Westminster Hall Sitting of 10 April 2002

Preamble
[SIR MICHAEL LORD in the Chair]

Commonwealth Development Corporation
Motion made, and Question proposed, That the sitting be now adjourned.—[Dan Norris.]
9.30 am
Dr. Julian Lewis: This is the first time that a so-called Westminster Hall debate has been held anywhere other than Westminster Hall. As we all know, it is because of the arrangements for the lying in state of the late Queen Mother. It is therefore appropriate that the subject of our first debate since Parliament has resumed is non-partisan and concerns the good will of people in prosperous countries towards those in poor countries.
I shall begin the debate on a local note. The Hampshire Scout Expeditions has been engaged in an expedition to climb Mount Kilimanjaro. Within the past few days, on their way back, the scouts visited poor villages in Tanzania to engage in developmental projects and put something back into the country in return for their adventure. The spirit behind that generous contribution was similar to the spirit in which the 1945–50 Attlee Labour Government set up the Colonial Development Corporation, which subsequently became the Commonwealth Development Corporation.
The raison d'etre behind the corporation was to boost investment for development in some of the world's poorest countries. When the legislation for the part-privatisation of the CDC was debated in the House in 1999, the wish to make it work enjoyed cross-party support, but there was considerable concern that it might not succeed. When the Bill was first debated in Committee, my hon. Friend the Member for South-West Devon (Mr. Streeter), the then shadow Secretary of State for International Development, sounded the clearest possible warning when he said that
"the new CDC may be the worst of all worlds: it will attract little interest from the private sector and will therefore be undersold, but will be moved away from its developmental objectives over the next few years by shareholder pressure. —[Official Report, Standing Committee D, 19 June 1999; c. 4.]
Ms Diane Abbott: I sat in on that debate in 1999. Labour Members were assured that the new arrangements would not alter the CDC's traditional developmental role by one jot or tittle. That is the basis on which we voted for the Bill.
Dr. Lewis: The hon. Lady is absolutely right and that was the basis on which the Opposition did not vote against the Bill. However, fears were expressed that the consequences that I have outlined might follow if the arrangements did not work.
Looking back at the record of the proceedings in Committee, two views were expressed about the Bill. The original idea was to have a body that would fill the
2WH
gap in poorer colonies that were unlikely to attract private investors. I am trying to be as fair as I can by saying that the Government's intention was to convert that body into a bridge between private investors, who might not usually invest in those countries, and the developing countries themselves. However, Bowen Wells, the distinguished former Chairman of the Select Committee on International Development, expressed the view that one purpose of the part-privatisation of the CDC was to reduce competition with the Department for International Development for Treasury funds. The 1999 legislation made it possible to borrow funds from the private sector as well. Unfortunately, the price of doing that seems to be an unacceptable sacrifice of the Department's developmental aid.
The Minister will be aware of the exhaustive examination carried out by The Times and published on 2 February 2002. I will rely on a considerable amount of that material in the remainder of my remarks. The article quoted a senior policy advisor at Oxfam, Tricia Feeny, who said:
"A lot of (CDCs) African investments are in things like shopping malls stuffed with imported luxury goods, which cater to the wealthy elite or expatriate community. These have a neutral or even negative impact for the poor."
In other words, she saw a change in the focus and emphasis on the traditional way in which the CDC had invested in development countries.
During the debates in Committee in 1999, the hon. Member for Richmond Park (Dr. Tonge) expressed great concern that the business principles and investment policy of the CDC were not sufficiently strongly bound into the Bill. Similarly, my hon. Friend the Member for Chesham and Amersham (Mrs. Gillan) pointed out that the first attempt at a public-private partnership by the new Labour Government involved a 50-year-old organisation with £1.2 billion worth of investments in more than 400 businesses in 54 countries.
Sadly, the numbers involved are beginning to shrink. In answers to written parliamentary questions tabled by the shadow Secretary of State, my hon. Friend the Member for Meriden (Mrs. Spelman), the Government admitted last month that the CDC investment in sub-Saharan Africa had declined from £73 million, £72 million and £74 million in 1997–99 respectively, to only £56 million in 2000. For example, investment in Malawi and Uganda had ceased entirely and it seemed no coincidence that the CDC offices had shut down in both countries since 1999.
A written answer from DFID on 19 March 2002 also confirmed the closure of other CDC offices in Peru, Trinidad, Jamaica, Bangladesh, the Philippines and Fiji. Although the part-privatisation has not yet been carried through, the strategy of the new administration appears to be preparatory to completion of the process. The CDC, or, to give it its new identity, CDC Capital Partners, has been jettisoning long-term agricultural investments that traditionally yield returns of 6 to 8 per cent. in favour of funding banks, shopping centres and energy firms that offer much higher rates of return.
Such a process was entirely to be anticipated. The Government assured us that the safeguards would be sufficient, but were they effective enough to stop the process once it had started to roll forward? Conservative Members think that the signs are distinctly

3WH
discouraging. CDC staff numbers have been cut by some 35 per cent., although it must be said that rewards for those who remain have markedly improved at director and chief executive levels. I believe that the chief executive receives a package worth £250,000 for his three-day week.
Before PPP, the CDC was subject to a detailed framework of scrutiny, including quinquennial reviews by relevant Departments' representatives under the chairmanship of a representative of DFID. Now, however, the situation is very different. The Government say that they have put sufficient safeguards in the new Bill to ensure the new organisation's accountability, without the need for the sort of parliamentary scrutiny that the Conservatives urged in 1999, when the Bill was enacted.
Let us examine the supposed safeguards. First, the Government will retain a 25 per cent. share in the CDC. However, a 25 per cent. share will not prevent changes in the investment policy and thus constitute a worthwhile safeguard.
The second safeguard is that DFID will be able to appoint two directors to the CDC board. However, two people do not constitute a majority so, on their own, they will be unable to protect the development focus.
Thirdly, whereas the Conservatives supported the statement of business principles that accompanied the 1999 Bill, there was nothing remarkable in that statement that other multinational companies could not adopt. By itself, the statement is a worthless safeguard for protecting the CDC's developmental role.
Fourthly, the memorandum and articles of association give no general protection to the role of development in the workings of the CDC. They simply state that there should be a focus on investment that benefits poor countries. That is too vague to be a sufficient safeguard. They also state that the CDC must adhere to the statement of investment policy—the sixth safeguard, which I shall discuss in a moment.
The fifth safeguard is the golden share. Article 51 of the memorandum and articles of association states that there shall be no change in the investment policy without the consent of the holder of the golden share. We welcomed that at the time, but as we argued then, the investment policy itself was already flawed.
The sixth supposed safeguard is the statement of investment policy. We argued at the time that that statement was far from sufficient to entrench development. It sets minimum levels of investment in poor countries, but it does not prevent a future CDC that wanted to increase its return on investment from investing only in the top-listed blue chip companies of poor countries. It does not specify how many companies the CDC must invest in or the type of company. Two or three minor provisions prohibit it from investing in certain types of company, but it can invest in any high-performance, high-yield company, regardless of whether it benefits the local economy or creates jobs. The CDC's activities could move in a sufficiently undesirable direction to contradict its original aims, without triggering a situation in which the Government could use their golden share.
4WH
In its examination, The Times claimed that the CDC's £80 million profit in 1999 had become a £41 million loss the following year. Ernest Mtamboh, a development economist who worked for the CDC for eight years, until he was made redundant recently, was quoted as predicting:
"Over the next 18 months, CDC plans to sell all its agri-business interests in Zambia … The long-term investments are going to be dumped in favour of short-term investments with a higher return…The employees won't know what's hit them. Jobs will be lost, productivity will fall, and the good labour practices and social responsibility that were the hallmarks of the CDC will go out of the window."
At the end of the Committee stage in 1999, my hon. Friend the Member for South-West Devon moved a new clause that would have strengthened significantly Parliament's ability to scrutinise the strategy and policy of the CDC. It would have sent a strict and stern message to those running the part-privatised CDC that we were looking over their shoulder, as it stated:
"The Corporation shall at the end of each complete financial year after the day appointed under section 3(3) make a report to the Secretary of State on its investments during that twelve month period and on its policy on future investments."
It would have further provided that the Secretary of State should, as soon as practicable, lay such a report before Parliament.
My hon. Friend said at the time:
"The amendment is designed to bring back CDC's investment policy and decisions to the House of Commons once a year so that we may look over the Secretary of State's shoulder five or 10 years down the road. It constitutes another pressure on shareholders and directors in future: they will know that the House of Commons will consider decisions, and may debate them."—[Official Report, Standing Committee D, 22 June 1999; c. 105.]
The response of the Secretary of State for International Development was that it was sufficient that the Department would produce an annual report every year, which Parliament could debate. However, in general, the annual report has not been debated in Parliament and, in any case, it addresses a range of the Department's activities and does not concentrate on the CDC in detail.
The most recent DFID annual reports allocated very little space to the CDC. The 1999 and 2000 reports each allocated only three paragraphs to the CDC, which discussed the progress made towards the PPP. The paragraphs contained only the most vague information on the investment strategy being pursued by the CDC, despite the changes in its investment policy. They contained no information about the implication of those changes on development in poor countries. The 2001 DFID report contained only a single, solitary paragraph on CDC Capital Partners that repeated almost verbatim what was said the previous year.
Despite the critical tone that I have had to adopt while addressing this worrying situation, we are trying today to give the Government an opportunity to reconsider their undoubtedly sincere initial belief that they had made sufficiently strong arrangements to safeguard the original intention of the Commonwealth Development Corporation. The CDC enjoys total support among all parties today, as it has under successive Governments since its establishment in 1948.
I shall conclude with a constructive suggestion, which is perhaps not for me, nor the Minister, to make. As the Chairman of the Select Committee on International

5WH
Development is present, let me air the possibility that the way in which the part-privatisation of the CDC is developing is a worrying trend that seems to confirm the worries of hon. Members of all parties that were expressed when the Bill was enacted.
Tony Baldry: We are inviting the CDC to talk to us in June.
Dr. Lewis: I am delighted to hear that. In the light of that invitation I hope that my hon. Friend will decide that it would be suitable for the Select Committee to investigate fully and report on how the process is evolving.
I am glad to have secured the debate. I apologise to the Minister if I have sounded like a Jeremiah; I am sure that he will do his best to dispel the gloom. I hope that he will accept the sincerity with which the Opposition are putting their case. We do so not because we should like to say that we told the Government so, but because we wish to ensure that when the CDC is fully and finally privatised we can say that we told the Government so and that they listened, and as a result we gained the best and not the worst of both worlds.
9.50 am
Tony Worthington: I am pleased that the hon. Member for New Forest, East (Dr. Lewis) called for this valuable debate. As the hon. Member for Banbury (Tony Baldry) said, we members of the Select Committee have raised the issue and have arranged to talk to the CDC.
I shall discuss broader concerns as well as the CDC, which raises big issues. As a general policy, it was absolutely right that DFID should have led the attack on poverty and focused on education, health and social services as a way of creating long-term growth. However, that has led us to focus less on the current economic regeneration of countries such those in sub-Saharan Africa. Obviously, that regeneration is primarily the responsibility of the Governments of those countries, but more could be contributed from outside. My concerns centre on the fact that more than 80 per cent. of people in those very poor countries live off the land and are directly dependent upon it. Frequently, in travels with the International Development Committee one is not briefed on agricultural or land policy, or is not conscious that the countries have a policy. Surprisingly little attention is paid to that critical issue.
Let me give a couple of examples. The people of Uganda boast that they grow the best pineapples in the world, but Ugandan pineapples do not reach our supermarkets. I was not conscious that Ugandan agricultural policy is concerned with how to adapt Ugandan pineapples so that they will fit the shelves in Sainsbury's and will be marketable. In Ghana, the same points are made about cocoa as were made 50 years ago. The Ghanaian cocoa farmer gets a very low price and is frequently slaughtered by a fall in the price of cocoa, whereas in the prosperous world, when the market price of cocoa falls, we get value added chocolate production without reducing the price of chocolate. Any manufactured goods would be slaughtered by the tariffs that we impose on them.
Ms Abbott: On agricultural policy, the issue is not just the total number of people employed in agriculture, but
6WH
the fact that those people work in the countryside. If agriculture collapses, they drift to the cities. Many of the people involved in agriculture cannot easily be deployed to computer inputting, or whatever DFID is promoting.
Tony Worthington: I agree completely. That is a neglected issue; all over the world, there is a drift into mega-cities that do not have the services, facilities or work to provide something better than working on the land. We must consider that inter-relationship. There have been examples of success, such as the amazing growth of flower growing in east Africa. That requires the most sensitive kind of manufacturing. It is sensitive to time and quality; nobody wants to buy a flawed red rose. That has been achieved in a part of the world that does not have a settled political atmosphere, which proves that such things can be done, but why have not enough of them been done in Africa?
I always thought that the CDC was about remedying market failure—going where ordinary financial investors would not go—because it is a myth that the market will always provide a cure. Sometimes people are crushed by the market, and intervention is required to prevent them and their countries from becoming poorer and poorer. Now, the CDC's remit is to bring in private capital—to make itself attractive to private investors. That is a different role.
The hon. Member for New Forest, East quoted some of the relevant figures: in 1996, the CDC invested £87 million in sub-Saharan Africa; in 2000, that had fallen to £56 million. Its chief executive, Alan Gillespie, states:
"CDC is today plugging the equity gap in healthcare, electricity generation, transport, mining and communications: CDC is a lead investor in a mobile phone operator in 13 African countries."
The CDC website refers to recent investments, such as an injection of $18 million into the east African power sector, the investment of $40 million in a pan-African telecom business, and CDC Capital Partners also invests in zinc in Zambia. However, there is no reference to investments in what the great majority of people are occupied in, which is agriculture. I find that difficult to accept.
In the annual report, Mr. Gillespie states:
"It was with considerable reluctance that the board concluded that many of our agribusiness investments, with which CDC has been proudly associated throughout its history, are unlikely to meet our minimum financial return requirements."
Those investments, therefore, are now on a "for sale" rather than a "going concern" basis.
Mr. Gregory Barker: Does the hon. Gentleman agree that although the shift from a rate of return of 6 to 8 per cent. to 25 to 30 per cent.—which the CDC is now promoting—might not sound like much, it is a seismic shift, and it totally precludes a whole raft of projects that have traditionally been managed by the CDC, and which nobody else would be available to finance? Does he also agree that by being so ambitious—rather than, perhaps, going for 15 per cent.—there is no difference between the CDC and any other commercial provider of capital?
Tony Worthington: I do not want to pronounce on the CDC's policies, because what it is doing now might make abundant sense, with regard to getting investment into new enterprises in such countries, where there might still be a market failure in relation to the private sector. However, although that might be the case, the needs of sub-Saharan Africa are so vast that a job is not being done in what may be seen as the traditional area. I do not wish to comment further on that until we have talked to the CDC about whether it sees real wealth creation resulting from its investments.
I return to agriculture. As the hon. Member for Banbury knows, the International Development Committee recently visited Ghana and Nigeria. We spent many hours driving through lush countryside, where it was difficult to recognise what was a central or local government strategy to create more wealth and food. There was no picture of anything other than growing things: there was no examination of markets, quality or how Ghana or Nigeria linked in to our world. I felt exactly the same last year in Vietnam and Cambodia. The only place that we visited where I felt that the land was farmed to its maximum efficiency was Bangladesh. Good work was being done there, and it was difficult to imagine it being done more intensively or to a better quality.
Agriculture is exceedingly difficult territory in which to cause change because landholding tends to be fragmented, and is becoming more so. In every country, it is intrinsic to inheritance and power. Farmers tend to be conservative, and huge values are attached to animals and goats—sorry, not to goats, to food. Goats are on my mind because I saw them everywhere, but they were not being used in an economically effective fashion. Their protein, milk and hide were not used; they were just around as dogs and cats are in this country.
I am surprised that we never receive briefing on the anthropology of those societies, because it is crucial to the development of communities. One must he careful and considerate about major agribusiness moving in, further stripping people of power and leaving them jobless. For example, there is a current controversy over a planned development project, "Vision 2020", in Andra Pradesh, which has been promised £65 million of British aid. The upside is that it promises to bring millions of poor farmers into the 21st century through the consolidation of farms, the mechanisation of agriculture, irrigation projects, new roads and the introduction of genetically-engineered rice. The state Government promises also to eradicate poverty. However, the big downside is that those dependent on the land will fall from 70 per cent. to 40 per cent. and 20 million people will have to find another source of income. I mention that project neither with approval nor disapproval because I have not studied it, but it illustrates the complexity, the sensitivity and the importance of the issue.
The CDC is clearly no longer seriously considering agriculture as a major area of development and wealth creation because it cannot achieve its targets through its work. However, somebody should be seriously considering the matter, because it is being badly ignored and our international work is underpowered. At both British and international level it is difficult to identify who is considering macro-agricultural policy and its translation into wealth creation at farm level.
8WH
At international level, the European Union has been a major enemy of developing countries through its tariffs and its policies of dumping excess food. In our studies of EU development policy, I do not recall any agricultural projects that have attracted praise. The UN Food and Agriculture Organisation should be responsible for agriculture, but, in a competitive field, it has about the lowest profile of any UN organisation. That has never been brought to the attention of the Select Committee on International Development. UNFAO claims to be doing such work on its website:
"The Food and Agriculture Organization of the United Nations was founded in 1945 with a mandate to raise levels of nutrition and standards of living, to improve agricultural productivity, and to better the condition of rural populations."
However, I have never heard that quoted in a business sense. Research may be going on, but in my extensive travels I have not come across the FAO as part of a country's agricultural policy.
Today's debate allows us to raise our concerns about agricultural policy in the developing world and the contribution it makes to poverty alleviation and wealth creation. I always thought that the CDC was our major contribution, but it has clearly turned away from such work to help the spread of mobile phones, or some other economic activity. That might be profitable for those who control companies, but it will not increase the incomes of the poor. I should welcome the Minister's views.
I am not saying that what is happening to the CDC is wrong. The House made a decision, and it is early days yet; the CDC deserves time to be tested out against the Government's policies. However, there is a vacuum to be filled in the agricultural policies of developing countries. I look forward to the Minister's response.
10.5 am
Tony Baldry: As always, I agree with almost everything that the hon. Member for Clydebank and Milngavie (Tony Worthington) said. I start with a confession of past errors. I think that I made a mistake, when I had the responsibility that the Minister now has, when I, in effect, allowed the Commonwealth Development Corporation to change its name to the CDC. Presentation is sometimes important, and, with the benefit of hindsight, I think that making that change resulted in the organisation losing some of its focus.
The background is simple. In about 1996, the Commonwealth Development Corporation came to Baroness Chalker and me, as we had ministerial responsibility for it at the time, and said, "Look, there are many poor countries not in the Commonwealth and many Commonwealth countries that are not poor. Our present remit prevents us from investing in poor countries not in the Commonwealth. The geographical spread of Commonwealth countries is not even across the world—there are many Commonwealth countries in the Caribbean but few in Latin America. Please may we have the freedom to invest in poorer countries?" That made eminently good sense, so the legislation was amended to enable the Commonwealth Development Corporation to invest in poorer countries, wherever they might be. The logical consequence was that it asked to change its name to the CDC. I think that that has, in part, lost it its development focus.

9WH
I shall be slightly more critical than the hon. Member for Clydebank and Milngavie about the CDC's present performance because the concerns need to be put on the table, and that will give the CDC and the Minister the opportunity of rebutting those points if they can. I think that everyone in this House supported the Prime Minister when he said recently to the Nigerian National Assembly that Britain has a special responsibility to Africa and that aid is needed to invest in creating capable states, to encourage economic growth and to invest in public services. However, I am concerned that the direction of the CDC is not to invest in the areas that one would see as consistent with the Prime Minister's comments. It is not investing in education or in agribusiness, in which 85 per cent. of people in poorer countries work and in which they look more likely to succeed in trade.
I entirely agree with the hon. Member for Clydebank and Milngavie about that. We see the CDC investing away from poorer countries, away from sub-Saharan Africa. Investment by the CDC in that region in the last two years for which figures are available, 1998–2000, fell by 13 per cent. Some countries have seen investment collapse completely. Malawi, which received £9 million of CDC investment in 1996, now receives none at all. Swaziland received £19 million from CDC investment in 1996, but by 2000 it was receiving absolutely nothing. Investment by the CDC in sub-Saharan African countries has plummeted in recent years by more than £30 million.
The CDC's annual report claims that the reason for the change is that
"CDC believes that if it is able to achieve its mission of realising attractive returns to shareholders this will have the effect of also assisting social development".
I am at a loss to see how getting attractive returns for UK shareholders per se will necessarily assist social development in poorer countries in Africa. Until it can be demonstrated to the contrary, the suggestion must mean that CDC directors have simply decided to put profit before any poverty focus. As my hon. Friend the Member for New Forest, East (Dr. Lewis) said a few moments ago, part of the concern is that, if the CDC is no longer looking for shareholder returns on equity investments of between 6 and 8 per cent. but of at least 20 per cent. to attract partners, it is not surprising that it has decided not to invest in agribusiness and agri-economy, which are very important for poorer countries.
The CDC's directors have created some of the problems. Through equity investment, they have created a financial return hurdle that is too high. The CDC now needs to increase its return considerably to attract private investors. Indeed, in the corporation's report in 1997, the chief executive said:
"The returns will need to be enhanced, and this will require us accepting risks in the businesses in which we invest for a commensurate increase in rewards."
Equity in developing countries is elusive. As the Secretary of State for International Development admitted in evidence to the International Development
10WH
Committee, equity is a scarce resource in many developing countries. In its eighth report to the previous Parliament, the Select Committee concluded:
"Until the downward trend in the Commonwealth Development Corporation's returns is significantly and sustainably improved, it seems unlikely that the Public/Private Partnership will be a commercially viable venture."
Unfortunately, the warnings of the Select Committee have proved to be the case. Equity investments at the CDC have gradually increased since 1998; in contrast, return on capital employed at the CDC has dramatically dropped from 3.6 per cent. to a deficit of 4.7 per cent. during the same period. Even more staggeringly, the operating profit after tax fell from £57 million in 1999 to a deficit of £41 million a year later. Those figures do not make the CDC look like a sustainable business. Obviously, the downward trend considerably affects its ability to attract private partners.
One is concerned about some of the projects that the CDC has invested in. For example, it now appears that the Konkola project in Zambia faces a £20 million loss, unless it can find a new owner to replace Anglo American, which pulled out last month. A little while ago, I received a letter on the issue from the executive vice-president of Anglo American, who gave several reasons why they had withdrawn. One questions why the CDC continued to invest in the scheme, and other examples of similar projects raise questions about the CDC's collective judgment in investing.
Also, questions are raised about the CDC's commitment when one considers where it is closing offices and opening new offices. It is closing offices in countries such as Uganda and the Ivory Coast but opening offices in places such as Egypt and Mexico. The Economist noted last year that the CDC was moving from agri-economy to property and banks:
"New regional offices, manned by people who know more about making deals than growing pineapples, have opened in Egypt, China and Mexico."
Why is the CDC opening a new office in China? Admittedly, China contains a large number of poor people, but it does not contain the poorest of the poor. Its gross domestic product rises by about 9 per cent. each year. It is even excluded from the World Bank progress reports on the 2015 targets, to avoid distorting G8 countries' performance. I suspect that the only reason that the CDC has opened an office in China and closed offices in sub-Saharan Africa is that it hopes to make a better return on capital in China.
Recently, I was told by a former employee of the CDC:
"Additionality is off the CDC agenda—almost all technical expertise has been fired—agriculturalists, business managers, engineers. Even the environmental specialists have gone!"
How on earth does the sacking of engineers and environmental specialists enhance the social development that the CDC professes? It does not. The former employee—a perfectly rational person, who I have known for more than 10 years—continued:
"Dedicated development orientated business men have been substituted by a cosy coterie of ex Bankers and naïve expensively educated MBAs. Is this the Goldman Sachs of the developing world?"

11WH
Hon. Members should be concerned by both those statements on the direction in which the CDC is going.
The Secretary of State has a golden share in the CDC which was one of the earlier parts of this country's work in helping poorer countries—the better part of the legacy of the Attlee Government of the post-war years. I hope that the Minister will reassure the House that he and the Secretary of State are taking a close interest in what the CDC is doing, to allow confidence that that is still part of the Department's work in tackling poverty in the poorer countries of the world. Otherwise, the CDC will simply become another venture capital fund—there is a venture capital fund called CBC. One wants to be confident that the CDC will not become just like any other fund in the City of London, running no fewer risks or gaining no more rewards.
We have always been very proud of what the Commonwealth Development Corporation has achieved. Of course, it was right that it could help poorer countries outside of the Commonwealth, but we hope that Ministers are confident that the CDC is determined to help people in poorer countries and is not just concerned with the return on its capital.
10.18 am
Ms Diane Abbott: I begin by congratulating the hon. Member for New Forest, East (Dr. Lewis) on securing an important debate. We can all agree that the role and work of the CDC has not been sufficiently scrutinised since the decision was taken in 1999. The hon. Gentleman seemed alarmed when I sat on this side of the Committee Room. Although we are physically in Committee Room 10, philosophically this is a Westminster Hall debate, and such debates are normally conducted on non-partisan lines. I would like to participate in a non-partisan spirit.
I remember the 1999 debate very well. There was little controversy, and the House was united in believing that the matter was technical and would better enable the CDC to fulfil its developmental remit. In that spirit, the measure was passed with questions asked, but no opposition from either side of the House. The evidence is partial and anecdotal, but it seems that under the new dispensation the CDC has moved from its developmental remit. It seems that way because we do not have enough information. The avenues are not open to the House to allow us to scrutinise properly what the CDC is doing. We know that the CDC is withdrawing from agriculture throughout the world because it does not pay enough. The return that the CDC wants cannot be obtained from investment in agriculture.
I want to add my voice to those of hon. Members who have said that the Government should scrutinise their policy on agriculture and development. In addition to employing a large number of people in third world societies, agriculture is often the anchor of social stability. I am chairman of the all-party parliamentary group on the British Caribbean and my family comes
12WH
from there. I visit the Caribbean most years and will be there in a few weeks. What has happened following the collapse of agriculture in rural Caribbean countries?
Mrs. Marion Roe (in the Chair): Order. Will the hon. Lady speak a little more loudly? I am having difficulty hearing her and others are also indicating that they cannot hear her. Her points are important and we would all like to hear what she is saying.
Ms Abbott: It is not often that I am accused of not speaking loudly enough.
Agriculture is the anchor of stable civil society throughout much of the third world. When traditional rural agriculture collapses, those who were employed in agricultural pursuits cannot diversify into computer inputting. They cannot even diversify into growing flowers because the new forms of agriculture do not employ labour in the same numbers as traditional agriculture. What often happens in Africa and the Caribbean is that people drift to the city with the resulting problems of instability. When legitimate agriculture does not develop and is not allowed to flourish, people all too often diversify into illegitimate agriculture. There is a clear relationship between the collapse of agriculture in the Caribbean and South America and a move into drug production. I only wish that the Government, who talk so much about joined-up thinking, would apply some joined-up thinking to the relationship between the lack of an agricultural development policy and the war against drugs. Without a coherent policy on developing and sustaining agriculture in the third world the international war against drugs is doomed to failure.
As chairman of the all-party parliamentary group on the British Caribbean, I was privileged to lead a delegation to Belize in the Caribbean last year. I heard bitter complaints from all sides about the role of the CDC. At that time it was a major investor and employer in citrus production, which is a key anchor of stable civil society in Belize, as elsewhere. The CDC was in the process of selling lock, stock and barrel its holding in citrus production. Many people—not just politicians, but agriculturists and workers in citrus production—could not understand why the CDC was selling, helter skelter, its interests without even trying to identify whether local co-operatives and growers could step in. They wondered how it could call itself a development corporation when it was selling off a key industry in Belize apparently without thought for the short and medium term developmental consequences of that sale to the people of Belize. It is all very well for the CDC to have to obtain the maximum return on its investments to be viable, but the example in Belize is that the CDC makes short-term, shareholder-driven decisions to the exclusion of any consideration for the short and medium-term development cost.
Belize, where the situation has not been reconciled, is an example of the decisions that the CDC is making in its new manifestation as a sort of Goldman Sachs of the development world.
I can only repeat what has been said earlier. It must worry any hon. Member who is concerned about development and the third world that investment in sub-Saharan Africa by the CDC has dropped by £30 million.

13WH
It is difficult to understand the logic of closing down offices in Jamaica, the Ivory Coast and Uganda and opening them up in China. China is not short of investment. The logic of the CDC opening an office there is wholly commercially driven. I share hon. Members' concern about what is happening to the CDC, which now appears to be wholly driven by the interests of shareholders. I share their concern about what is happening as experienced agriculturalists, engineers and business managers leave to be replaced by people who understand the market and about making deals.
If we are serious as a Government about raising the standards of living of people in sub-Saharan Africa and Africa as a whole, in the Caribbean and all those parts of the world that have historic links with this country, we must take the role of the CDC more seriously and subject it to more scrutiny. Yesterday, the whole country was swept up in the emotion of the Queen Mother's funeral. But if the Queen Mother and the royal family mean anything, they mean a commitment to those parts of the world that were part of the empire and are currently part of the Commonwealth. I need to be reassured by Ministers that the CDC's current policies firstly are subject to sufficient scrutiny by the House and, secondly, fulfil our historic and moral responsibility to the Commonwealth.
10.26 am
Mr. Andrew Rosindell: Thank you, Mrs. Roe, for calling me to speak in this important debate. I congratulate my hon. Friend the Member for New Forest, East (Dr. Lewis) on raising this vital issue. The speeches this morning have shown an enormous degree of consensus. I reiterate the comments of the hon. Member for Hackney, North and Stoke Newington (Ms Abbott): yesterday we witnessed an immense display of unity as the nation and Commonwealth countries throughout the world came together to commemorate the passing of Her Majesty the Queen Mother.
If the Commonwealth Development Corporation means anything, it is to enable Britain to support countries to which we are historically and traditionally linked. They are the poorest countries in Africa and other parts of the world. I hope that everything we do is designed to help them, rather than simply to make profit out of the CDC. That is why there is considerable concern about the effect that Government policies have had on action on the ground. The part-privatisation of the CDC is ill thought out. It is having detrimental effects on development assistance to poorer countries, promoting headlines such as that in The Times on 2 February 2002:
"Privatisation of Atlee's aid agency hits the poorest of the poor".
No Labour Government could be proud to see that.
I should like to emphasise many of the comments that my hon. Friend made about the effects of the part-privatisation of the CDC. It is clear that the CDC in the new climate, even before the PPP is fully completed, is changing its investment strategy to the detriment of the poorest countries. Take, for example, the fall in investments in sub-Saharan Africa, as reported in Hansard on 14 February. The region's share of all poor country investments fell from 56.9 per cent. in 1998 to
14WH
43.3 per cent. in 2000. Figures in Hansard on 12 February show that the value of CDC investments in the region has fallen massively—from £87 million in 1996 to £56 million in 2000. Investment in Malawi fell from £9 million in 1996 to nothing in 2000. Similarly, investment in Swaziland went from £19 million in 1996 to no money whatever in 2000. Furthermore, as my hon. Friend the Member for New Forest, East said, CDC offices have closed in many countries, including Malawi and Uganda, which, coincidentally, have recently received no new investment.
The Government's answer has been not to compensate such countries with overseas assistance, but to pretend that everything is perfectly okay. The Secretary of State may promise the House that the new-look CDC will retain its development focus, and he may note the Government's majority share in the CDC. That does not, however, hide the fact that investment in the countries that I listed has gone down and, in some cases, disappeared altogether.
Mr. Barker: Does my hon. Friend agree that the CDC is sometimes the only provider of real equity finance in sub-Saharan countries such as Swaziland? In places such as China, however, its capital is but a drop in the ocean.
Mr. Rosindell: I thank my hon. Friend for his comments, and I endorse his sentiments.
Generally, I would be the first to agree that politicians and Governments should not intervene in privately run companies. I should have thought it obvious, however, that at least some Government action was necessary given the crisis in CDC funding. That there is a crisis is clear, in particular, from the fact that the Government demanded at least an 8 per cent. return on CDC investments before partial privatisation. Returns are now falling drastically below that level, which diminishes the attractiveness of projects to new private investors.
Hon. Members on both sides want the CDC to work, but it is clear from the facts and figures available that it will not. An article in The Times on 2 February demonstrated that the 10 million people who live in grinding poverty in Zambia—the very people whom the CDC was designed to help—feel that the corporation has abandoned them. That is too significant to be ignored.
When the evidence is so clear, there is no excuse for the Government not to take hold of the situation. They must ensure that the development focus and intended investment strategy are not undermined by pure profit motives. To achieve that, they must focus on several core issues, including using the safeguards available to them to ensure that the CDC achieves what it was created to do.
It would be catastrophic for the CDC to lose its development focus, and increasing parliamentary scrutiny of the investment strategy would be an option worthy of consideration. Too many lives are at stake and too many people are involved for us to pretend that nothing has changed. We have an international duty, for which DFID takes responsibility. It is time for DFID to be bold enough both to admit that the evidence shows that its scheme is not working and to respond accordingly.
10.34 am
Norman Lamb: I congratulate the hon. Member for New Forest, East (Dr. Lewis) on securing this important debate, on which a common view has been expressed by hon. Members who have spoken so far.
I was not in Parliament when the Select Committee on International Development first considered the Government's proposals in 1997–98, and when the Bill facilitating the partial privatisation was considered, so I do not have the same track record as other Members, including my hon. Friend the Member for Richmond Park (Dr. Tonge), whose contribution has already been referred to. However, it is regrettable that the Government seem to have ignored the Select Committee's warnings about the viability of the plans and their potential negative impact.
As a member of the Standing Committee that considered the International Development Bill, I was impressed by the Government's focus on poverty reduction and sustainable development, considering that so much aid has been misused and misdirected in Africa and elsewhere over the years. It was my perhaps somewhat naïve assumption that that approach would inform all Government action in relation to the developing world, not just the giving of aid. The hon. Member for Hackney, North and Stoke Newington (Ms Abbott) rightly drew attention to the absolute imperative for joined-up thinking on such issues. However, since the Committee stage of the International Development Bill, the issue of the Tanzanian air traffic control system arose shortly after this country wrote off a substantial amount of debt. That seemed to be contrary to the core of that Bill—something that has clearly been recognised by the Secretary of State for International Development.
Some hon. Members have already referred to the article in The Times on 2 February. I was horrified when I read that report, which highlighted the failure of CDC Capital Partners to attract interest from the private sector, and, more importantly, the impact of the change of investment strategy on the poorest nations. Why should we be so concerned about that? The original purpose of the CDC was to operate a pioneering approach in the private sector, with a mandate to go where private capital would not normally go—to where it can make a real difference. It has been operating in some of the poorest countries in the world, where the absence of financial markets meant that it was impossible to borrow to start a business. It has helped thousands of people, particularly in the agricultural sector. It has been innovative and has a good record both on labour practices and on social responsibility. It has been used as a model for the creation of the World Bank's International Finance Corporation.
All that is now threatened by an investment strategy that requires much higher rates of return. It is self-evident that if a higher rate of return is required, something must give, and one ends up investing in projects in areas that already attract plenty of private sector interest, such as leisure, property, communications and shopping malls. The danger is that such work ceases to have any real development value because there is a conflict between securing a high rate
16WH
of return on investment and achieving development priorities. The two may sometimes match, but we must recognise that there is a conflict of interest.
What has actually happened? It seems to me from the statistics that have already been quoted that there has been a shift of new investment away from the poorest countries towards less poor or middle-income countries, moving investment in the opposite direction from the central thrust of the International Development Bill. As we have already heard, offices are closing in some of the poorest countries and opening in less poor countries. In the financial year ending 2000, the CDC failed to meet its target of 50 per cent. of new investment in sub-Saharan Africa and south Asia. I shall not repeat the statistics because time is short, but money invested even in the poorest countries is too often going to those projects with a high rate of return—and money is available for those projects from other sources. CDC Capital Partners is selling off its agricultural investments. The agribusiness portfolio fell in 2000 by £75 million or 35 per cent, and all agribusiness interests in Zambia are being sold.
The Government assured the Select Committee in 1998 that agribusiness would remain a priority. However, although CDC Capital Partners' annual report for 2000 stated that there were six priority sectors, did not include agribusiness. The report stated:
"Many of our agribusiness investments, with which CDC has been proudly associated throughout its history"—
that is the great irony—
"are unlikely to meet our minimum financial return requirements".
Yet Ernest Mtamboh, the development economist with the CDC until, like many others, he was made redundant, pointed out:
"At a time when the UN Food and Agriculture Organisation is predicting a food deficit across most of Africa for the next 15 years, the CDC is achieving record yields for grain and maize and getting premium prices for its coffee—these business are not losing money".
It seems that the rate of return is not sufficient to interest private investors. Is the Government's commitment to investment in agribusiness still in place?
I said earlier that the International Development Bill focused on sustainable development. However, the new investment strategy and the fact that investments are not legally obliged to achieve sustainable development or positive results for the poorest people suggests a worrying shift. Examples have already been given, but I shall mention two more. A rural management training school in Mnanga in Swaziland has closed, and the building sold for use as a fee-paying school; it seems that training is no longer part of the CDC's core business. Friends of the Earth has been critical of a big CDC investment in palm oil plantations in Papua New Guinea, saying that it is harsh on farmers and the environment; is that where the CDC should be investing its money? We have already heard of the Konkola copper mine investment in Zambia, which has been criticised by Oxfam and others.
It is now time for an inquiry, to be undertaken either by the International Development Committee or an outside body, into three separate but related issues. I urge the Government to consider the following matters carefully. First, we need to review the routes

17WH
that the Government have chosen. Does the direction in which the CDC is going have potential development value? In the light of experience, is it not fatally flawed? Secondly, we need to consider CDC's performance and the decisions that it has taken. We have heard about the lack of scrutiny of the work of the CDC, but its decisions seem to be not only having a negative impact, but failing to achieve what it has set out to do.
Thirdly, we need to consider whether the provisions of the International Development Bill should be extended to focus on sustainable development and the alleviation of poverty and to cover a wider range of dealings with the poorest developing countries. If other policies and strategies, such as the control of arms exports, the sale of arms, tariffs and quotas, and the activities of the CDC, conflict with the central duty in the International Development Bill, the danger is that that duty will become little more than a fig leaf.
10.44 am
Mrs. Caroline Spelman: I shall try to keep my remarks brief, because we want to hear from the Minister. However, I do not wish my brevity to suggest that, as Her Majesty's loyal Opposition, we were not keen to make a concerted effort to secure the debate. I am glad that my hon. Friend the Member for New Forest, East (Dr. Lewis) was successful, because he cares deeply about international development and speaks about it with real concern. The debate has been interesting because hon. Members from all parties have spoken in a tone of sorrow, without scoring political points, and I should like to continue in that vein.
It is poignant that we are meeting in Committee Room 10, rather than in Westminster Hall, on account of the funeral yesterday of the Queen Mother, whose achievement as head of the Commonwealth should be placed on record. In the light of that, we should be aware that what is happening to the CDC, and the change that Commonwealth citizens are experiencing, is detrimental to the spirit of the Commonwealth. It takes a lot for an international development issue to reach the front page of a broadsheet newspaper, our national media having been made aware not of a massive natural disaster but of a problem that is quietly getting worse and worse, affecting some of the poorest in the world. The comment of the former Agriculture Minister for Zambia, Guy Scott, regarding the decision of the CDC to sell off one of its projects—a 26,000-acre farm in southern Zambia, where the workers had set fire to their crops in dismay that it was being sold off for just £2.1 million after £8.5 million had been invested in it—reflects on this country and on the Commonwealth. He said:
"For the CDC to be pulling out of this sector in search of short-term returns means the end of British foreign aid."
We cannot deny that the shift—which we have seen demonstrated statistically today—from helping the poorest and the countries of sub-Saharan Africa is detrimental to those whom the Commonwealth set out to help.
A number of hon. Members have emphasised the significance of withdrawal from agricultural investment. I have worked in agriculture for 15 years and I am sad to say that our farmers would be happy to see a return of 8 per cent. on their investment; times are hard even in this country. The CDC's change of investment strategy
18WH
is resulting in the developing world in a withdrawal from agricultural production, which, as the hon. Member for Hackney, North and Stoke Newington (Ms Abbott) said, is the bedrock of stability in rural societies. Where will the investment come from if the CDC withdraws from those areas? We are about to debate change in the terms of trade for agriculture at the talks in Doha. That is not the moment at which to withdraw investment from agriculture in developing countries where, through trade liberalisation, opportunities might well open up.
There is a moral imperative to bring to the Government's attention the need for action in an area where something is going wrong. We gave the benefit of the doubt to the Government's assurances that the development focus would not be undermined; however, there is evidence that it is being undermined. Therefore, we are here to ask the Government to think again—perhaps to rework the model of the partial privatisation. In July 1999, during the passage of the International Development Bill, my predecessor placed on record his misgivings. However, he gave the Government the benefit of the doubt in order to see whether they could make it work. There is evidence that rethinking is needed. I look forward to hearing what the Minister has to say. It might sound counter-intuitive for a Conservative to be arguing that the paramount concern of the CDC should not be about getting the very best market return for its capital. However, we are very concerned that a development agency with a good reputation is abandoning its principles at the expense of the world's poorest. In July 1999, my predecessor as shadow Secretary of State for International Development, my hon. Friend the Member for South-West Devon (Mr. Streeter), said
"The jury is still out on the Government's Bill…and I continue to hold grave reservations."—[Official Report, 14 July 1999: Vol. 335, c. 529.]
I share those reservations and, as a jury, our verdict is not in the Government's favour. We hope that they will listen again and we are here to help them through the means described by my hon. Friend the Member for Banbury (Tony Baldry) and through the assistance of the International Development Committee, to prevent things from going seriously wrong. There is still time to heed those words and put the matter right.
10.50 am
The Parliamentary Under-Secretary of State for International Development (Hilary Benn): May I first join other Members in congratulating the hon. Member for New Forest, East (Dr. Lewis) on securing this debate on this important topic? This is an example of the House scrutinising the CDC and its work and I welcome that. We are meeting here in Committee Room 10 because of the events of the past few days and this is the first opportunity that hon. Members have had to pay tribute to the staff of the House for the enormous amount of hard work that they put in to make possible the visit of the many people who passed through Westminster Hall.
I also welcome this debate because it gives me the opportunity, in the short time remaining, to respond to the many points raised and to deal with some misconceptions, particularly those created by the article in The Times. Unfortunately, time does not permit me to deal with all of them, but to correct just one point—the

19WH
chief executive, Alan Gillespie, does not work three days a week, but full-time. That is one of many inaccuracies in that article.
As hon. Members will be aware, when the Prime Minister announced, in October 1997, the Government's intention to turn the CDC into a public-private partnership, the aim was to encourage more private capital to invest in poorer developing countries. It was recognised at the time that that measure did not constitute an abandonment of the CDC's role, but the beginning of a new chapter in carrying out that role in rather different circumstances to those that existed when the post-war Labour Government founded the CDC in 1948.
My first point—one that has been raised by several hon. Members and to which I shall return at the end of my speech—is that in the world of investment finance, the CDC continues to be distinctive, seeking to show that responsible investments can be made in markets that investors too often shun as risky, and helping to encourage greater investment in countries that need it. In the longer term—this is one of the motivations behind the change—its aim is to help poorer countries participate more equitably in the world economy.
It is essential that private capital flows benefit poorer developing countries and that those countries do not become increasingly marginalised in relation to the growth of the global economy. Although we clearly want wealth to be more equitably distributed, the truth is that far too often poorer countries are starved of the investment they need. For example, overall foreign direct investment in developing countries increased dramatically in the 1980s and 1990s, but that investment was not evenly distributed. The lion's share went to Latin America and the Caribbean, Europe and central Asia, east Asia and the Pacific.
In 2000, only 4 per cent. of the foreign direct investment in developing countries went to low-income developing countries. That is the scale of the challenge that we face. Too little private capital goes into the poorer developing countries. That is why the CDC, with its specific and unique investment criteria focusing both on poorer countries and on sub-Saharan Africa and south Asia, is so important.
Africa loses 40 per cent. of the savings that it generates. That money flees the continent every year. That is the scale of the challenge. The public-private partnership concept is not just about accessing new sources of funding, but about the CDC demonstrating that it is possible to make commercially worthwhile investment. The effect needs to be judged over the whole business cycle. That was recognised by the former Chairman of the Select Committee, Bowen Wells, when he said:
"Some things will change radically as a result of the Bill…The CDC will have to look for a much higher return on equity".—[Official Report, 14 July 1999; Vol. 335, c. 530.]
The Conservative spokesman acknowledged that at the time. I have heard some confused arguments during the debate. Some people suggested that the rate of return achieved was currently too low, and others argued that the rate aimed for was too high. I am not sure where we could find the balance. If we are to have a demonstration effect, the CDC must operate successfully and commercially within the framework.
20WH
It is important to make a point about selling on. To judge from some arguments that hon. Members have made, it is almost as though when the CDC moves out of a business, as it has traditionally done, the business disappears into the ether. The CDC has sold on, rather than sold off, several of its previous investments, and it is true that those include some of its agribusiness interests in Africa. In case hon. Members have the impression that that means that the CDC has completely lost interest, it is important to acknowledge that it still holds 80 per cent. of its agricultural portfolio. It continues to invest in agribusiness, such as in sugar in Swaziland, rubber in Cote d'Ivoire, arable farming in Zambia and tea in Tanzania.
Some important points were made about the role of agriculture in development. I want to correct the impression given by some contributors that DFID's broader interests no longer include agriculture. A vast amount of an increasing DFID overseas aid budget supports rural livelihoods, for precisely the reasons alluded to by my hon. Friend the Member for Hackney, North and Stoke Newington (Ms Abbott). When considering the balance of where people live in developing countries, we have to recognise that all the growth during the next 25 years will be in the numbers that live in towns and cities. A shift is taking place, so it is not unreasonable that the CDC and others should respond to it.
Some argue that the CDC must continue to stick to non-commercial investments that perform poorly. In the end, that means that the concept of trying to encourage more private-sector investment in the poorest countries is doomed to fail. It is a counsel of despair. That is why the CDC is moving into other aspects of investment. Telecommunications was given as an example, and it will be an engine of economic growth and development. We have to pause for only one second to think of our own industrial history. We have lifted many people out of poverty in Britain during the past 300 years, and we have only to consider the mechanism that achieved it.
The CDC is not like any other investment company, because it operates within the investment policy in place, which cannot be changed without the approval of the Secretary of State. Both investment objectives—that 70 per cent. of investments have to benefit poorer countries, and that each year 50 per cent. of the CDC's new investments should be in sub-Saharan Africa and south Asia—were comfortably exceeded in 2001. Eighty per cent. of investments went to poorer countries, and 69 per cent. of the CDC's new investments were in sub-Saharan Africa and south Asia. I ask hon. Members to name another worldwide investment company that invests as successfully in poorer countries as the CDC has demonstrated that it does, including in its performance in 2001.
Mrs. Spelman: Does the Minister accept that if the target for the level of investment in sub-Saharan Africa were set below the level in place before the investment strategy was changed, that target would be likely to be achieved? The target is lower. In 1998, 72 per cent. of investment in poor countries went to sub-Saharan Africa.
Hilary Benn: The CDC remains committed to Africa. For example, it invested £216 million in 81 separate businesses in sub-Saharan Africa during the past three years. In 2001, almost half of the CDC's new investments were to be found there. I welcome the scrutiny offered by today's debate and hope that the House will join me in congratulating the CDC on clearly having met both investment objectives in 2001. The CDC plays an important role and it is right that there should be scrutiny, but we must crack the fundamental problem—private capital does not want to invest in the poorest countries. However, the purpose of the exercise is for the CDC to provide a lead. Then those countries will get the chance to do what we take for granted—to earn a living.

Royal Ordnance Factories
11 am
Mr. John McWilliam: It is a distinct pleasure to be in Committee Room 10, and I echo the thanks offered in the previous debate by my hon. Friend the Under-Secretary of State for International Development to the staff of the House for working so hard to enable us to continue our debates despite the tragic loss of the Queen Mother and the necessary effects on Westminster Hall and its Chamber. I also thank the Minister for Defence Procurement for meeting me, along with colleagues as well as trades unionists, on 11 February to discuss this subject, and all the hon. Members who have signed my early-day motion.
Royal ordnance factories have a long history. They were set up because King Henry VIII needed to secure the quality and quantity of ammunition and guns for the navy and his other military objectives—he could not rely on private industry then. Henry VIII was not noted for his socialist tendencies, but he set up the first nationalised industry; the royal naval dockyards could arguably be the first, but I will return to that subject later.
The royal ordnance factories were privatised in 1987. I remember that because I was privileged to be Opposition Whip on the Bill that privatised them. I distinctly remember the assurances given—from almost exactly the spot on which I am now standing—about the future of royal ordnance factories and, most importantly, about the supply of ammunition, guns and ordnance for the British military.
British Aerospace bought Royal Ordnance plc—there have since been many mergers—and almost immediately set about rationalising the company. Among other sites, it flogged off Enfield for massive sums; effectively, Royal Ordnance was given away. Since then, Birtley has been under continuous threat.
The Select Committee on Defence, on which I had the privilege of serving, produced several reports on supply, notably one on Bishopton. In preparing that report, we questioned BAE Systems about the rationale behind privatising Bishopton and what was manufactured there. We collected some extremely interesting evidence. For example, we were told that Bishopton had to import gun cotton from Holland—but interestingly, that was originally manufactured at Bishopton and exported to Holland for return. It took much probing and prying to find that out.
In the brief that has been kindly donated by BAE Systems, it is asserted that Bishopton closed because of its failure to get the extended-range ammunition contract. That is interesting, because our evidence at the time did not suggest that that would happen, nor did the Government's reply suggest any direct link between that contract—which is running into serious trouble—and the future of Bishopton. BAE Systems, acting as a private company—as indeed it is—was merely looking out for the interests of its shareholders, not protecting the defence needs of the country. It is important to remember that BAE Systems operates under company law, and its principal duty is to its shareholders. That was known at the time of privatisation, and the results can be seen in the proposals being made by Royal Ordnance.

23WH
There has been a continuous threat to Birtley since privatisation. Birtley is an area of very high long-term adult male unemployment. Indeed, unemployment there is so high that when the Conservative Government were confronted with a proposal to close the unemployment and benefits office there, Ministers decided not to, thanks to submissions made by Gateshead council, and a meeting that I had with the Ministers. The office still exists.
Mr. James Gray: I am enjoying the thrust of the hon. Gentleman's speech, and I agree with most of it. However, he seems to be trying to blame everything on privatisation. He says that the Conservative Government decided to keep Birtley open, but his Government are closing it.
Mr. McWilliam: No, the Government are not closing the unemployment and benefits office in Birtley; they are keeping it open. There is no threat to it. Indeed, they have just spent an awful lot of money relocating it and doing it up. We should not get the Governments mixed up.
Mr. Gray: I meant the factory.
Mr. McWilliam: We shall see.
There has been a huge increase in productivity at Birtley since it became part of my constituency in 1983 after a boundary redistribution. That is to the credit of the management, the staff, the co-operation of the trade unions and the way in which we reorganised things. The BAE Systems brief says that there has been huge investment in royal ordnance factories. I do not know where it went to, but it did not go to Birtley. All the machines brought to Birtley since then have been transferred from other factories. Birtley has not received investment. It has been trying to rationalise on its large site and has succeeded to some extent, but a lot more still needs to be done.
The company are considering five options for the Birtley factory. Option one, the consolidation of the factory to reduce overcapacity, is designed to reduce overheads and take out loss-making activities so as to increase profits. The trade unions support that activity and have driven that option from the outset of the current crisis. That is being carried out in line with confirmed orders within the company sales plan, and includes firm orders only. It would include a reduction in the number of workers—but that is assuming that no further orders are placed in the meantime.
The second alternative is to look for another location in the region. The trade unions also support that option, which must support the projected work load and the needs of the current workers, as the skills base must be maintained. They are currently working with One NorthEast and Gateshead council on it—but I must say that that alternative is proving extremely difficult.
The third option is a delayed closure in line with the current sales plan. That would ensure a significant reduction in the work load by 2005–06, assuming that no other orders are placed. The trade unions and employees do not support that option. The fourth is a transfer of
24WH
all work to alternative BAE Systems factories in the UK, and that is not supported by the work force either. The fifth, which has been bitterly opposed and which I am totally against, is closure.
The company has accepted that the original closure plan was flawed and has reluctantly opened up the debate. The major stumbling block from the trade unions' point of view is the company's claims about the costs of outsourcing Birtley's work. The prices divulged to the trade unions are extremely ambitious, and validation of those prices has so far proved impossible, with the company declaring that the detail behind the prices is commercial in confidence.
Another price about which the company is extremely ambitious is that for revalidating all the ammunition currently made at Birtley. If orders are outsourced, that ammunition must be revalidated, which will involve not minor price increases but costs involving many millions of pounds. I ask hon. Members to remember what is made there, and the fact that when it is filled and fired it is extremely dangerous—to the people firing it, as well. It must be validated and revalidated so that it is as safe as possible for people on the firing end.
There are several more points that we must not forget. The company's strategy to outsource overseas is a real threat to the continuity of supply to the Ministry of Defence. BAE Systems owns 30 per cent. of Denel, and the other 70 per cent. is owned by the South African Government. One of the options that the management proposes is outsourcing to South Africa. Although I have no reason to believe that South Africa is unstable, it is in an extremely unstable region. I caution Members to realise that if our forces were in action somewhere else in Africa, it is not necessarily guaranteed that we could rely on that source of supply.
Before the Gulf war, cases and shells for 155 mm FX70 ammunition, which is our mainstay artillery ammunition, were manufactured at Birtley. The contract was transferred to Rhinemetall of Germany, which discovered that it could not make them and subcontracted to a Belgian company. During the Gulf war, for political reasons, Belgium, an ally and a member of NATO—indeed, it is the home of NATO headquarters—refused to supply us with artillery ammunition. That artillery ammunition was desperately needed to support the major assault that our armoured corps was making through Saudi lines to retake Kuwait.
That is one of the problems of relying on overseas manufacture—and presumably that is why Henry VIII set up the royal ordnance factories in the first place. I do not for a moment suggest that the Minister has any responsibility for BAE Systems as a company; he does not. However, he does have total responsibility for ensuring that our armed forces are supplied in time of need.
There is another problem. If we were to go by purely commercial considerations, the royal ordnance factories would be slimmed down and the end result would be outsourcing, and filling at Glascoed. Quite apart from the security implications of concentrating on that one site, there is the problem of surge. I sincerely hope that

25WH
this will not happen, but what will happen if we become involved in a major conflict? How will we surge our manufacturing capability to supply our forces?
Mr. David Clelland: I apologise to you, Mrs. Roe, and to hon. Members, for the fact that in a few moments I may have to leave to attend a meeting.
The threat to ROF Birtley follows the recent bad news that Vickers Defence Systems in my constituency failed to secure an order from the Greek Government for Challenger 2 tanks. As a result, the future of that company, too, is now in doubt and hangs in the balance, awaiting a decision by the Government on the allocation of an order for Terrier support vehicles. Ironically, the other competitor is BAE Systems. Does my hon. Friend agree that if the Government seriously want to maintain a viable defence manufacturing capability in this country they may have to intervene as well as support through the distribution of orders?
Mr. McWilliam: I agree with my hon. Friend. Many people employed at Vickers are my constituents; it is just across the river from my constituency. Before I return to my original subject, it might be worth noting that BAE Systems is also tendering for the two aircraft carriers. On the one hand, it says, "We are a great British company," but on the other hand it says, "Except for ammunition; we'll make that in South Africa or somewhere else."
As I said, there is a threat to supply—to our ability to surge, to our defence strategic capability and to our defence manufacturing base. That is serious. Please recall that Birtley makes all the metal bits. It does not make explosives, but it does make all the bits that fly through the air, or that contain explosives or propellants.
A further problem is that technology transfer to overseas competitors cannot be in the United Kingdom's interest. Under present defence procurement arrangements, intellectual property that was developed by BAE Systems, Royal Ordnance—some developed at Birtley and some developed in conjunction with QinetiQ—is being handed willy-nilly to our competitors.
At present, one reason why the Ministry of Defence can buy ammunition cheaply abroad is that other countries with defence manufacturing capabilities that are by and large owned by their Governments are selling to us at marginal cost, to keep things ticking over. However, if we did not have our own capability, those countries would sell at the price that they think the market would bear. That would be more expensive, and that has not been taken into account, although it clearly has been taken into account by BAE Systems management because it is trying to reduce costs and increase profits. The major customer—the British Government and our armed forces—is not being looked after.
There are specific examples, too. Birtley manufactures the 4½-inch naval shell. Nobody else uses 4½-inch guns on their ships, so where will we get the shells from? They would be expensive to import. The latest version of kinetic anti-tank ammunition, which will not contain depleted uranium, is being designed and developed at Birtley. The Charm ammunition makes the
26WH
Challenger 2 tank, which my hon. Friend the Member for Tyne Bridge (Mr. Clelland) mentioned, such an effective hunter-killer tank. If we cannot get ammunition of that quality, our army's ability to use Challenger 2 tanks to their full advantage will be threatened, so we also have technical problems.
There is the prospect of the loss of 300 high-quality jobs at Birtley, with the possibility of more being lost—that will be inevitable if the company is allowed to get away with this. I have no doubt that the company wishes to outsource all the Royal Ordinance work, and its recent history supports that idea. Closures at Bishopton, Nottingham, Blackburn, Faldingworth, and Featherstone ROSM—that is where the depleted uranium was manufactured—are threatened, in addition to those at Chorley, Bridgwater and Birtley.
My hon. Friend the Member for Chorley (Mr. Hoyle) wrote to me apologising for the fact that he could not be present today. He has an important meeting with Leyland Trucks about a contract for future military vehicles; otherwise he would be here to speak about Chorley's future and the worries of its work force.
Joyce Quin: My hon. Friend mentioned the recent history of the company. Does he agree that there has been a history of underinvestment that has caused much insecurity for the work force? They thought that that insecurity had been lifted by recent orders. There are lessons to be learned about how to value work forces and how to plan for the future of such an important part of our country's needs.
Mr. McWilliam: My right hon. Friend is right. When it was announced, the recent agreement between BAE Systems and the Ministry of Defence regarding the 10-year rolling supply programme was greeted with great relief by the work force at Birtley. It seems, however, that the company thinks that it can get round that. I am not sure how, but it seems to think that it can, given that there is a contract. Not only the work force but the whole community in Birtley and in the surrounding constituencies is concerned. People from that part of Tyneside and Wearside travel a long way to work in the factory. I am pleased that so many of my right hon. and hon. Friends who represent those constituents—some of them are precluded from speaking in the debate because of the offices that they hold—are here this morning.
We have been told that the future is in insensitive ammunition and that Birtley is not to be involved in that. Fine, but who will make the shells? Who will make the cases? BAE Systems has a history of playing other games. For example, several ammunition contracts were deliberately lost to BAE Systems and Birtley, in my cynical view to offset commercial aircraft sales by other sections of BAE. It is appalling that that was not supported by a memorandum of understanding on offsets or anything else.
That is illustrated in the BAE Systems company brief, which was issued to all employees:
"In 2000 BAE SYSTEMS and Saab signed a contract with the South African government to deliver 24 Hawk and 28 Gripen aircraft plus associated offset. The combined industrial offset commitment associated with this contract is valued at over 8 billion US Dollars, made up of direct offset activities at 1 billion USD and indirect offset activities at 7 billion USD.…We need

27WH
to explore all avenues for claiming offset credits against this commitment and need to hear from you at the Hawk South Africa Programme office at Brough, if your Business Unit, or one of your suppliers or partners, has placed or is planning to place work in South Africa as the value of this work may be able to be claimed as a credit by the Company."
That is fine for the 24 Hawks, but the 28 Gripens is a Swedish job. We have no memorandum of understanding with Sweden to offset, but that is what is being suggested. BAE Systems is serious in its intentions.
I am confident that the discussions with the trade unions are bearing fruit, that the analysis of costs and the talks with the company are effective and that, on an objective stance, Birtley will remain open. However, I am not confident about the ammunition commitment of the board of BAE Systems to the defence capability of the United Kingdom. I remain sceptical. I accept that the Minister has no responsibility for the board of BAE Systems, but he has every responsibility to maintain supply. As the largest customer of BAE Systems, my hon. Friend must bear in mind that he has a huge say in what decisions are made and not made, and which contracts are acquired from abroad and which are not.
I thank all my colleagues who have turned up to support me this morning, and other hon. Members who have royal ordnance factories in their constituencies, or who have an interest in the subject. I thank Gateshead council for its help and the work that it has carried out—Councillors Neil Weatherley and Kathy King are listening to the debate now. I also thank the Newcastle Evening Chronicle for its campaign to save ROF Birtley. It is an important defence resource. We are an island. We must maintain our defence manufacturing capability as one of our strategic objectives, and that is why I introduced the debate.
11.24 am
Mr. Peter Luff: One of the privileges of being an Opposition Whip is that one is allowed to open one's mouth in Committee. The problem with being a Government Whip—and in particular a Government Chief Whip—is that one cannot do that. I think that the record should include an explanation of the rather cryptic remark of the hon. Member for Blaydon (Mr. McWilliam) about office holders, which was made when the Government Chief Whip was present, listening to her constituency concerns being expressed, although she was unable to express them herself. She is leaving the room now, as she obviously cannot stand hearing Opposition Whips speak.
I am glad that we have gathered in Committee Room 10, rather than in Westminster Hall. We should make better use of existing House resources, rather than build expensive new facilities next to Westminster Hall. I am glad to be in this Committee Room, and I hope that our presence here sets a precedent that will be followed many times in the future—although the reasons why we are gathered here, rather than in the Westminster Hall Chamber, are profoundly sad.
I was glad to hear the concluding remarks of the hon. Member for Blaydon, because I had a simple philosophical objection to much of what he said: the
28WH
Government, rather than private sector companies, are responsible for the defence interests of this country. However, I entirely endorse his concluding remarks. I want to speak mainly about my own constituency facility, Summerfield, which is part of the Royal Ordnance network, but if the hon. Gentleman's analysis is correct with regard to his constituency facility, a heavy burden of responsibility rests not on the board of BAE Systems but on the Minister responsible for defence procurement. Therefore we look forward to hearing what he has to say when he winds up.
I am glad that the hon. Member for Tyne Bridge (Mr. Clelland) intervened to make the case, implicitly, for increased defence expenditure. I think that that was what lay behind the intervention, because when a business such as BAE Systems is competing in a difficult environment, with the Government cutting expenditure in wide-ranging areas of defence procurement, it has a problem. Its brief to all hon. Members says that at the privatisation of Royal Ordnance, the Ministry of Defence ordered ammunition products to a value of circa £250 million per annum. That figure has now declined to less than £100 million. That is an example of the problems that defence contractors are currently facing, for which they cannot share any responsibility or blame.
My interest is in Summerfield, the rocket motors division of Royal Ordnance. It is a very large employer, employing about 360 people at a site that is largely in my constituency, although a small part of it is in the constituency of the hon. Member for Wyre Forest (Dr. Taylor). I have frequently visited the factory, and it is extremely impressive; the work done there is of a high order. Rocket motors involve dangerous operations; incredibly advanced chemical processes are used, but it is always a joy to go to Summerfield and see the work done there.
I have always made a point of supporting bids by the company, and I recently wrote to the Government about the next generation of light armoured weapons systems. I think that a decision on that is due soon. That would bring modest but useful benefits to my constituents, and I hope that the contract goes to the right consortium.
On my visits to the company, it has always been made clear to me that foreign partnerships are inevitable for the future of the rocket motors division; that is the way the world is. The question is not if a foreign partnership should be arrived at, but how and when.
I strongly hold the view that politicians should not seek to second-guess business. Many hon. Members gave up business careers to enter politics, and we are now politicians rather than business people. We should applaud an attempt by a company to find stability in a changing world, and the world of defence procurement has changed enormously in recent years, since the end of the cold war.
My judgment is that. BAE Systems is right to proceed with its proposals for Summerfield, although I appreciate that there will be a degree of unease among some people, as change is never comfortable. It plans to enter in to a joint venture with a French company, Celerg, which will make a new company twice the size of the present one. That company will be much better positioned to compete in the very difficult world that the

29WH
separate companies now face. The new company will be 50 per cent. owned by the French company SNPE, which is currently a 50 per cent. shareholder in Celerg, and the other 50 per cent. will be owned by MBDA, which is the successor company to the Matra BAe Dynamics missile company, which was formed in 1996. That highlights the bewildering rate of change.
In December 2001, the company announced its extension to include the Italian Finmeccanica missile business. The new name is MBDA. I am glad to say that all BAE Systems guided weapons business is invested in MBDA, and that BAE Systems, through its 37.5 per cent. shareholding in MBDA, enjoys a right of veto on all strategic matters affecting the company. Therefore the right balance has been struck: a bigger company and a foreign partnership has been established, but there is also still a great deal of UK control, which gives my constituents the comfort that they should look for, as those very important manufacturing and scientific jobs will be maintained at Summerfield.
To quote from a letter from Shaun Mills, a director of the rocket motors division:
"In other words, strategic decisions affecting the Rocket Motor business require the unanimous approval of all three MBDA shareholders and hence of BAE Systems. A UK subsidiary of the joint venture will be established, with a majority of directors being British nationals, and this will in effect manage the site and business at Summerfield."
I am content with those proposals. Links with MBDA are hugely important: it is the major European contractor for guided weapons systems in which BAE Systems has a shareholding of more than one third. The proposals for my constituency, at least, offer stability in a changing world. I have no complaint about what the company plans to do.
11.30 am
Mr. Kevan Jones: I congratulate my hon. Friend the Member for Blaydon (Mr. McWilliam) on initiating this debate on the future of Royal Ordnance Birtley. Before being elected to the House last June I was a senior official with the GMB northern region, and I have been involved over a number of years in the discussions about the site's future. I declare my membership of the GMB and draw attention to my declaration in the Register of Members' Interests of the support that the GMB gave my constituency at the general election.
Although Royal Ordnance Birtley is in my hon. Friend's constituency, many of those employed there live in my constituency. The discussions about its future have been numerous and frequent, and they have led progressively to a contraction of the site and a decline in the numbers employed. I add my thanks and give credit to the trade unions, management and work force who have resisted closure and adapted to change to keep the site open.
The factory currently employs 298—a massive drop from the halcyon days when it employed upwards of 3,000. The number of people who face possible redundancy is one of the issues that I wish to cover today. Another issue is the scandalous way in which BAE Systems has dealt not just with Royal Ordnance Birtley but with Royal Ordnance as a whole since acquiring it in 1987 from a Tory Government. The third
30WH
issue that I wish to raise, which is of direct concern to the Government, is the security of supply of ammunition to the armed forces if Royal Ordnance Birtley is allowed to close.
My hon. Friend mentioned the effects of unemployment on his constituency. Similar effects will be felt in North Durham if the closure is allowed to go ahead. We have had a good news story in North Durham since 1997: unemployment has fallen by 45 per cent. But unemployment remains doggedly high in some communities, including many in which people working at Royal Ordnance Birtley live. They face a bleak future if the closure is allowed to go ahead.
We are talking not only about numbers of jobs, but about types of jobs. The jobs at Royal Ordnance Birtley are skilled. Expertise has been built up over many years, and the economy of the north-east cannot afford to lose it. To close Royal Ordnance Birtley will be another hammer blow to the manufacturing sector in the region. The skills are not those of a inefficient smokestack industry, but are some of the most technically advanced in modern engineering. The loss of those vital skills to the north-east would be of great significance and would clearly be a personal tragedy for many of those who have given lifelong service.
The manufacturing and defence sector is important to the economy of the northern region. The work being carried out by the Northern Defence Initiative, with its 90-strong membership, demonstrates the vibrancy of that sector and its importance to our regional economy. Closure of Royal Ordnance Birtley would damage the confidence of the sector in the region.
I now turn to the scandal of the way in which BAE Systems has dealt with Royal Ordnance at Birtley. Its approach is one of determination to squeeze the last bit of value from Royal Ordnance with no regard at all to the loyal service of the work force or to the wider economic effects on the economy of the north-east. British Aerospace, now known as BAE Systems, acquired Royal Ordnance from the Conservative Government in 1987 at what was, as my hon. Friend the Member for Blaydon said, a knockdown price. Its strategy since that acquisition has been slowly to dismantle what was a great company.
Mr. Gray: Will the hon. Gentleman answer two questions? First, although I do not accept that the company was bought at a knockdown price, let us imagine that it had been bought for a higher price than that paid at privatisation. Does the hon. Gentleman believe that that would have made the company more or less likely to be making cuts now? Secondly, let us imagine that the company had stayed in public ownership. Had that happened, can he guarantee that his party's Government would still be buying the £250 million worth of ammunition that was being bought at the time of privatisation? If so, what other aspects of health and education would the Government be cutting to pay for the jobs that he describes?
Mr. Jones: The hon. Gentleman is clearly expressing an idea that is now common in the Conservative party—the idea that before 1997, politics somehow did not exist. The fact that the company was sold cheaply, at £190 million, is quite clear. My hon. Friend the Member

31WH
for Blaydon referred to the sale of Enfield, which recouped most of that investment straight away. As for the reduction in ammunition, clearly the hon. Gentleman has not realised that the peace dividend since the fall of the Berlin wall and the Soviet Union has led to a reduction in the amount of ammunition that the British armed forces, and armed forces throughout Europe, need.
Mr. Luff: Exactly. That is precisely the point.
Mr. Jones: That does not detract from the fact that the company was sold by the Conservative Government with very little regard to the future of jobs in that important sector, or to the long-term future of the arms industry in the UK.
Mr. McWilliam: May I remind my hon. Friend that after the 1987 privatisation, two Conservative defence reviews slashed our armed forces? That had to be put right by the present Government when they took office.
Mr. Jones: I thank my hon. Friend. Clearly, the Conservative Opposition also have a selective memory of their attitude to defence expenditure during their time in office. We saw that recently in their attitude to the Territorial Army, which was badly slashed in the reviews that took place under the Conservative Government. Somehow, they conveniently forget about that.
Mr. Gray: The hon. Gentleman did not understand my point. Let us imagine for one second that he is correct and that £190 million was too low a price for BAE Systems to pay. For the sake of argument, let us say that BAE Systems had been required to pay £300 million or £500 million, or who knows what price. Does the hon. Gentleman believe that if it had paid a great deal more—if it had paid what he believes to be a correct market price—for what was then the royal ordnance factories, closures such as those under debate today would have been less likely to happen than if it had received what he sees as a giveaway?
Jones: I accept that the Conservative party is an apologist for BAE Systems, but it is a matter of record that Royal Ordnance was sold very cheaply. Since then we have seen the asset-stripping of a company, with no regard at all for its work force, either in Birtley or elsewhere in the UK. It is all very well for the hon. Member for Mid-Worcestershire (Mr. Luff) to shake his head, but I want to defend workers in the UK defence industry, not necessarily the companies that generate the profits that the hon. Gentleman and his colleagues seem to want to protect at all costs.
BAE Systems' strategy since acquisition has been slowly to dismantle what was a great company, and to maximise the disposal of its assets. The list of site closures reads like a regimental battle list: Enfield 1998; Waltham Abbey 1989; Bishopton 1998—my hon. Friend the Member for Blaydon referred to that—and Nottingham 2002. Chorley and Birtley are other possibilities. Those are just a few sites that Royal Ordnance has withdrawn from since its acquisition by
32WH
BAE Systems in 1987. This is a sorry tale of the dismantling of a once great company into a shadow of its former self.
Who is to blame for the contraction? I wilfully admit that the arm's-length approach of the Ministry of Defence to competitive tendering has led to costs being driven down. I also admit that competition from overseas companies—usually vigorously supported by their Governments—has been a factor. Those two issues were identified in the May 1999 Select Committee report on the security of supply and the future of the royal ordnance factory at Bishopton. I accept that other factors exist, but a major influence has been how BAE Systems has handled the management of Royal Ordnance since its acquisition.
The Select Committee report states:
"At the same time, it appears to us that Royal Ordnance may well have compounded its problems by a failure adequately to invest in and to modernise Royal Ordnance's manufacturing plant and intellectual property. If this is so, it is particularly disappointing in view of the easy terms on which British Aerospace acquired Royal Ordnance, and the latter's guaranteed MoD work following the sale."
That is clearly true of ROF Birtley, which the work force and management say has seen little of the investment outlined in the letter that my hon. Friend the Member for Blaydon received from BAE Systems yesterday. The site has been starved of investment over several years, although £1.5 million in rent is paid to BAE Systems each year, so the site has been paid for many times over.
By exposing hidden costs, local management and trade unions were able to counter BAE Systems' assertion that Birtley should close on economic grounds. The proposed closure is scandalous. Birtley has sufficient orders to cover the work force until 2005, and the firm has a viable order book of work for the MOD to maintain current levels until 2010. We are not talking about a site that is uneconomic; that is why the Royal Ordnance Birtley proposal angers me.
The loyal work force at Birtley are having to deal with a BAE Systems that is determined to squeeze the last bit of value from a company that it acquired on the cheap in 1987. That strategy has left the country littered with closed former Royal Ordnance sites, and unemployment has followed in their wake.
One of BAE Systems' options, which has been referred to by my hon. Friend the Member for Blaydon, is for production to be switched to overseas supply. Some might say that to allow that would be a disgrace. BAE Systems prides itself on its Britishness, which is why the MOD should procure equipment from it. During the past few months, I have heard the argument strongly put forward by BAE Systems and its supporters that it should be considered as a prime contractor for the new aircraft carriers for the Royal Navy because it is a British company. I ask people to remember that when BAE systems is laying off workers at Royal Ordnance Birtley, and exporting those jobs abroad to countries such as South Africa.
BAE Systems acts like a chameleon: it picks and chooses when to wrap itself in Britishness. There is no clearer demonstration of that than the possible export of jobs to South Africa. I say to BAE Systems that if it wants to demonstrate its Britishness, it could secure 300 highly skilled jobs at Birtley in the north-east. The loss

33WH
of those jobs will not be lightly forgotten in the north-east. Any promises that BAE Systems makes to the north-east concerning guaranteed work on two future aircraft carrier orders must be taken with a pinch of salt, and will ring hollow to the BAE Systems workers at Royal Ordnance Birtley.
I now turn to the Government's role and the wider security implications for the United Kingdom. In June it will be the 20th anniversary of the retaking of the Falkland Islands. Birtley and the other royal ordnance plants worked flat out and with pride to produce high quality munitions for our armed forces in their time of need. That is easily forgotten, but on that 20th anniversary, it should not be.
Security of supply for the armed forces is an important issue, and was the subject of the Defence Committee report in 1999. It is universally agreed that Royal Ordnance Birtley produces high quality products, covering a range of munitions, which the armed forces take pride in using. Clearly the MOD is under pressure to get value for money, but not at all costs. It must ensure that quality and continuity of supply are guaranteed. I agree strongly with the conclusions of the 1999 Defence Committee report:
"Governments cannot, for strategic supplies, claim that their responsibility ends with the signing of legally enforceable contracts. In matters of national defence they have a duty to exercise more direct control."
I ask the Minister and the Government to take more direct control and ensure that we continue to provide high quality munitions for the British armed forces. They must also ensure that BAE Systems is not allowed to close a highly successful site at Birtley, and that people who have been loyal to the company, and to this nation in times of need, are rewarded.
11.47 am
Mr. Ian Liddell-Grainger: I am delighted that the hon. Member for Blaydon (Mr. McWilliam) secured this debate. There is a tie-up; I came to this place from the north-east, and I know the plant at Blaydon well. I also know the Vickers plant—we destroyed the tanks that it built, because it was our job to examine how to stop them. The factor that connects the three plants is that one builds shell cases, another builds the explosive, they are put together in Wales and the military fires the end product. It is a British operation—British manufacturing—and it works well. That is, it did until now.
In 1986, David Greenwood of the Centre for Defence Studies in Aberdeen was asked to produce a report examining the future of the royal ordnance factories. That was before privatisation. The report, which the Amalgamated Engineering and Electrical Union and the Transport and General Workers Union paid for, was to examine where we would be in the future. No one understood at the time—certainly not David Greenwood—that a system on which we depend for national security could be sent out of the country. I am talking about the packaging, the explosive and the means of supply—the heavy guns, which are now made in America.
The report considered the way in which PBX and other high-polymer explosives would be made. Now, the difference is between sensitive and insensitive explosives.
34WH
Insensitive explosives are what the Americans build; we build sensitive explosives. If we are to maintain continuity with partners, surely we should be in a position to build the same materiel, so that it can be used by our armed forces in all theatres. Otherwise, we would be starting from the wrong basis.
Bridgwater employs about 150 people and puts about £4.5 million into the local economy. Obviously, if it shuts down, unemployment and demands on social services would increase in a manufacturing area that is slowly recovering from past changes, and it would lose the skills of a unique work force. Who nowadays teaches people to make explosives? No one. Once those people go, we will not be able to replace them. One cannot easily find explosives manufacturers. We will lose a unique work force and, once they finish, no one in this country will take over.
Why are we in that position? Let us consider the Bridgwater plant. It is not new, as it was built in 1939. Why was it built? We wanted continuity of munitions supply, in case of war. There was a war. Since then, Bridgwater has made explosives of the highest grade, but it has not done so on a fair or level playing field. It is not its own profit centre. It has always been part of an organisation. It has been making a small loss, because costs there cannot be broken down to show the company's true position. That would not be a problem if the plant made only the explosive, but that does not happen. British Aerospace will not allow Bridgwater to be its own profit centre, and it has to absorb the costs of operational inefficiency. The plant, which has been in use for 60 years—a very long time—could be renewed and made very efficient.
If one were inclined to negotiate with British Aerospace for continuity of supply, why not consider a five-year dispensation? Why not set up a joint fund to diversify the factory's products and make civilian explosives and other propellants that could be sold to other countries? The hon. Member for Blaydon also mentioned responsibility to buy the products.
We are also discussing the way in which Royal Ordnance has changed. The point made by the hon. Member for North Durham (Mr. Jones) about the figure of £250 million at privatisation is valid; it is now about £100 million. To an extent, that is understandable because, since privatisation, we have experienced the fall of the Warsaw pact, the total disappearance of our traditional enemies and the changes, which we have been delighted to see, in Northern Ireland. We also buy more equipment from overseas—for example, the Milan anti-tank missile and other longer range artillery such as the AS90—so I understand that the value has decreased, but that does not explain the situation during the Gulf war.
As the hon. Member for Blaydon said, we could not buy ammunition then because people disagreed with what we were doing. If our explosives manufacturing industry went to America and a Democratic President decided that he did not like something that was happening in Britain—perhaps, God forbid, Northern Ireland going back to how it was—he might refuse to supply us with ammunition.
In a written question, I asked the Minister what will happen when the 2001 Security Assistance Act, which is going through Congress, becomes law in America. He

35WH
replied that he does not expect it to make any difference, as it does not deal with exports. I cannot believe that a nation—any nation, of any persuasion—would not question exports to a country with which it does not agree. One cannot expect a nation simply to say, "We'll send the stuff, but we don't agree with what you're doing."
If we are to make propellant overseas, we should remember that it is the most fundamental component. We may be able to build the shell case, but we may not get the propellant if we do not have the work force to make it. We could end up with no bombs, shells or bullets. What would we go to war with—the pikes in the museum at the Tower of London? We could do little else.
There is concern at Bridgwater. Royal Ordnance at the site has been in negotiations at the highest level with Jack Dromey of the Transport and General Workers Union to resolve the situation. We are discussing a unique work force in a unique organisation, and we cannot replace them. There is something fundamentally wrong if Jack Dromey cannot get the hearing that he requires to defend a work force who may disappear and to keep them together to build propellant.
Mr. McWilliam: I may be able to assist the hon. Gentleman. BAE Systems has acquired a propellant and explosive manufacturing company in the United States of America, which, of course, is covered by American law, not British. Therefore, his Democratic President scenario could easily come to pass.
Mr. Liddell-Grainger: I thank the hon. Gentleman. I was just coming to the plant in Tennessee. I thought that we might build to a crescendo, Mrs. Roe, as that always makes debates much easier and more fun.
I received a copy of a letter that Lord Bach sent to a Member of this place on 2 March, saying that the Ministry of Defence entered a framework partnership agreement that came into force on 1 April 2000. The agreement
"covers the design, manufacture, supply and…life support of ordnance and ammunition sub-systems. Gainshare is one aspect of the Agreement".
In other words, the MOD will make savings, which would be passed on. However, the letter continues:
"Security of Supply and Value for Money are the key criteria that underpin the procurement of safe and reliable ammunition. On the matter of the alleged refusal of Belgium to supply ammunition for the Falklands conflict, this incident, in fact, occurred during the Gulf War."
In one letter, therefore, the Government tell us that the new arrangement is cheaper, but that they cannot get the supply right. Something is fundamentally wrong with that.
Let me deal with the Tennessee plant. Some $3.7 billion has been spent and 22,000 people are employed on the biggest explosives site in the world, which covers 6,000 acres at Holstein, Tennessee. There is a joint venture between BAE Systems North America and the American military to produce insensitive ammunition. What have they got? Four months ago, they were awarded nearly $12 million to operate and maintain the
36WH
Holstein ammunition plant and to undertake scope work for future contracts that they will be allowed to seek around the world.
The contract, which has a title value of $163 million and lasts 25 years, is for building high-grade explosives for anyone who wants to buy them, such as the MOD. Some 25,000 people in the area now benefit from changes that this country could lose out on. Some 113 British companies have set up in the United States to supply us with the ordnance that we require—shell cases, propellant and the finished article—and which they will ship over here to our own people. I worry about Democratic Presidents.
The first $88 million of the contract is intended to be used over the next five years to produce RDX and HMX explosive—the very stuff that Bridgwater makes to fill the shelves in Birtley and which is finished in Wales and sent to the military. How on earth can we achieve continuity and a guarantee of supply, given the situation that may arise in the near future?
My predecessor, Lord King of Bridgwater, was Secretary of State for Defence during the Gulf war, and he could not get the explosive that was required because we were not allowed to have it. Continuity of supply is by far the most important consideration. The work force at Bridgwater make a unique product. If that source disappears, where will we get it from? Surely, the prime responsibility of any Member of Parliament and of any Government, whatever their political persuasion, is the defence of the nation. That must be this Government's overriding priority.
12 noon
Mr. David Laws: I am grateful for the opportunity to take part in the debate on this important issue, and I congratulate the hon. Member for Blaydon (Mr. McWilliam) on giving us the opportunity to debate a wide range of topics, including, due to the ingenious interventions of the hon. Member for North Wiltshire (Mr. Gray), the history of the privatisation of Royal Ordnance, which I shall not touch on.
The primary issues that we have discussed are the constituency implications for many hon. Members of the reorganisation of Royal Ordnance and the related national policy issues highlighted in the fifth report of the Defence Committee, 1998–99 Session, to which many hon. Members, including the hon. Member for Bridgwater (Mr. Liddell-Grainger), have referred. I do not intend to talk about the impact of the reorganisation of Royal Ordnance on constituencies, not only because it does not affect—
Mr. Liddell-Grainger: What about the Hellfire rocket, which will be put on the helicopters built in the hon. Gentleman's constituency?
Mr. Laws: The hon. Gentleman should contain himself, because I shall come to those issues in a moment.
I do not intend to spend my time second-guessing the commercial decisions made by the company that we are discussing. Hon. Members have commented on the fact that the Ministry of Defence ammunition budget has diminished by about 60 per cent. since 1987, from £250 million a year to nearer £100 million a year. In

37WH
addition, defence expenditure in all the major defence expenditure countries has fallen by about a third, so the company has had to deal with an extremely difficult commercial background. In the light of that, reduced employment in that part of the military sector is inevitable, as has been the case in most other parts of the defence industry.
The issue that I most want to touch on—the national interest and the security of supply of key defence equipment—has been discussed by many hon. Members, most recently the hon. Member for Bridgwater. It was also raised by the Defence Committee in 1998–99, because the Royal Ordnance reorganisation involves outsourcing supply to other countries. That is an issue of great importance, which the Government need to consider and respond to. It is inevitable that any company operating in a commercial environment will have to make judgments about its commercial interests and the interests of its shareholders. Such companies do not necessarily have to consider issues relating to security of supply, which are national policy concerns, but the Government most certainly do. That matter was highlighted by the Defence Committee.
Mr. Kevan Jones: I take the point about the commercial world in which BAE Systems finds itself, but does not the hon. Gentleman accept that the partnership agreement has provided the long-term stability that BAE Systems has been asking for? That was certainly referred to in the Select Committee report. The company has not invested in sites, but has callously considered sites in terms of their value. It has asset stripped where necessary, has not taken a long-term view and pays no regard to the long-term security of supply of the British armed forces.
Mr. Laws: I am grateful to the hon. Gentleman for that point. Anything that the Ministry of Defence can do to secure greater certainty about its procurement activities should be welcomed. Such certainty helps small companies, including some major manufacturers in my constituency. I remain more nervous about second-guessing in the manner suggested by the hon. Gentleman, although I understand why he advocates it—the matter is extremely important to him and his constituents.
In terms of the commercial activities that such companies engage in and the decisions that they make, it is easy for hon. Members to argue that particular companies have under-invested in certain areas, but we do not always have easy access to the information required to make such commercial judgments. In this debate, I am more concerned about national policy issues relating to security of supply.
In that regard, it is important to consider ammunition procurement. Fortunately, conflicts in the years ahead are unlikely to last as long as those of the previous century, which continued for many years—at least, I hope that that is the case. So, in terms of procurement and security of supply, we should concern ourselves not so much with large items such as aircraft carriers and whether they can be rebuilt or procured during a conflict, but with our ability to get our hands on ammunition speedily in conflicts that often involve its rapid use.
38WH
The Government's response to the Select Committee's 1999 report dismisses to some extent the Committee's concerns about the speed of ammunition use in conflicts such as the Falklands and Gulf wars. However, as is often the case with pronouncements made by Governments of all parties, what is significant in their response is what is missing from it. Specifically, Mr. Chairman—
Mr. Deputy Speaker (Mr. Nicholas Winterton): Order. I have gained very little in 31 years in this House, but I do have the title Deputy Speaker for sittings in Westminster Hall.
Mr. Laws: I apologise, Mr. Deputy Speaker. As a new Member, my ignorance is showing.
The Government's response referred to security of ammunition supply during the Falklands war and said that there was sufficient ammunition for the land forces. However, they made no mention of the air or naval forces. Many of us recall the difficulties that British forces had in procuring and replacing items such as the Sidewinder missile, which was used a lot and was important in the Falklands. Although stocks of such expensive weaponry are necessarily kept low, because of the cost of holding them, they can be used very rapidly in certain types of conflict. I hope that the Government consider those issues of security of supply.
The hon. Member for Bridgwater referred to Governments making decisions about which wars they approved of or otherwise. He is concerned about Democratic US Presidents making such decisions, but I am just as concerned about Republican Presidents. First, there is the issue of the countries on which we rely for the supply of ammunition deciding that they support or do not support conflicts in which we are involved. Secondly, there is the issue of the priority that they would give us in a more broad-based conflict in which we may be merely one of several countries that they supply with ammunition.
Other hon. Members have touched on the security of classified information. In the Falklands war, there was a strong incentive for our opponents in Argentina to get hold of information on the weaponry that we were using. The same was true for us with respect to the Exocet missiles being used by the Argentinians. We need to be sure that such classified information can be protected, so that in a conflict situation the countries with which we are at war cannot get sensitive and important information about the weaponry that we are using from a third country.
There are several issues that the Minister must address when he wraps up that relate specifically to security of supply. First, what are the key procurement national interests? Which weapons must we either make for ourselves or, if they are produced abroad, stock in large numbers, because of their sensitivity in particular conflicts? Secondly, what are the Government doing to ensure that ammunition stocks are appropriate to take us through serious conflicts? In their response to the Select Committee's 1999 report, and privately, the Government acknowledged that there was a shortfall in artillery shell stocks. Have such deficiencies been dealt with? What security of supply guarantees can the Government secure from those countries that

39WH
manufacture key defence items such as ammunition? Will any letters of intent that the Government are able to establish with those countries involve guarantee of supply rather than softer words saying only that they will not hinder the supply of such items?
Those are key national policy concerns that the Government must address. I hope that the Minister addresses them and deals with the legitimate constituency concerns raised during a debate that the hon. Member for Blaydon was right to seek.
12.11 pm
Mr. James Gray: First, I congratulate the hon. Member for Blaydon (Mr. McWilliam) on securing an extremely important debate. It is significant not only for hon. Members on both sides of the House who, as the hon. Member for Yeovil (Mr. Laws) said, have important constituency concerns and are not unreasonably worried about job losses, but, perhaps more so, for the strategic national standpoint. The truth of the matter is that we are facing what could be the end of ammunition manufacturing in the United Kingdom.
Hon. Members have referred to the helpful briefing paper sent to us yesterday by BAE Systems. In a truly Sir Humphrey-ish way, it seeks to avoid being straightforward about what is planned; it is full of management speak:
"Over the past two years RO Defence has been integrating these two businesses and determining a forward strategy for consolidation and growth…That volume has now declined to an annual order value of less than £100 m. We consider this to be a permanent market adjustment and this downturn in volume production has greatly impacted on the utilisation of our production capacity."
That means that if the Government buy less ammunition, the company will need fewer factories, but I wish that it would say so rather than use such obfuscation in an attempt to persuade trade unions and others that it will somehow keep the factories open.
The notion has been expressed that privatisation may be responsible for the royal ordnance factory closures that we face. If so, two things would have to have happened. First, we would still be producing as much ammunition as was required at the time of privatisation—it was then worth £250 million a year, but is now worth only £100 million a year. It will be interesting to hear whether the Minister chooses to blame privatisation for that. He will also have to guarantee that the Government would still be spending £250 million today. Even if the company had not been privatised, however, they would presumably still have had to consider closing the factories as a result of reduced production.
Secondly, it has been said that the business was sold at a cut price, and that that price led to the factory closures. That is entirely incorrect. As I told the hon. Member for North Durham (Mr. Jones), had the price been higher, British Aerospace would have had to make even more reductions, more closures and more job losses to pay off the extra price that was paid. The lower the price, the
40WH
better in respect of subsequent job losses. I do not accept that what BAE Systems is facing has anything to do with its privatisation.
Mr. Luff: Will my hon. Friend confirm that the briefing tells us that the company has made losses for many years and that it does not plan to return to profit before interest and tax before 2004? The impression of a greedy company asset stripping is way off the mark.
Mr. Gray: That is indeed the case. However, the hon. Member for Yeovil was right to say that we should not enter into company's commercial difficulties. We should lay to rest the notion that privatisation has somehow led to the appalling closures at Bishopton and elsewhere—and, if we read between the lines of BAE Systems' briefing, the other closures that the company faces. For instance, the hon. Member for Blaydon seems to think that Birtley might be saved, but BAE Systems says that the
"initial findings of the working group at Birtley are now available and the Company is actively considering alternative proposals introduced by the trade union team."
That means that it would like to blame the trade unions. The briefing continues:
"Two options seem to be emerging, the first would involve the closure of the site and the second would involve a reduction of 50 per cent. of the employees".
I find it hard to believe that the trade unions are proposing and are happy with either the closure of the site or a 50 per cent. reduction in the work force.
Mr. McWilliam: Briefly, the figures used by the company include more than £1 million in alleged annual rent, offset against the costs that would affect profitability. Since the site was acquired for nothing and its commercial value is zero—the company tried to sell the lot last year, but could not—why is it charging that rent?
Mr. Gray: That, of course, is a fair point, but I am certain that the trade unions would not have been content with the notion that the operation might close, which is what BAE Systems appears to suggest. Reading between the lines, the BAE Systems briefing indicates that the trade unions have a plan— [Interruption]. It is here. British Aerospace suggests that the trade unions came up with the plan that would result either in closure or in the reduction of the work force by 50 per cent. The hon. Member for Blaydon might be right in saying that they did not do so; I am ready to accept that, as it would be an extraordinary trade union that came up with such a plan. I do not suggest that the unions want that to happen, but I am saying that BAE Systems is trying to suggest that they are happy with it. However, plainly they are not. I spoke to some today, so the hon. Gentleman and I must not cross swords over the matter.
Companies across the nation face closure. The Chorley factory is another example and the Summerfield rocket motor business, which is becoming part of an Anglo-French joint venture, might be another, depending on whether the French decide to keep it in the UK. Those, the Minister might argue, are matters for the Department of Trade and Industry—jobs and the economy concern the DTI, not him. However, I agree with a number of hon. Members who

41WH
have spoken that the Minister bears a direct personal responsibility, because he is the prime customer of the royal ordnance factory. He cannot wash his hands completely of the matter.
I want to put to the Minister four simple questions, which he might wish to answer when he winds up the debate. First, does he believe that indigenous ammunition manufacturing is a strategic capability? Would he be content, for example, to see all ammunition manufacturing disappear from within our shores? If not, how much would he be prepared to lose before he pressed the panic button?
Secondly, can the Minister foresee any circumstances in which Her Majesty's Government should subsidise domestic producers for strategic reasons or should all contracts be awarded on a purely competitive basis?
Thirdly, what strategic safeguard should be built into contracts with overseas suppliers? Can the Minister imagine surges of demand in which an overseas supplier might look after its home Government's demands ahead of ours? In the Belgian example, of which we heard earlier, or one in which a German or South African Government happened not to agree with a war in which we were engaged, would those countries' manufacturers decline to give us the ammunition that we needed?
Fourthly, how large should war stocks of ammunition in this country be? Should the Government pay a premium to maintain a surge capability? Does the Minister accept that increasing reliance on overseas ammunition suppliers ought logically to mean a proportionate increase in war stocks held within these shores? He has so far declined to talk about war stocks and surge stocks. Are surge stocks held in the UK increasing? What action has he taken on the matter?
Since the Government came to power, manufacturing industry has declined—450,000 manufacturing jobs have been affected by recession, partly, no doubt, because of the unsustainable general defence cuts that the Government have introduced and partly because of the fall in the purchase of ammunition from £250 million to £100 million—and, from our side of the Chamber, it seems that there are signs that Royal Ordnance plc is no longer a viable company due to increasingly worrying numbers of factory closures, job losses and contracts placed overseas. Apart from the local consequences for many parts of Britain, there is a real risk of deep and lasting damage being done to our national defence capabilities when our global defence ambitions are becoming ever larger.
Labour Members will not like it, but the Prime Minister returned home this week after apparently agreeing with the President of the United States that we would take an active military interest in Iraq. That is the next thing coming our way. Our global defence ambitions are ever larger, but our ability to meet them is ever more undermined. Our increasing inability to supply our own ammunition for our own guns is symptomatic of a general malaise and deeply worrying for the defence of the realm.
12.20 pm
The Parliamentary Under-Secretary of State for Defence (Dr. Lewis Moonie): I congratulate my hon. Friend the Member for Blaydon (Mr. McWilliam) on securing the debate. I listened with interest to the points
42WH
that he and other hon. Members made about the future of facilities owned and operated by Royal Ordnance Defence plc, and I am grateful to him for giving me the opportunity to set out the facts, and the Government's position. However, I must point out that although I speak on such matters in this House, I am not the Minister for Defence Procurement.
I shall briefly put the status of the factories into historical perspective. After 400 years in Government ownership, the royal ordnance factories were passed into private hands in April 1985, and were taken over by British Aerospace in 1987. After further mergers, the business unit became what is now Royal Ordnance Defence. That was, and remains, a private company wholly owned by BAE Systems. It is important to remember that Her Majesty's Government have no financial stake in the company, and that the factories and facilities mentioned today have not been in Government hands for the past 15 years.
Mr. Deputy Speaker: Order. I ask the Minister to speak up a little. I can see that Members all around the Room are finding it difficult to hear.
Dr. Moonie: I do not think that that is usually a problem when I am speaking, Mr. Deputy Speaker.
During those 15 years, and especially since the ending of the cold war, there has been a sharp decline in the worldwide demand for defence equipment, and it is against that background that Royal Ordnance Defence has operated. To put that into perspective, at the time of the takeover in 1987, Royal Ordnance received orders for ammunition from the Ministry of Defence to the value of about £250 million a year. The average value is now down to probably slightly less than £100 million. It is the view of the industry generally that the adjustment is permanent, especially in the munitions sector.
Royal Ordnance Defence is thus competing in a fiercely competitive international market for a shrinking amount of business. Like any other commercial company that competes in world markets, it has had to take the hard decisions necessary to optimise its manufacturing capacity and remain viable and competitive in the sector. The company simply cannot afford excess capacity and overheads that the market does not justify. I emphasise again that the hard commercial reality applies to all private enterprises, not to Royal Ordnance Defence alone. It is against that background that the company has embarked on its latest rationalisation plan.
The reviews undertaken of factories at Chorley, Birtley and Bridgwater are part of the process that began in 1987. At that time, Royal Ordnance business was on 15 sites and employed about 16,000 people. It was clear that the prevailing market could not bear that capacity. Since then several site closures and other rationalisations have occurred. Those actions, and other more recent consolidation and closures implemented at Blackburn, Bishopton, Featherstone and Nottingham, have resulted in a reduction of about 50 per cent. in overhead costs.
When we buy equipment from Royal Ordnance, the Ministry of Defence spends taxpayers' money. We have no interest in using those scarce funds to support facilities that are not needed by the private sector to deliver the requirements of the Department.

43WH
It is useful to dwell on the subject of the factory at Bishopton for a moment. In 1998, Royal Ordnance failed to win the contract to supply the new propelling modular charge system for the shell for the AS90. The contract was awarded to an overseas company on technical and cost grounds, and Royal Ordnance took the commercial decision to close its propellant factory at Bishopton because it was no longer viable. The Ministry of Defence took the view that it would have had to pay a significant premium to keep the Bishopton factory open, and that such a premium would have supported the factory for only about another five years. It was concluded—I believe correctly—that such a premium would not secure value for money for the taxpayer.
The Defence Committee's inquiry has been mentioned. Verbal evidence was given on the matter in 1999, and the Committee was in general satisfied that the decision to place an order for the modular charge system contract with Somchem was justified on technical and value-for-money grounds. The Committee also examined the security of supply of propellant following the closure of Bishopton, and noted that sources were available in other allied nations. I understand that Royal Ordnance has secured alternative supplies of propellant in Germany. Much has been made of the so-called problems of supply during both the Falklands and Gulf wars. On neither occasion did the Government of the day run out of supplies of any form of ammunition. The resupply from Belgium rightly posed a problem for what was a coalition Government, and the Government decided to secure supplies from elsewhere—mainly from Holland—to provide back-up.
It is inevitable that when munitions are consumed—especially the larger, more expensive ones—there may be problems in obtaining full supplies, but the idea of our fighting a large-scale conflict on our own is risible in military terms nowadays. It will not happen. When we are involved in a conflict, we are involved jointly with allies such as the United States of America, which will be able to resupply us with some key larger munitions that would be consumed in certain circumstances.
In general, for strategic reasons we have maintained very large stocks of the ammunitions that we need—enough to fight a serious conflict. The military, not ministerial, orthodoxy is that we would have ample notice of a major conflict, so we could build up stocks still further. We cannot envisage a situation in which we would be fighting with less than six months' notice. That is just not the way of the world.
Mr. Gray: Is the Minister therefore now building up stocks for the Iraq conflict?
Dr. Moonie: I will not be lured into answering that question.
Royal Ordnance has informed us that it intends to invest heavily in its plant at Glascoed, and that it is retaining its expertise in the crucial areas of propellant charge design at Bishopton, ordnance engineering design at Leicester and small arms ammunition design and manufacture at Radway Green, near Crewe. There is no doubt that the company possesses and retains world class research and development personnel and
44WH
facilities. It also has a growing reputation overseas; indeed, it operates a United States Government-owned high explosives facility in Texas. The MOD has no reason to believe that Royal Ordnance Defence will exit the business of providing munitions for the UK armed forces.
However, it would be wrong to pretend that the company does not have some hard decisions to make. The partnering agreement that we have put in place is not intended or designed to protect the company from prevailing market forces. As I stated previously, the world market for munitions continues to shrink, and the Department has been informed by Royal Ordnance that it is undertaking another review of its facilities. It seems that its record in implementing hard decisions shows that it is taking its responsibilities seriously. It has a consultation process, and it is willing to listen to counter-proposals. It has demonstrated that it is not just closing factories without listening to the people in the workplace.
The need for explosives and munitions has fallen. Rationalisation is inevitable. Coming from a similar area of manufacturing and military contact in the east of Scotland, where we have lost our traditional industry of mining and much of our military industry that was based on the dockyards, I assure hon. Members that I have great sympathy for the points that have been made.
My hon. Friend the Member for Blaydon spoke about the Royal Ordnance Defence factory at Birtley. He will know that the factory manufactures metal components for most of the company's munitions, including shot, shell and cartridge cases. It still forges and machines the shell cases on site and uses its own machine shop. The resultant components are sent elsewhere for filling with explosives and assembly. Although some doubt has been expressed, we understand that the trade unions have been involved with the review and have come up with a proposal whereby the forging may be carried out elsewhere, but the machine shop work will be retained, although with fewer workers than at present. That is still being assessed by the company, and the outcome will be announced later this month.
During our debate we have also discussed the factory at Bridgwater, which manufactures high explosives. It has been running at a loss for several years because of a lack of demand for its products. We are now committed to the introduction of insensitive munitions, which are less likely to detonate in an uncontrolled or unexpected way. In response to that policy, the company is proposing to introduce the appropriate technology based at its Glascoed plant. That in turn could undermine the case for the retention of Bridgwater.
We continue to keep ourselves closely informed about Royal Ordnance Defence's plans for the future. We are obliged to ensure security of supply for our munitions. That involves maintaining a large stock and being satisfied that our contracts are handled in such a way that companies can resupply us when we need them to. I regret that manufacturing and other supply facilities might go abroad—
Mr. Deputy Speaker: Order. I regret that we have run out of time. However important the debate is, we must move on to the next subject.

Beer Orders
12.30 pm
Richard Younger-Ross: The Government have repeatedly expressed their commitment to a competitive business society, and I am puzzled by the idea that revoking the beer orders will achieve their aim. In case the Minister should misunderstand me, I am not in favour of regulation for regulation's sake, but those regulations have a purpose, which is to make the economy stronger. The beer orders served, and still serve, an important purpose and I advocate their retention.
The beer orders followed the publication of a Monopoly and Mergers Commission report in 1989, which said in no uncertain terms that the brewing industry was highly uncompetitive and involved in a complex monopoly. The commission was satisfied that action needed to be taken, and perhaps if I explain why that was, my objections to the orders' revocation will be clearer. When it considered the business practices of the large brewing companies, it was alarmed to the extent that it averted integration in the industry. It noted that brewing companies not only owned the majority of pubs, but tied others through business loans.
Brewers compelled their tenants and loan recipients to select drinks from their range of supplies. They were also found guilty of imposing restrictive covenants on pubs when they were sold, with the result that future owners were forced to buy from the former owner's brewery. Smaller independent brewers and wholesalers found it difficult to break into the market. Since the brewers often refused to publish their retail prices, wholesalers could not even hope to compete and offer a competitive service. The result was high prices and less choice for customers.
What impact have the beer orders had? They have not necessarily been an unqualified success. Independent wholesalers are still small and brewing companies continue to control a large share of the market, but beer orders have removed some of the most blatant anti?competitive forces and have granted consumers more purchasing power and choice. However, I accept that the commission would be disappointed by the lack of progress since 1989.
That lack of complete success does not mean that the beer orders should be revoked. It is true that the brewing industry has changed, and perhaps not for the better. There were six major brewing companies in 1989, but there are now only four. Those companies have been able to dominate the market with greater advertising power that strengthens pre-existing brands. How can the smaller micro-breweries compete against that? Such brewers have grown in recent years, and not only in the United Kingdom. I took a trip to the United States a few years ago, and was amazed by the breadth and depth of its micro-brewing industry.
Brewers have been forced to sell their pubs, many of which are now owned by large retail chains that have a countervailing buying power to the brewers. However, I am not sure that that new trend necessarily translates into greater competition and survival chances for the
46WH
smaller brewers, wholesalers and free houses. I am not the only one who is troubled by that development. When the Office of Fair Trading was asked to report on the beer orders two years ago, it stated that it was
"concerned that the increasing concentration in the market at both brewing and retailing levels may, in the longer term, lead to competition being less intense through the demise of independent wholesaling and thence smaller brewers and truly independent free houses".
I regret that the Minister did not appear to have considered that before reaching her judgment that it was time to reject the beer orders.
I am not opposed to modifying the beer orders to reflect new realities, and I know that some medium-sized brewers are worried and want them to be abolished. However, their worries can be taken into account in a review of the beer orders, and we do not have to go as far as revoking them. The complete removal of the orders could make a bad situation worse, and would fundamentally change the nature of our nation's pubs. We always hear tourists—especially Americans—saying how nice our pubs are, and how they are unlike their bars. We should cherish that as part of our English tradition.
As I mentioned, the Government asked the Office of Fair Trading to review the beer orders, and its findings were published in 2000. It concluded that certain aspects of them were outdated and unnecessary, but equally concluded that other aspects were still needed. It favoured a requirement for brewers to be compelled to publish prices and to allow beer to be resold to support independent brewers and wholesalers. It also advocated that loan-tie agreements should continue to be forbidden. Conversely, it did not support keeping the guest beer provision. I considered that to be a step too far, and I was pleased when the then Secretary of State for Trade and Industry, the right hon. Member for Tyneside, North (Mr. Byers), decided to support the retention of the guest beer provision, among others. He said:
"The brewing industry has undergone major changes since the Beers Orders were first introduced, but the guest beer rules still help to promote choice and competition—benefiting small brewers, publicans, and their customers."
It is a shame that the Minister has decided to cast those fine words aside quite indiscriminately.
Earlier this year, the Minister said that the Government intended to revoke the beer orders in their entirety. She said:
"The former situation where brewers were able to prevent proper competition between pubs and restrict consumer choice has changed radically."
It is puzzling how she reached such a conclusion, and how she did so against the findings of the Office of Fair Trading and the former Secretary of State is a veritable mystery. Will she explain why she disregarded those thoughts? I realise that the Government have a reputation for not listening to the wider public, but I am surprised that they ignore the findings of their own people and Departments.
Revoking the beer orders will allow brewers to resume their anti-competitive activities. I disagree with the part of the Office of Fair Trading report that assumed that big brewers would not start buying up pubs again. In an industry in which mergers occur all the time, it is easy to

47WH
imagine one of the big brewers buying one of the large pub chains. There are rumours in the industry about the likes of Scottish & Newcastle bidding for several pub chains.
If the beer orders were revoked, brewers would no longer have to publish wholesale price lists, and the Minister would presumably turn a blind eye when brewers refused to sell individual brands of beer for resale to independent wholesalers. Perhaps more importantly, however, revoking the guest beer provision would allow the brewers to resume their former habit of buying up pubs and tying them to their products. Retail pub chains, whose dominant position in the market is already a cause for concern, might be able to survive that due to their buying power, but what about smaller pub chains and free houses? Any protection that they have would be removed overnight. I fear that that would result in the closure of hundreds of small pubs, especially in rural areas where they already struggle to survive.
The Campaign for Real Ale estimates that 20 pubs close each week. Mike Benner, the head of campaigns and communications for CAMRA, said:
"The revocation of the Beer Orders will send shock waves through the industry as there will be nothing to stop large brewers and pub chains trying to tie up huge chunks of the market restricting access to smaller brewers and smashing consumer choice."
There are many rural pubs in my constituency. I know that the Minister is familiar with Teignbridge and, had she had the opportunity to visit many of those establishments, she would work to ensure their survival. I do not expect them all to survive. I had a long conversation with John Lawton, who runs a small brewery called Teignworthy in Newton Abbot. He is distressed at the revocation of the beer orders. He makes approximately 1,500 barrels a year of an excellent local beer and believes that that will be cut and cut. His small survivable business will end up as a hobby brewery when all he wants is an opportunity to expand. That is the direction in which we ought to move.
I strongly urge the Minister to reconsider the following questions. How will revoking the beer orders enable smaller, regional and independent brewers to access the market on a competitive basis? How will removing the guest provision give consumers more choice? How will new businesses be able to enter the market? How can she ensure that anti-competitive habits—which have been destroyed—will not resurface? The proposals seem akin to the farmer who concludes that, since there have been few deaths recently, it is safe to let the fox back into the hen-house.
A more sensible policy would be to exercise the strongest vigilance over anti-competitive forces and not give them a chance to flourish. Instead of waiting for the fox to attack, we should strengthen our levels of protection. If we fail to exercise vigilance, in a few years' time the big brewers and retail chains will dominate the market. That would kill off the small pubs, which have flourished and we have all enjoyed over recent years. We will lose much local character.
Most importantly, the customer—whom the Minister is attempting to defend—will pay more for less choice. If the Minister responsible for competition, consumers
48WH
and markets continues with such detrimental policies, she will become the Minister responsible for monopolies, reduced choice and less competition.
12.42 pm
The Parliamentary Under-Secretary of State for Trade and Industry (Miss Melanie Johnson): I am delighted that we are having a debate on this subject and I congratulate the hon. Member for Teignbridge (Richard Younger-Ross) on securing it. I can sort out his puzzlement quite easily. I emphasise at the outset that the beer orders are no longer relevant to today's industry. We are simply getting rid of unnecessary legislation. I am sure that he agrees that we should have legislation only where strictly necessary.
The beer orders were radical and necessary in their time, but that was in 1989, when the landscape in the brewing and pubs industry was completely different. The orders sought to increase competition in the beer trade and widen consumer choice using several methods, but mainly by attacking the vertical integration in the six major United Kingdom brewers of the time. Those brewers, which all owned large numbers of tied estates, were compelled to sell off half of those held in excess of 2,000. The effect was that free trade expanded rapidly and soon overtook the tied trade in size. The other main provision of the beer orders was the famous guest beer provision, to which I will return.
As long ago as 1986, Lord Borrie, then Director General of Fair Trading, asked the Monopolies and Mergers Commission to investigate the possibility of a monopoly in the supply of beer for retail sale on licensed premises in the United Kingdom. The structure of the brewing industry then was completely different from that now. It was dominated by six major brewers—Allied, Bass, Grand Metropolitan, Courage, Scottish & Newcastle, and Whitbread—which between them owned three quarters of all tied public houses. The retail pub chains that populate our high streets today had not even been thought of in 1986. I shall discuss the development of retail pub companies later.
The Monopolies and Mergers Commission report to which the hon. Gentleman referred described the major breweries' stranglehold over the majority of pubs in the country—not only tied pubs, but half the so-called free houses, which through low-interest loans or so-called loan-tie agreements, were restricted to selling exclusively its brewer owner's beer and even the owner's own brands of cider and soft drinks. Consumer choice was severely limited, and independent producers and wholesalers were denied access to thousands of retail outlets. As a result, both wholesale and retail prices were higher than they needed to be.
The Government's response to the MMC report's recommendations formed the beer orders, of which there were two: the Supply of Beer (Tied Estate) Order 1989, and the Supply of Beer (Loan Ties, Licensed Premises and Wholesale Prices) Order 1989. The Government decided to require brewers that owned more than 2,000 pubs to release from the tie by November 1992 half the surplus over 2,000, thus creating some 11,000 more free houses. Moreover, all national brewers had to allow their publicans complete freedom to buy wines, spirits, soft drinks and so forth from any source and to sell at least one draught cask-

49WH
conditioned guest beer. The tied estate order was amended in 1997 to extend the guest beer provision to include one bottle-conditioned guest beer.
It is worth lingering on the guest beer provision because it is probably the only provision in the beer orders to have become firmly lodged in the beer drinker's consciousness. It is important to consider it in context. It was one element in two statutory instruments whose overall impact was to widen the free trade by greatly increasing the number of retail outlets not tied to a brewer. They reduced the number of pubs controlled by the largest brewers, whether managed or tenanted. In the case of the tenanted variety, the guest beer provision further weakened the tie by empowering the publican to retail an additional beer from outside sources. That initiative conferred a new, legally defined right on a particular category of publican. The main gainers were regional brewers and, to some extent, independents and micro-brewers, which for the first time could offer their cask beers for sale in the large brewers' tied estates. The potential market for their products was, therefore, considerably widened.
It is also interesting to note that, beyond the strict legal provision that required large brewers to permit their tied tenants to purchase and sell a guest beer, the wider concept of offering a guest beer has been taken up voluntarily—I emphasise voluntarily—in other parts of the industry, by, for example, regional brewers and retail pub companies. Following last year's sale of Whitbread's remaining tied tenanted pubs, hardly any pubs now have formal guest beer rights as defined in the beer orders, and virtually all guest beers on offer in British pubs are offered voluntarily. I suspect that that is why the general concept of guest beers is so firmly entrenched in the beer-drinking public's collective mind.
I return briefly to the opportunities that the guest beer provision in the beer orders offered independent and micro-brewers in 1989. It is worth noting that they mostly under-performed in the following decade. Many independent brewers—such famous names as Boddingtons, Greenall's, Eldridge Pope and Morland's—withdrew from brewing. By contrast, micro-brewers have become more numerous. They have a high start-up and failure rate, and their collective market share has only ever been tiny. I announced on 19 February that the Government are keen to enhance the contribution made by the UK's small brewing industry to the diversity and competitiveness of the beer market.
My right hon. Friend the Chancellor of the Exchequer announced in the 2001 Budget that he was minded to introduce reduced rates of duty on beer produced by smaller brewers. In his pre-Budget report of 2001, he announced that he would consider the scope for introducing such a scheme in close consultation with the brewing industry, and he will announce his decision in the Budget.
The Director General of Fair Trading's review of 2000 was long overdue, as it had been clear for some time that the market had changed dramatically. There have been considerable structural changes in both the brewing and pub retailing sectors since the beer orders. There have been a number of significant mergers among brewers. Retail pub chains have developed and now own over a third of the UK's pubs, offering countervailing buying power to the national brewers. The director general consulted widely, with the aim of establishing
50WH
the appropriate level of regulation. He found that the overall volume of beer that is supplied to the UK market has declined since 1989. The declining market, coupled with the rise of the retail pub chains, has forced the consolidation of both larger brewers and regional and local brewers. Apart from micro-brewing, entry into UK brewing has been limited, and there continue to be significant barriers to entry or expansion.
However, the most significant changes to competition in the beer market during the 1990s have occurred at the level of the retail on-trade. The structure of retail ownership has changed dramatically following the implementation of the beer orders and the subsequent emergence of the retail pub chains. At the same time, the retail on-trade market has become significantly more differentiated, with pubs increasingly competing alongside clubs, bars and, to some degree, restaurants.
Retail competition has been manifest in higher levels of capital expenditure on amenity and greater service provision. At the same time, with the emergence of low-priced retail pub chains, consumers have been given a greater choice of different price-amenity combinations. Therefore, against the background of the need to keep competition healthy in such an important market, it is perhaps not surprising that the director general concluded that the beer orders were complex and that there were many ways of amending them. I emphasise to the hon. Gentleman that healthy competition and consumers getting a good deal go very much hand in hand.
The director general decided that the industry was not suited to regulation by the beer orders as they stood. He therefore recommended—as the hon. Gentleman said— that all the provisions of the orders should be revoked except for three specific provisions of the loan ties order, which should be retained to minimise foreclosure of the market to competing brewers and to maintain the position of independent wholesalers and free trade pubs. The three provisions were those dealing with loan-tie agreements, the publication of wholesale prices and the refusal to supply beer for resale.
As the hon. Gentleman has remarked, on 1 December 2000, the then Secretary of State for Trade and Industry, my right hon. Friend the Member for Tyneside, North (Mr. Byers), announced that he was minded to accept all the director general's recommendations but wished to retain the guest beer provision and the rules preventing brewers from imposing conditions when selling a pub so that it could not remain a pub. He made his announcement on the basis that the director general's report—this is where I can solve the hon. Gentleman's puzzlement—noted that some 1,700 Whitbread pubs still had formal guest beer rights under the beer orders. My right hon. Friend rightly wished to preserve the consumer choice which such rights bestowed. However, soon after his announcement, Whitbread sold those pubs, leaving scarcely any others with formal guest beer rights. That put a completely different complexion on the matter.
Richard Younger-Ross: Would Whitbread have sold those pubs if the guest beer provision had not been in force?
Miss Johnson: I cannot speculate on that question; as the hon. Gentleman knows, it is impossible to give an

51WH
answer to that. However, the key point is whether there is a continuing need for the orders, as we do not believe in regulation where there is no need for it. As I said, the sale of those pubs put a completely different complexion on the matter. It made sense to look afresh at the director general's report. In the light of the Whitbread development, there was little or no point in retaining the guest beer provision.
More broadly, the problems that the beer orders were introduced to address—brewers' ability to prevent proper competition between pubs and to restrict consumer choice—no longer existed. That is why I concluded that the beer orders had served their purpose, and should be revoked in their entirety.
I know that the decision to revoke the beer orders in their entirety has not been universally welcomed. Some hon. Members, and their constituents, are worried in particular about the revocation of the guest beer provision. However, it is important to remember that the two main provisions of the beer orders of 1989—the cap on the number of pubs a large brewer could own and the guest beer provision—applied only to the then six large brewers owning tied estates of 2,000 or more pubs. No such brewers exist any longer, which is why I have decided that the beer orders have outlived their usefulness.
I wish to recap on the guest beer provision. There seems to be confusion in the industry, particularly among consumers, about guest beers. I welcome the opportunity to put that confusion straight. In 1989, the beer orders obliged the then six large brewers to permit their tied tenants to sell a guest beer. At the same time, other pub-owning brewers, such as the regionals and even non-brewer retail pub companies, often voluntarily sold so-called guest beers in their tenanted and managed houses. As I mentioned earlier, because virtually no pubs any longer have formal guest beer rights, as defined in the beer orders, guest beers available in pubs today are almost certainly offered on a voluntary basis. There is absolutely no reason why that practice should not continue, regardless of what happens to the beer orders.
To pick up one of the hon. Gentleman's points about competition, the Director General of Fair Trading has found no evidence that small brewers are operating in anything but a fair market, but he remains alert to their concerns about their ability to compete fairly in the UK
52WH
beer market and, as I mentioned, he has pledged to remain vigilant in his pursuit of any anti-competitive practices that might come to light.
Richard Younger-Ross: I hear what the Minister says about the beer orders, but she skirts over the point about tied loans, which the Office of Fair Trading said should be retained. The Minister has not explained why those are going with everything else. When she visits Teignbridge, I can take her to small pubs where there has been a changeover of management because of the tied-loan arrangements under which people are placed.
Miss Johnson: We did not consider it necessary to retain the loans because of the nature of the market, competition and the opportunities. The hon. Gentleman may have identified a problem in his constituency, but in general we do not believe that there is a widespread problem.
Many people have argued that beer order-type measures should be applied to the retail pub chains. I think that the hon. Gentleman was on the verge of saying so. Even if there were a case for applying them—the director general concluded that there was not—we could not do so. The Government's powers flowing from the 1989 MMC report are limited to remedying the anti-competitive effects found in that investigation. Those related to the national brewing companies. Radically changing the beer orders by extending the guest beer provision to pub chains, which are not brewing companies, could be done only if a new complex monopoly investigation by the Competition Commission found anti-competitive effects in that sector. The director general has not found any evidence of such effects.
As for the possibility of brewers being able to sell pubs with restrictive covenants on their future use, the director general recommended the revocation of the provision banning that, given the relative ease with which new pubs can now be opened. It is worth remembering that that provision applied only to brewer-owned pubs, which have declined dramatically in numbers, and not to those owned by retail pub companies, the number of which, correspondingly, have increased dramatically. Slightly more pubs are now owned by pub companies than by brewers. It would be unfair to maintain a restriction on one type of company and not to apply it to the other type.
Finally, I should like to emphasise that even if competition problems arise following the revocation of the beer orders, the director general now has much stronger powers under the Competition Act 1998 than he had under the Fair Trading Act 1973. He has assured us that he stands ready to use those powers whenever evidence of anti-competitive behaviour comes to light.

Pneumococcal Vaccine
12.58 pm
Sandra Osborne: Over the past few months, I have been increasingly aware of an issue that affects the health and well-being of thousands of children throughout the United Kingdom. It places a significant burden on national health service resources, results in the deaths of 50 children each year and in other cases can leave parents and the caring professions struggling to cope with permanently damaged and disabled children. Yet, much of that is preventable. The issue in question is pneumococcal disease.
Many hon. Members are aware of cases of meningitis in their constituencies, the fear that outbreaks of infection can cause among parents and communities, and the devastation that it may cause. Many may not be aware that pneumococcal disease is the second greatest cause of meningitis in Britain. As a Scottish Member of Parliament, I am particularly concerned that there is a greater incidence of the disease in Scotland.
Media attention inevitably focuses on meningitis B, and overlooks the fact that although pneumococcal meningitis is not as common, it is more life threatening. Fifteen per cent. of children—one in six—who contract it die. Despite this age of rapid medical advances, that figure has, sadly, remained the same for more than 20 years. The chances of a child dying from pneumococcal meningitis are twice as high as they are for meningitis B.
When cases of meningitis are reported in the media, they are usually reported in the stark terms of a child's death, but it is important to remember that in the majority of cases children survive meningitis, although often at a high price. Those children and their families have to live with the disabling consequences of the disease for the rest of their lives.
It is obvious to my colleagues that I have a slight disability; I suffer from visual impairment. That resulted from measles at the age of three. It is a disability that people learn to cope with and adapt to and is comparatively trivial. For children who survive pneumococcal meningitis, life is not so straightforward. One in six will be brain damaged, one in seven will have epilepsy and a quarter will suffer from deafness. Overall, half the children who survive pneumococcal meningitis will be left with some form of disability, including spasticity, learning disorders and behavioural problems. Again, the record is worse than that for other forms of meningitis.
Pneumococcal disease does not cause only meningitis; it may cause a wide range of other serious and life-threatening illnesses. Every year, serious pneumococcal diseases such as meningitis, blood infections and pneumonia devastate the lives of thousands of British children and their families. Babies and young children under two are most at risk.
When discussing health topics, Mr. Winterton—
Mr. Deputy Speaker (Mr. Nicholas Winterton): Order. I am one of the four Deputy Speakers for sittings in Westminster Hall, and today's proceedings in Committee Room 10 are equivalent to those in Westminster Hall.
Sandra Osborne: I am sorry, Mr. Deputy Speaker.
54WH
There are many facts and figures, but I want to go beyond the statistics and provide a first-hand perspective and insight into pneumococcal disease. I shall focus on two aspects: the difficulty of diagnosis and the long-term consequences of the disease for those who are lucky enough to survive.
The story of a little boy called Sam—I am very pleased that his parents are present to hear our debate today—was recently brought to my attention. Sam was only five months old when his parents became concerned because he had a cold, a temperature and was not sleeping well. One might think that those symptoms, being the normal symptoms of feeling slightly off colour, would not cause alarm bells to ring. Nevertheless, Sam's parents, ever mindful of meningitis, did not want to take any chances and took him to the local accident and emergency department where they were assured that he did not have meningitis. The following night, Sam's condition deteriorated and he had a burning temperature and bulging fontanelle. His mum and dad telephoned NHS Direct, which advised giving him paracetamol to lower his temperature. The following morning, Sam seemed better but then became worse and was again taken to the A and E. A non-specific virus was diagnosed and he was sent home.
Back at home, Sam's condition continued to deteriorate. His parents were alarmed and returned to the A and E, where Sam had a fit on arrival. That time, the doctors recognised the signs of meningitis. Sam spent the next two weeks in intensive care, fighting for his life, and a further fortnight in an isolation ward. Laboratory tests revealed that he had had pneumococcal meningitis.
Let me make one thing clear: doctors' failure to recognise Sam's condition is not an indictment of the doctors who saw him, or of the national health service. In the words of a leading expert, pneumococcal meningitis can be extremely difficult to diagnose because babies under 12 months old do not always have the classic symptoms of the disease, such as the rash that is often seen with other forms of meningitis. There is an important lesson for us all to learn from that. Pneumococcal meningitis is difficult to recognise and often, as in Sam's case, is recognised only when it is much too late. Common logic therefore dictates that, with that type of meningitis perhaps more than with any other, prevention is better than cure.
To return to Sam's story, thanks to the skill of the medical team and the antibiotics pumped into his body, Sam survived. However, as we have already heard, more than half of the children who survive pneumococcal meningitis are left disabled, and Sam was one of them. He came home paralysed down his left side, brain damaged, epileptic and profoundly deaf. Sam has, with the support of his parents and a range of specialist carers, made considerable progress. He has regained the use of his left side and, despite the meningitis having destroyed his sense of balance, now begun to walk. According to his dad, he has a great sense of humour and is full of beans. Inevitably, however, as happens with many other children affected by serious pneumococcal disease, most of Sam's disabilities will remain with him for life. That will mean the need for some care for him from his parents, family and the wider community for the rest of his life—a lifetime of care and

55WH
support, and, for his parents, the knowledge that Sam can never lead the life that they might once have hoped for him.
Why, if pneumococcal disease is so difficult to spot and can have such devastating consequences, are we not doing something to prevent it? In a small way, we are, but in another important way, it seems that we have not quite decided. In January, the Department of Health announced that a new vaccine for pneumococcal disease, which for the first time is effective in children under three years old, should be given to the children most vulnerable to the disease. They include those with chronic heart, lung, liver or kidney disease, diabetes, sickle-cell disease and those with a poorly functioning immune system for other reasons.
The Department is to be applauded for that recommendation and for offering protection to those children. However, it is widely acknowledged that the vast majority of pneumococcal disease occurs in children who are otherwise perfectly healthy, just like Sam. Through the introduction of a routine immunisation programme, a major health gain could be won for British children. Despite that, the Department has not yet given a clear time frame for when the new vaccine will be made routinely available for all British children. That reluctance is surprising given that the Department has already conducted clinical trials on including the new vaccine in the routine childhood immunisation programme. At the moment, we have vague assertions that the possibility of an immunisation programme is actively being considered.
The disease is generally acknowledged as the commonest bacterial cause of pneumonia, which is a particularly dangerous condition in young children. Here in the UK, it is estimated that one in 200 children is hospitalised as a result of pneumococcal pneumonia before their first birthday. It is also important to recognise that the disease particularly affects older people. The pneumococcal polysaccharide vaccine could greatly benefit them, but I do not have time in this debate to pursue that further. Perhaps the Minister will comment briefly on it.
For the elderly and those in other age groups, pneumococcal pneumonia is responsible for the more serious types of pneumonia, which sometimes require surgery to resolve the damage caused and on occasion result in death. The disease does not only cause life-threatening and disabling conditions; it is a major cause of many common childhood illnesses, such as middle-ear infections. As any parent will know, such illnesses can cause considerable suffering and prove very troublesome, especially to those families who are least able to cope.
Nearly all children will have suffered a middle-ear infection by their third birthday. Although such infections can have many different causes, research shows that up to half of the cases that are bacterial in origin are due to pneumococcal disease. Moreover, severe, recurrent ear infections in children are more likely to be due to pneumococcal disease. Such infection can lead to a glue ear or a perforated eardrum—conditions that can have serious implications for a child's development, and which many families will have
56WH
experienced. Those common diseases also impose a heavy burden on the national health service in visits to GPs and admissions to hospital.
There is growing concern about the use of antibiotics to treat conditions such as ear infections. Fears about the steady increase in antibiotic-resistant strains of bacteria—already seen in many parts of world—are very real and are now starting to become a major source of concern in this country. Recent figures from Scotland, for example, show a tripling of the rates of resistance over the past decade to both penicillin and erythromycin. The problem is twofold. First, the effectiveness of drugs vital in the line of defence against serious diseases such as meningitis is being eroded. Secondly, in an attempt to rationalise unnecessary antibiotic usage for minor viral illnesses, the more serious causes of recurrent, severe ear infections, such as those caused by pneumococcal disease, are being treated later.
A routine immunisation programme to prevent the most serious forms of pneumococcal disease would also produce additional benefits in reducing the amount of less serious pneumococcal illness commonly seen in young children. It could help score a useful win in reducing pressure on NHS beds, cutting the number of GP visits, reducing the prescription of antibiotics, and cutting demand for surgical procedures, such as the insertion of grommets in cases of glue ear.
Why does the Department of Health appear to be dragging its feet in introducing the new vaccine for all children under two, and not just those at most risk? We led the world in the introduction of a routine vaccination programme for meningitis C in 1999. Indeed, an exemplary partnership between the Department of Health, public health agencies and manufacturers allowed the immunisation programme to begin many months earlier than originally envisaged.
Judy Mallaber: My hon. Friend is aware that I have tabled questions on the introduction of the pneumococcal vaccine, asking what assessment has been made of its impact in the United States and Europe on children under two, and asking when it will be introduced. Is she aware that my interest arises from the time when the former Secretary of State, my right hon. Friend the Member for Holborn and St. Pancras (Mr. Dobson), allowed the meningitis C vaccine to be used in a village in my constituency before it was introduced nationally? At the time, there was complete desperation because of a series of cases of meningitis that were—and still are—completely unexplained. As my hon. Friend said, the meningitis C vaccine has been a phenomenal success nationally. We managed to introduce it a year earlier than planned, and I would like similar urgency to be given to the introduction of the pneumococcal vaccine, so that we can end the sort of desperation experienced by children in my constituency who suffered from meningitis.
Sandra Osborne: I thank my hon. Friend for her intervention. I am aware of the situation that she experienced in her constituency. We want to see an early extension of the pneumococcal vaccine. The meningitis campaign itself has been amazingly successful. Cases of meningitis C—and resultant deaths— have tumbled by a staggering 90 per cent. in just one year. However,

57WH
despite this major public health success, no timetable has been seen set for the routine introduction of the new pneumococcal vaccine in this country.
The efficacy and safety of the new pneumococcal vaccine are not in question. The vaccine has had extensive trials in the United States and Europe. Studies have been conducted in this country by the Public Health Laboratory Service, and the Government see fit to give the vaccine to at-risk children. In addition, the new vaccine has been in routine use in the United States for two years with considerable success. There it is recommended for all children under two years of age, and it is part of the federal childhood immunisation programme.
The UK has a long-established pre-eminent global position in the promotion of public health and immunisation policy. Yet, with regard to the prevention of pneumococcal disease, there is an inexplicable lack of urgency on the part of the Department and its advisers on the Joint Committee on Vaccinations and Immunisation. Perhaps the ongoing debate about the safety of the measles, mumps and rubella vaccine has drawn the Department's attention away from the next logical step in protecting the health of the nation's children. In the media yesterday, Dr. Paul Gringas made the point that concern over MMR has set back research into autism. I wonder whether this is another parallel. Perhaps the Government consider that winning the battle against meningitis C means that we can take a rest from the continuing war against other forms of meningitis. Sam, his family and others like them would disagree.
I congratulate the Department on the chief medical officer's report, "Getting Ahead of the Curve". It points out the major health gain for the nation that routine immunisation against pneumococcal disease could produce, not only for children but for the elderly, who form another vulnerable group. The report remarks on the
"introduction of new conjugate pneumococcal vaccines to protect young children and the elderly from pneumococcal septicaemia, meningitis, pneumonia and ear infections, with the potential to reduce the annual toll of 22,000 hospital admissions and 3,000 deaths caused by pneumococcal infection".
"Getting Ahead of the Curve" is an insightful, forward-thinking document. However, there is a disconnection between its conclusions and the Department's resolve to act on them. The new vaccine is licensed and available, so surely the Department should act to protect our vulnerable youngsters as soon as practicably possible. Until the Department finds it timely to make its decision, its apparent procrastination and lack of commitment will continue to cost the lives of young children. Four will die each month, and many others, such as Sam, will be left with severe, permanent disabilities.
Can the Minister put on record when the Department of Health intends to introduce the new pneumococcal vaccine for all children under two as part of the routine childhood immunisation programme? An obvious first step would be to say whether the new immunisation programme is in her Department's identified spending plans for 2002–03. If it is not, she should say whether the decision rests on gaining adequate funding.
1.18 pm
The Parliamentary Under-Secretary of State for Health (Yvette Cooper): I congratulate my hon. Friend the Member for Ayr (Sandra Osborne) on securing a debate on this important subject. I welcome her support for the Government's vaccination programme for children. She gave us a powerful description of the dreadful impact of pneumococcal infection on children and family lives, and she made a strong case for prevention by discussing in detail the pneumococcal vaccine. I shall set out how consideration of the pneumococcal vaccine for the under-twos has progressed, and address some of her points.
As my hon. Friend said, pneumococcal infection causes a broad spectrum of disease. It is the most common cause of pneumonia, and causes meningitis and septicaemia. It is also involved in a proportion of middle-ear infections. Those diseases are serious and can be fatal. The very young and the elderly are at greatest risk. However, I shall confine my remarks to the issues that my hon. Friend raised on pneumococcal disease and the vaccine for the under-twos. Should I have time, I shall return to the issue of the elderly; if I do not, I shall happily write to her.
The peak incidence of pneumococcal disease in children is in those under two years of age, and the risk of meningitis is largely confined to children under five. In 1999, 561 invasive pneumococcal infections—meningitis or septicaemia—were reported to the Communicable Disease Surveillance Centre in children aged under five years, and there were more than 5,000 hospitalisations of children with lobar pneumonia in that age group, most of which were due to pneumococcal infection. From such hospital admissions, approximately 40 deaths are reported each year as a result of pneumococcal infection.
The data from the Public Health Laboratory Service on the level of infection is supported by a recent independent study of deaths in infants and young children due to invasive pneumococcal disease. The results of that study will be presented at the spring meeting of the Royal College of Paediatrics and Child Health in York next week. Taking into account various concerns about the data, it concluded that for the age group of one month to four years there were likely to be 43 deaths per year due to pneumococcal infection.
My hon. Friend is right about the considerable disability burden that can result from pneumococcal infection. She described it powerfully with reference to a family with which she has been in discussion. Faced with a disease such as that, we should be promoting prevention. She is also right that another major concern about pneumococcal infection is the extent to which it may be developing resistance to antibiotics, which is an additional reason to consider the role of prevention. In the UK, the use of the two main antibiotics for pneumococcal infection—penicillin and erythromycin—remains at relatively low levels, but we are monitoring that closely. In some other countries resistance is increasing, and in some cases it is already at worrying levels.
The Government have shown their commitment to introducing vaccines once their safety and efficacy are demonstrated. I know that my hon. Friend supported the meningitis C campaign, which has had an immense

59WH
influence on saving lives. I assure her that the current position on pneumococcal vaccine is not due to a lack of commitment. Extensive work is under way, and I wish to highlight the logistics of introducing nationwide vaccine programmes. I shall set out the progress that we have made so far and the things that need to be resolved.
A new pneumococcal conjugate vaccine was licensed in the UK last year. Unlike the existing pneumococcal vaccine, it offers protection to children under two years of age. The conjugate vaccine uses the same technology that was applied to the Hib and meningococcal C conjugate vaccines, allowing younger children to develop a protective immune response and stay healthy. Unlike those vaccines, however, it is several vaccines in one. Although the existing pneumococcal vaccine contains elements of 23 strains of pneumococcus, the new conjugate vaccine prevents the development of seven strains of pneumococcus.
Work is already under way to evaluate the new vaccine's suitability for use in the UK's routine childhood immunisation programme. The work is being done by the Department of Health's vaccine evaluation consortium, which includes the Public Health Laboratory Service, the National Institute for Biological Standards and Control, the Centre for Applied Microbiology and Research and the Institute of Child Health. It is a unique collaboration of Government-funded but independent organisations and institutions. Hon. Members will be aware that it was such across-the-board collaboration that led to the very successful meningitis C campaign.
With the prospect of the introduction of an effective pneumococcal conjugate vaccine for children, the Public Health Laboratory Service enhanced its routine surveillance systems to concentrate on the most serious infections, namely those in which the bacteria reach the bloodstream. Those are infections for which the most benefit can be expected from a vaccine. One of the most important questions for surveillance is whether the vaccine provides protection against the pneumococci strains that are causing the most disease in this country. The vaccine was formulated in the United States, but prevalent serogroups of pneumococci vary from country to country. From the data that the PHLS collects, it is able to determine the proportion of invasive infections attributable to the different serotypes included in and protected by the conjugate vaccines. The proportion of serotypes currently causing invasive disease in England and Wales that would be covered by the new vaccine is 65 per cent. for all ages and 86 per cent. for those under five. That is important information.
One of the next issues to be determined is the interaction between the new vaccine and the current vaccination programme. The pneumococcal conjugate vaccine has already been introduced into the routine programme in the United States, but since the vaccine was licensed, there has been little information on its national impact, other than on the population that took part in the clinical trials. The results of those trials were highly impressive, with the almost complete disappearance of invasive pneumococcal disease caused by the strains covered by the vaccine.
60WH
Recent population data from the Center for Disease Control suggest that there have been fewer cases—20 to 25 per cent. in children under four—of invasive pneumococcal disease since the vaccine was introduced in the USA. That does not mirror the success of the meningococcal C campaign, as a result of which the number of cases has fallen by 80 per cent. in the target groups, but it is important information nevertheless. We should remember that the vaccine protects against only seven of the most common strains of pneumococcus. However, importantly, the circumstances in which pneumococcal conjugate vaccines might be used in the UK are different from those in the United States.
The UK primary immunisation schedule is given at the ages of two, three and four months, compared with two, four and six months in the United States, where pneumococcal conjugate vaccine is given again as a booster at 12 months. We must carry out clinical trials to see whether the new vaccine is as effective at two, three and four months as it is following the United States' schedule.
Sandra Osborne: I am aware that the Minister is drawing to a conclusion, so can she can give us some idea about the time scales involved?
Yvette Cooper: I will try to give some indication of the time scale to which we are working, because many trials are already under way.
No booster doses of similar conjugate vaccines, such as Hib, are given in the UK, whereas they are given in the United States. We will have to decide whether a booster dose for pneumococcal conjugate vaccine is necessary. The addition of pneumococcal conjugate vaccines would represent a third conjugate vaccine in the UK, as meningococcal C conjugate vaccine is part of the UK but not the USA schedule. We do not know how the two conjugate vaccines interact and whether they work well when given together. That is why detailed clinical trials relevant to the UK are essential.
The Joint Committee on Vaccination and Immunisation will make the final recommendation to the Government. It has been made aware of the positive results in the USA, and has advised that the vaccine should be made available to those children under two who are at particular risk from pneumococcal disease, as my hon. Friend has said, but we need to assess additional factors and bear in mind that fitting the vaccine into the UK schedule cannot be taken for granted. All the evidence is that the more visits that parents and children have to make for vaccinations, the greater the chance that children will not complete the course.
When asked by Health Promotion England, which has already conducted a survey on pneumococcal immunisation on our behalf, parents said that they would prefer an extra injection to be given at a visit that was already scheduled, rather than scheduling a new visit. To see how a new vaccine would fit into the current schedule, it is important that the issues surrounding combinations of vaccines and their timing are properly assessed. Trials are being carried out and will be completed late this year. Studies to document the full burden of morbidity and disability attributable to pneumococcal disease in UK children are also in progress.

61WH
Vaccine safety is an important factor. The Government will not introduce any vaccine until all the appropriate research and clinical trials have been carried out. That work will then be reviewed by the Joint Committee on Vaccination and Immunisation, which will make recommendations to the Government based on its conclusions. I assure my hon. Friend that there is no lack of commitment, but we have a responsibility to children and families to ensure that logistic, safety and efficacy issues are resolved.
There are also shortages of pneumococcal conjugate vaccine in the USA, and the full recommended schedule cannot be implemented. We need to consider supply, too. Several other countries are in the same position and are considering the impact of the vaccine on their vaccination programmes. We must recognise that there could be a big increase in the number of countries that want the vaccine to deal with their supply issues.
I shall inform my hon. Friend of progress, and give her any further information that we receive about the time scales in which the trials and the joint committee will report. I assure her, however, that we are committed to improving children's health.
Mr. Deputy Speaker: We are grateful to the Minister for her reply. We are also grateful to the right hon. Member for South-West Surrey (Virginia Bottomley) for arriving in the nick of time.

Aircraft Noise (Gatwick)
1.30 pm
Virginia Bottomley: I very much appreciate the Under-Secretary of State for Transport, Local Government and the Regions, the hon. Member for Plymouth, Devonport (Mr. Jamieson), being present to discuss issues of serious concern to my constituents.
It is two years since I raised the issue of aircraft noise in the Dunsfold area. The hon. Member for Sunderland, South (Mr. Mullin), who was the Minister at the time, was extremely helpful, and I am sure that he still remembers in detail the important points that were made. I hope that the present Minister has been able to consider some of the issues that I raised on behalf of my constituents.
People live in south-west Surrey because it is a particularly beautiful part of the country. There is real concern about development pressures and quality of life. There is anxiety that the Government may impose entirely unrealistic and appalling housing quotas on the area. There is pressure from traffic congestion, although it is hoped that improvements on the A3 at Hindhead will relieve some of the problems.
Over recent years, the number of serious concerns about aircraft noise has grown. When I raised the issue in the previous debate, I talked about noise preferential routes—NPRs—and the importance of raising the minimum vectoring level to 5,000 ft. I also talked about the speed of arriving and departing aircraft, the importance of enforcement and encouraging aircraft to adhere to the 250 knot limit below 10,000 ft. My third point concerned altitude levels and particularly those of arriving aircraft. I said that continuous descent procedures could be modified and that there should be greater enforcement. Finally, I mentioned the disturbance caused by night flying, which is identified time and again in Government reports about noise.
I am pleased to say that the then Minister responded helpfully to the debate and that the airlines, the British Airports Authority and others were extremely helpful. Lord Marshall made it clear that British Airways would be happy to comply with any restriction that required aircraft to fly at 250 knots until below 10,000 ft. As regards night noise, British Airways said that it would introduce a voluntary ban on departures scheduled after 11.30 pm and arrivals scheduled before 4.45 am.
Enthused by such activities, Bridget Bloom, John Burgess and many others from the Quieter Skies Campaign—for which I have the highest regard—organised a meeting of the most phenomenal proportions in Dunsfold in March 2001. At a time when fewer and fewer people seem enthusiastic about political gatherings, people from all over the south-east attended a spectacular meeting at Dunsfold village hall, which was the happy recipient of a lottery award for improvements. Points were made about increasing passenger numbers, the growing disturbance, the difficulties of non-adherence to NPRs, departure height issues, landing approaches and heights, and the problem of old aircraft. I am pleased to say that, once again, there were encouraging responses all round.

63WH
Aircraft noise has been deeply affected by the serious situation following 11 September. It would not be right or proper for me to speak today without referring to that. The Select Committee on Transport, Local Government and the Regions held hearings on the issues. Roger Wiltshire, the secretary general of the British Air Transport Association, said:
"Air space was closed affecting roughly 20 per cent. of the aviation businesses coming out of the UK and even after all the events were over and the airlines returned to normal operationally there was a major impact on demand for air travel…soon after that return to normal operations an insurance change…threatened all airlines, not just those flying to space closed after 11 September."
Virgin and British Airways gave evidence that their losses had been around 20 per cent., and that British Airways had relinquished 300 slots at Gatwick.
Inevitably, there has been encouragingly less noise. That is partly a temporary phenomenon, due to the effect of 11 September on the airline industry, but it is also a result of a more profound difference. Following the detailed lobbying and representations to the Minister's predecessors, as well as work with BAA and the airlines, I am pleased to report significant improvements.
The Quieter Skies Campaign has assiduously documented the changes. For example, a document produced by it records:
"In a four-day weekend in January 2001 there were 179 Westerly take-offs over the Dunsfold/Hascombe area compared with only 77 in the same period in January 2002".
It also states that there is less perceived noise because of the continuing move to modern aircraft. I am pleased that Virgin has now eliminated all its old 747–200s. The document also records that
"2 years ago 23 per cent. of all Gatwick outward flights passed over the Hascombe-Dunsfold area below 5000ft. Westerly take?offs were particularly bad, with 33 per cent. below 5000ft."
Recent figures for 2002 show a dramatic improvement, with
"only 12 per cent. below 5000ft, with 70 per cent. above 7000ft."
Those changes are encouraging.
Easterly take-offs, which are normally higher, show a marginal improvement in the period. Only 13 per cent. of flights were under 5,000 ft, compared with a previous figure of 16 per cent., and the average overhead height was slightly below 7,000 ft. I give enormous credit to the group. Its vigilance in monitoring the situation, taking matters up with the authorities and clearly stating that all breaches should be properly identified and chased up has made a significant impact.
I am pleased that several people contacted me before the debate. British Airways has been in touch about its continuing commitment to the code of practice for continuous descent approach, the stringent departure noise limits and other such measures. Alison Addy of BAA has been enormously helpful, and has talked about BAA's work for and commitment to further improvements. Those include ongoing work to reduce noise, the imposition of higher landing charges on
64WH
noisier aircraft, the fining of aircraft that exceed noise limits, and the supplementing of restrictions on which aircraft can operate at night through a further voluntary ban. Also relevant are the establishment of the flight operations performance committee and the publication of a continuous descent approach code of practice.
The Minister may say that it is unusual for Opposition Members to raise subjects for debate, in Committee Room 10 or in Westminster Hall, in the light of so much encouraging good news. However, the real anxiety in the area concerns the future of aviation in the south-east, the future of Gatwick and the string of leaked documents, comments and reports. I pay tribute to the Gatwick Area Conservation Campaign and Brendan Sewill, who has been most assiduous in documenting the issue and alerting councillors, Members of Parliament and others.
A new runway at Gatwick would be the most deplorable event. Such a runway would be designed to increase the airport's capacity from the present 30 million passengers to 80 million or 100 million—around three times its present size. There would be three times as many aircraft in the sky and three times as much noise, three times as much pollution and three times as much airport-related traffic. It would mean more houses, more congestion and more air pollution. I ask the Minister to be aware of the mounting concern over air pollution.
I am sure that the Minister and others will be aware of the Gatwick legal agreement. Some leaks have suggested that Ministers have found a way around the agreement. I would like the Minister to clarify the situation and how he envisages the future of Gatwick. When will there be further announcements and further consultation?
People in the south-east not only mind about the quality of life and the local environment but are deeply concerned about opportunities in more economically disadvantaged parts of the country. One way to compound the difficulties of the south-east and exaggerate the problems elsewhere would be to impose willy-nilly a new terminal at Gatwick, with all the ensuing difficulties. The expressions of worry throughout my constituency about aircraft noise, not only in Dunsfold but in Farnham—concerning Farnborough airport—and the complaints about noise from Chinook helicopters would be as nothing compared to the outrage and problems that would emerge.
As well as being concerned about the series of leaks on the future of Gatwick, the Minister should know that a growing number of voices in my constituency are deeply worried about the threatened erosion of local democratic accountability for planning decisions. Dr. Jenny Masding, chairman of Alfold parish council, has written to me about the planning Green Paper "Delivering a Fundamental Change". There is great anxiety that there is no mention of parish or town councils in the Green Paper and concern that their role is being undermined and threatened. No one disputes the need for reducing the time taken to conduct planning inquiries, but there is real anxiety about the erosion of local accountability. In particular, there is concern about the future of the work of the county council, which in my constituency has been very effective.

65WH
I refer also to the comments made by Mr. Thwaites of Waverley borough council about the development of further air traffic and the importance of the planning procedures and local accountability. There is a real sense that this Government have been characterised by centralising and imposing their will willy-nilly on local bodies and agencies. The effects of such an imposition on this area would be devastating beyond all belief and entirely irreparable.
I thank the Minister for being present today to answer some of those points. There are many welcome changes such as the reduction in aircraft noise, which has occurred partly as a result of the tragic and regrettable events in the United States but also because of changing practices and a co-operative approach. How does he clarify his own responsibilities in the area? Good practice is all very well, but the Minister has responsibilities. I thank him and the Government for recognising the importance of tranquillity measures in the rural White Paper; he will know the link with the ambient noise strategy. However, aircraft noise issues pale into insignificance in comparison with what is now the real anxiety about the future at Gatwick. I have been asked by colleagues, by Francis Maude, Peter Ainsworth and Crispin Blunt, to—
Mr. Deputy Speaker (Mr. Nicholas Winterton): Order. The right hon. Lady should be aware that she should address her colleagues by their constituencies and not their names.
Virginia Bottomley: I stand corrected, after 18 years, with profuse apologies for such deeply regrettable and reprehensible behaviour.
The Minister is aware of the issues and of my appreciation of the Quieter Skies Campaign and of his predecessor's contribution. However, deep and widespread anxiety now exists and I hope that he will take note of my points and offer some clarification and answers to my constituents.
1.45 pm
The Parliamentary Under-Secretary of State for Transport, Local Government and the Regions (Mr. David Jamieson): I congratulate the right hon. Member for South-West Surrey (Virginia Bottomley) on having secured the debate. I understand that she secured a similar debate in January 2000, to which my hon. Friend the Member for Sunderland, South (Mr. Mullin) responded. She is, rightly, concerned about aircraft noise, which concerns many people who live near airports around the country. I am pleased that she has raised the subject again and given the Government another opportunity to respond.
The right hon. Lady will not be surprised to hear again some of the points that were made last time. However, there have been many positive developments, some of which she alluded to. I hope that I can reassure her on the points that she raised; all reasonable efforts are made to keep the disturbance from aircraft to a minimum and we continue to seek ways to improve the noise climate even more.
66WH
We need to minimise the impact of airports on the environment. At the same time, we must ensure that land use planning and conservation policies take account of the economic benefits of maintaining a strong, competitive airline industry and providing sufficient airport capacity where it is economically and environmentally justified. That involves striking a fine balance between aviation needs, providing jobs—Gatwick generates a substantial number of jobs in and around the right hon. Lady's constituency and serves the local, regional and national economy—and the need to minimise the impact on communities around airports.
The right hon. Lady is aware of my Department's broad role in respect of aircraft noise policy. Gatwick, along with Heathrow and Stansted, is designated under section 80 for the purposes of section 78 of the Civil Aviation Act 1982. That empowers the Secretary of State to impose requirements on the operators of the airport, and of aircraft using it, in order to mitigate the effects of noise. The requirements that we impose include departure noise limits, noise preferential routes—to which the right hon. Lady referred—for departures, night restrictions and certain regulations pertaining to the management of arriving aircraft.
A noise and track monitoring advisory group oversees the operation of the noise and track keeping system. The core of that system was updated a few years ago with a more modern computer system. The group includes representatives from the Department, the airport, consultative committee members, local authority officers representing the local community, National Air Traffic Services and the airlines. The group examines ways of improving the noise climate around the airport, and of monitoring and reporting. Gatwick also convenes a flight operations performance committee in which airline representatives and air traffic controllers examine technical issues and seek ways of improving performance.
Noise is the most prominent environmental impact of aviation locally. At Gatwick, the general trend in the daytime noise climate has perhaps surprisingly, although I think the right hon. Lady concedes it, seen a diminution of noise over the years as older, noisier aircraft have been replaced by quieter ones. That is despite a large increase in the volume of aircraft movements. It is best illustrated by the annual noise contour reports, produced on behalf of the Department. Those noise exposure contours show the equivalent continuous sound level experienced on the ground between 7 am and 11 pm during the busiest summer months. In the past 12 years, the area of the 57 dB Gatwick contour has more than halved. The right hon. Lady's constituency of South-West Surrey now lies outside that contour, and I am sure that she welcomes that reduction in the noise.
The right hon. Lady referred to noise preferential routes. It has long been recognised that the balance of environmental advantage lies in concentrating departing aircraft along the least practicable number of specified routes. Since 1968, the Department and its predecessor Departments have stipulated noise preferential routes for aircraft departing from Gatwick. As far as possible, those routes are designed to avoid built-up areas and so minimise disturbance to those on the ground. However, it must be accepted that some

67WH
dispersion from flight paths is inevitable because of navigational tolerance, aircraft characteristics and, not least, the weather, especially the wind, which can be particularly significant. In practice, that means that there can be a swathe of tracks up to 1.5 km on either side of the nominal centre line of a route, with the greatest likelihood of dispersion when aircraft are turning. However, the right hon. Lady will be pleased to hear that compliance with the swathes has improved from more than 95 per cent. of departures in 1998–99 to more than 99 per cent. today. There is no financial sanction for deviations, but causes of and trends in significant track deviation are thoroughly investigated.
Once aircraft departing Gatwick have reached 4,000 ft on westerly departures, air traffic control may, if traffic conditions permit, assign them a more direct course to their destinations. The release height for those departures was raised to 4,000 ft two years ago, and that may benefit the right hon. Lady's constituents. That practice, known as vectoring, is intended to speed up the flow of traffic, which has the benefit that aircraft are able to clear an area more quickly and at higher altitude. That may result in more track dispersion once the required altitude has been achieved, but the amount of noise experienced by people on the ground will of course be relatively less than at lower altitudes closer to the airport. The vectoring height for easterly departures remains at 3,000 ft, and I assure the right hon. Lady that the possibility of raising the height to 4,000 ft is kept under review. The right hon. Lady mentioned her contact with the Quieter Skies Campaign. It has requested that the vectoring height be raised to 5,000 ft. That remains a difficult proposition and it is unlikely to happen in the near future.
It is inevitable that areas so close to the airport will experience overflight. The right hon. Lady's constituency is situated between 15 and 25 miles west of Gatwick airport. Two departure routes overfly the area when the airport is operating towards the west, as it does for about 75 per cent. of the time. Departures from Heathrow and elsewhere—for example, those navigating via the M idhurst beacon—will also overfly the area on both easterly and westerly departures, usually at higher altitude, but they will not climb above 6,000 ft until cleared to do so by air traffic control. That is to avoid conflict with Gatwick air traffic.
It is a fact of modern life that the airspace over the south-east of England is very congested. Overflight at altitudes of 4,000 ft and more over a large proportion of the region is inevitable. We are not complacent, however, and we actively seek improvements when possible, but the noise heard on the ground must be taken in perspective with that from other sources endemic in modern life.
Maximising the use of continuous-descent approach is of prime importance in reducing the noise impact of arrivals. Pilots at Gatwick are requested to use continuous descent as best they can, but air traffic control constraints—particularly the need to maintain clearance from Heathrow departures—mean that 100 per cent. adherence is not possible. At night, there is an additional requirement not to join the extended runway centre line below 3,000 ft closer than 10 nautical miles from touchdown. I accept that that may bring more
68WH
traffic over the Dunsfold area, but that rule benefits other areas that would otherwise be overflown more noisily and at lower altitude.
The right hon. Lady also mentioned night restrictions. The Department appreciates that aircraft noise can be particularly disturbing at night and we operate a night restriction regime limiting the number and sort of aircraft that can take off and land. That regime is reviewed every five years or so through public consultation. There is a movement limit between 11.30 pm and 6 am, backed by a quota system in which noisier aircraft score more than quieter ones against the overall total. The system is designed to ensure that the overall level of noise from aircraft using the airport at night will not worsen, although the total number of night flights may increase as airlines substitute quieter aircraft for noisier ones, but only up to the movement limit set for Gatwick airport for night flights per season.
I turn to the national airports policy. The right hon. Lady is concerned, naturally, that in addition to noise disturbance on communities, the expansion of airports will have an impact on air traffic management and local infrastructure such as housing. I can assure her that any increase in traffic will be met with improvements and increases in air traffic control. There would be no increase in movements without the necessary air traffic control to cope with it. I assure her that safety is always the prime concern. That is fundamental to our planning and any changes in the use of airports and airlines in the south-east. If there is more development, there will also be more environmental measures to ameliorate or control that development.
My Department's work on a new air transport White Paper is well under way. Major infrastructure projects take a long time to come to fruition, so we must look a long way forward. Our aim is to provide a better framework to assist planning by all those concerned, including airports, airlines, local authorities and local residents, and to ensure that all relevant factors are taken into account. I do not pretend to know precisely what the aviation industry or even Gatwick airport will look like in a decade or more, but I do not share the right hon. Lady's vision of environmental measures being abandoned. I assure her that appropriate measures will be in place.
The right hon. Lady is aware of the South East and East of England Air Services study of airports in the south-east and east of England, which will inform the new policy. The study will take full account of the potential for airports in other parts of the country to attract a greater proportion of demand than at present. I am sure that the right hon. Lady will welcome that.
Projects for which planning applications have been made, or are expected to be made shortly, are not within the scope of the study because that would lead to duplication and delay. The study examines a range of scenarios based on those projects either going ahead or not going ahead. Implications of possible developments for the planning of airspace capacity, air traffic control and surface access to the airports are included. The Government have also consulted on proposals to reform the land use planning system and will announce their conclusions in due course. I assure the right hon. Lady that local people and local authorities have a say about any changes. She will agree that the procedures for terminal 5 did not reflect well on the planning system.

69WH
We want to avoid delay, which merely causes uncertainty and pours money into barristers' pockets without helping local people.
The right hon. Lady referred to leaks, but speculation might be a more appropriate definition of what she read in the newspapers. I ask her not to take that speculation too seriously. The SERAS study will be published shortly and at the end of the year it will be converted into
70WH
a White Paper. The right hon. Lady's constituents and local authorities in the area will have an opportunity to contribute to both parts of the process.
Much work has been done to minimise the impact of noise on the communities around Gatwick airport. We shall continue to examine ways in which to improve the noise climate in the wider policy issues and in the details.
Question put and agreed to.
Adjourned accordingly at one minute to Two o'clock.