have called unilateral economic disarmament is far too low. What about applying a quid pro quo—or a euro pro quo—such as reform of the common agricultural policy, the integration of capital markets in Europe or the acceptance of funded pension schemes, a time bomb of which many in the European Union are not aware? If we choose to join the euro, we should seek to maximise a unique bargaining opportunity.
Setting up a referendum will be difficult enough. Winning it from a cold start—many feel that little has been done to educate the public about the euro so far—will be even harder. Whenever it is held, there will be a risk of defeat. Opposition will come from all parts of the political spectrum, including the Labour movement, from all classes and age groups, from significant economic and business interests, and, above all, from a hostile and unscrupulous media. Turnout will be low, and even strong supporters of the Government will take

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it as a free kick—a chance to have a go at the Government of the day to protest on any issue that comes to mind.
There are many economic risks associated with calling, then winning a referendum. Rather than detain my hon. Friend the Minister by reading them out for the record, my hon. Friend the Member for Luton, North (Mr. Hopkins) may wish to browse my website—www.grahamallen.labour.co.uk—on which I have listed them. Any euro-anoraks in the Chamber who feel the need to go through those arguments can do so, but I do not want to impose them all on you, Mr. Conway. We do not need to flagellate ourselves over the euro. We do not need to prove ourselves and our pain in order to make a sensible decision about it. There is a gentler, subtler way on offer.
There is no good economic scenario in which to hold a referendum. If the economy is doing well, why do we need to join the euro and give up the benefits of the Chancellor's excellent economic management? If the economy were doing badly, why would we expect people to trust our economic judgment? Joining the euro is like buying a dog: it is not just for Christmas, it is for ever. My proposal allows us to take the puppy home for a while to see whether it can be house-trained.
A parallel currency would allow British businesses and British people to choose, in their own time and at minimal cost, whether and how they wish to join the euro. That is what my proposal aims to achieve. It would develop competition between the pound and the euro. In the marketplace, people would choose to be paid in the better performing currency—the one that kept more of its value over time. We should experience Gresham's law in reverse: good money driving out bad.
A competitive process would offer significant benefits for our economy and would provide an additional defence against inflation. I am glad that there are some murmurs of support from Conservative Members. The previous Prime Minister, John Major, alluded to the possibility of what he termed a "hard ecu". That is similar to my proposal and would allow some choice.
Mr. Andrew Tyrie: The hon. Gentleman is right to say that his proposal is strikingly similar to the hard ecu proposal or currency substitution ideas introduced in Major's Administration. My concern about the European monetary union project—I am not against it in principle—is that it is far from similar to buying a dog for life. We might be sold a pup.
Mr. Allen: I am pleased to be the straight man for my hon. Friend—I call him my hon. Friend for his lines. None the less, I do not believe that there was a serious point behind the joke.
The political benefits should appeal to my right hon. and hon. Friends. By keeping the pound, the Government would deprive the Conservative leadership of its only popular policy overnight. I am trying to be non-partisan. I would risk saying that it is not the Conservative party's only popular policy, but its only policy, but that would break the all-party consensus that I am trying to develop on the issue.
United Kingdom businesses and customers would conduct an informal rolling referendum, and would provide not a snapshot of one day in the distant future,
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but a constant series—almost a hidden hand—of market-oriented interventions in buying and selling. That would give a longer-term rolling picture of how the British public felt about the issue. Our European partners would also be relieved to avoid a premature British referendum, which would be likely to paralyse European decision making and provide an outlet for yet more British hostility towards the European Union.
On the economic front, a parallel currency would not need to meet the five economic tests. It would avoid the need to fix exchange rates irretrievably, and avoid the risk of Britain being trapped with the wrong interest rate, thereby being forced to raise taxes or cut public spending. A parallel currency would reinforce convergence with the other economies of Europe but would give time for that convergence to become permanent. Our European partners may also welcome that, as it may be preferable to having to accommodate within the euro zone a large economy that continues to follow a different, more transatlantic economic rhythm. It would spread the costs of conversion to the euro, giving businesses the chance to delay them until it becomes advantageous to use the euro, and it would allow the British people to adjust voluntarily to the euro, if it is successful—and to stick with the pound, if it is not.
My hon. Friend the Minister will have to stick closely to the approved script of the Treasury and No. 10 Downing street. I understand that. However, behind the scenes, I hope that the Government will take seriously the creative, imaginative but very practical idea of encouraging the euro as legal tender alongside the pound. That could provide a democratic and organic way for the British people to take themselves into the euro, if it works—and to walk away from it, if it does not.
12.45 pm
The Economic Secretary to the Treasury (Ruth Kelly): I am delighted to speak under your chairmanship, Mr. Conway, for the first time in Westminster Hall.
I welcome the opportunity to discuss the introduction of the euro in the 12 countries in the euro area, and to restate the Government's policy on membership of the single currency. In the course of so doing, I also hope to answer the points raised by my hon. Friend the Member for Nottingham, North (Mr. Allen). His speech was thoughtful and well argued. I was delighted to learn that his economic arguments are presented on his website, and I look forward to browsing through them. He has a long-standing interest in these matters, and I hope to hear more from him about them.
The Government's policy on the single currency remains unchanged, as my hon. Friend is well aware. The policy was set out by the Chancellor of the Exchequer in October 1997, and it has frequently been reiterated by the Chancellor and the Prime Minister. In principle, the Government are in favour of UK membership of EMU. In practice, the economic conditions must be right. The Government have set out five economic tests that must be met before any decision to join the euro can be made, and an assessment of those five tests will be made within two years of the start of this Parliament.
The Government believe that, if a clear and unambiguous case in favour of joining can be made, it would be right and proper to put that case to Parliament

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and, subsequently, to the British people in a referendum. Government, Parliament and the people must all agree. It is clear that my hon. Friend would impose the euro on the British people before they had the opportunity to register their preference in a referendum; that is inherent in the proposal that he has put forward today.
I turn to the important subject of business preparations. The introduction of the euro marks the end of years of careful planning in the 12 countries in the euro area. Wim Duisenberg, president of the European central bank, has highlighted the challenge of the cash changeover. It must not be underestimated, but he is confident that careful and comprehensive preparations should ensure a smooth changeover. In the United Kingdom, we must be equally careful and equally comprehensive. Let us make no mistake: for firms operating in the United Kingdom, the introduction of the euro marks a major change in the business environment—not a threat to our tradition of free trade, but an opportunity to engage in a more efficient and competitive single market.
The changeover will have major implications for businesses with links with the European Union, including importers and exporters. Our fellow members of the EU are the recipients of the majority of the United Kingdom's overseas trade; over half of our exports go to other members of the EU. Individually, France, Germany or Italy may not be our largest trading partner, but I do not think many people are aware that we export more to the Netherlands than we do to Japan. The EU as a whole accounts for about 53 per cent. of our exports. That means that it is more important for our exporters than the United States of America or the far east.
Mr. Tyrie: That is visible trade.
Ruth Kelly: The hon. Gentleman makes a point from a sedentary position. I am sure that he is well qualified to speak on such matters, but he would not doubt that trade with the euro zone is important to companies in the UK. The euro zone is not as far away as one might think. The Republic of Ireland will, of course, also be dealing in euros. It is vital that companies in the UK are able to benefit from free trade with our European partners. From 1 January next year, that means having the choice to trade, quote, invoice and account in euros.
Mr. Hopkins: I am interested in our trade relations with the euro zone countries. Currently, a significant trade deficit arises from the overvaluation of our currency in relation to the euro, or the undervaluation of the euro in relation to sterling. If no reference is made to an appropriate parity during our entry discussions, there might be serious dangers. If there is overvaluation, it will leave us at a permanent competitive disadvantage. Alternatively, if we try to get down to a serious competitive parity, euro zone countries might find that unacceptable.
Ruth Kelly: The Chancellor has made his position clear. The economic case must be clear and unambiguous before the Government recommend to Parliament and the people, in a referendum, that we should enter the euro. The tests must have been met.
Mr. Allen: May I obliquely refer to the question asked by my hon. Friend the Member for Luton, North?
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Clearly, the more we trade in sterling and the euro within the European Union, and the more we are dealing with the euro in the UK, the more accurate a market rate we will develop as we move, if we do, towards a European referendum. The most viable rate at which to go in will be a sustainable one, which will be closer to a market rate. The more market transactions, the more likely it will be that we will reach that rate by encouraging use of euros, rather than allowing things to move at their own steady pace.
Ruth Kelly: My hon. Friend makes an interesting point, but it is not one with which the Government agree. Our position is that the economic case must be clear and unambiguous before the recommendation to join the euro is made to Parliament and the British people, whereas he proposes that the euro should be adopted before that case is clear and unambiguous.
To return to the question of business preparations, we have been working with businesses in the UK for the past few years to ensure that they achieve the right level of preparation for the euro. Our euro website has received 230,000 visits. A guide, "Using the euro —
competing in Europe" has been mailed to 1.5 million small and medium-sized enterprises, and a leaflet has been sent to 1.6 million businesses with autumn VAT returns. We are ratcheting up our efforts as the introduction of notes and coins draws near.
Of course we want as many businesses as possible to be prepared, and we have made every effort to assist them. However, we will not go down the road of compulsion. Why is that? Among other reasons, there would be potentially significant costs to business were we to do so. UK businesses already have the choice to use the euro. There is no need to legislate for that choice. Many retailers have already stated that they will accept euros in many of their outlets—for example, in hotel chains and major tourist areas. I recently visited the North West Euro Forum near my own constituency in Bolton. In the course of meeting businesses large and small, I was impressed by their engagement with the possibilities opened up by the introduction of the euro. They saw it as an opportunity to gain competitive advantage and break into new markets. Their attitude might be very different if, instead of having the choice of trading, pricing and invoicing in euros, they faced a compulsion to do so, whether or not they judged that it was in their best interests, before the economic case had been decided, and without the consent of the British people.
Mr. Allen: To pick up on my hon. Friend's point, it may therefore be sensible for the Government not to adopt the figure of £1,000. Let us start a lot higher—at £1 million, or whatever the Government or Parliament feel is appropriate as a way of testing the water.
To correct a possible misunderstanding, especially in the Treasury, I do not propose that we ditch the five economic tests; indeed, I agree that they must be passed if we go exclusively into the euro. My proposal is to dip a toe in the water before making that decision. I would not want it to be regarded as an alternative. It is in a sense the widest possible market testing ahead of the difficult decision that must be made on, I agree, the basis of the five tests.
Ruth Kelly: I thank my hon. Friend for making his position clear. I respect the fact that he does not believe

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that we should abandon the five economic tests. As he acknowledges, businesses already accept the euro. Even Northern Ireland would be directly affected by the euro. Many businesses in Northern Ireland may choose to accept the euro, just as Irish punts are accepted today. However, I do not believe that merely raising the threshold of the limit changes the principle involved. I therefore disagree with him in that respect.
Mr. Tyrie: Will the Economic Secretary give way?
Ruth Kelly: I must make some progress.
Mr. Tyrie: I promise to be brief.
I am sympathetic to the idea of currency substitution in principle, but a cost is involved to the Exchequer in the loss of seignorage. Will the Economic Secretary estimate what seignorage loss the Government expect without an element of compulsion? If she does not have the figures with her, perhaps she would send them to me and make them publicly available.
Ruth Kelly: I have the figures with me, and I shall give the hon. Gentleman an estimate. However, I shall finish the argument that I was advancing when I gave way.
The argument advanced in the Bill is that using the euro as a parallel currency would avoid the deadweight cost of converting Britain to the euro. However, in most cases the systems that would allow dual currency functions would be similar to those necessary for a complete changeover to a single currency. Legislation to make the euro legal tender alongside sterling would not avoid the deadweight cost. Indeed, it is hard to envisage how that would demonstrably help UK business. Businesses with both high and low-cost transactions would be placed in a particularly difficult position.
My hon. Friend the Member for Nottingham, North would effectively be asking shops and businesses to incur the costs of accepting two distinct currencies
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simultaneously and indefinitely, while denying them the benefits accruing from participation in the single currency area. They would face the additional expense of maintaining a daily calculation of exchange rates, running concurrent pricing system structures, training staff to work with euro cash and maintaining accounts in two currencies. In addition, UK businesses would still be adversely affected by the foreign currency and hedging issues arising from trade with euro-area businesses. Issues of complexity would be involved.
My hon. Friend says that two thirds of people believe that it would be helpful if shops showed euro prices alongside sterling prices. However, there are difficulties in doing that, and it may cause confusion, especially as euro and sterling would not, under his proposals, have a fixed exchange rate.
The value of debts would be affected by fluctuations between sterling and the euro. Those fluctuations in value would be more pronounced in the relatively high value transactions that my hon. Friend suggests would be subject to the dual pricing requirements. I have only a minute left, and I had better discuss seignorage if I have a chance.
Notes and coins in circulation generate seignorage income from the issuing authority. To put the figures into the public domain, for every £1 billion of sterling notes displaced, an estimated £39 million of seignorage would be lost each year. For every £1 billion of sterling coins displaced, an estimated £880 million would be lost. Granting parallel legal tender status to the euro without the UK's entering the single currency would therefore entail a transfer of seignorage away from the UK. It would have other implications, which I do not have time to go into today.
The proposal of my hon. Friend the Member for Nottingham, North has significant disadvantages, particularly the extra cost to business. Business could regard the euro as a threat—
Mr. Derek Conway (in the Chair): Order. Time is up.

Police Funding (Dorset)
1 pm
Mr. Robert Syms: It is a great pleasure to see you in the Chair, Mr. Conway. First, I should apologise on behalf of my hon. Friend the Member for West Dorset (Mr. Letwin), who is otherwise engaged with his duties as shadow Home Secretary, but who offers his support for this debate. I have also contacted the Minister's office about my hon. Friend the Member for Christchurch (Mr. Chope) making a brief contribution to the debate, and I am sure that the Minister is happy with that. I am also pleased that my other Dorset colleagues, the hon. Members for South Dorset (Jim Knight) and for Mid-Dorset and North Poole (Mrs. Brooke), are attending this important debate.
Dorset police are a good and efficient force, and Dorset's crime levels are low compared with the rest of the country. However, there is an on-going funding problem, which I am here to address. Neither I nor my colleagues feel that Dorset is being treated fairly. The Government's headline settlement figure for the increase in policing is 6.1 per cent., and 3.3 per cent. is maintained for central initiatives and priorities, including the crime fighting fund. The figure for centrally provided services such as the National Crime Squad, and for the general increase in respect of individual police authorities, is just 2.8 per cent. Although forces such as Dorset's receive a share of the crime fighting fund, rural moneys and Airwave funding, the settlement is not particularly good. Differences in funding resulting from the present formula cannot be explained by the different spending needs of police authorities. The matter is dealt with in part in the recent White Paper, which in general we welcome.
The level of policing in Dorset is good despite the low level of funding. The 2000–02 budget provided real opportunities to improve and increase operational effectiveness. Dorset police are grateful for Government support for its private finance initiative project, and for grant in support of party conference policing, which is particularly useful in Dorset. Continuation of the 2002–03 crime fighting fund, and of rural and Airwave grants, is also most welcome.
Our principal concern is that Dorset police receive the second lowest amount of central funding per head of population of any police authority in England. The difference between Dorset police and the rest of the service increased following the 2001–02 settlement, and matters have not been improved by the 2002–03 settlement. Dorset remains 3 per cent. below the third lowest funded authority, receiving only £85.40 per head, yet the weighted average is £110.39. If Dorset received the average, it would receive an extra £17 million in central funding.
Last year, Dorset police received the third lowest funding increase of any authority. For 2002–03, Dorset police will receive the standard spending assessment increase of 2.8 per cent., which is approximately the average. However, the settlement is not enough to cover even basic police pay increases of 3.5 per cent., and national estimate pension increases of 8 per cent. Dorset cannot continue to absorb a funding shortfall through reductions in expenditure and increases in precept beyond the level of other authorities. According to
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future funding figures in the comprehensive spending review, and to our prediction on police pensions, times will be hard for police authorities, particularly Dorset's. There is much concern that Dorset will suffer disproportionately, and that the poor overall settlement will exacerbate an already difficult funding situation.
The on-going low level of central funding has two direct results, the first of which affects resources available to fund policing in Dorset. I am pleased that the crime fighting fund has enabled an increase in officer numbers, but Dorset still has 95 more members of the public per police officer than the English average. It has a population of 511 per police officer, compared with the English average of 416.
Secondly, low central funding affects the level of council tax paid by the population of Dorset. Dorset police authority carefully balances the needs of policing with the cost to council tax payers, and expenditure per head of population that is 22 per cent. below the service average is testimony to that. Nevertheless, a low central contribution means that Dorset currently has the third highest council tax of any police authority, a situation unlikely to improve in 2002–03.
Jim Knight: I agree with the hon. Gentleman that, overall, Dorset does not get its fair share, but while he is on the subject of council tax, I remind him of one piece of good news that he has not so far mentioned. The Secretary of State for Transport, Local Government and the Regions announced in the local government White Paper last week the intention to remove the council tax benefit subsidy limitation. That is good news for us because it should result in a reduction in the precept.
Mr. Syms: It should do. It is good news, but we will still have a fairly high precept in Dorset.
The 2001–02 budget is £3 million below the total needed to provide the same level of service as in 1992–93. Since 1995–96, the budget has increased by 29 per cent., but central funding by only 17 per cent. Expenditure on pensions has increased by 83 per cent. in the same period. In 1995–96, Dorset police authority received 78 per cent. of its funding from the centre. By 2001–02 that had been reduced to 70 per cent. Although the budget requirement for 2002–03 has not yet been finalised, the discussions currently going on with the police authority are for a precept increase of between 10 and 14 per cent. That is likely to keep us somewhere at the top of the list of precepting authorities.
Issues of real concern to the authority include changes in grant allocation, the future of the crime fighting fund—the CFF—rural funding and the funding of pensions affecting Dorset in particular because of its low central funding. What help could be provided? It is important that floors and ceilings have been applied for 2002–03. That is welcome. It is important to continue to apply any funding changes that may arise from data or methodology changes, especially because of the proposals in the local government White Paper.
It would be helpful if there were more stability in the CFF and rural grant, which could continue outside the standard spending assessment and affect the time for which the grants were allocated. Assurances on the medium-term future of rural and CFF funding could be

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made to assist planning and budget strategy. Pensions data should be updated, perhaps with assurances provided by external auditors. Increased predictability of general fund settlements for future years would be helpful. Spending review figures have not provided the detail that individual police authorities could use for financial planning. That must be improved.
The additional detailed settlement information that is available from the website of the Department for Transport, Local Government and the Regions for the first time this year has helped us to analyse the position, but further comparison tables would make the analysis more complete and straightforward. We are interested in seeing how the elements of the formula have changed to affect our settlement. Comparisons with other forces are helpful. The availability of capital grant information at the same level as information on revenue funding would assist us greatly.
Recent years have seen a trend in capital information being made available much later in December, or even in January. The two budgets are necessarily interlinked, and it is difficult for the authority to give firm budgetary direction when part of the settlement is not known. Dorset police support a formula-based method of fund allocation, but some issues relating to the formula must be taken into account in any future developments.
The first such issue is area cost adjustment, something that comes up again and again in the south-west. A report produced in 1996 at the Government's request acknowledged that the majority of police expenditure went on pay and pensions and that, apart from the housing allowance and London weighting, there was no variation of costs between authorities. The report recommended a recalculation of the ACA, which would have expanded recompense for higher rates and support staff costs to areas adjoining the current ACA area. That would have provided an additional £1 million funding to Dorset police. It is important for Dorset that proposed changes take that into account.
The second area of concern is SSA variations. Clearly, the White Paper on local authority finance seeks to reassure all authorities that SSA variations will be carefully managed to avoid significant changes in funding. However, to put SSA changes into context, their effect on relatively small authorities such as Dorset can be devastating. For example, if an authority received 0.99 per cent. of total police SSA rather than 1 per cent., its funding would be reduced by £1 million.
The third area of concern is the data used in the pension calculation, which were provided as long ago as 1995. It cannot be right that funding for such an important aspect of expenditure is based on potentially out-of-date information. To give an indication of the scale of the financial effect of police pensions, they accounted for 10 per cent. of overall expenditure in 1995–96. In 2001–02, they represent 15 per cent., and it is estimated that by 2005–06 they will represent 17 per cent. It is vital that authorities can be reassured that the data that is used to allocate funding is accurate, especially in the case of authorities such as Dorset that are at the bottom of the funding level.
Mrs. Annette L. Brooke: Does the hon. Gentleman agree that there could be no better time to review the problems that he is describing, given the recent White Papers on police reform and local government settlement reform?
Mr. Syms: I agree with the hon. Lady, but it is always a matter of winners and losers when one is dealing with a formula. We Dorset Members are arguing the best case for our authority, which has not been treated fairly. It has struggled with settlements over a long time, including under the previous Government, and that has led to problems in terms of police funding.
Fourthly, the review of SSA methods of calculation that was announced in the White Paper should take full account of the unique funding position of police authorities. All police authorities have a lower proportion of their funding met through council tax than local councils, owing to direct police grants. That has meant that the impact on council tax payers of changes has been disproportionate when applied to police authorities.
Jim Knight: My right hon. Friend the Secretary of State for Transport, Local Government and the Regions has said that when the formula is reviewed there will be winners and losers. I am sure that the hon. Gentleman agrees that we have to keep reminding the Government that we in Dorset have been losers for too long and it is about time we were winners. When the formula is reviewed, we must ensure that we are not on the losing side again.
Mr. Syms: That is absolutely right. As local Members of Parliament, we experience pressure from our constituents for more policing, we put pressure on the chief constable and the police authority, and the police authority faces the problems of juggling the budget. Difficult issues such as pensions are starting to have a big impact on Dorset's funding.
We have mounting problems in Dorset. We are second lowest in terms of funding, we have one of the highest council tax precepts and our low budget base will inevitably cause the chief constable difficulties in undertaking policing in the county. I look forward to hearing the Minister's response after my hon. Friend the Member for Christchurch has, I hope, supported me in my arguments.
1.12 pm
Mr. Christopher Chope: I certainly support my hon. Friend the Member for Poole (Mr. Syms) and congratulate him on securing the debate.
This has been an issue for us in Dorset for many years. Last year, when Dorset Members took a deputation led by the chief constable to see the Minister's predecessor, he gave us to believe that we had a strong case and that the Government would respond to it. It is therefore particularly disappointing to find that this year's settlement is the same as before.

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In essence, the Government say that Dorset police authority needs to spend only £75.5 million a year, yet the police authority says that it needs to spend £85.5 million a year. That extra £10 million has to be funded totally by the council tax payer. As the Minister knows, a disproportionately high number of council tax payers in Dorset are in pensioner households and on fixed incomes. If they are faced with a 10 per cent. to 14 per cent. increase in their police precept this year, they will have to cut other items of household expenditure.
We in Dorset have the third highest council tax of any police authority, but because of our high property values we make the highest per capita contribution towards the police of anywhere in the country. As my hon. Friend said, the fact that our spending is so much below the national average suggests that something unfair is happening in the system. I look to the Minister to sort it out for Dorset by bringing that to an end.
1.14 pm
The Minister for Police, Courts and Drugs (Mr. John Denham): I congratulate the hon. Member for Poole (Mr. Syms) on securing this debate on police funding in Dorset. I am pleased to see so many of his Dorset colleagues from different parties in the Chamber. This is a useful, albeit brief, opportunity to air some of the concerns and issues about crime and policing in Dorset and to discuss the resources that the Government provide to support policing in Dorset.
It is worth emphasising the point made by the hon. Member for Poole that the record on crime in Dorset—that is what people are primarily concerned about—is good relative to the remainder of the country. Crime recorded by police in Dorset fell by 3.8 per cent. during the 12 months to March 2001, which is better than the national picture—crime throughout England and Wales fell during the same period, but by 2.5 per cent. Throughout the south-west, recorded crime fell by 2.6 per cent. during the 12 months to March 2001 and since 1997 has fallen by 14.6 per cent. Those are important reductions in crime. During the past five years, recorded crime in Dorset has fallen by 22.1 per cent., compared with the national average for England and Wales of 11.75 per cent. Detection rates in Dorset are also slightly better than the national average in England and Wales. Some good results should be recorded about the level of crime in Dorset.
We are committed to raising police standards wherever necessary, and in our recent White Paper we set out more details of our proposals to set up a new standards unit. We have established in Dorset, as in other parts of the country, local crime and disorder reduction partnerships to ensure that the police can work effectively with other local agencies to tackle crime and antisocial behaviour at local level. We are backing that with the biggest ever investment in crime reduction. The crime reduction director for the south-west tells me that Dorset has received around £2.6 million from the crime reduction programme to help with crime reduction initiatives throughout the county, ranging from large-scale closed circuit television projects to burglary reduction projects in houses in multiple occupation. An additional £650,000 has been allocated from the community against drugs fund in the current financial year to tackle drug markets and reduce drug-
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related crime. We are making a significantly broader investment in fighting crime in Dorset, which will be welcomed by all hon. Members who are present this afternoon.
We have recently announced that the provisional police funding settlement for 2002–03 at national level will be just over £9 billion. That is a 6.1 per cent. increase and builds on the record 10 per cent. increase last year. The amount going directly to police authorities, including funding for specific initiatives—for example, the crime fighting fund, the rural policing fund and Airwave, all of which Dorset benefits from—will increase by 5 per cent. The settlement is just part of our commitment to crime reduction.
Through the settlement for next year, Dorset will receive an increase in total standing spending, excluding specific initiatives, of 2.9 per cent. over this year, which is higher than the average increase for forces in England and Wales. In addition, Dorset will receive £1.892 million through the crime fighting fund for the specific purpose of recruiting additional police officers to police the towns and villages of Dorset; that is over and above the amount of money that is received in the police grant.
Dorset continues to benefit from additional funding towards the cost of Airwave, which is the new radio communications system for police forces. It will receive around £200,000 towards that next year. That is a centrally provided budget, but it is for something that is an absolute operational necessity to the police service—decent communications are essential—as is the money for police officers. The fact that it does not appear in the grant should not lead us to believe that Dorset is not receiving a more substantial increase in resources, which will be of practical benefit to the police and communities.
We recognise the problems of policing rural areas, and that is why in the last spending settlement we announced that an extra £30 million will be invested for the next three years in those police authorities that contain substantial rural areas. Dorset receives £442,000 from the rural policing fund this year, and it will receive slightly more than that next year. This is additional funding for the force over and above the grant settlement that we discussed earlier. I am confident that the extra resources will help to sustain quality rural policing. It is for forces to decide how best to use the additional resources, and they must explain how that is done in their annual policing and best value performance plan.
Dorset has used the money to provide two mobile community support units with facilities to report crime and incidents online. The units regularly serve rural areas and market towns. Specially selected support personnel staff them. Visits to communities by those units are often arranged to coincide with a visit from the local community officer. Those facilities increase police presence and visibility, and will give added reassurance to those living in rural areas. I understand from the chief constable that the units have been well received and that the facilities are being used effectively. Indeed, I have an outstanding invitation from the chief constable to visit the units in Dorset, which I hope to be able to do next year. When the crime fighting fund and the rural policing fund are taken into account along with grant funding, Dorset police force will benefit from an overall increase in funding of 3.4 per cent.

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The hon. Members for Poole and for Christchurch (Mr. Chope) reasonably raised several issues about funding. I shall refer the matters relating to information available on the DTLR website to my ministerial colleagues to see whether they want to respond.
I turn to a substantive issue. Police pensions represent an increasing burden to many police authorities. That has been reflected in the increasing size of the pensions component within the funding formula, which has risen from 13.2 per cent. in 1998–99 to 14.5 per cent. in 1999–2000. Rising costs are a matter of concern to both the police service and to Ministers, and a review of the issue by the Home Office and Treasury officials is nearing completion. The options include establishing fully funded schemes and changing the way in which expenditure on police and fire pensions is presented in the accounts. The views of police authorities and other key stakeholders have been sought.
In the recent White Paper in which we examined future arrangements for police pensions, we acknowledged the importance of having a system of benefits that is appropriate to the 21st century and that gives greater certainty to police authorities in planning their pension budgets. I hope that I shall receive a report on the alternatives in the new year. Meanwhile, we intend to update the pensions data used in the police funding formula in time for the next settlement, which addresses a specific point raised by the hon. Member for Poole.
I turn to the formula, the SSA process and the area cost adjustment. In the White Paper on local government, which was published last week, the Government outlined a number of weaknesses in formula grant distribution, but stressed that formulae can continue as the basis for distributing the great majority of general grant. However, the systems must be fairer and more intelligible, although formulae cannot take into account every local circumstance in each police authority. The White Paper emphasised the Government's commitment to introduce new grant formulae to replace SSA from 2003. That will clearly have consequences for the formula for police authorities, which we will need to address.
The area cost adjustment is designed to reflect the higher costs of providing a policing service in London and the south-east. Some forces regard the ACA as inappropriate in a service in which pay is nationally determined. It is also true that the dates used are volatile and can swing significantly from one year to the next. The methodology for determining the ACA is a matter for the DTLR. A review is under way and we are taking a close interest in that.
Jim Knight: Last week, when the Secretary of State made a statement on the local government White Paper, he repeated his assertion that the formula was unfair. Does my right hon. Friend agree that the formula is unfair, particularly in relation to the police? My constituency has one of the lowest levels of funding in the country and one of the most efficient forces, yet we are paying the highest proportion of council tax. It will
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be of some comfort to council tax payers in Dorset if the Minister agrees that that is unfair and that he hopes that we will get something better.
Mr. Denham: I am sure that it would be of enormous benefit to the taxpayers of Dorset if I were to say what my hon. Friend invites me to, but it is more prudent to say that we recognise that worries exist about the way in which the area cost adjustment is calculated and operated. It is not inherently unfair and it should be possible to produce a system that is better and more widely understood, which will also mean that it is better supported.
Police numbers are of great concern to everybody. As we announced yesterday, we have had the largest intake of recruits into the police service of England and Wales since 1979, and we are well on our way to achieving a record number by April 2003. Dorset is already in the position of having record numbers of police officers—1,360 at the end of September, which is 76 more than in March 1997. The hon. Member for Poole talked about officers per head of population. Some 18 forces, most of which are predominantly rural like Dorset, have fewer officers per head of population than Dorset. Therefore, although I cannot say that Dorset is in the strongest position, many have worse ratios.
We have record numbers in Dorset, which is good news. In addition, civilian support staff numbers have risen to 721; that is 126 more staff than in 1997. Civilian staff play a crucial role in releasing police officers from paperwork and jobs that can be done as effectively, and sometimes better, by civilians. That allows the record number of police officers to devote more time to professional policing work.
We have achieved that through the introduction of the CFF. Dorset police have been allocated 85 recruits from that fund. They were so successful in their recruitment efforts that, in 2000–01, they were able to bring forward part of this year's allocation and recruited 46 recruits through the CFF, compared with the 29 that they had been allocated. The excellent record on recruitment continues: the force expects to use all remaining allocation for CFF recruits for this year, and we are considering a request to bring forward into this year six further recruits that were scheduled and budgeted to be recruited next year.
I am pleased to say that wastage—a terrible term— which means the loss of officers to the force through resignation, retirement or movement to other jobs, has fallen in Dorset during the past year. Therefore, its record on retention and recruitment looks to be good. Both additional recruitment and the reduction in wastage have helped to achieve the record police officer numbers that Dorset enjoys today.
This has been a useful opportunity to raise a number of important issues. We are committed to providing Dorset, and indeed all police forces, with the resources that they need to continue to provide a quality service to the public. The hon. Member for Poole and his colleagues have raised legitimate issues for discussion, but I hope that I have been able to put those in context by talking about the good performance in Dorset in bringing down crime, and the excellent record in increasing the number of police officers who are there to serve the public.

Bedfordshire Health Services
1.30 pm
Mr. Patrick Hall: I am very pleased to have secured this short debate on the funding of Bedfordshire health services, although I chose for the title, "Underfunding of Bedfordshire Health Services". I have sought this debate to draw attention to the long-term, underlying underfunding of national health services in Bedfordshire, and to ask that action be taken to put things right.
Bedfordshire has been at or below target since the funding formula based on population was introduced in the mid-1970s. Despite the real growth nationally in NHS funding that has thankfully occurred since the late 1990s, Bedfordshire health authority has continued to move further away from target: for example, from 3.61 per cent. below in 1998–99, to 4.4 per cent. below in the current financial year. That is contrary to the Government's general policy of moving health authorities closer to their capitation target.
The principal reason for that damaging trend is the scale of population growth in the area and the failure of NHS annual allocations to keep pace with it. Bedfordshire, in particular mid and north Bedfordshire, is located in the sub-region between Oxford, Milton Keynes and Cambridge, which is one of the fastest growing areas of England and is set to remain so for at least the next 20 years in the light of regional planning policies and housing allocations supported by the Government. Bedfordshire's difficult financial position was made even worse in the current financial year, when the pace-of-change policy on achieving target was suspended pending a major review of the national capitation formula, and replaced by an interim measure known as years of life lost.
I am in favour of these matters being reviewed to ensure that fair shares can be achieved more quickly than hitherto and that needs can be met, but I am not in favour of an allocation system whereby Bedfordshire loses out year after year. I welcome the improvements in revenue funding that have been made and sustained by this Government—they are real—but the point about Bedfordshire's weak position is that its budget base is too small. Therefore, the satisfactory and even very good percentage allocations that have been made in the annual budget rounds of late do not yield enough growth to strengthen that weak base sufficiently. Those things really matter in terms of delivering health services and making progress with modernisation.
The main issue at Bedford hospital is the lack of capacity—insufficient beds, inadequate operating theatre capacity, and insufficient out-patient facilities. Furthermore, there is long-term neglect of the local social services and home care infrastructure, poorly worked up intermediate care, excessive dependency on in-patient care and, of course, bed blocking. All those things chase each other around to create pressures on the budget, on staff and on patients.
Bedford hospital faces serious problems. It is not meeting its waiting list targets, waiting times are not reducing, and the number of cancelled operations is rising, forcing some people to go private at their own expense. That is offensive and unacceptable, not to mention all those people who are waiting longer at home, perhaps in pain but certainly anxious.
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Admissions to Bedford hospital's accident and emergency department have increased substantially since early 1998. It is not limited to the winter months; admissions increase all year round. I understand that the annual rate of increase has been around 10 per cent. compared with the national average increase of 1.5 per cent. As I have recently seen for myself, pathology services at Bedford hospital are also considerably underfunded. I have raised the matter with the Under-Secretary of State for Health, Lord Hunt of Kings Heath. I hope that, within the next few weeks, the business case for improved facilities at Bedford hospital will be considered favourably. We shall wait and see.
Given those pressures, it is perhaps not surprising that Bedford Hospital NHS trust is heading for a projected £3 million overspend, £1 million of which is due to expenditure on elective surgery in the private sector and funding beds in private nursing homes. The key problem in community health services is its historically weak infrastructure—its inadequate capacity. That causes negative knock-on effects for the acute sector. The threshold at which someone receives the care that they need is higher than it should be; it is higher than in many other parts of the country. In other words, to receive that care in Bedfordshire, a person's health has to be worse than that of a person who lives elsewhere. That is the clear impression of some district nurses in Bedfordshire who have recently worked in other places.
The lack of capacity puts great pressure on the community funding required to meet the exceptional needs of some patients in the community. Because of the lack of local facilities, the community trust, primary care trusts and Bedfordshire social services have to fund expensive out-of-county placements. Services for children and adolescents may incur heavy costs that last for many years.
Mental health services are also under pressure. The Sainsbury Centre for Mental Health undertook an external review and concluded that such services are 20 per cent. below their target level compared with similar health authorities. Historic underfunding has prevented the community trust from reproviding mental health services at the Weller wing at Bedford hospital and from meeting its obligations under the national health service framework for mental health. The closure some 10 years ago of Clapham hospital and John Bunyan ward at the Bedford hospital north wing site, which provided beds for the long-term sick elderly, was not followed by the reprovision of rehabilitation, intermediate and home care facilities.
Andrew Selous: Does the hon. Gentleman agree that it is important for consultation between NHS trusts to be improved when there are closures? I refer to what is happening at Hemel Hempstead, where services for women and children are being closed. Does he agree that it is not right that the first senior management at Luton and Dunstable Hospital trust knew about the closure was when they heard it on the local radio? At such short notice, it is impossible for them to plan properly.
Mr. Hall: That is unsatisfactory. Co-operation and partnership working are a key goal of the NHS plan. The lack of it in the past has been a source of problems.

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As I said, the closure of Clapham hospital and the John Bunyan ward at Bedford hospital's north wing site was not followed by reprovision of facilities in the community. If such facilities had been provided, elderly patients might have been able to leave hospital more quickly. It might also have prevented many of them from going into hospital in the first place. Again, there is a failure to invest. It contributes to the real problems facing the NHS in Bedfordshire. There are many other matters, including tackling health inequalities and drug addiction, but lack of time prevents me from pursuing such issues.
Mr. Jonathan Sayeed: I shall be brief, as I do not wish to interrupt the hon. Gentleman's excellent speech. The critical question—for not only this Government but previous Governments—is why Bedfordshire has not received the funding to which the Government acknowledge it is entitled.
Mr. Hall: That is the question that I am addressing today. I am glad that the hon. Gentleman supports the efforts to deal with what went wrong in the past; many things did go wrong.
In the light of limited time, I am concentrating on what I understand to be the key problems. They have been put to me by people who work in the NHS and my constituents; I have seen them, too. I acknowledge the efforts of, and the high standards that are often achieved by, those who work in the NHS. There is no doubt that morale is not that high. However, I am convinced that the staff believe in the NHS and want it to work. That reflects the views of the public.
Of course, some positive things have happened and are happening at all levels in Bedfordshire. Bedford hospital has a refurbished operating theatre and accident and emergency department. It has doubled the number of beds in the critical care unit. The Bedfordshire and Hertfordshire Ambulance and Paramedic Service NHS trust has attracted and trained 800 volunteers to assist qualified staff. NHS dentistry has returned to Bedford and Kempston. A community outreach programme for children and adolescents with mental health problems has received national recognition, and a project aimed at employers to enhance the awareness of adults with mental health problems has been acclaimed. In primary care, there are innovations of a 24-hour advanced care scheme and the use of electronic patient records to help general practitioners and hospitals to deal with patients more efficiently.
I have great hope in the sustained development of co-operation at different levels in the local NHS economy. In sharp contrast with the past, people are talking to each other. There is a culture change. People in the NHS at management and other levels are prepared to learn from each other and to put the patient and the community first. The primary care trusts have been instrumental in triggering that. It is a new way of working that belongs to all and includes social services.
Reform is important alongside funding. I do not deny that the long-term capacity weaknesses in Bedfordshire to which I referred are associated with a past lack of
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local leadership and partnership. Although the NHS plan generates cynicism and indifference from some quarters, it inspires others in the NHS who believe in the NHS and want it to succeed. The frustration for such people occurs when the lack of capacity and long-term underfunding impede the delivery of that plan.
I have a number of points to put to my hon. Friend the Minister. First, will she acknowledge the long-term underfunding and the lack of capacity that is associated with that in the area served by Bedfordshire health authority?
Secondly, I am delighted by the announcement of next year's allocation, which is the third most generous in England and, for the first time in years, begins to close the gap. None the less, Bedfordshire remains the second worst funded health authority in England in terms of distance from the fair shares target. Will the Minister acknowledge the case for above-average capitation increases year on year in Bedfordshire to close that gap as soon as possible?
My third point is also about capitation. Will the Minister acknowledge that population estimates and forecasts consistently indicate that the population of the northern and middle parts of the county taken together—broadly the catchment area of Bedford general hospital—will continue to grow quickly? Between 1991 and 2011, the growth in the total population will be 121 per cent.. However, more significantly for the NHS, the growth in the number of over-65s will be 120 per cent., in the number of over-75s 131 per cent. and in the number of over-85s 149 per cent.. The growth of 108 per cent. in the population of the under-fives reflects a growing younger population. Those demographic pressures are important because, as the Minister knows, roughly two thirds of NHS expenditure is on the over-65s and the very elderly. A further 10th of expenditure is on under-fives. Both categories are growing fast in Bedfordshire, and they are set to continue doing so.
Bedford hospital has experienced heavy increases in A and E admissions, which have added to cost pressures. I understand that no systematic research into that trend has taken place, despite the fact that it has been continuing for about three years. Will the Minister ensure that that research is conducted soon, so that action can be taken, resources can be effectively targeted and additional resources can be allocated, if necessary?
I turn to the insufficient bed capacity at Bedford hospital. There is a strongly held view within the trust that, although increased capacity and other changes are required throughout the local NHS, the situation is so severe in Bedford that, to break the cycle, a new, fully staffed, 25-bed modular ward is needed as soon as possible. I recently read that the national beds inquiry had suggested that, as a guide, an extra 55 general and acute in-patient beds, 45 intermediate care beds, and 23 day care beds should be provided by 2003–04 in the Bedfordshire health authority area, which includes the south of the county. I also learned that that issue did not necessarily revolve around increasing bed provision at acute hospitals, and that the development of intermediate care could lead to a substitution of acute beds by community provision.
I have spent much of my speech emphasising the importance of developing strong community provision, and thereby improving the range of services available to

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people, while taking the pressure off the acute sector. However, I hope that that argument will not be used to weaken the case for the additional capacity that is desperately needed at Bedford hospital. I apologise for not mentioning Luton and Dunstable hospital. I am not speaking against that hospital, but Bedford hospital desperately needs that extra capacity, and it is needed sooner rather than later—certainly sooner than the unambitious goal of 2003–04 that was mentioned by the national beds inquiry.
Mr. Kelvin Hopkins: My hon. Friend mentioned Luton and Dunstable hospital. I support his excellent speech by pointing out that the problems in Bedfordshire are not caused by the inefficiency or the lack of dedication of the staff. On the contrary, they have done a tremendous job, as is demonstrated by the fact that Luton and Dunstable hospital obtained a three-star rating—it is, I understand, the 11th best hospital in the country. The problem is lack of resources.
Mr. Hall: The problem is lack of resources throughout the health economy, not just with regard to hospitals, which is what the media tend to concentrate on: the rest of the NHS matters very much, as my hon. Friend understands.
I am convinced that if a modernised NHS is to be achieved, which all of us want, it will need to include, in Bedfordshire, a strengthening of the acute sector at Bedford hospital, as well as at Luton and Dunstable hospital, and the creation of decent community services, so that a comprehensive and balanced service that puts the needs of patients first is created.
1.48 pm
The Parliamentary Under-Secretary of State for Health (Yvette Cooper): I congratulate my hon. Friend the Member for Bedford (Mr. Hall) on securing this important debate on the funding of Bedfordshire health services. He has rightly been raising concerns about the matter for a long while.
I want to try to address my hon. Friend's concerns in turn. As he will be aware, the Government's plans for the NHS involve both extra money and reform. It must be reformed to deliver improved and more responsive services to match modern needs, and to ensure that patients have more power and greater choice over services. Reform is also necessary to empower communities to have greater involvement with local services. My hon. Friend mentioned many of those points. They are the reasons why we are shifting the balance of power in the NHS by getting money to the people who are on the front line, so that they can, in consultation with patients and local communities, decide on the services that they need to deliver.
The NHS needs more investment, in Bedfordshire and across the country. My hon. Friend will be aware that the Secretary of State for Health announced on 6 December that health authorities in England will receive total allocations of £41.5 billion in 2002–2003. That is an increase of £3.7 billion from this year and represents an average cash increase of 9.9 per cent., which is a real-terms rise of 7.2 per cent. Our key priorities for the money are to make an enhanced effort
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to build capacity and increase activity levels in the national health service. We want to reduce waiting times further, particularly for cardiac patients. We also want to ensure that, by the end of 2002, 90 per cent. of general practitioners see their patients within 48 hours, and we want to enable some patients to choose where and when they are treated for the first time.
Health services in the eastern region will receive an extra £373.4 million. Those extra resources will help us to cut waiting times for treatment and build local health services with more doctors and nurses. The extra funding will also help us to continue the fight against cancer and coronary heart disease—two of the country's biggest killers. Next year, Bedfordshire health authority will receive an increase of £39.1 million, or 10.5 per cent. As my hon. Friend the Member for Bedford said, that is the fourth largest increase provided to a health authority in England.
My hon. Friend is right to say that Bedfordshire's allocation will remain 4 per cent. below its fair share as calculated under the formula. However, he will recognise that the Government are making sustained additional investment in local health services. In Bedfordshire, that amounts to £100 million extra, or 33 per cent. extra, in the past three years.
The speed at which we move health authorities towards their targets, and the speed at which health authorities move primary care trusts and primary care groups towards their targets, depends on two objectives. First, we want to move health authorities towards equity as represented by weighted capitation targets. Secondly, we want to introduce increases across the board to maintain continuity and stability in the service and make progress nationally in priority areas. As my hon. Friend would agree, every area in the country is in need of additional investment. We are committed to helping health authorities and PCTs reach their target fair shares. We think that that is important. However, that obviously cannot be achieved overnight.
Mr. Hopkins: My hon. Friend the Minister says, understandably, that we cannot reach our targets overnight. Does she accept that we have an enormous distance to go, given that the difference between spending on health in France and spending on health in Britain is the equivalent of £40 million for each constituency every year?
Yvette Cooper: I agree that increased additional investment is needed in the NHS. In the past few years, we have invested substantial additional resources. However, we need national debate on our future direction and the need for additional investment. That debate is on-going, and is informed by the interim report by Derek Wanless.
One of the biggest issues for Bedfordshire is population growth in the county, which means that the target moves every year. We recognise the pressures that population growth creates for Bedfordshire. However, funding in Bedfordshire has increased faster than population growth. The population has grown by 2 per cent. in the past three years, but funding has increased by 33 per cent. As other health authorities have also received large increases, Bedfordshire has remained below its fair shares target.
Mr. Sayeed: Does the Minister acknowledge that Bedfordshire's chronic underfunding—not just by this

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Government but by previous Governments—has resulted in an enormous deficit in its capabilities? I recognise that the underfunding will not be changed overnight. Can the Minister guarantee that during this Government's period in office Bedfordshire will at last get fair shares?
Yvette Cooper: We remain committed to moving areas towards their target fair shares. As I said, different factors need to be borne in mind, as we also need to maintain continuity and stability and to increase investment across the country. We are at present engaged in a review of the formula and how it works. It will have implications for Bedfordshire, and I shall say something about it later.
I agree that there are investment needs throughout the country and in Bedfordshire. However, they must be linked to reform. Investment is already increasing and making a substantial difference in Bedfordshire and elsewhere. More must be done, but it must be conditional on getting the right reforms in place so that the additional investment has the biggest impact.
A review of the existing funding formula used to distribute resources is under way. The NHS plan has made the direction of travel clear: we want reducing inequalities to be a key criterion for allocating additional NHS resources. The review is being carried out under the auspices of the Advisory Committee on Resource Allocation, which has NHS management, GP and academic members.
We will adopt an incremental approach to the review of resource allocation and to its implementation. We shall move towards fairer resource allocation as improvements become possible. As we said in the NHS plan, by 2003, following the review, reducing inequalities will be a key criterion for allocating NHS resources to different parts of the country.
Allocations for the current year and for next year already include a health inequalities adjustment. In part, that replaces the targeted funding for those health authorities such as Bedfordshire with health action zones. Bedfordshire has benefited from the Luton health action zone, which receives £700,000 per year.
Bedfordshire has benefited in other ways from allocations in the current year. An additional £1.1 million was awarded in recognition of the high costs of living, providing a 2.5 per cent. pay rise on top of the review body allocations. For 2002–03, the cost of living supplement has increased to £1.56 million. In addition, £300 million is being invested across the
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country this year and next year to tackle bed blocking by 2004, with the purpose of freeing up 1,000 NHS beds this year alone. In Bedfordshire, that means just under £500,000 being made available in 2001 to free up 25 beds across Bedfordshire, 12 of which will be at Bedford hospital.
My hon. Friend the Member for Bedford mentioned capacity at Bedford hospital. I can confirm that there have been discussions between the trust and the regional office about additional capacity at the hospital. That, as well as improved efficiency, will form part of the strategic and financial framework negotiations for next year. I understand that the trust is looking—
Andrew Selous: The Minister referred to £500,000. Her notes may show that that is the figure over two years. Does she agree that it is set against the £10 million for which Bedfordshire social services is looking to sort out the problem over the next two years?
Yvette Cooper: I can write to the hon. Gentleman with the details of the allocation. The investment plan to tackle bed blocking is planned over two years but it is also about freeing up capacity in the acute sector.
I understand that the trust plans to open two additional wards in the new financial year. Issues such as investment in services in the community, in primary care and in acute care need to be tackled.
My hon. Friend the Member for Bedford mentioned increased accident and emergency admissions at Bedford hospitals. I can confirm that officials from eastern regional office visited the trust in the summer to discuss the issue. The region and the trust are working together to identify the action required to identify the possible causes of the increased activity in A and E and to improve the accuracy of the data collected on admissions and treatment.
As I said, the Government are determined to increase investment in the NHS but in that regard the NHS also needs to reform to deliver first-class care to patients. The Wanless report identified cumulative underinvestment over at least 30 years but also the need for reform, so that additional resources to Bedfordshire and elsewhere make the biggest possible impact. The biggest and most sustained growth in any four-year period in the history of the NHS was announced in the 2000 Budget. However, we need to look to the long term, so that investment and reform can provide my hon. Friend's constituents and those of other hon. Members with the national health services that they need.
It being Two o'clock, the motion for the Adjournment of the sitting lapsed, without Question put.