Westminster Hall Sitting of 4 February 2004

Preamble
[MR. FRANK COOK in the Chair]

Standard Life (FSA Regulation)
Motion made, and Question proposed, That the sitting be now adjourned.—[Mr. Heppell.]
9.30 am
Mr. Alex Salmond: I want to raise a number of issues this morning, but I shall be wary of the time because other hon. Members want to speak.
I have no interest to declare in Standard Life. I have no Standard Life policies, and I have no brief for Standard Life in the sense that, when I was preparing for the debate, the company—perhaps understandably—did not want to talk to me but merely sent its press releases. My concern and interest were initially raised by an article in The Guardian on 8 January 2004, which I shall deal with later, and it was maintained by subsequent press comment about the Financial Services Authority and Standard Life. I was concerned about some of the things that had been written, and I wanted the opportunity to explore them in greater depth, because they touch on several very important issues and the matter is very much in the public interest.
First, I want to talk about some of the publicity surrounding discussions between Standard Life and the FSA. I want to look at some of the comments suggesting that that publicity emerged almost as part of the negotiations, to examine whether that is true. I am making absolutely no allegations; I am simply raising questions that seem to be of legitimate concern.
Secondly, I want to look at the essence of mutuality as a concept of ownership in the financial sector, and I want to explore with the Financial Secretary the Government's attitude to it. Nominally, the Government and the Financial Services Authority—as the FSA said recently in a letter to the hon. Member for Twickenham (Dr. Cable)—are fully committed to diversity of ownership in the financial sector; they think that it is a good thing. However, in the conduct of financial regulation, the proof of the pudding is in what the regulations actually are, and I want to examine whether things are being done, in terms of assumptions and ratios in the financial sector, that make it very difficult perhaps for a very large company to be in mutual ownership.
Thirdly, I want to look at the Scottish dimension to these matters and the importance of Standard Life not just as Europe's largest mutual assurance society but as a major bulwark of the Scottish financial sector, which is hugely important in terms of employment, funds under management and the diversity and range of its activities.
I shall look at the publicity that has surrounded the dramatic events and issues of the last month or so. I first learned of this issue from an article in The Guardian on 8 January. In the first four paragraphs alone, the reporter managed to get in the words "urgent," "Equitable Life", "run on the institution", "panicked" and "devastating",
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but leaving to one side the hyperbole and colourful language, the report seems to be a fairly blow by blow account of discussions between the Financial Services Authority and Standard Life. As I think about the origins of that report, it could hardly have been in the interests of Standard Life to provide any of that information, and suggestions arose in the press that it had effectively been leaked or briefings given or matters talked about as part of the negotiations, as a sort of macho attempt to bring Standard Life to heel. I do not know whether that is true, and I should say in all fairness that the FSA explicitly and robustly denied any such suggestion; indeed, the chief executive, John Tiner, sent me a letter yesterday, referring to what I thought was a fairly innocuous question that I asked the Financial Secretary last week in the Chamber. I will read it in full. It is headed, "Standard Life and the FSA". "During questions to the Treasury last week in the House of Commons, you asked the Financial Secretary to the Treasury if there was 'any credence at all to be given to suggestions that information about those discussions [between the FSA and Standard Life] was briefed to the press by sources within the FSA'.
"On 14 January the Daily Telegraph implied that we had leaked information to the press on these discussions. The following day the paper made it clear that: 'the FSA points out that there is no evidence that the leak came from its side, contrary to the implication here yesterday'. No credence should therefore be given to such claims."
That seems pretty comprehensive, but I had not actually seen the report in The Daily Telegraph. In fact, the first I heard of it was when I received that letter yesterday, and I went back to have a look at what had been said. I was actually referring to a range of other reports that had made the same point.
I shall read one of those reports because it encapsulates the unease of many financial commentators and others. It is part of an article in the Sunday Herald of 18 January:
"But these explosive events do raise issues that need to be carefully considered. On first reading, it appears that Standard Life had been squeezed into a corner by a regulator keen to flex its muscles ahead of the results of the Penrose inquiry into the debacle at Equitable Life. If that were shown to be the case, it would be a grim day indeed. Have we really seen such damage to one of our biggest companies and the savings and investments of so many—including a vast number of Scots—because the Financial Services Authority wants to get its defence in first?
The manner in which it has taken place also raises questions about the FSA 's approach. If the news of the questions over solvency was deliberately leaked, that would make the opprobrium that the regulator deserves all the greater."
Several articles made the same point.
My unease stems from this: it is a very serious matter if a feeling is abroad, as it were, in the press in general—not just The Daily Telegraph, which incidentally is not my paper of choice—that there has been an attempt to create a macho atmosphere or to brief in the run-up to the publication of the Penrose inquiry report, which could be very embarrassing for the Government and the FSA. The Financial Secretary screws up her face a bit at that, but while we wait for the report to be published—perhaps she will tell us when it will be published—a feeling of unease has certainly developed from that type of coverage. I make no accusations—I am not in a position to do so—but there is concern, which I share, that such things should be suggested and thought possible. Clearly, briefing and spinning to the press can

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be no part of financial regulation. The financial regulator has a difficult, challenging job but absolute trust between the regulator and those who are regulated is part and parcel of successful financial regulation.
I even read in one report the suggestion, which I initially thought ludicrous, that the FSA was imposing a rash of fines in the run up to the publication of the Penrose report. I discounted that as daft and silly until I examined the FSA's record over the last year and saw that, lo and behold, after 10 months in which seven financial companies were fined, there were six such fines in the last two months. Maybe it is simply the case that financial companies are fined in the run-up to Christmas these days, but there does seem to have been a sudden rash of fines on some of the leading companies in the sector. I agree that when companies deserve to be fined, they deserve to be fined, but it is interesting that there seems to be such a rash of fines in the run-up to the publication of the Penrose report.
I want to give the Financial Secretary the opportunity to deal with those points, and to make it clear that briefing the press can be no part of financial regulation. We do not know whether that happened—it is explicitly denied by the FSA—but the original report in The Guardian obviously came from somewhere, given the detail that it contained, and it would help if we could calm the atmosphere of speculation that has surrounded reporting and the issue of financial regulations.
The second question that I want to raise is the underlying question of the negotiations and discussions that have been going on between the FSA and Standard Life. It is interesting that, in this fevered atmosphere, it is possible for even the most sensible newspapers and the most sensible people to be dragged in in a rather alarmist way. An article in The Sunday Times of 18 January discussed the recent hearings of the Select Committee on Treasury, which were designed to boost consumer confidence in pensions. It says:
"The notoriously aggressive panel, chaired by the Dumbarton MP John McFall, is thought to be concerned about the viability of the 178-year-old Scottish insurer… McFall is expected to be well briefed, because Ned Cazalet, the insurance analyst who is Standard's arch-critic, is an adviser to the select committee."
I believe that the hon. Member for Dumbarton (Mr. McFall) is far too wise a person to be concerned about the "viability" of Standard Life. He and the Treasury Committee, the Financial Secretary and the FSA may well be concerned about aspects of guarantees and commitments made across the financial sector by life companies, and they may be seriously looking at the ratios of Standard Life, but they would not, I think, argue that there was a question about the "viability" of Standard Life. That report gives an idea of the feeding frenzy that can develop when issues like this emerge— and are debated—in the way that they have over the last month. Discussion is legitimate and proper; given some of the circumstances in the financial sector and given the range of issues in the pensions market at present, people are understandably concerned, but there is great potential for damage to institutions, and to people's jobs and pensions, if a snowball effect affects confidence in the financial sector or particular institutions.
At the heart of discussions between Standard Life and the FSA was, first, the question of the new "realistic balance sheet" that the FSA is applying across the
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financial sector and how that affects ratios. Standard Life was first up for those discussions because of the timing of its accounting year, which was several months ahead of other companies', and no doubt other companies may soon go through the same bruising process. I hope that it is not a bruising process, but Standard Life led the way in that sense.
Secondly, there was the question of the FSA wanting the company fully to commit and reserve for what Standard Life has been presenting as a mutuality bonus—that is to say, the addition that policyholders could expect from with profits policies as a result of the company's being in mutual ownership and therefore not paying back a percentage on shareholders' capital.
Now the FSA says that such things should be fully capitally accounted for, or fully reserved in terms of access to capital, and I do not think that anyone would dispute the idea that if people are offering what is presented as a guarantee, such a guarantee would have to be reserved. On the other hand, if people are presenting an argument that being in mutual ownership means by definition that policyholders effectively have equity in the company and are therefore entitled to the return on capital that would go to shareholders in a plc, that argument seems to be at the very heart of mutual ownership. If a mutual company cannot argue that, it is very difficult to see what the marketing advantage of being a mutual company actually is. A plc has advantages in the financial market over a mutual company. For example, it finds it easier to raise capital; a plc has many ways and areas of raising capital that are not open in the same way to a mutual company. So a mutual company, in its marketing, has to make the most of its advantage over plcs.
I am not sure that everyone fully understands the full extent of the new ratios and realistic balances, because a series of very complicated mathematical models is now being applied to work out the new realistic balance sheet, but I think we can have a sensible discussion about whether requiring a fully capital-backed application to the claim of mutual ownership in itself militates against mutual ownership in the financial sector.
Mr. Michael Weir: Does my hon. Friend agree that although plcs have many more routes, it is a fact that Standard Life is stronger than many of the former mutuals that have gone down the plc road, both in its own finances and in pay-outs to policyholders under their policies? Many of those who have gone down the plc route have ended up being swallowed up and have cut their bonuses significantly.
Mr. Salmond: Yes indeed. I shall come to that. As I said, I have no interest in Standard Life; but I do have an interest in a demutualised life assurance company. I have several endowment policies, and I can say openly to hon. Members that I wish they had been with Standard Life, because they would have been worth a great deal more over the last 20 years than they are with the demutualised company that they are with. For the sake of that company, it will remain nameless.
Returns from Standard Life speak for themselves when compared with those of other life assurance companies, with figures for with profits policies, and

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with figures for the range of mutual companies. I saw a performance list in a newspaper, which showed that 17 of the top 20 performers for TESSAs were mutual building societies; that struck me as a very interesting statistic indeed. So there is a great deal of evidence, as my hon. Friend the Member for Angus (Mr. Weir) said, that performance in terms of investors' returns is very healthy in the mutual sector. Indeed, there is a great deal of evidence not only that Standard Life is a solid company in terms of its overall ratios and any commonsense application of them, but that it has, by comparison with other companies in the sector, achieved good returns from its policies.
My hon. Friend spoke about the fate of other Scottish mutual companies that have demutualised. That is the final aspect that I want to discuss. The situation was summed up very well by one of Scotland's most experienced financial commentators, Bill Jamieson. In The Scotsman on 16 January, he wrote:
"I have lost count of those who have told me in the past week that Standard Life would be better off by demutualising. I wish I could be so sure. For I have not lost count of all those other great Scottish life offices that have survived as independent"
countries—that was a Freudian slip, but we shall keep it on the record, I think. I meant
"companies after demutualisation. That number is easy to count. It is even easier to remember. For it is a nice round number. It is wholly and precisely zero.
"Economists have a term for this: the law of unintended consequence. And it could be about to destroy Scotland's last big player in life assurance. A groundless worry of no import? Consider what has happened to all the others, those names we once proudly recited as enduring treasures in the pantheon of Scottish finance. Scottish Amicable, swallowed by the Prudential… Scottish Mutual, bought by the Abbey group… Abbey National Fund Management is itself transferring £28 billion of funds under management out of Glasgow to London… Demutualisation is no magic wand. The danger for Standard Life is that of predatory attack, and from companies not at all interested in preserving the business in Edinburgh, or even the brand name. Are we really sure this is a dose of financial Viagra for our financial sector? Let's be sure before we bite that it's not a cyanide pill."
That commentary neatly explains some of my own concerns. Standard Life is very much a pillar of the Scottish financial sector. It has been in mutual ownership since the 1920s. It has been a hugely successful company. The track record of other demutualised life offices does not give us any confidence that huge benefits will result from conversion to a plc, certainly in terms of the Scottish financial sector. It lays companies, even those as large and substantial as Standard Life, open to predatory attack.
Standard Life is hugely important for its policyholders—the people who have put faith and trust in it—and that faith and trust has been well rewarded and well established over very many years. It employs 12,000 people. It is part and parcel of the Scottish financial sector, and serves a worldwide customer base of policyholders.
It could be argued that being a plc confers advantages, even after a commitment to mutual ownership for many years—indeed, only a few years ago, carpetbagger attempts to demutualise the company were fought off. However, if the company were chased into conversion from mutuality by the unintended consequences, as Bill Jamieson put it, of certain aspects
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of financial regulation, I am sure that that outcome would not be wanted by the Government or, indeed, the financial regulator.
I am aware of the time available, and know that a number of Members want to contribute to our debate. Let me summarise my concerns. First, I should be grateful if the Financial Secretary made it crystal clear that any briefing, even pub gossip, in the financial sector cannot possibly be used as a means of negotiating when companies are in discussion with the FSA. The FSA, of course, denies that that has happened, but the Financial Secretary must accept that a range of reports, not just in The Daily Telegraph, have raised it as the motive in a number of discussions. The fact that such a feeling is abroad and shared by many journalists is a matter of concern, because the financial regulator depends on complete confidence in the financial sector. To maintain that, people must have full confidence in the financial regulator.
Secondly, there is a substantial point to be made about mutual ownership. Is the Financial Secretary concerned that some of the new ratios and applications of guarantees may create an inadvertent prejudice against mutual ownership and make it more difficult for large companies to remain in such ownership? That would be an unintended consequence—I certainly hope that it would be unintended—of the new system of regulation and capital adequacy.
Thirdly, does the Financial Secretary acknowledge Standard Life not just as a mutual company but as an important pillar of the Scottish financial sector? It would be unfortunate if a company were effectively chased out of mutual ownership, as that would create difficulties for the company's future independence.
I wish to make it quite clear that our debate should not add heat to the fevered atmosphere of the past month. On the contrary, it should cool things down and elicit sensible responses to reasonable questions. It certainly has the best interests of the financial sector and the companies that operate within it, particularly Standard Life, at heart. I hope that the Financial Secretary's reply will reassure policyholders, customers and companies in the sector.
9.53 am
Mr. Andrew Love: I join the hon. Member for Banff and Buchan (Mr. Salmond) in acknowledging the complexity of the subject. I have tried to understand the negotiations between the FSA and Standard Life and grapple with the issues, but I have been baffled. The press release issued by Standard Life came as a shock, as it spoke about the need to
"review the application of risk modelling techniques to long-dated products such as those offered by the life insurance industry in consultation with the industry, particularly with regard to the appropriateness of economic scenarios used in such modelling."
I have no idea what that means, so I cannot make a contribution to our debate about such issues. However. I was struck by the discussion with chairman Sir Brian Stewart on the Standard Life website. In answer to a question, he said:
"The resolution was that we are going to take out of our projections for policyholders the benefits of mutuality."
That pinpoints my interest in our debate, and I hope that the Minister can provide reassurances.

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Many background issues may or may not be pertinent to this debate, such as Equitable Life, the Penrose report, for which we are still waiting, and the Serious Fraud Office, which has been referred to. I accept the importance of all those issues but do not believe that they are directly relevant. They are, however, indirectly relevant to Standard Life, as I shall discuss later. Some people say that it was too exposed to stocks and shares when the stock market was adjusting, and that that is the cause of its problems. If that is so, it is a relevant consideration for Standard Life, but it is not relevant to the debate about whether or not it should be a mutual company.
Standard Life itself says quite a lot of its business is in relatively high-risk areas, so there may be question about whether those risks should be borne by policyholders or whether there is a role for shareholders. However, it has been grappling with that issue for some years, so I accept that it may want to make decisions.
I should like to focus on risk as it relates to the FSA. Equitable Life is relevant, because there are pressures on the regulator to come to terms with the difficulties and problems that have arisen since it assumed responsibility for financial regulation. The hon. Member for Banff and Buchan touched on the change from a statutory basis of accounting to what the FSA characterised as a more realistic basis. I am not an accountant and shall not try to describe that change, but a number of issues arise. We can assume that a realistic basis is intended to give a more realistic view of a mutual insurer's accounts. I suspect that most hon. Members in the Chamber would accept that if that achieves more transparency for investors, policyholders or, indeed the industry generally, it is a good thing and should be welcomed.
I should like to touch on three changes resulting from the way in which insurers now have to publish accounts on a realistic basis. First, they have to quantify future discretionary benefits, as the hon. Member for Banff and Buchan said, including the level of discretionary bonuses and terminal bonuses. They have to account more than they did in the past for the level of those benefits. Secondly, they have to give a more explicit statement of their liabilities so that they have adequate capital to cover them. That includes a requirement for greater transparency so that people know that their money is not at particular risk should the mutual get into difficulty. Thirdly—I suspect that the Equitable Life saga is relevant here—options and contracts, such as guaranteed rates for annuities, must be quantified in value and included in the liabilities. The FSA requires insurers to hold capital to meet increased risks that are made apparent by accounts on the new realistic basis. The FSA wants explicitly, says one publication, to reduce the pressure
"to sell shares when the stock markets fall."
That highlights an issue that has been very much to the fore in the FSA's discussions with the insurance industry about its difficulties.
I am interested in the way in which those three issues impact on Standard Life as a mutual body. For example, when we take into account the benefits of mutuality, will that make a pertinent and significant
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difference to the accounts that are produced at the end of the year? I do not know the answer, so hope that the Minister can deal with that. However, if discretionary benefits are increased and bonuses, such as the terminal bonus, are improved by the benefits of mutuality, would that inevitably mean that the accounting had to include a greater capital requirement to meet that increased risk? Similarly, would increased liabilities have an impact on accounting?
My personal view is that if annuity rates are guaranteed, there is no particular difference between contracts offered by a mutual or a non-mutual company, provided that they both include guarantees. Mutuals may believe that they can offer such guarantees more often because of the benefits of mutuality, and they know what they are doing. Although a problem arose with Equitable Life, the issue is relevant to the whole industry, rather than just the mutual sector.
Are we putting the mutual sector at a disadvantage because of the new realistic basis of accounting? Standard Life, for example, has announced that it can no longer take into account the benefits of mutuality. As a result, mutuals must reconsider whether there is any point in being a mutual.
That brings me finally to diversity, an issue raised by the hon. Member for Banff and Buchan at the beginning of his speech. When we discussed the Financial Services and Markets Act 2000, I made a speech on Second Reading in which I called for a change in the objectives of the FSA to include diversity. The mutual sector in financial services is relatively small. It may not require protection because, as has been said, it produces better returns—people who save with a mutual get a better return than they would in other parts of the sector—but the special circumstances of mutuals need to be recognised.
That may be the root of the present problem. The Financial Services and Markets Act is under review, and I believe that there is a need to consider whether diversity needs to be taken into account so that we can be sure that the mutual sector and its benefits for the marketplace are protected. We can then ensure not only that Standard Life, the largest mutual insurer in Europe, but all the other mutual organisations are aware that we think that mutuality is a good thing.
10.3 am
John Barrett: I congratulate the hon. Member for Banff and Buchan (Mr. Salmond) on securing this debate. He set out clearly the problems facing Standard Life, and referred to the feeding frenzy in the press, which has created a distorted view of the FSA's involvement with Standard Life, and information available to the public.
Whether we are interested in the economy, employment, pensions or personal finance, it is safe to say that the issues facing the financial services industry are important to many hon. Members. Our postbags on Equitable Life alone would surely be testament to that—mine certainly was. As a minor policyholder in Standard Life, I declare an interest in this debate. After being elected to Parliament, I entered into correspondence with Standard Life to transfer that small policy to a parliamentary pension fund. A year later, it still has not managed to make that transfer, so I remain a policyholder with Standard Life.

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I have, however, a much wider interest in the relationship between Standard Life, the FSA and my constituency. The company is by any measure of primary importance to the city of Edinburgh, part of which I have the honour to represent. Apart from the thousands of my constituents who have policies with Standard Life, the company employs 8,000 staff in Edinburgh as a whole, making a huge contribution not just to the financial industry in the city but to the Edinburgh economy as a whole. Although the future of Standard Life is an issue that rightly concerns the whole UK, the future of the company is of particular importance to Edinburgh and many of my constituents.
I confess that I was a fan of Standard Life. Not very long ago, in this very Chamber, I referred to the company in a debate on the outsourcing of financial services jobs, and paid tribute to its attitude on that issue. Its managing director of human resources had a firm commitment to keeping jobs in the city at a time when many of its competitors were moving customer service roles overseas. However, Standard Life has made mistakes, and continues to do so, both of presentation and of substance. Some say that the problems are of Standard Life's own making. Its reliance on equities at a time of stock market decline had a major negative impact on the company's capital reserves. That decision, combined with other circumstances, has left Standard Life in its current position.
At the same, however, it is vital that we deal with the issue constructively. It would be easy, in the wake of the Equitable Life scandal, to respond to Standard Life's difficulties with alarm and horror, as has happened in some press reports. Such an attitude is misguided, because Standard Life is not going the same way as Equitable Life and is not as short of capital as Equitable was. However, we must wait for its new balance sheet following the new FSA rules in March. Much has been made of demutalisation and the extent to which that could solve Standard Life's problems. Even contemplating such a process would be a massive U-turn by Standard Life, and shows the depth of the challenge facing the company. Indeed, such a consideration makes the protestations by the chairman of Standard Life that there is not a problem even more unbelievable.
The hon. Member for Dumbarton (Mr. McFall) secured a fair amount of coverage for the grilling that he and his Select Committee gave Standard Life management two weeks ago, but the interrogation was justified. We, as our constituents' representatives, must ask difficult questions to which our constituents want answers. Extraordinarily, in addition to the evidence given to the Treasury Committee, the Standard Life website features a special question and answer page with its chairman in which he says that
"it is not a difficult time for Standard Life."
That is spin worthy of Alastair Campbell, and bears little resemblance to what people in the industry, the staff, policyholders, the FSA and others have seen. There is no shame in the challenges that face the company. It goes without saying that Standard Life must he honest and open. The UK financial services world changed after Equitable Life, and people rightly expect nothing less than complete honesty from those who handle their financial affairs. I hope that the
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decision to give an indication of what has been agreed between Standard Life and the FSA when the annual results are published on 18 February will mark a new period of openness, but that depends on exactly how forthcoming the company is in that report.
Demutualisation, of course, offers no short-term remedy for the company. People in the industry believe that a full-scale conversion could take up to two years because of the requirement to get permission from policyholders, an independent actuary, the Financial Services Authority and the courts. The process is not cheap, and Standard Life spent £6 million on administration during the 2000 campaign against demutualisation. There are other options, which I hope can be considered in the current review. For example, the company could either cut new business to protect the interests of current policyholders or cut equity exposure. I am not a financial adviser, and do not pretend to offer advice on those matters, but I believe that Standard Life should consider its options carefully. The Government, the FSA and others should make every effort to offer assistance.
Mr. Salmond: The hon. Gentleman has a huge constituency interest in the matter, so will he say something about the point that the hon. Member for Edmonton (Mr. Love) and I tried to explore? There is concern that there might well be—perhaps inadvertently—something in the regulation that the FSA is looking for that would militate against major companies staying in mutual ownership. If that is the case, it puts some of his comments in a different context.
John Barrett: I absolutely agree. Standard Life has long promoted the benefits of being a mutual company. It should be made clear if the rules are changing, and the FSA's involvement is queering the pitch for Standard Life. I look forward to hearing what the Minister has to say about the matter, because there is a genuine concern for the company's future and its employees and policyholders.
Policyholders have to be realistic, too. Demutualisation would certainly not bring the windfalls that it would have brought when it was first mooted back in 2000. and any windfall now would in no way make up for the cuts in bonuses that were announced last week.
Hon. Members have, quite rightly, fought to preserve the interests of the millions of people who have policies with Standard Life and whose policy bonuses are falling—I strongly agree with those comments. However, the current uncertainty also means that behind Standard Life's impressive buildings on Lothian road, Conference square and George street, 8,000 staff remain in an equally uncertain position. As I said, the hon. Member for Dumbarton was absolutely right to be critical of Standard Life's management for, at best, their lack of information and, at worst, misleading some people over the position of the company. Similarly, I fear that the management are equally secretive with Standard Life's staff. The company's six-month review has effectively left many employees in a state of limbo. In fact, from what I know from those who have contacted me, I do not think that it is too much to say that some in the company are quite depressed. Promotions are being postponed and long-term goals

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are being amended. Many within the company who, even a few months ago, would not have contemplated changing jobs now feel that they must reassess their situation. However, as one of my constituents told me, it is not as if she has pages of job ads to wade through. This is a sad situation. We must remember that the staff worked hard over many years to build Standard Life into the world-class business that it is today. For example, the work to resist demutualisation four years ago was a credit to all involved.
I am conscious that other hon. Members may wish to speak, so I shall not go on too long. On the positive side, the scrutiny under which Standard Life appears to be is a sign that lessons have been learned from past mistakes and that foundations are being laid to ensure that the previous situation does not happen again. This is a difficult time, not just for those in the financial services sector, and difficult decisions will have to be taken in the months ahead. It is in all our interests to ensure that Standard Life continues to be a leading player in the financial services field. A resolution must be found for the company and its staff and policyholders, so I would welcome any reassurances that the Minister can give to those policyholders and employees.
10.13 am
Dr. Vincent Cable: I congratulate the hon. Member for Banff and Buchan (Mr. Salmond) on securing the debate, which is highly topical and of concern to many of our constituents. The Standard Life problem is nothing like as extreme as that of Equitable Life, but many of our constituents who are policyholders are none the less anxious, so the debate is timely and helpful. The hon. Gentleman rightly emphasised the role of the institution in the Scottish economy, as did my hon. Friend the Member for Edinburgh, West (John Barrett). I shall dwell on two more general issues that overlap: first, mutuality in the insurance sector: and, secondly, the implications of what is happening to with profits policies and their regulation, which has been touched on rather less. The two matters are linked, but I shall separate them.
The management of Standard Life argue on the basis of their track record that mutual ownership gives real benefits to its policyholders because it can produce a return that is 0.75 percentage points higher than the industry average over a long time. I do not think that that is simple self-promotion because there has been a lot of academic analysis on the point. The hon. Member for Edmonton (Mr. Love) is a considerable authority on such matters, so he will know that a lot of work has been done at the university of Loughborough by Professor Llewellyn, among others, to demonstrate that mutual insurers produce a higher return for their policyholders than public limited companies do over the long term. That happens for the simple reason that such insurers do not use equity capital, which is a more expensive form of finance.
By the same token, however, mutual insurers have disadvantages. The fact that they have difficulty raising capital in a hurry has been touched on. Their other problem is that by having equities on the asset side of their balance sheet rather than the liabilities side, they
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are potentially unbalanced because their risks are not properly offset, which was the underlying problem with Equitable Life.
The future of with profits policies overlaps with mutuality. Many of us remember that during the great days of the bull market in shares, everyone wanted a with profits policy. As someone who had a Standard Life policy that matured at just the right time, I have rosy memories of with profits policies and Standard Life. Since that time, however, the market has turned down and such policies are considerably less fashionable. Several years after the horse bolted, the FSA is busily erecting a stable door in the form of reserves and provisioning to ensure that the horse does not escape—that is understandable given the current situation.
There is a public policy issue that we want the Minister to address. We want it to be absolutely clear that, as the hon. Member for Banff and Buchan put it, there is no unwitting bias against mutual ownership in the system of regulation. I am not saying that as an ideologue promoting mutual ownership—it has benefits and disbenefits. However, we want to ensure that there is a genuine level playing field and that there is real diversity in the market with mutual and non-mutual institutions. The Government have a creditable record in the field. The Financial Secretary will remember from her role on building societies in the previous Parliament that the Government took a strong position to ensure that the building society movement was not effectively wiped out by activities such as carpetbagging. They introduced new regulations to that effect, although some of us criticised them for not enacting primary legislation. None the less, the mechanisms that they implemented have stabilised mutual ownership in the building society sector. Nationwide, which was considered to be the most vulnerable building society, is apparently stable.
A different pattern is emerging in the insurance sector, and it appears that mutual insurance might be heading toward extinction. Although I do not think that the unfortunate history of Equitable Life's problems was intrinsically caused by mutuality, it was compounded by it. Standard Life is coming under pressure to demutualise. The only remaining significant mutual insurer is the Liverpool Victoria, which is really a friendly society with several characteristics of an insurance company. It is possible to envisage that mutual insurance will effectively disappear in a couple of years unless action is taken to stabilise the situation.
Although that is a general problem, there is a specific question about the role that the FSA is playing. A charge has been made in some quarters that the FSA might be deliberately—that is probably not the case—pushing Standard Life toward demutualisation. I wrote to Mr. Tiner last week because of that concern. He replied yesterday and published his reply on the internet—I think that it has been widely picked up.
Several specific points about whether the FSA is pushing Standard Life toward demutualisation need separating out. First, does the FSA have any general bias? Mr. Tiner makes it clear in his letter that it does not. His strong statement says:
"On mutuality more generally, we have no view one way or the other about the merits of a mutual structure"

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and says that that is a matter for members. I completely accept that and do not allege any sort of conspiracy or ideological bias.
Several hon. Members have touched on a more complex matter: the illustration of the benefits of mutuality. Consultation paper No. 195 is currently in circulation—[Interruption.] It is being waved by the hon. Member for Chichester (Mr. Tyrie). It is a weighty document, but if I may try to summarise its significance and the essence of the problem in one line, I understand that it will prevent mutual insurers from illustrating the benefits of mutuality, such as extra returns, in a context in which they must maintain higher provisions. Standard Life's worry is that if it will be no longer allowed to illustrate benefits, its credibility as a competitor in the market will be undermined. Indeed, there is already evidence of that from the response of the rating agencies, Standard and Poor's and Moody's, in downgrading Standard Life on the market when it became clear that it might not be able to illustrate the benefits of mutuality.
If I have understood the problem correctly, I hope that the Minister will say that the Government will respond to the consultation paper and make it clear that public limited companies' lobbying to stop the mutuals from illustrating their benefits will be countered so that mutuals will be able to compete in the market by publicly declaring what they think that the benefits of mutual ownership will be. The Government might be able to intervene, although I accept that the situation is confusing. Mr. Tiner's letter says:
"You express concern about the benefits of mutuality no longer being included in illustrations of future returns. This is a matter for Standard Life."
However, Standard Life does not believe that—it believes that it will come under pressure not to do that—so perhaps the Minister will clarify the situation.
One fundamental problem for mutuals is that they cannot go to the equity market, so they have to go to the bond market. They believe that they are at a disadvantage by having to do that because of the conditions set by the FSA as a regulator. I would welcome feedback from the Minister about whether she recognises that that is a problem—the mutual insurers certainly believe that there is a problem and that the FSA's requirements are too onerous.
I conclude with a point about which I am not terribly clear; perhaps the Minister will clear it up. People who are worried about the rush to demutualisation express concerns that it would not only not be in the long-term interests of policyholders, but it would not solve Standard Life's problems. Standard Life is under great pressure to raise cash to meet the new regulatory requirements, but if it demutualises, it will probably take between 18 months and two years to bring additional capital into the company, so it may be pushed into demutualisation for the wrong reasons at the wrong time, despite the fact that that might not solve the problem with which it is confronted.
I accept that the matter is largely one for the company, its members and the FSA, which, properly, has devolved powers so that it is at arm's length from Ministers. However, we want the Financial Secretary to give us a clear picture of how she sees the mutual sector in insurance. Do the Government have a proactive view,
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as they did with building societies and, if so, how will she manifest their concern? Does she accept the analysis that the FSA, in subtle ways through its interventions, makes it more difficult for the mutual sector to survive? Does she propose to respond publicly to the consultation paper in a way that would express several of those concerns?
10.24 am
Mr. Andrew Tyrie: We have heard a little about the importance and size of Standard Life. It is a crucial major employer in Scotland, which is at least part of the reason why we are holding the debate. The point made by the hon. Member for Banff and Buchan (Mr. Salmond) about the leak in The Guardian is pertinent. Regulatory discussions cannot be conducted in the newspapers. It appears that someone has put something in the public domain as complicated negotiations were taking place behind the scenes, which I regret. I tabled a written question about the leak, but it was ruled out of order by the Table Office. I wonder in passing whether we need to examine our rules to find how we could introduce more flexibility to the way in which we table written questions, given that the Freedom of Information Act 2000 will make it much quicker and more sensible from 2005 to put a letter in the public domain that would require an answer.
The immediate reasons why we are having the debate are the discussions on demutualisation and rumours that jobs might be lost in Scotland. That is worrying, and I raise a question in passing, although I do not expect the Minister or anyone else to answer it. Whenever demutualisation is discussed, why does it so often seem to mean "large savings in employment costs"? I am a supporter of the mutual principle, but the discipline that shareholders could bring to mutual companies could gives scope for cost-cutting that would bring greater benefits to policyholders or shareholders.
As the hon. Member for Twickenham (Dr. Cable) and other hon. Members said, the heart of the debate on demutualisation is the question of access to capital, because a demutualised company can borrow more easily and find resources to expand its business, which is especially important in the fast-changing business environment in which we live. I noticed 18 months ago that, Legal and General raised about £800 million in the capital markets, which would have been more difficult and time consuming if it had remained a mutual.
Set against that benefit is the cost of the long-run yield that shareholders obtain that should accrue to policyholders, which can be measured, in theory. The hon. Member for Twickenham referred to research about which I am aware showing that part, but not all, of that benefit ends up with policyholders, although a number of assumptions that are built into the calculations make it difficult for us to be sure that they are correct.
Standard Life and other firms have historically argued that they have sufficient financial strength to do most of the things that a limited company can do while giving extra benefits to their policyholders, which is the nub of the argument for mutual status. Most of those benefits go to with profits policyholders. The FSA's proposals on with profits policies lie behind the uncertainty surrounding Standard Life. The FSA has

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proposed a tightening of the regulation of with profits policies, but even if we were to stand back and suppose that the FSA had taken no steps to tighten regulation, we would still be debating the industry. The underlying reasons for uncertainty in the industry go far deeper than the FSA's intervention, and I shall cite three or four reasons why.
First, the deep bear market in equities put the size of inherited estates in life companies under a great deal of pressure. The amplitude of the business cycle in the 1980s and 1990s put enormous pressure on the policy of smoothing returns to policyholders, which is the practice of handing out only a proportion of the return during the upswing and giving part of it, but not all, back during a downswing. If the cycle is very big, that policy comes under great strain, particularly if it is much bigger than had been assumed by the actuaries when the policy was put together.
A second reason why the debate would be taking place anyway, or a contributory reason, is that lower inflation and interest rates have increased the value of guarantees that the firms have written, creating much larger liabilities in the balance sheet. That was bound to bring pressure on the industry. Added to that are the facts that forecast life expectancy is greater than anticipated and surpluses on non-profits business are lower than expected. The expenses cap on stakeholder pensions has not helped in that respect, and the Government have something to answer for there.
Finally, and most important of all, there is the effect of the Equitable Life scandal and collapse. It sent a shudder through the whole market when one of the flagships came crashing on to the rocks. Now is not the time to discuss why. I hope that we will soon have an opportunity to discuss why that happened, with the publication of the Penrose report, which the Minister has already read and which I hope we will shortly be able to see in full.
It is important not to draw simplistic parallels between Equitable Life and Standard Life, as the hon. Member for Edinburgh, West (John Barrett) also said a moment ago. Equitable Life operated on a unique business model. It had virtually no reserving and very high terminal bonusing. Inevitably, that created greater risk for policyholders. Whether regulators should have permitted that business model to survive and continue is a subject to which we shall return, but that is not the model on which Standard Life has been operating. It is therefore important that the wider public, including policyholders, do not draw any simplistic conclusions about any putative threat to Standard Life from what happened to Equitable.
In response to the factors that I have listed which put great pressure on the industry—the last of which was the collapse of Equitable, which brought with it a great deal of publicity—the Financial Services Authority launched a review of the entire industry. Several key elements of the review are worth mentioning, as the hon. Member for Twickenham and other speakers did. I have a list of the major changes in the regulatory tax and accounting framework for life companies that have been pushed through in the past couple of years or are coming through in the next couple of years. There are 21 major changes. I will not read them all out—I will not read any
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of them out, but they can be found on the actuarial profession life office taxation working party website. Even from reading the titles, one gets a sense that this is an industry undergoing fundamental change as a consequence of a reform of the regulatory framework.
We must keep reminding ourselves that the customer is paying for all this regulatory work. It is putting bills up and reducing terminal bonuses and returns to shareholders and policyholders. As we said in our deliberations on the Financial Services and Markets Bill, it is crucial that there is a balance between the costs and benefits of regulation. I support what is going on, as far as I can tell—I do not have the benefit of a detailed knowledge. However, we must bear it in mind that it does not come cost free. The FSA will ultimately be judged on whether it has got the balance of costs and benefits right. It is far too early to tell.
Among those 21 changes, there have been six major consultation documents from the FSA. I have two of them, just to give Members an idea of the volume of paper that the industry is expected to cope with. I shall refer briefly to them, as they are the most important.
CP 207 is about treating with profits policyholders fairly. The purpose is good. It is designed to open up the black box that has been at the heart of life assurance for a very long time.
How should an asset share be calculated? That is an extremely complicated question. Firms vary their practice enormously on how they do those calculations. Is it right that they should continue to have that degree of flexibility? How should a smoothing reserve be managed? I mentioned that earlier. Should firms be allowed to vary the amount by which they smooth in percentage terms? When is a guarantee a guarantee? That question is not understood even now by many people who read the literature. We heard a moment ago about the marketing literature.
I do not have answers to these questions. Reading CP 207 is enough to make one wonder whether more than two or three people in the world at any one time will ever fully understand the answers, but the questions should be asked. I am fairly convinced that it was wrong that directors of life companies should have had—and continue to have, although it is being reduced—such enormous discretion to vary their policy on these matters. Not all life companies agree with that. Standard Life recently put out a document stating:
"There are risks … that excessive limitation of companies' discretion may impair the performance of with profits products, and that excessive disclosure may make the smoothing of returns to reduce volatility more difficulty to achieve."
I am not sure who has the better of that argument and I shall not try to adjudicate, but it goes to the heart of whether mutuality should survive and thrive.
I have two questions for the Minister on the consultative document, which I touched on earlier. First, is it the intention of the regulators to bring greater homogeneity to asset share calculations, or is it merely the intention of the regulators to create transparency, so that people can see the differences? Secondly, CP 207 did not discuss the implications of the Sandler report for with profits business, and there are a number of issues involved, on which I shall not elaborate now. I should like to know the Government's view. Of course, it is consistent with Sandler, but can the Minister go beyond that and say what that consistency amounts to?

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The second paper that I shall briefly discuss on this remorselessly complicated subject is CP 195, which has already been mentioned. Again, it is a huge document—hundreds of pages of tiny print, part of which I have tried to read in the past few days before the debate. It is entitled "Enhanced Capital Requirements and Individual Capital Assessments for Life Insurers." It introduces the notion of realistic solvency assessments and realistic balance sheets. When I was reading it, I wondered whether that means that up to now we have all been working on unrealistic balance sheets and unrealistic solvency assessments. I hope that is not the case, but the mere fact that that word can be used in this context without people finding it curious tells a story. Balance sheets have not been transparent enough in the past.
Part of the difficulty has been that the balance sheets of life companies have in the past shown the full value of any fall in markets on the assets side of the balance sheet, but not the full likely effect of that fall in the markets on the liabilities side. That is one of the major issues behind the construction of realistic balance sheets. As I was reading the document yesterday, it struck me that a great deal of discretion is still left to directors of firms to decide how to describe their liabilities.
I have a couple more questions to ask the Minister. The creation of realistic balance sheets was used a few months ago as a justification for using waivers to minimum reserving requirements. Those minimum reserving requirements were in turn triggering the forced sell-off of equities. Was the Treasury consulted by the FSA before such waivers were used? The long-run implications of the use of those waivers are quite profound. An issue of great concern was that if the forced sell-off of equities continued, there would be a massive overshoot in equity prices, with a massive downturn.
I have a more general question that will open another black box that exists in the area of public finance regulation. Very few people know of the existence of the tripartite committee, which consists of the Treasury, the Bank of England and the Financial Services Authority. I know very little about it. Can the Minister tell us whether that committee, which meets monthly, has ever discussed the systemic implications of all the radical changes that are being pushed through in the insurance market?
The regulatory modernisation that is taking place, of which those two documents are just a small part, is sharply changing the shape of the industry. It is partly a result of the colossal failure of Equitable Life. I support what the FSA is trying to achieve, but I return to the point I made a moment ago about the costs and benefits of regulation in the long run. We must not lose sight of that. We are left with a number of quite deep questions, which the hon. Member for Twickenham alluded to, although he phrased them rather differently.
How much are risks spread in with profits policies? I am still not clear about that, and it is a question of which the regulators should be mindful. Can businesses in the 21st century thrive without access to capital that is afforded with limited liability? That is at the heart of the question on mutuality. Can we continue to have a major industry with a massive actuarial black box at its heart, in an age of greater transparency in which consumers
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are demanding far more knowledge about products, and shareholders are far more active in demanding higher returns? I am a supporter of mutuality, but these are difficult questions for the industry and they are the very questions that the Financial Services Authority is opening up in its review. I shall be interested to hear what the Minister has to say about them.
10.42 am
The Financial Secretary to the Treasury (Ruth Kelly): A relatively short time remains to me, but I shall try to answer as many as possible of the questions that have been raised.
I pay tribute to the hon. Member for Banff and Buchan (Mr. Salmond) for securing this timely debate. I entirely concur with the sentiments of the hon. Member for Twickenham (Dr. Cable), who said that this is an issue of great concern to constituents in Scotland and throughout the country for varying reasons, including the financial sector in Scotland and the employment impact, and the fact that there are Standard Life policyholders across the country. Hon. Members will understand that it is not for me to comment on the ongoing details concerning the regulation of Standard Life or any other life company. However, I welcome the opportunity to lay some concerns to rest.
There is no conspiracy against Standard Life, mutuals in general or Scottish financial services. In my written answer to the House of 13 January, I noted that the Financial Services Authority had kept me informed of the matter under the terms of the tripartite memorandum of understanding. I also noted that the FSA has responsibility for regulatory decisions under the Financial Services and Markets Act 2000 and that it had informed me that it had, under section 166 of that Act, commissioned a review by independent experts into the origins and implications of the significant divergence in the calculation of Standard Life's liabilities. The FSA will continue to keep me informed of the matter under the terms of that memorandum, and I will keep the House informed of developments, as appropriate.
I cannot comment on the substance beyond that statement and those made by the FSA and Standard Life on the day. There are, however, a few things I can say of interest to Members in the Chamber about the handling of the issue and about mutuality generally. First, Standard Life is in no way being singled out by the FSA in respect of realistic reporting. The vast majority of the industry is currently in discussion with the FSA regarding the move to reporting on a realistic basis. Secondly, that move is part of the FSA's much needed programme of modernising the regulation and capital requirements of life insurers, be they mutual or quoted companies. The hon. Member for Chichester (Mr. Tyrie) was right to say that companies are undergoing a programme of fundamental change.
Thirdly—this is of particular interest to hon. Members present—the Government recognise the contribution of all forms of mutual financial service provider to offering choice and diversity in the sector. The recent proposals to update life insurance regulation are categorically not part of a demutualisation campaign by the FSA or the Government. I know of the long-standing interest of my hon. Friend the Member

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for Edmonton (Mr. Love) in these matters. He and others will recognise the contribution of the Treasury to the development of the mutual sector over the past few years, not least, as the hon. Member for Twickenham noted, in supporting the building societies' movement against carpetbagging, and in my own support of two private Members' Bills on industrial and provident societies, taking forward the issues raised by the mutual sector and trying to further that cause.
Mr. Salmond: Standard Life is the last of the great mutual life insurers. We have been trying to explore whether forcing a mutual to be fully reserved undermines its claim of mutuality and the well documented advantages of mutuality. We are not suggesting a conspiracy. We are asking the Minister to address that fundamental point.
Ruth Kelly: I will. As I am sure the hon. Gentleman noted, I said that I would deal first with the handling of the issue, and then with the substance of the issue of mutuality. If he will be patient, I shall come to his point in a moment.
On the hon. Gentleman's point about briefing to the press, I can categorically assure him that to the best of my knowledge there is absolutely no information to suggest that the Treasury or the Financial Services Authority was the source for any story that appeared in the papers. A story in The Guardian was followed up by other newspapers. I have no information that would suggest that the Treasury or the FSA was responsible.
With reference to concerns about realistic reporting and its impact on the life insurance sector and on mutuality, the FSA has been extremely active in pushing through a massive programme of reform for the regulation of financial services as a whole. Nowhere is that more concentrated than for insurance regulation. The programme of reform that the FSA is delivering has focused both on the prudential regime—that is, the amount of capital that firms are required to hold to match their business mix—and on the conduct of business rules, which relates to the way in which firms treat their customers.
For the purpose of today's debate, I shall focus on the reform of prudential regulation for life insurance firms. Shortcomings of the current statutory valuation methods for life insurers, which were so exposed, as the hon. Member for Chichester said, during the recent bear market in equities, are widely recognised in the UK and abroad. In August 2003, the FSA published its latest proposals to address these shortcomings on a more formal basis that will require firms to make a realistic assessment of their with profits liabilities to determine whether they need additional capital, on top of mathematical reserves to cover expected discretionary bonus payments. In particular, this realistic assessment is to include a requirement to value the guarantees and options embedded in some with profits business through more modern techniques that have been prevalent in the industry thus far. The shift to realistic reporting is to be welcomed, as it will result in more risk-sensitive and accurate reporting of firms' liabilities.
The FSA is currently considering responses to its proposals and finalising some of the more technical details with industry representatives. Almost without
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exception, proposals for a realistic assessment of with profits business have been positively received, with the vast majority of respondents considering the proposed approach to be more risk-responsive and transparent. I should emphasise that the proposals have been welcomed throughout the industry by both mutuals and non-mutuals. Indeed, Standard Life has welcomed the move to realistic reporting. The FSA intends to implement the new approach to prudential regulation by the end of the year. However, in the meantime, many firms will include realistic reports in their year-end returns, which are due by the end of March.
The FSA's updating of insurance regulation is much needed; the industry has long recognised that and widely welcomes it. For example, Peter Vipond of the Association of British Insurers described the realistic regime as
"a big move in the right direction. We are bound to get a bit of bumping and scraping as the FSA tries to push this through and firms come back to them with practical problems".
Standard and Poor's commented:
"Realistic reporting is long overdue, and should form a fundamental part of an insurer's wider risk management process."
The move to realistic reporting and new capital requirements is not intended to force the industry as a whole to raise more capital. However, the FSA has acknowledged that it will probably result in the need for a proportion of firms in the industry to assign more capital to reflect the more realistic valuation of the risks that with profits companies face, given the policies that they write. That may entail simply reassigning capital that already exists in a group to the with profits fund rather than having to raise additional capital from the financial markets. Alternatively, companies, including mutuals, have the option of resorting to the capital markets. I note that Standard Life has announced its intention to raise £750 million of subordinated debt. The FSA's reformed capital requirements are slanted neither to favour mutual companies operating in the industry nor against them.
I want to deal directly with the point about the benefits of mutuality and the way in which they are shown in policyholder illustrations. How companies illustrate their projections is a matter for them. Standard Life has had a choice, as have other mutuals in the industry. The FSA's anxiety is first, that they fulfil the accounting requirements and secondly, that they treat customers fairly. The measures that the companies take, if they feel that they need to raise capital, and their proposals to fulfil the requirements, are completely up to them. It is up to the FSA to evaluate those measures in the light of the proposals.
Mr. Salmond: That is a little disingenuous. It is all very well for the FSA and the Financial Secretary to say that it is up to the company, but if regulation forces it to reserve fully for any claim of the benefits of mutuality, it renders the claim impossible to make. Standard Life has said that it will no longer make that claim in the policy. It is therefore disingenuous to create a system that renders it impossible for a mutual to make that claim without fully reserving. That removes the advantage that the company is claiming. The Financial Secretary owes us a wee bit more on that.
Ruth Kelly: I completely disagree with the hon. Gentleman. I am sure that companies will make

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different policies, but if the hon. Member for Twickenham does not mind, it is probably apt to refer to the letter that the FSA published last night on Standard Life. It especially notes:
"The background to the current position is that, in the course of developing the realistic reporting of its financial position, the company identified a significant divergence in the calculation of its liabilities. This accelerated the need for it to consider what benefits previously illustrated to policyholders should be treated as a liability under the FSA's forthcoming realistic solvency tests."
That issue is specific to the company and perhaps does not have a wider application.
Mr. Tyrie: What is meant by
"significant divergence in the calculation of its liabilities"?
Ruth Kelly: The hon. Gentleman knows, not least from my written answer, that the FSA has commissioned a report under section 166 of the Financial Services and Markets Act 2000 to examine the significant divergence and to understand how it arose. We do not therefore have the information with which to answer that question fully. However, I stress that companies will remain free to illustrate projections as long as they treat customers fairly. It is the FSA's duty to ensure that they do that.
The hon. Member for Chichester made some points about the FSA's review of with profit companies and referred especially to CP 207. He is right to suggest that the FSA is undergoing a thorough review of the with profits industry. He made some interesting points. As always, he is right to draw attention to the necessity of a cost-benefit analysis. Indeed, that is embedded in the FSA's responsibilities and the principles under which it operates. It has to consult the industry and draw up a cost-benefit analysis on each change.
The hon. Gentleman asked whether the FSA intended to require greater homogeneity for asset-share calculations, or simply greater transparency. The overriding objective is for transparency to be as complete as possible so that policyholders are fully informed. He also asked about waivers and whether the Treasury was consulted when the FSA used waivers on, for example, the realistic regime. The Treasury would not be consulted in such circumstances. As I have already made clear, the FSA has full operational responsibility for regulatory decisions. Unless it felt it necessary to inform the Treasury under the memorandum of understanding between the FSA and the Treasury, we would not even know about the individual agreements between the FSA and the relevant companies.
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The hon. Gentleman asked about the operation of the tripartite committee, which comprises the FSA, the Treasury and the Bank of England and considers financial stability matters, and whether it had examined the changes to life insurance regulations and with profit companies in general. He understands that it would be completely inappropriate for me to disclose any conversations about financial stability. It is essential to the effective operation of the committee that discussions are not disclosed publicly. Nevertheless, he makes an interesting point.
Let us consider the mutual sector and the Government's view of mutuality. The Government believe that financial mutuals have specific, distinct advantages since they do not have shareholders to whom they have to pay dividends. They can therefore deliver greater value to their members, either through higher returns to investors or lower interest rates to borrowers or both. The additional competitive pressures that diversity of ownership creates in the marketplace can deliver benefits to investors in mutuals and non-mutuals. We also value the strong links between many mutuals and their local communities, some of which have their roots in the co-operative self-organisation of working communities in the 19th century. Today, credit unions play a key role in promoting financial inclusion in local communities and the Government are keen to encourage that valuable work.
The Government and the mutual movement have a shared interest in an inclusive society in which all have equal access to the means to participate to the best of their ability. We also have an interest in markets as social institutions that confer rights and obligations in equal measure on the participants, and the exercise of individual liberty with the acknowledgement of individual responsibility. The Government are committed to ensuring that mutuals continue to serve the best interests of their members and wider society.
As I said earlier, we have taken many steps to promote mutuality and encourage mutuals to develop in future. I hope that I can make more progress on the development of the mutual sector in the coming months and years. We are committed to the mutual sector and to proper and realistic financial accounting to ensure that firms recognise the true value of their liabilities and that they treat customers fairly. I hope that I have also shown hon. Members that the FSA has no indirect or covert agenda to disadvantage the mutual sector. The Government and the FSA value diversity in promoting competition and ensuring that consumer needs are fully met.

Advocate-General
Mr. Frank Cook (in the Chair): I advise the Chamber that several hon. Members have sought the consent of the Advocate-General and the Chair to contribute, but they must bear in mind the fact that their contributions cannot impinge disadvantageously on the time that the Government require to reply.
10.59 am
Miss Anne McIntosh: I am delighted to have secured the debate. I am sure that the Advocate-General will confirm that it constitutes our first opportunity to discuss her role and work at greater length than is allowed in the five-minute interlude of monthly questions to her. I therefore welcome her to her place this morning.
I declare an interest in that I am an advocate, albeit non-practising. I was admitted to the Faculty of Advocates in June 1982. I yield to no woman or man in my admiration and respect for the Advocate-General's knowledge of the law and the excellent legal practice that she continues to utilise in her current capacity at the Scottish Bar.
Exploring her role and work provides an opportunity for the Advocate-General to show how she spends her day and organises her week and the monthly cycle outside the times when we have contact with her in the five-minute interlude. I hope that I have allowed enough time for a couple of hon. Members to make some remarks, although the highlight will obviously be the Advocate-General's reply. I hope that we will respect that.
The reference to the role of the Advocate-General for Scotland on page 10 of the House booklet on Ministers' roles and responsibilities is remarkably brief. It states that the hon. and learned Lady
"Is a Law Officer of the Crown and is the Government's constitutional and legal adviser on Scottish affairs; and has a particular statutory role in relation to devolution issues raised under the Scotland Act 1998."
Page 60 contains an even briefer reference:
"Please note the post of Advocate General for Scotland now sits in the Department for Constitutional Affairs."
Let us compare that with references to other Law Officers, notably in the Law Officers' Department, which encompasses the Attorney-General and the Solicitor-General. Entries about them on page 45 are much lengthier. I do not wish to belittle the hon. and learned Lady's position, but it is important to acknowledge that if the role of Advocate-General is an important constitutional one, hon. Members should know much more about it.
The Scotland Office website is helpful. It states:
"The Advocate General is principal legal adviser to the Government on Scots law … As a UK Law Officer, the Advocate General provides legal opinions and advice to the UK Government. On matters of common interest to the UK such as European law and Human Rights, she advises jointly with the other UK Law Officers."
It also states that her statutory functions under the Scotland Act 1998 specifically include
"the power to refer Bills of the Scottish Parliament to the Judicial Committee of the Privy Council for decisions on their competence, and for this purpose"
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she
"considers such Bills as they progress, in consultation with interested Departments."
She also plays a role in the Privy Council. She
"receives notice of devolution issues raised in Scottish Courts under the Scotland Act, which to date have usually related to Human Rights. The Advocate General may take part as a party to such proceedings, so far as they related to a devolution issue."
She
"has appeared as a party in Privy Council cases on devolution issues and has personally represented the Government in a number of different proceedings."
I have copies of some of them.
The Scotland Office website refers to the hon. and learned Lady's private office and her legal secretariat. I pay tribute to their work and legal brilliance. I know some of them and I have the highest regard for them. It would be interesting to learn from her this morning—or subsequently in writing—the total number of people at her disposal in the Scotland Office.
The website provides a fuller picture of the role and work of the Advocate-General. As she knows, that stimulated my interest sufficiently to try to probe her role and work and to participate in the monthly Question Time. On 4 February 2003, she referred to the human rights issues that she had considered. All related to criminal matters. She said:
"They dealt with a wide variety of topics, including undue delay in criminal proceedings; refusal to release prisoners on life licence; the definition of the offences of shameless indecency and false accusation; the availability of essential witnesses for trial; and the use of CCTV evidence." —[Official Report, 4 February 2003; Vol. 399, c. 135.]
On another occasion, the hon. and learned Lady said that the devolution issues that she had considered covered a wide variety of topics, including challenges by life prisoners to fixing the punishment, life licence hearings, the criminal liability of corporate bodies, pretrial delay and whether requirements on the defence to disclose that it planned to use sexual history evidence breached the accused's rights to a fair trial. I also have copies of Question Time for the previous three months. Several weighty and interesting topics were raised.
When we have the opportunity to question the Solicitor-General on her work, and as the Attorney-General's representative in this House, it appears that she can provide more information, especially about court cases that have caught her attention or in which she has been involved. Could we have more flesh on the bones of the answers that the Advocate-General provides, albeit in the shorter time available for her Question Time? As she knows, I would personally prefer the Question Time to be extended to 20 minutes or half an hour to do her work and that of her Department greater justice. To whom should I speak about the possibility of extending her Question Time?
The hon. and learned Lady has been involved in an impressive number of cases. In one, she was regrettably referred to as "Mr. Clark QC". I am sure that her office would like to correct that oversight in the law reports. I want especially to query her conclusions in the Trevor Adams case against herself and Scottish Ministers in 2002. The Advocate-General advanced a preliminary submission to the effect that she was not the appropriate

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respondent to any legal challenge to the validity of an Act of the Scottish Parliament or Scottish Executive. On 31 July 2002, Lord Nimmo Smith held:
"It was clear from the provisions of the Scotland Act 1998 that the Advocate General was allowed to intervene at various stages of legal proceedings in which a devolution issue was raised. It was a matter within her discretion whether, and if so at what stage, to appear in such proceedings. Therefore, she had not been wrongly called as a respondent. However, the petitioners were not correct to say that she should nevertheless have participated in these proceedings."
That appears to be the only case that throws any light on the Advocate-General's advisory work. Will she therefore outline the reasons for her conclusions?
I follow her work and that of her Department with great interest and I welcome the debate and the opportunity to query more closely her role and work, especially her constitutional role and legal advisory work. I await her response with bated breath.
11.10 am
Mr. Alistair Carmichael: I congratulate the hon. Member for Vale of York (Miss McIntosh) on securing the debate. It is clearly the subject of significant demand, so I hope that the next time it comes up, we are allowed 90 minutes in Westminster Hall.
I am on the record as having said that I do not take the view that the role of the Advocate-General for Scotland is necessarily a full-time one, or that it should attract the level of public payment and the substantial number of staff that are attached to it. However, we are where we are, and I do think that there is some opportunity to develop the role of the Advocate-General in a way that is generally helpful to the preservation of the distinctiveness of Scots law, especially post-devolution.
One of the aspects of the business of the House in which I have made it my business to play an active role is the work of Standing Committees. I have been a member of no fewer than nine since becoming an MP, six on fairly substantial Bills. The frequent treatment in UK legislation these days of Scotland as a bolt-on or afterthought causes me increasing concern, and I wonder why the Office of the Advocate-General does not take a more active role in Scot-proofing Bills before the House considers them. One example that springs to mind is clause 185 of the Bill that became the Enterprise Act 2002, which provided that warrants would be provided in Scotland and England by "the High Court". In England, what that is is pretty clear, but apparently in Scotland warrants were to be granted by a senator of the College of Justice—an incredible notion that leapt off the page the first time I read it. How did such a provision get as far as it did? Eventually, the Government were persuaded to amend the legislation so that an application from the procurator fiscal to the sheriff would ultimately result in the granting of a warrant.
Another example plucked from the air is the Bill that became the Crime (International Co-operation) Act 2003; I also served on the Standing Committee that considered that legislation. On Report, we had an interesting discussion about legal privilege. The Law Society of Scotland had made submissions to the Scotland Office, but somehow those submissions had
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got no further—certainly not to the Home Office Minister responsible for the Bill. That is precisely the sort of job that the Advocate-General should be doing, and I am concerned that she does not appear to be doing it.
Now that a supreme court for the United Kingdom—whatever it is called and wherever it is sited—is to be developed, Scots law has great opportunities and faces considerable threats. I feel that the Advocate-General could play a greater role in that debate, but I have seen no evidence of her involvement: she certainly was not present during my Adjournment debate on the subject in Westminster Hall on 19 December last year.
With those brief remarks, I hope that I have made a few helpful and constructive suggestions about the way in which the role of the Advocate-General might be developed.
11.13 am
Annabelle Ewing: I, too, congratulate the hon. Member for Vale of York (Miss McIntosh) on securing this timely debate, and I am grateful for the opportunity to make a brief contribution.
I have concerns about cases involving the vires of Scottish Ministers' actions, a recent example of which is hepatitis C compensation. As long ago as January 2003, the decision was made in Scotland to award compensation payments, but the vires of Scottish Ministers to take such action was challenged by Westminster, and the action was delayed. In late August last year, it was decided the action was, in fact, within the powers of the Scottish Parliament—but why on earth did it take so long to reach that decision, and what role did the Advocate-General have, or not have, in that process? A cynic might suggest that the matter had to be resolved south of the border—that is, a decision had to be made to pay compensation south of the border—before it could be confirmed that the Scottish Parliament could indeed proceed to do the right thing by the people concerned.
The hon. Member for Orkney and Shetland (Mr. Carmichael) touched on the Advocate-General's advisory role. I, too, am dismayed by what I see happening in this House. Let us leave Sewel motions to one side—I am not terribly keen on the way in which they are being used. Time and again in this place, we see a plethora of important amendments being made on Report to legislation on reserved matters to accommodate the particularities of Scots law. That is no way to ensure that legislation is meaningful and takes full account of the Scottish position. I sometimes wonder what the Advocate-General is doing in relation to such legislation. Surely it would be in everyone's interests if the process were conducted at the outset of the legislation on reserved matters, not at the eleventh hour.
Finally, I echo the comments the hon. Gentleman made about the creation of a supreme court. That issue is vital to Scots law, so I, too, regret the fact that the Advocate-General has seen fit to play almost no part—at least, not publicly— in the process. In the most recent session of oral questions, I raised the subject with the hon. and learned Lady and suggested that, in view of the fact that her colleagues in the Faculty of Advocates had already clearly stated their position, some sort of statement from her might be opportune. I look forward to hearing her reply to this debate.
11.16 am
The Advocate-General for Scotland (Dr. Lynda Clark): I congratulate the hon. Member for Vale of York (Miss McIntosh) on securing the debate, which I genuinely welcome. I hope that my explanation in greater detail of my role will give some satisfaction to the hon. Members present.
As a fellow member of the Faculty of Advocates, the hon. Lady has always been interested in the new constitutional arrangements, and she has a longstanding interest in and knowledge of Scots law. I am especially grateful to her for her kind comments, which I am sure were over-generous. In the Scots Law Times, I recently came across an early case in which I believe the hon. Lady appeared in the High Court of Justiciary. I do not know whether she recalls the case—HM Advocate v. Brown—but she appeared successfully to assist the Crown.
First, let me set my role in context. Hon. Members may recollect that prior to devolution and during the passage of the Scotland Act 1998 there was some debate on the future of the Law Officers. The legislative solution was to transfer from the UK the posts of Lord Advocate and Solicitor-General for Scotland: the Act provided that they became Law Officers for the devolved Administration. The Act also provided for the creation of a new office of state: Advocate-General for Scotland. The Advocate-General took over the former advisory role of the Lord Advocate and the Solicitor-General for Scotland to advise the UK Government, particularly in relation to all Scots law matters, both devolved and reserved. In addition, new statutory functions relating to the operation of devolution in Scotland were created.
The Conservatives were opposed in principle to moving the Lord Advocate to the devolved Administration—I understand that their solution was to split the Scottish Law Officers and retain the Lord Advocate as a UK Law Officer, but that solution did not find sufficient support in Parliament—so I am especially grateful to the hon. Lady for having supported and taken an interest in my office since its inception. The solution that did succeed, with some cross-party support, notably from the Liberal Democrats, was to create the post of Advocate-General. The then hon. Member for Orkney and Shetland said that Advocate-General would be
"an important post, because large areas of responsibility affecting Scotland will remain with the House of Commons".— [Official Report, 10 February 1998; Vol. 306, c. 180.]
The current hon. Member for Orkney and Shetland (Mr. Carmichael) has flown the kite of a part-time post for some time, but I find that a strange suggestion, bearing in mind the fact that, as he well knows, legal problems arise all the time—at weekends, during the day or in the evening. As I hope to demonstrate, my work involves a wide range of issues, and making my post a part-time one would be wholly impractical.
Miss McIntosh: Will the hon. and learned Lady consider a case that has been suggested by several hon. Members, including me? Parts of some pieces of legislation deal with devolved matters. There will be
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legal implications if, for example, the Traffic Management Bill that is currently going through Parliament does not apply in Scotland, but a road accident occurs on the Al just on the Scottish side of the border. At what stage does she envisage herself and her office becoming involved to advise of such potential difficulties? Do we have to wait for a court action to be started before we address difficulties flowing directly from legislation made in this place?
The Advocate-General for Scotland: I shall discuss later the fact that I sometimes advise on purely English matters because there may be a cross-reference to Scotland.
I am grateful for the interest shown in my office. Perhaps my role is difficult to understand because mine is different from other offices: the Office of the Advocate-General is an office with legal functions only; it is not a policy office. In answer to the point made by the hon. Lady about my fellow Law Officers, I can say that the Attorney-General and the Solicitor-General have policy functions in addition to their legal role, whereas my functions—both the advisory work and the new statutory functions that I was given under the Scotland Act—are entirely legal. In addition to my normal work, I attend legal consultations, and like policy Ministers I take part in a variety of Cabinet Committees and other committees and perform some work that normal policy Ministers perform.
Mr. Carmichael: I am intrigued by the Advocate-General's line of argument. She says she has to deal only with legal matters, not policy matters, but simultaneously insists that hers is necessarily a full-time job. Is she saying that her work load as a Minister is of the same order as that of the UK Solicitor-General or of that other very distinguished female Scottish jurist, Elish Angiolini, the Solicitor-General for Scotland?
The Advocate-General for Scotland: The work is different and the work load is different. I am involved in cases in court, which is not necessarily part of my colleagues' daily work load. It is important to recognise that, because my work is essentially legal work, it comes under the long-standing convention regarding the confidentiality of the content or existence of Law Officers' advice. That means, for example, that I am simply not free to answer some of the parliamentary questions put to me. Questions about hepatitis—the subject raised by the hon. Member for Perth (Annabelle Ewing) —fall into that category. The hon. Lady asked whether I have given advice and what I did, but under the convention I am not able to say whether or not I have advised, let alone disclose to her what advice I give.
Annabelle Ewing: I hear what the Advocate-General is saying, and I have heard it many times before, but she can understand why, to a Back-Bench MP, such a response is unsatisfactory? However, on that issue and in that context, can she say whether she is constitutionally required to put the interests of the UK Government ahead of the interests of the Scottish Parliament?
The Advocate-General for Scotland: What I am required to do is give the UK the best independent legal

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advice that I am able to give, and that is what I do. I shall take no more interventions; otherwise, I shall not be able to finish my speech.
I make it clear when I answer parliamentary questions that I do not regard it as sensible or as one of my functions to respond in Parliament to hypothetical questions about complex legal matters that I have not researched in circumstances in which no notice has been given. In my general role, it is important to understand that I advise not only on matters relating to Scots law, but on other matters that might impact on Scotland. For example, a question about the drafting of a Bill extending to England alone which deals with issues of European law or human rights may involve advice from the Advocate-General, because those areas of law apply to Scotland, although the legislation would be different. In practice, any question about the interpretation or application of laws that apply north and south of the border, or about the Scotland Act, may involve me. That requires close liaison with the Attorney-General and the Solicitor-General for England and Wales with the assistance of my legal secretariat. Each issue involves detailed research and consideration. Unlike policy Ministers, I spend a lot of time reading general legal literature to try to stay abreast of legal developments across a very wide range of subjects.
In respect of court proceedings, more than 2,000 devolution issues have arisen since 1999, although they take only a part of my time. I have appeared personally in six cases involving devolution issues, including appearances before the Judicial Committee of the Privy Council, the Inner House of the Court of Session and the High Court of Justiciary. That litigation has settled various important questions of law relating to human rights under the European convention. I remind the House that to appear in those courts personally takes a great deal of time and research.
In the case of Anderson, Reid and Docherty, the first Act of the Scottish Parliament—the Mental Health (Public Safety and Appeals) (Scotland) Act 1999—was challenged. I supported the argument, agreed by the Privy Council, that the right to liberty under the convention was not absolute and that the protection of the public was a legitimate aim that justified the continued detention of mentally ill offenders. In the case of McIntosh, I successfully argued against a challenge to the proceeds of crime regime. On the subject of discussion of cases in which I have been involved, if the case has been completed, I am more than happy to discuss the legal principles—although a little notice would help me to be properly prepared.
I also appear personally in non-devolution issue cases to represent Whitehall Departments—at their request, of course. For example, I acted for the Ministry of Defence before the House of Lords in the case of McDonald, in which I successfully argued that the word "sex" in the Sex Discrimination Act 1975 did not cover discrimination based on sexual orientation. That issue has now been properly addressed in recent legislation. It was important to have a well considered legislative solution and not have the matter dealt with by the courts under legislation that was not designed to deal with the point.
In another case—that of Mann—the argument was made in the Employment Appeal Tribunal that it should be possible to stand for election to the Scottish
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Parliament as a job-sharing MSP. At first, Ms Mann was successful in getting the tribunal to accept that it had jurisdiction to hear a case on such an issue, but later I was able to convince the tribunal that it did not. I regarded that as an interesting and important case, and I was pleased to be able to appear in it. There was no further appeal in that case.
More recently, in three immigration cases before the Inner House of the Court of Session, I appeared to argue on behalf of the Home Office about matters relating to the jurisdiction of that court to review decisions of the immigration appeal tribunal, which currently sits only in England. The court has not yet issued a decision in that case.
From time to time I have had to deal with exceptional matters: for example, the first case in which I appeared as Advocate-General was before the Committee for Privileges in another place to defend the constitutionality of the Government's reforms in the Bill that later became the House of Lords Act 1999. The case was complex: in summary, the question was whether that Bill, if enacted, would be in breach of the treaty or Acts of Union. The Committee agreed with my argument that there would be no such breach. In another example, I am currently in charge of an investigation under the Merchant Shipping Act 1995 into the sinking of the fishing boat Trident. I have appeared personally in that case, which is ongoing.
In addition to court work, the Office of the Solicitor to the Advocate-General for Scotland provides legal advice to UK Departments, from the Department of Trade and Industry to the Department for Transport. The office ensures that every Bill going through the UK Parliament that applies to Scotland is consistent with Scots law—at least, it attempts to ensure that. These matters are rather complex. The solicitor's office also instructs Scotland-only Bills. The range of work and subject matter is broad and is not restricted to reserved areas of law. UK Departments in Scotland still require advice on all areas of Scots law, as well as on what is reserved and devolved under the Scotland Act. Most of that work is not public, but it is essential.
In some cases, issues may arise on which formal Law Officers' advice is sought. It is important to remember that I do not personally advise on every single legal issue that arises: Departments seek Law Officers' advice, and there are certain circumstances in which they are recommended to do so. Departments remain responsible for their own instructions and decision making, although they are assisted as best we can through my office. Therefore, the policy Departments seek legal advice, use my office and remain in charge of the policy. That explains to some extent why I do not generally appear on Standing Committees: policy Ministers are there to deal with policy issues, although I might occasionally appear before a Committee to give advice in certain circumstances.
Apart from the work that my solicitor's office does on behalf of other Departments, it assists me in the exercise of my functions under section 33 of the Scotland Act. Those are additional to my advisory role as a Law Officer—
11.30 am
Sitting suspended till Two o'clock.

Somaliland
2 pm
Tony Worthington: The Select Committee on International Development has just returned from a visit to Somaliland. Our visit prompted questions in us all about British policy there and, indeed, in the whole of Somalia—questions about the Government's aid policy and about international recognition, which deeply affects the assistance that we give to Somaliland. Our foreign service hang-ups about recognition are getting in the way of us fulfilling our duty to pursue the millennium development goals for the poor people of Somaliland, and we are failing to build adequately on the efforts of the Government of Somaliland to create a modern, democratic state. In effect, we are putting the interests of the warmongers in the south ahead of those of the peace-builders in the north.
This was my third visit to Somaliland, but my first in more than 10 years. I think that no British Member of Parliament had visited the country since I was last there, which shows how isolated Somaliland has been and how let down it must feel given that it was formerly British Somaliland. That said, we were astonished by the warmth of the reception that we received. For more than 80 years, British Somaliland was either a British protectorate or colony, and there has always been the most astonishing loyalty and affection for this country. To take just one example, the Somaliland Scouts regiment played a valiant part in the second world war.
The reception that we received included the honour of addressing both Houses of Parliament. Nevertheless, there is no doubt that the Somalis feel badly let down because Britain has failed to respond to their needs. It is a matter not only of their wish to be internationally recognised but of access to long-term development aid from this country, the European Union, United Nations organisations and international finance institutions. That is the central subject of the debate.
Let me give some background. Somaliland entered an ill-starred union with the former Italian Somalia in 1960 in response to the dreams of Somali patriots who wished to unite the lands in which Somalis lived. Over time, the people of the former British Somaliland became so hostile to the way in which the nation was being administered, with the allocation of resources being skewed in favour of the south and the capital, Mogadishu, that they started an insurrection and eventually declared independence.
I first visited Somaliland's capital, Hargeysa, in 1992, at the time of Somalia's great famine, and I have never seen such devastation. We travelled for mile after mile through Somaliland without seeing a building with a roof on it. The devastation was caused by the country's ruler, Siad Barre. In 1988, we had the extraordinary situation in which Barre's aircraft would take off from Hargeysa airport, bomb and strafe the city, load up again at the airport and carry on. They continued until there were 50,000 dead in Hargeysa and hundreds of thousands dead in the rest of Somaliland. Those people are now buried in mass graves, and the rest of the population fled. That was the most extreme attempt at genocide against the dominant Isaq clan, but the world ignored it. In fact, the developed world largely gave up on all Somalia after 18 US rangers were murdered in 1994.
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The withdrawal from Somalia had profound consequences elsewhere in Africa and was one reason for the world's appalling lack of action in Rwanda. Liberia was also left to rot. The creditable exception was Britain's successful intervention in Sierra Leone. The world regarded Somalia as a basket-case, but Somaliland is not a basket-case, and it deserves better. However, since the declaration of independence, which no country in the world has accepted, Somaliland has rebuilt its country and the city of Hargeysa in the most inspiring way. It has created most of the institutions of a modern state. It has acted totally on democratic lines, and the demand for independence was supported in a referendum by more than 90 per cent. of the population. The level of stability is impressive; and the rule of law exists, with a proper police force and a properly constituted national army —as against warlords elsewhere in Somalia. Guns are genuinely not allowed on the streets.
Presidential elections were held relatively recently. The president won by only 280 votes out of a population of 3.5 million, but the election passed off peacefully. I met Ministers there, and I was far more impressed with their plans than those of several other African countries that I have visited—countries that we recognise and support. Somaliland is doing nearly everything right, but it is being ignored.
One of the most remarkable aspects of the achievement has been the contribution of the far-flung diaspora of Somalis to rebuilding Somaliland. The website for the Somaliland front organisation shows a long list of projects that are being funded with the assistance of the diaspora. For example, they support the university of Somaliland trust fund, they organise donations to the Farah Omar secondary school and to the malaria treatment and prevention programme. They also contribute to the campaign for the recognition of Somaliland, to the campaign to lift the ban on Somaliland livestock and to the rebuilding of Burco hospital—it is not named in honour of the hon. Member for Buckingham (Mr. Bercow), who speaks for the Conservative party on these matters—and the Hargeysa psychiatric hospital.
The leading names among those who organise those campaigns live in north America and in the United Kingdom. One of the positive aspects of our visit was that we called a meeting of British Somali residents in Hargeysa. It was the first time that they had met. Out of that meeting, a British Somaliland society was formed. I hope that it will lead to future positive links between Somalilanders in Britain and in Somaliland.
Remittances have made a major contribution to the economy of Somaliland. However, remittances tend to go to individuals and families, rather than to rebuilding the infrastructure of Somaliland. That job is one for the Department for International Development, the European Union, United Nations organisations and international finance institutions; we need them to assist with long-term development aid. It is a job also for the private sector, including British firms such as DNOS, which brought itself to our attention. It contacted us about developing the country's high-value minerals and hydrocarbon deposits, and the rich fishing fields off Somaliland. However, the lack of recognition and the uncertain legal position of Somaliland institutions inhibit such firms.

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Somalilanders are caught in a vicious Catch-22 position. They are being told, "Destroy your nation by joining the destroyers in the south, and we will recognise you. Stay outside, with stability and democracy, and we will ignore you."
There is an understandable paranoia about changing old colonial boundaries in Africa, because of the fear that the habit may spread to other countries. Somaliland is a rare example, however; it wants to return to its old colonial boundaries at the time of independence. The rest of Somalia is hostile. That is the only thing that unites the warlords. However, the people of Somaliland are unequivocal in not wanting to join peace talks and being sucked in to the fratricidal squabble that is southern Somalia.
When I have visited Somaliland in the past dozen years, I have met absolutely no one who believes that an enduring state will emerge from the peace talks. I shall give one illustration. When I first visited the country in 1992, the capital Mogadishu was divided in two—between the fiefdoms of Ali Mahdi and General Aideed. The capital city was divided by a war front. The world was appalled, because Somalia was literally starving, but we had to negotiate with and pay those people to get food to starving children. Those thugs regarded the famine as an opportunity for a nice little earner.
On our recent visit, I was told that Mogadishu is now divided not into two zones but into 10, each under the influence of a warlord. They are not interested in setting up a stable state, but rather in continuing their protection rackets in a way that resembles the Chicago gangs of the 1920s, but without the law and order that the Mafia bring to these matters. [Interruption.] I do not want to be mealy-mouthed about this. There is not the slightest chance of a democratic Somalia emerging from Somaliland and the rest of Somalia. There is little chance of a stable regime emerging in the rest of Somalia alone. The Somalis, with their nomadic way of life and strong clan-based system, have great difficulty in accommodating the requirements of a modern state.
I note that there have recently been some promising signs indicating an agreement emerging from Nairobi from the 48 clans or warlords gathered there for talks. There is said to be agreement on a Parliament, but I have no faith in this—we have been here before. The peace talks have been going on since 2000, first in Djibouti and then in Kenya, and there were other efforts before then. The alleged progress is more likely to be the result of threats from the host powers to withdraw hotel and other facilities from the negotiators.
Even if there were progress, that would not be the end of it. The move to unite British and Italian Somalia was seen by people at the time as but the first stage in uniting all the lands where Somalis dwelt—not just British and Italian Somalia but also French Somalia, which is now known as Djibouti. There are also extensive Somali links in the Ogaden, in Ethiopia and in Kenya. Periodically the Somalis are seen as fomenting trouble in those areas.
Kenya has borne a heavy burden in refugees from Somalia, and we have a very high number of requests for asylum from that area. The few traditional areas of Somali settlement in this country have been very heavily increased—I am thinking, for example, of the
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constituency of my hon. Friend the Member for Bethnal Green and Bow (Ms King) and Sheffield, areas in which Somalis have traditionally settled.
The international tactic of waiting for Somalis to come together is simply not working. There are costs and risks associated with simply waiting, with inordinate patience, for progress. We risk driving Somaliland backwards as, despite the progress being made, it is a very poor country. More than 73 per cent. of the Somaliland population live in poverty, and 43 per cent. in extreme poverty. The GDP per head is $226 a head per year. There are appalling rates of maternal and infant mortality. Adult literacy is 22 per cent.;life expectancy is 47; and the lack of long-term education and health services penalises children particularly. Female genital mutilation is endemic, and there is a distressing subjugation of women. However, the millennium development goals have to be met in Somaliland as well as everywhere else in the world. We are simply not giving it our best shot in Somaliland for diplomatic reasons, and I ask what is being gained by the present stance on non-recognition. Certainly a lot is being lost.
The longer the world ignores the achievement of Somaliland in creating stability and democratic institutions, the greater the risk that wilder elements will take over, and the longer Somaliland is left to fend for itself without resources for schools, for example, the more willing will radical elements be to step in. Although the country has been governed by a moderate form of Islam since it declared independence, there is always the possibility that it will give way to a form of Islam that plays into the hands of those trying to stimulate terrorism, and there is tension in the country as a result. Investors wanting to develop the mineral resources of Somaliland are unwilling to do so when the status of the country and its legal system are so uncertain.
My belief is that we should stop waiting as we have done for about 14 years for the Somalis to come together and love each other. This is not going to happen. We should build on the one source of strength in the area—Somaliland. We should reward good behaviour, rather than neglect the area as we do at the moment. If recognising Somaliland is a step too far, we should at the very least pay substantial attention to the needs of Somalilanders in areas such as education, health, livestock, water and the infrastructure. Somaliland has ministries with plans and aspirations with which we could work. There is no DFID presence in the area at the moment, although British non-governmental organisations such as Oxfam and ActionAid undertake work such as providing safe water.
Recognition may not be the risky step that it seems to be. I believe that if we were to give a lead, many other countries would quickly fall into line. There can be no doubt that we would have to give that lead.
Mr. Andrew Robathan: The hon. Gentleman may be about to cover this point, but does he recall that we were told that the Ethiopian Government said that they would be the second Government to recognise Somaliland as soon as someone else did?
Tony Worthington:: I was there at the time, but my discretion about private conversations led to me leave

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that bit out. However, I confirm that the hon. Gentleman heard what I heard. That belief exists, but it would obviously provoke people in the rest of Somalia who have not achieved a stable state in their area. However, I sense that attitudes to the recognition of Somaliland have become less hostile over the years. The relationship with Djibouti has improved considerably, and the Government of South Africa have been saying supportive things. The new Government in Kenya have been much more positive than their predecessor, and have been very critical over the dispute between Somaliland and Puntland—the neighbouring part of Somalia. Puntland's leader is said to be backed by Ethiopia, but he is probably trying to flex his muscles to gain brownie points with other Somalis.
It is crucial to bring in support to bolster the formidable self-help activities of the Somalilanders. During my visit, I thought that United Nations organisations such as the World Health Organisation and the United Nations High Commissioner for Refugees responded much more warmly to the needs of Somaliland than did bilateral donors such as the United Kingdom. The WHO has a base in Somaliland and, during our visit, the UNHCR came to Hargeysa just to stress the needs of Somalilanders.
In recent years, more than 600,000 refugees, out of a population of about 3.5 million, have returned to Somaliland. We had the opportunity to see the refugee camp in the grounds of the former state house in Hargeysa. The conditions were appalling. Another reason for increasing our support is that if we are going compulsorily to return Somalis who seek asylum in this country, we should ensure that they return to better conditions than those that we saw. It is irrational to complain about the large number of Somalilanders claiming asylum because of conditions in their country and then denying their country the long-term development aid that would slow down the stream of applicants to the UK.
The antagonism towards Somalia also inhibits its main trade in animals such as camels, sheep and cows to the Yemen, Saudi Arabia and Egypt—activities that form about 65 per cent. of Somaliland's export earnings. We must overcome this paralysis, but I am sure that the antipathy towards Somaliland as an independent nation is lessening as the exasperation with the rest of Somalia grows.
A local newspaper, The Horn Tribune, is one of the thriving free local papers. It recently said that
"we are still treated as pariahs by the world, despite the flourishing, fledgling, thriving and booming peace, tranquillity and development."
I realise that issues such as recognition are matters for the Foreign Office, and that it must take into account issues and countries other than Somaliland. However, the reason that I secured this debate is to say to DFID that we need to move beyond a holding pattern for Somaliland. I believe that my colleagues agree. Failure to move to another stage of development assistance would mean that we, and Somaliland, risk losing what
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has been created. I look forward to the Secretary of State's response and a continued dialogue on this matter.
Several hon. Members rose—
Mr. Frank Cook (in the Chair): Order. I remind hon. Members that it is customary to begin the first of the three winding-up speeches 30 minutes before the end of the debate. Currently, I see four hon. Members seeking to catch my eye, not all of whom have written in. I will do my best to accommodate them all, provided that they remember the time constraints when making their contributions, and when accepting or responding to interventions.
2.21 pm
Tony Baldry: We are a disciplined group, Mr. Cook, and I think that we will manage to divide the time equally.
It is a great pleasure to speak after the hon. Member for Clydebank and Milngavie (Tony Worthington), because he is a distinguished member of the International Development Committee, having served on it for two Parliaments. He is also the chairman of the all-party group on overseas development. I have checked the records of the House and I can find only one instance of Somaliland having been raised since it gained independence in 1960—in a debate initiated by him in April 1994. Modestly, he did not tell us that he was kidnapped in Somaliland, prior to that debate taking place, so he knows a lot about this topic.
On 9 February 1959, in Hargeysa, during a constitutional conference on the Somaliland protectorate, the then Secretary of State for the Colonies said that
"whatever the eventual destiny of the Protectorate, Her Majesty's Government will continue to take an interest in the welfare of its inhabitants, and will in the light of the circumstances prevailing from time to time, be prepared to give sympathetic consideration to the continuation of financial assistance within the limits of the amount of aid at present being provided to the Protectorate."
That statement was reiterated in a Colonial Office report, which was submitted to Parliament on independence, on 4 May 1960. The Prime Minister, Harold Macmillan, told the House:
"I should like to say, however, that it is Her Majesty's Government's hope that whatever may be the constitutional future of the Protectorate, the friendship which has been built up between its people and those of the United Kingdom for so many years will continue and indeed flourish."—[Offcial Report, 11 April 1960; Vol. 621, c. 104W.]
If ever there was a need for the United Kingdom to give friendship and financial assistance to Somaliland, it is now.
Few of us knew much about Somaliland prior to our visit, which was a very humbling experience. In Hargeysa, we met Dennis McNamara, the inspector general of the United Nations High Commissioner for Refugees, who was visiting to assess the situation. At a public meeting, he said that practically everyone in Hargeysa was once a refugee or an internally displaced person. The return of the refugees and IDPs and the reconstruction of Hargeysa followed its devastation in 1991. The Somalis in the south had completely destroyed Hargeysa—every house and hospital had

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been bombed and destroyed by MiGs, tanks and other equipment. How on earth one can expect there to be a reunion of those peoples is beyond credibility.
We saw mass graves, in which thousands of Somalilanders had been murdered in cold blood with their hands and feet tied together. Bodies were piled up and crammed into ditches, and bones were scattered all over the area—we could still see them. Among our guides were many people who had lost fathers, brothers, mothers and other loved ones to the genocides.
Dennis McNamara explained that Somaliland is one of Africa's untold success stories. Nearly 250,000 people have been returned there by the UNHCR, and a further 400,000 have returned under their own steam. That is a humanitarian success story. He said that what is needed now is a shift to longer-term development assistance.
There is a gap between the fulfilment of humanitarian needs and the provision of development assistance. Such a gap means that the achievement of millennium development goals in Somaliland remains out of sight. Somaliland and its friends in the international community face two challenges: recognition and—the focus of this debate—longer-term development assistance. Mr. McNamara also made the point that many returnees live in conditions worse than those that they endured in refugee camps. He explained that UNHCR and other UN partners were ready to roll with an inter-agency, multi-sectoral programme of development and assistance, but were waiting for donor support.
I entirely agree with the hon. Member for Clydebank and Milngavie that the effort to tackle poverty—one of the millennium development goals—should be blind to boundary disputes. Somaliland is not a conflict area; it is a settled area where the people have enormously improved their lot practically without assistance from the international community.
There is a desperate need for health assistance. We visited the Hargeysa group hospital, which was built in 1953—coronation year. Much good work was being done by non-governmental organisations, such as Kings College hospital and the Tropical Health and Education Trust, but the pharmacist there was running a pharmacy lacking the most basic drugs. We visited a facility run by the Red Crescent to help people with artificial limbs and those who have been injured by land mines, but everything was being done on a wing and a prayer. We were told by Save the Children UK that 80 per cent. of children in Somaliland are not in school. Somaliland is falling behind according to practically every indicator.
I hope that the Secretary of State will give the simple pledge that, having considered the matter in the light of today's discussion, he will think about establishing a small DFID office in Hargeysa to explore how DFID could provide long-term development assistance. There is a much larger devolved DFID office in Addis Ababa, which is good news, but I see no reason why we cannot establish an exploratory team in Hargeysa, managed by the Addis Ababa office. There is no justification for holding Somalilanders to ransom or for treating them, as The Horn Tribune put it, "as pariahs".
The people of Somaliland have worked extremely hard to rebuild their country and community, and they deserve our help and support. Somaliland supported this country during the second world war. It is worth
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recalling that 91,000 Italian troops, together with 200,000 local troops raised by the Italians, confronted 9,000 soldiers, mainly from the Somaliland Scouts and the Somaliland Camel Corps. The BBC documentary, "The Second World War", reported that the Italians
"were held at bay for four days"
and that our troops had
"inflicted over 2,000 casualties at a cost of around 250 men."
The documentary concluded:
"Furthermore, the impression that their defence left on the Italians would greatly influence future actions."
The people of Somaliland stood shoulder to shoulder with us in the past and, as the hon. Member for Clydebank and Milngavie said, they have done everything asked of them. They have had free and fair presidential and municipal elections. When we addressed both their Houses of Parliament and said that they would need parliamentary elections, there was no dissent. They said that they had to address some issues to achieve that, but that they want to do so. If ever a community deserved long-term development assistance, it is the people of Somaliland. I hope the Secretary of State takes steps today to achieve that.
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Mr. Tony Colman: I will take your advice, Mr. Cook, and speak briefly to enable colleagues to contribute to this important debate. I congratulate my hon. Friend the Member for Clydebank and Milngavie (Tony Worthington). When he spoke to both Houses of Parliament in Hargeysa, I, like others, was surprised to hear of his previous experiences. There was almost a sense of redemption that he had come back to fulfil his wish to see and deliver change.
Today's debate is about delivering change for the people of Somaliland. As Members who were in Hargeysa know, our visit was extraordinary as I met many of my constituents on the roads of Hargeysa, and I am very proud of that. I deal with concerns expressed in my surgery in Roehampton library or Southfields library and see the results in circumstances such as the rebuilding of Somaliland. I am proud to see that many people wish to go back to rebuild the country.
I pay particular tribute, as others have, to the leader of the Kulmiye party, Mr. Silanyo, who lost the presidential election by 280 votes. He met us to describe how he wanted to continue to take part in future presidential and parliamentary elections. He may live in Putney heath, but his heart is in Hargeysa, and I know that he spends a great deal of time there. The chair of the electoral commission was from Southfields and went back to Somaliland to supervise the elections. That is part of the rebuilding process and the attack on poverty in Somaliland.
Kevin Brennan: My hon. Friend makes a very important point about the links between Britain and Somaliland. Is he aware that there is also a long-standing Somali community in Cardiff? Many of the citizens who would like to see an independent and recognised Somaliland live in Cardiff. The antecedents of the community go back to the seamanship of those people in the century before last.
Mr. Colman: I was not aware of that. However, if my hon. Friend would like to suggest that his constituents

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contact me, I will put them in contact with the new British Somaliland Society, which is based in Putney; I say that out of pride.
Other Members have mentioned whether there is a need to take account of events in Nairobi. It is important to put on the record that the hon. Members for Banbury (Tony Baldry) and for Blaby (Mr. Robathan) and I met 30 warlords and members of civil society who have been meeting in Nairobi; I think that it was the 17th meeting of the parties to take place. I pay tribute to the staff of the British high commission in Nairobi, who have put an enormous amount of effort into bringing the matter if not to a successful conclusion, certainly to a successful temporary conclusion: there is now agreement on the essence of how to work together. We will see how that agreement goes forward. I also pay tribute to the Kenyan Government, who took part in those discussions. We could obviously have a separate debate on that.
I want to express solidarity with the speakers so far who have made it clear that those discussions are going on in parallel. They should not undermine the need for international development aid to Somaliland. We should ensure that Somaliland is not held back by the discussions. All those who took part in the visit were concerned about that. When it comes to the issue of recognition, in July 2003, the Home Office signed a memorandum of understanding with the Somaliland Government for the return of failed asylum seekers from this country. Denmark is the only other country to have done so. It is one of those strange fictions that we can have a memorandum of understanding to return failed asylum seekers to a country that we do not recognise. The reality is that a Government and a country are there, but that there is not sufficient support in-country for the asylum seekers who have returned. I agree with my hon. Friend the Member for Clydebank and Milngavie about the appalling conditions in which asylum seekers were living in the grounds of the old state house.
There is a long shopping list of international development aid items that DFID could help with. Our last meeting was at the Ministry of Foreign Affairs, with the redoubtable Foreign Minister Edna Adan Ismail, who I hope will soon be able to come to Westminster to address the House. There is an excellent planned strategy for economic recovery and poverty reduction, which I am happy to pass on to the Secretary of State.
We are not groping in the dark: the Somalilanders have a clear vision of where they wish to go forward in terms of poverty reduction. I am glad to say that that vision is shared by the Norwegian Red Cross, which is working with the Somaliland Red Crescent Society and the limbs prosthesis centre, which we visited. We met aid workers from the Netherlands, who were supported by the Dutch Government. Although this point has already been made, it was good to see the work of the Africa Educational Trust and to meet Dr. Michael Brophy, and the excellent work being done by the surgeons, doctors and nurses of King's college who were working to rebuild the hospitals in Hargeysa.
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Returning to the need for development aid and to achieve the millennium development goals, we are told that 73 per cent. or more of Somalilanders live in poverty, and that some 43 per cent. live in extreme poverty. GDP per head is $226 a year. If that figure is divided by 365 days, one can clearly see that people are living on below $1 a day. There is 45 per cent. unemployment, only 17 per cent. primary school enrolment, and the enrolment of girls is way below that. Life expectancy is only 47 years.
I felt that our visit was an example of how we, as parliamentarians, could make a difference. This debate is to hold our Government to ransom for money and development aid for Somaliland, and to ensure that they join us in delivering that to the people of Somaliland.
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Mr. Andrew Robathan: How nice it is to have cross-party consensus; we should all agree on that. I am particularly delighted to welcome the Secretary of State to the debate as it is not normal to have a Secretary of State in Westminster Hall. Although I know that he has been here before, it shows how seriously he takes both the subject and the debate. It is a matter of huge consequence to the millions of people living in Somalia and Somaliland. I know that he is going to Addis Ababa soon, but perhaps he will take the opportunity to tell his diary secretary and his other officials—he could take Foreign and Commonwealth Office advice—to go elsewhere. He might take a short trip to Somaliland; he would find it illustrative, as we did.
I do not want to cover the old ground that has been covered extremely well by the three hon. Members who have already spoken. However, it was touching, to say the least, to be greeted on our visit by posters saying, "The Queen: our mother". As an old-style Conservative, whose family served the empire—I would certainly have served the empire if I had had the opportunity—it reminded me of the great white mother of the seas. It was touching and showed the feeling that people in Somaliland have for the United Kingdom.
If I can paint the picture a little more, there is no alcohol in Somaliland. We almost survived for the 24 hours that we were there, but that is how they want it and there is very little disturbance: it is safe on the streets. The police are not armed, and that is extraordinary in that part of the world. If anyone can tell me where to go in that part of the world where the police are not armed, I should be astonished. It is my wont to go up to people and say, "What's the truth? What's going on here?" rather than just listening to Government spokesmen, and I wrote down a particular quote at the time. I was told, "We are absolutely free." That is quite something in that part of the world.
I hope that I have painted a picture of freedom in a grindingly poor country, where 43 per cent.—nearly half the population—live in extreme poverty. As we have the Secretary of State here —I reiterate that I am thrilled to see him—I should like to cover some issues that have not been covered by my hon. Members that pertain to him. The first is the ghastly issue of female genital mutilation. There is a prevalence of that in Somaliland of perhaps 85 or 95 per cent. It is illegal in this country, because of two private Member's Bills. The hon. Member for Cynon Valley (Ann Clwyd) made it

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illegal last year with her private Member's Bill on the sending of children out of the country, and that is marvellous. The Secretary of State will understand that female genital mutilation is a means of keeping women in subjugation. It also constitutes grievous bodily harm against defenceless children.
I will send the Secretary of State a paper, which contains perhaps the most moving comment on this. It is written by Mrs. Edna Adan Ismail, the Foreign Secretary of Somaliland. She is the former wife of the first Prime Minister of Somalia who subsequently became the first president of Somaliland. I hope that the Secretary of State will read it because a prominent politician—the Foreign Secretary of this small, fledgling republic—is trying to lead a campaign. With DFID's help, she might be able to do some good for the people of Somaliland, for young girls and for future generations. I am sure the right hon. Gentleman agrees that that is the way that international development should work. It should do good and be seen to do good. I could raise with him the issue of direct budgetary support in Ethiopia, but I will not do so at the moment because it is outside the scope of the debate.
I turn now to mine clearance. The Secretary of State will know that I am the chairman of the trustees of the HALO trust. I visited the trust in Somaliland where it is the biggest private employer, employing some 300-odd Somali workers at $150 a month, which is much more than most people in the country earn. As well as clearing mines along the border with Ethiopia, it is also clearing an enormous Soviet ammunition depot about half an hour's drive from Hargeysa, which I visited. It is clearing it, at the Government's request, because children, who are so poor that they go there to get the scrap metal from the ammunition, keep getting blown up. Again, I repeat the invitation to the Secretary of State to visit that site, because it is very interesting.
Another important point has wider ramifications. We have already referred to Islamist extremists. In the rest of Somalia, people will dig up mines and sell them, typically to the Yemen or Saudi Arabia where they are then passed on, perhaps to al-Qaeda. Atrocities are then committed with these mines. That does not happen in Somaliland because the Government have stopped it. If someone is storing mines in their house, they will be arrested. That is an important point for the whole world, let alone this debate.
The next issue that I would like to raise is small arms and light weapons destruction, and I know that the Secretary of State is aware of that. It is a joint responsibility between the Ministry of Defence, the Department for International Development and the Foreign and Commonwealth Office. I had a meeting with a DFID consultant yesterday, and I understand that £19.5 million of Government money has been put aside for the three years up to the end of this March for the small arms and light weapons destruction programme. I was told yesterday that part of that money is being spent in Somalia. I find that hard to credit. It seems to me that it is a lawless society where, I suspect, it is difficult to spend money sensibly, particularly in clearing weapons. Perhaps the Secretary of State might like to look at that matter later and find out where the money is being spent, what it is being spent on and whether any small arms or light weapons are being destroyed.
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The Secretary of State knows that a few years back the Select Committee produced a report on conflict. As my hon. Friend the Member for Banbury (Tony Baldry) rightly pointed out, there was no conflict in the Government of Somaliland itself. However, there is a conflict in Sool down in the south-east where the warlord of Puntland, which is the northern bit of Somalia, has moved into the province and taken the town of—I hope that I pronounce this properly—Las Anod.
Tony Baldry: Say it again.
Mr. Robathan: Las Anod.
The conflict is a huge dilemma for the fledgling republic. If it goes to war with Puntland, everybody will say that it is another typically lawless society fighting among itself. Here again, we can offer help, perhaps through the United Nations, to support the Government there to find a way out of the conflict whatever that way may be. I do not know enough about the dispute, but I know that it is about clans, clan territories and so on. The conflict could destroy the republic of Somaliland, and I am sure that we would not wish that to happen.
That brings me to my last point, which is about what the hon. Member for Clydebank and Milngavie (Tony Worthington) referred to as the genocide of 1998. My hon. Friend the Member for Banbury talked about the bits of cloth with bones sticking out of them in the mass graves outside Hargeysa. Responsibility for those war crimes—there is no other way to describe them—is a matter for the courts. However, it is generally accepted that General Morgan, who was in Siad Barre's Government at the time, was responsible for the shooting of a large part of the male population. People were tied up, sometimes with barbed wire, shot and buried in rather ineffective mass graves—as the water comes down it washes away the sand, leaving bodies literally sticking up, which is pretty disgusting. The crimes should be investigated, even though they happened in a country a long way away of which we know little.
Where is General Morgan, the person who is alleged to be responsible? We met him last Monday. He is the guest of the British taxpayer, which I, as a representative of taxpayers, resent. We are paying for him to stay in the Safari Park hotel outside Nairobi, as part of the conference on the future of Somalia, about which we have heard already. My view is that General Morgan should be in jail, but he should nevertheless be tried for whatever crimes he has committed. I understand that there is even a warrant for his arrest for the murder of a British subject, who was one of the victims. I am investigating that claim. Is it true? The Secretary of State is a pursuer of justice, so I am sure that he would like to speak to the Home Secretary about that.
Having seen the meeting in Nairobi. I think that little good will come out of the conference on the future of Somali, but I suppose that it is worth the effort. Surely none of us wishes to see a culture of impunity in which war criminals and mass murderers are allowed not only to escape, but to become guests of the British Government and the British taxpayer.
Mr. John Bercow: I am intrigued by what my hon. Friend is saying. Did he tell General

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Morgan at his meeting last week much the same as he is rightly relaying to us today? If so, what was the response?
Mr. Robathan:My hon. Friend raises a good point. As it happens, I did not think that a room filled with 20-odd Somali warlords was the place to raise war crimes. However, if I had had General Morgan on his own, I would have been happy to raise such issues.
Colonel Yusuf is the self-styled leader of Puntland who lost an election, but decided that he would stay on. His family is in the UK and I understand that he may be wanted for crimes as well. Again, perhaps the Secretary of State could have his officials look at that case.
In the name of justice, General Morgan, Colonel Yusuf and others must provide answers about the crimes that they might have committed. Every hon. Member in the Chamber would agree that justice should override the culture of impunity that happens to prevail. There is obviously a culture of impunity in Nairobi, and the hon. Member for Putney (Mr. Colman) can bear that out, because he took a photograph of me with the alleged war criminal in question.
I shall pursue this subject because it is important. A peace process for Somalia as a whole cannot be built with war criminals. I hope that the Secretary of State will also pursue the matter. I wish him well on his coming visit to Addis Ababa. I hope that he goes further and will, either now or later, answer some of the points that I have raised.
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Mr. Quentin Davies: I congratulate the hon. Member for Clydebank and Milngavie (Tony Worthington) on securing this important debate. I agree very much with what he said. I should also like to echo my hon. Friend the Member for Blaby (Mr. Robathan) and say how much we appreciate the fact that the Secretary of State is spending time listening to the debate personally. I trust that he will not be disappointed by what he hears, because the Chamber infrequently experiences an apparent cross-party consensus among MPs who have no party political, personal—that may not apply in—Putney—or, in many cases, constituency interest in pursuing a subject. I think we are all here because we feel the need to testify to what we saw a couple of weeks ago.
The visit to Somaliland was a complete revelation for me. I expected to see a country that was unstable, insecure and chaotic, where the atmosphere was volatile—perhaps rather menacing—and where there was considerable destitution and a general sense of breakdown. However, although all those epithets apply, I think, to neighbouring Somalia, none of them applies to the Somaliland that we saw. There is poverty and life is austere, although we saw no signs of malnutrition. As several hon. Members said, however, we saw some pretty grim refugee camps. That is inevitable because of the tens of thousands, if not hundreds of thousands, of people who have come back from Ethiopia and Djibouti to nothing—to find their homes destroyed and their cattle killed long ago. All they get is one month's handout from the United Nations High Commissioner for Refugees.
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There is an enormous burden on the Somalilanders who are there and who have been able to rebuild their city. The rebuilding has been extraordinary. Again, only 12 years or so after the destruction of Hargeysa, I expected that there would be considerable signs of that destruction and that the rebuilding would be very incomplete, but that is not the case. Of course, there are signs of the fighting, including in the former state house or governor's house, but that has deliberately been left in that condition. In any case, no one is likely to want to live in such pomp and circumstance in the present conditions. The town shows no sign of having been razed to the ground only a short time ago.
It is remarkable that such a poor country has been able to put itself together again. The atmosphere, far from being menacing in any way, was relaxed and friendly. It is clear that the Administration are thoroughly in control of events and operating extremely effectively. We gathered that the total budget, at the market rate of exchange, for the police service, army and everything else for a country of about 3.5 million people is $14 million a year. Perhaps it is a good thing that the state apparatus in Somaliland is so light that it cannot develop the conditions of bureaucracy, corruption and so on that in many poor countries often make the Government more of a problem than part of the solution.
We met quite a lot of officials and representatives of the Government, and we were impressed by their competence and motivation. We also saw a vigorous parliamentary life, which, again, it was encouraging to see in a country that is emerging from such a grim period over the past 20 or 30 years.
I think that there is complete agreement in our minds about what needs to be done: we in this country should support people who show such courage and determination in rebuilding their country and such commitment to the principles of democracy. One impressive group that we saw involved a number of Somali ex-patriots from this country who had returned, including a number with professional qualifications. We met doctors and accountants—people whose standard of living would be vastly higher in this country, but who, for patriotic reasons, had returned and want to contribute to the emergence of a successful new Somaliland. In some cases, they have set up businesses and made personal investments there. That is all splendid.
I completely endorse the point that has been made by hon. Members on both sides of the Chamber—there is no division between us on these matters—that DFID should establish an office there. It is right that the Somalilanders should get whatever help they can from bilateral and multilateral aid agencies. They thoroughly deserve that and will make good use of it—of that, I have little doubt. However, the issue of recognition cannot be avoided.
Although I recognise the fact that the Secretary of State for International Development does not have this responsibility, I hope that he will have a word with the Foreign Secretary. Although the Government should spend taxpayers' money on contributing to the development of Somaliland, it would be perverse and crazy to do so while by political action or deliberate political inaction—a refusal to recognise—they are cutting Somaliland off from a considerable amount of

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private sector money that otherwise would flow there. For oil companies that want to prospect, those amounts of money are obviously a considerable multiple of what could reasonably be found in a DFID budget.
It is crazy that we do not recognise Somaliland when it has the basis for attracting substantial investment flows and has people who are already trained—many in this country—and others who are extremely eager to learn the requisite skills to support that investment. The situation is impossible. Like me, the hon. Member for Putney (Mr. Colman) has some experience of international business and he knows that if one went to a board with a proposal to invest in a country that no one recognises, one would be laughed out of court. One simply cannot make such an investment. Recognition is key, and not just a political issue or a sideline. It is fundamental if there is to be any progress in the economic development of Somaliland or any rationality in setting up a DFID office, which we hope will happen.
Somaliland is a fascinating example of how it is worth our taking the time and trouble—and using taxpayers' money—to visit other countries, because none of us could have imagined the situation on the basis of some desk research, however thoroughly it may have been conducted. I hope that it will be registered that several hon. Members, from different party political perspectives, have been able to reach the same conclusions. My hope is that the Secretary of State, having shown the courtesy to Parliament of attending the debate, will not feel that he has given his time in vain.
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John Barrett: I congratulate the hon. Member for Clydebank and Milngavie (Tony Worthington) and all other speakers, who have made positive contributions in showing that Somaliland has something that can be built on. There are opportunities and there is definitely hope for the future.
It is right that the debate has concentrated on development aid because although recognition is a key to Somaliland's future, we must not let the political process get in the way of the real and urgent needs of the people who live there today. As has already been mentioned, some images will stick in the mind for ever: mass graves, the bombed maternity hospital and even the paper that was given to us by the Foreign Secretary on female genital mutilation. The images generated by that paper will stick in the mind for a long time. I recommend that the Secretary of State should read that paper, because we must take action to protect children from what is nothing other than assault.
Somaliland is a country with needs that must be addressed urgently. The situation is more complicated because of its recent history. As we have beard, it has problems with health, education, food insecurity, water supply, HIV/AIDS and infrastructure. Much of that relates to the possible recognition of Somaliland. We have heard about its recent history, that it was a British protectorate for 80 years and that, five days after independence, it joined with Italian Somaliland. We must now look to its future. Whether the UK decides to recognise Somaliland at some time in the future, we should realise that action must be taken now to help those in great need.
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The suffering continues in a land that is relatively peaceful and stable compared with the chaos in the south, where the fear remains that aid delivered to an area under the control of warring factions will result only in that aid being diverted to the same factions, which will use it to strengthen their grip in their own areas of control. It was with some amusement, after the 14th meeting in Nairobi, that some positive results emerged from the warlords meeting. I must put that down to the hon. Members for Banbury (Tony Baldry), for Blaby (Mr. Robathan) and for Putney (Mr. Colman) who attended.
Problems may arise from recognition of Somaliland, such as the UK being accused of reverting to colonial days, and the hope must be that an African nation leads the way so that others might follow. The Somalilanders hold the UK in high regard. I found something unusual in the amount of Union jacks and photographs of the young Queen Elizabeth being displayed in a country that describes itself as an African republic. All they are asking for is the right to self-determination within boundaries that are long established. If the majority of the people of Scotland or Northern Ireland wished for that same right, would it be denied? If the recognition problem is holding up aid, the Secretary of State should try to separate the delivery of aid and recognition, so that the aid can carry on.
Delivery of aid to an area of conflict is a real problem. There are dangers to aid agencies and to everyone involved. The situation in Somaliland is one of relative stability and ease of access; there are flight connections, a port capable of receiving aid and road links to the regions most in need. Somaliland is also in desperate need, having suffered from terrible droughts, the worst in decades, resulting in the deaths of hundreds of thousands of animals; 200,000 people were left vulnerable. There is much that could be done with the basic provision of boreholes and water harvesting, to make the most of a scarce resource when the rains do come. Dried out riverbeds and no provision for storing water where so many people do not have access to a basic drinking water supply must not be tolerated in this day and age. I hope the Secretary of State will think about what can be done to provide clean drinking water supplies, particularly to those in urban areas.
An assessment must also be made of the lack of food security and to consider the earliest suggestions about whether DFID could open up a base in Hargeysa to establish what is possible and what the UK Government could be doing on the ground. This could be linked to the DFID office in Addis, but kept separate from the political discussions, which could be dealt with elsewhere. That might avoid the process stopping aid, and I hope the Secretary of State will consider that option.
With so little support from the outside world, what has already been achieved in Somaliland is impressive. The rebuilding of Hargeysa has started and, although there is much to do and the Government have a relatively tiny budget—$15 million to $20 million to spend—there is little scope for lavish spending or waste. Most of this money seems to go on civil service salaries, so it is possible that some expenditure in priority areas is being held back.

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This sum is dwarfed by remittances from the diaspora. The total is between an estimated $300 million and $500 million a year. This proves there are many outside the country who want to send money to their homeland, but it also shows that probably many more people could be organised to increase this figure. A 10 per cent. increase in the Government's budget would be less than a 1 per cent. increase in remittances. One problem with remittances is the easy flow of money back to many developing countries. Will the Secretary of State say what can be done, at a low cost to the sender—that can make a massive difference to the recipients—to ease the flow of remittances?
Not only money from abroad but also those with skills are currently required back in Somaliland, which is encouraging them to return. If we encourage people to go back to Somaliland—they benefit by getting back to their homeland—we have to accept responsibility for the fact that what they go back to is in no way comparable with life over here. We must take a direct interest in the standard of life over there. Her Majesty's Government are trying to reduce the numbers fleeing from terror. It is a stable country. I could understand people from Mogadishu saying that they were in real danger, and I have a fairly small number of Somalis in my constituency. If someone came from the south of the country I would understand the danger they were in, but I would have to say that Somaliland looked like a very peaceful and stable nation.
Somaliland also has oil and mineral resources, which could help in the drive towards prosperity. But until contracts can be signed, these resources cannot be exploited. It may not be within the Secretary of State's power to move this issue along, but it is a tragedy that wealth could be just below ground level while there is so much poverty just above it.
Real progress could be made with assistance to clear up confusion around the truth with Rift Valley fever. For many years, the export of sheep, goats and camels to Saudi Arabia was the region's main export, but that has now stopped because of Rift Valley fever. Some people maintain that the disease does not exist, while others maintain that it will return during the wet season. Whatever the problem, will the Secretary of State use DFID's expertise to end the confusion and restore what was the country's main income source for many years?
Health care has been mentioned, and was available to some. The ever-present scourge of AIDS cuts through every aspect of life in Africa, and Somaliland is no exception. Money is available for the war against AIDS, but political problems should not be allowed to get in the way of making resources available, particularly to deal with mother-to-child transmission. Land mine clearance, which was mentioned earlier, has been a success, and I, too, pay tribute to the HALO trust.
Children are particularly at risk in Somaliland. UNICEF is doing good work, but there are an estimated 10,000 street children and 20,000 underage workers in that relatively small country. We must not let that situation continue, and access must be given to agencies that have the capacity to improve the lot of those children and orphans.
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We should not forget the other group that was mentioned earlier and which is at the opposite end of the range: the dwindling band of old soldiers who fought with us during the last world war. In a country where the average life expectancy is below 50, it is no surprise that there are few old soldiers left. While visiting a centre that produced artificial limbs, we met a few of those gentlemen. They asked about their pensions and hoped that the British Government would consider their plight given that they had fought on our side, just like those who were buried in the war cemetery in Hargeysa. They added, however, that they would happily give up the thought of a pension if their country could be recognised. It was a real contrast to see old soldiers next to limbs that were being made for children.
The country has many scars from war, but it is rebuilding itself. It suffers from drought, but when the rains do come, mass graves are exposed. An estimated 9,000 people are buried in 160 mass graves. None the less, democracy is stable and peaceful in the part of Somalia that is Somaliland, and I hope that the Secretary of State will do all he can to ensure that aid gets through.
3.7 pm
Mr. John Bercow: I join colleagues in congratulating the hon. Member for Clydebank and Milngavie (Tony Worthington) on securing the debate and on his contribution to it. He has vast experience of the area and spoke with knowledge, sincerity and passion. He was followed by the distinguished Chairman of the International Development Committee, my hon. Friend the Member for Banbury (Tony Baldry), who spoke in a similar vein, and then by the hon. Member for Putney (Mr. Colman), my hon. Friends the Members for Blaby (Mr. Robathan) and for Grantham and Stamford (Mr. Davies) and the hon. Member for Edinburgh, West (John Barrett).
In opening the debate, the hon. Member for Clydebank and Milngavie set out the historical background, which is the cause of many of the problems that are endemic in the area today and which the international community must address. Specifically, he pithily characterised the unhappy merging of Somaliland into the united republic of Somalia, and Somaliland's subsequent, understandable wish to secede or—I use my language carefully—withdraw from it. All sorts of problems have been spawned by the historical background.
Mention has been made of the large and enduring refugee phenomenon, which was created by the civil war. As Somaliland became relatively safe, there is no doubt that those refugees thought it reasonable and timely to return to their homes. However, the emergency and humanitarian aid that is trickling into Somaliland is meagre compared with what the rest of Somalia and other countries in the horn of Africa receive. With zero or negligible help from the international community, Somaliland inevitably continues to absorb, although with the greatest difficulty and strain, tens of thousands of refugees from Ethiopia's refugee camps.
The country's social problems have been compounded by the return of those hundreds of thousands of refugees through the UNHCR's assisted

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repatriation programme during the past six or so years. That has placed stress on the still relatively fragile and war-torn infrastructure, and the lack of development assistance has inevitably limited and constrained the already weak capacity of the Government, who are seeking proper and effective reintegration of refugees into society.
There is, of course, the second, dramatic problem of a severe drought—the worst experienced by Somaliland in some three decades—leaving 200,000 people vulnerable to starvation. That matter is specifically within the purview of the Secretary of State, whom I warmly welcome to the debate. I know that he will want to say something about it, and I shall return to it briefly.
Where do we stand on the critical issue of recognition? As Somaliland lingers in a sort of diplomatic no-man's land, there is a practical consequence for the nation, as well as a stain on the independence and integrity of the country. The practical consequence is that Somaliland cannot enter into formal trade agreements with other nations and has understandable difficulty in seeking, and certainly securing, any sort of assistance from world financial institutions, as my hon. Friend the Member for Grantham and Stamford (Mr. Davies) mentioned.
The late President Egal remarked that the most disabling thing was the lack of communication with the international community. "We have no ambassadors," he said, "we have only international agencies." Attracting foreign investment is difficult, as there are no proper banks and although Somaliland is believed to have large oil deposits in the coastal region, there is a lack of interest due to insufficient insurance for equipment and personnel. President Egal endorsed a liberal economic regime, resulting in a potentially thriving private sector. However, it is handicapped—I return to the problem yet again—by a lack of recognition. We are in danger of going round in circles in our attempt to resolve, or at least minimise, the burdens of that proud but beleaguered country. Unless it receives recognition, so much else that could flow by way of economic potential and political reconstruction will not be possible.
There is relative stability, and there is also significant economic progress, but that is not as great as it could be. The debate has already focused on the economic statistics. The World Bank survey illustrates the immense poverty that exists. It is important to be accurate; one wants to celebrate the country's successes under duress, but also to recognise that those successes are modest and that they are not indefinitely sustainable. If more than 73 per cent. of the population lives in general poverty and 43 per cent. in extreme poverty, we cannot turn a blind eye. If GDP is only $223 per head, we cannot turn a blind eye; if 45 per cent. of the population is unemployed, we, in our comparative extreme wealth and political good fortune, cannot turn a blind eye. If primary school enrolment stands at only 17 per cent.—that is, non-enrolment is over 83 per cent.—and maternal mortality stands at 1,600 per 100,000 births and infant mortality at 224, almost one quarter, per 1,000 live births, we, in our comfort, cannot stand by, self-satisfied. If adult literacy stands at only 22 per cent. and life expectancy is only 47 years, we cannot stand by.
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In reality, for all the country's stability, the lack of recognition by the international community is a serious impediment to the proper entitlement of what should be a sovereign state to grow and to flourish.
Like other Members, I want to hear what the Secretary of State has to say, so I shall try to exercise a self-denying ordinance and conclude with a series of polite but probing questions. How much humanitarian aid is being given to Somaliland to cater for the problems resulting from the drought? What form does it take, and what mechanism of assessment of its efficacy is in place? Of the total aid given to Somalia, what proportion comes from the UK and what proportion goes directly to the Somaliland Government? As several hon. Members have rightly inquired, can a base be established? What have the Government done or what do they propose to do to promote UK business investment in Somaliland, particularly considering the potential for exploration of the oil field capacity?
What assistance have the Government given to Somaliland to cope with the influx of refugees, and how do they intend to monitor and improve on it? What moves has the Secretary of State made to establish a British diplomatic presence in Somaliland? What efforts have the Government made to encourage a successful outcome from the peace talks? Alternatively, if the Secretary of State shares the pessimism of the hon. Member for Clydebank and Milngavie, is he inclined to reconsider recognition and have a huddled serious conversation with the Foreign Secretary? What is his attitude to recognition, and will he elaborate on it?
This is an important debate that has been characterised by serious contributions. I have tried to pose some pertinent questions, and I look forward to the Secretary of State's answers, preferably today but, if not, as soon as possible in writing.
3.17 pm
The Secretary of State for International Development (Hilary Benn): I join other hon. Members in congratulating my hon. Friend the Member for Clydebank and Milngavie (Tony Worthington) on securing this debate and, from what I have learned, the history of his involvement. I was aware of the kidnapping episode, but I was not aware that all the debates in the past 40 years on Somaliland have been generated by him. He has undoubtedly flown the flag and put the rest of us to shame.
What has come across powerfully in the contributions, which have been outstanding, is that members of the International Development Committee and other hon. Members have used their experience in this debate. As the hon. Member for Grantham and Stamford (Mr. Davies) said, the Committee members have used what they saw and heard to bear witness to the situation in the Somaliland as they found it during their visit. We are all grateful for that, not least me, and later in my remarks I shall tell the Chamber about the steps that I propose to take as a result of this debate. The debate has been all the more powerful for the fact that we have heard current witness—Committee members visited only very recently—and it is an excellent example of hon. Members doing their job. That is precisely what we are in this House to do.
We have heard about the history, and I do not need to go back over how Somaliland is a former British protectorate that sees itself as an independent country.

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We have heard powerful evidence about the extent of poverty in Somaliland. However, because of the progress that it is making, in contrast with other parts of Somalia, it has placed fewer demands on the international community for emergency humanitarian assistance. As my hon. Friend the Member for Clydebank and Milngavie outlined, one reason for that is the extent of the support that a sizable diaspora provide to Somalilanders. The hon. Member for Edinburgh, West (John Barrett) talked about the range of estimates of the size of remittances. The figure that I have is in the middle of that range; about $425 million a year. That is a significant commitment of resources and demonstrates the great interest shown in Somaliland by those for whom Somaliland has been their home or to which they are returning.
I concur completely with what we have heard today about governance and the progress that Somaliland has made. Indeed, it provides some important lessons, and in some respects acts as a beacon to other parts of Africa because of the relative stability that it has enjoyed for 10 years. It has held democratic elections—municipal and presidential—and aims to hold parliamentary elections in, we all hope, the not too distant future. It has a traditional bicameral Parliament, and it was interesting to hear hon. Members talk about speaking in it, because hon. Members of this House do not often have the chance to address other Parliaments, especially both Houses. It has a police force, a defence force, its own currency and a relatively free and lively press. Undoubtedly, in contrast to the rest of Somalia, it has achieved an enormous amount for its people.
As hon. Members will know, reconciliation has been fraught with difficulty. Puntland has made some progress since 1998, and we are encouraging its efforts to achieve greater stability, but people in the rest of southern Somalia have suffered enormously. We have not talked a great deal about those people, and I want to talk briefly about their situation. We have heard powerful testimony about the impact of the slaughter in Hargeysa, and the picture that I will take away with me from the Chamber is the description of the bodies literally returning from history as they rise from the sands.
No one can be sure of the exact figure, but an estimated 500,000 people—about 7 or 8 per cent. of the population—lost their lives in this conflict. My maths is not very good, but if we think about the impact on a country of our size, that is the equivalent of about 4 million people in the UK losing their lives in a conflict. We have to pause only for a second to take in that figure to realise the scale of the loss.
It is encouraging—I use that word deliberately—to hear the news that emerged from the discussions, negotiations and breakthrough on 29 January. I entirely understand the caution expressed particularly by my hon. Friend the Member for Clydebank and Milngavie, but the people in the rest of Somalia have just as much need of peace and stability, and just as much of a right to a better life, as the people of Somaliland. There should be no conflict between the two, and no competition. Bitter experience teaches us the need to be cautious, but it is right and proper that we should be doing all that we can to support that peace process. The
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benefits that will flow to the people in the rest of Somalia will be considerable if peace can be achieved, which is why we have been offering support.
Mr. Robathan:I am not the only one who is ignorant about the breakthrough on 29 January. Will the Secretary of State briefly talk about it?
Hilary Benn:I will gladly do so. In those talks, the faction leaders agreed to proceed to the selection of a transitional federal Parliament with 275 Members who would elect a President to head a new five-year transitional federal Government. That process is likely to take between four to six weeks, after which the parties would be ready to return to Somalia. If the agreement is reached, and if it sticks—I understand the caution—it is the international community's responsibility to support that process. Somaliland has not, of course, been part of the process, but if the process is to be successful, there will need to be some form of reconciliation for peace to be established throughout Somalia. I entirely understand the strength of feeling in Somaliland because of the history of the region. This difficult issue needs to be confronted.
It has been very encouraging to see the very strong lead taken by Somalia's African neighbours in supporting the peace talks. As Members will know, these talks were sponsored by the Intergovernmental Authority on Development with the active support of the Kenyan Government. IGAD is now considering how best to build on the success of the talks, including trying to secure agreement to a comprehensive ceasefire. We played a modest part in those talks, and—linking to the point raised by the hon. Member for Blaby (Mr. Robathan) concerning the financial assistance we have given to those negotiations, alongside contributions from Sweden and the European Union—dedicated a member of staff from our high commission in Nairobi to help mediate between the factions. I want to take this opportunity to pay tribute to the role that he and others have played.
On recognition, when my hon. Friend the Member for Putney (Mr. Colman) was talking about the extensive links between his own constituency and Somaliland, I thought for one moment he was going to suggest that UK Government recognition should be extended to parts of his constituency in view of the very large diaspora.
I understand entirely why hon. Members have so forcefully raised the question of recognition for Somaliland, because it is a subject about which the people of that country feel extremely strongly. We encourage Somaliland's progress towards democracy, and we should do all we can to reinforce their efforts. As Members have kindly indicated, this is not directly a matter for me. But we should be careful about doing anything that undermined the prospects for success in those talks and the reconciliation elsewhere in Somalia. I advance the argument for the simple reason that the people of the rest of Somalia deserve the same right to be able to live in stability and security. We also have to acknowledge that the question of recognition is the subject of some controversy, not least among neighbouring African countries. Having said that, it is my view that the issue of recognition—a point raised by the hon. Member for Edinburgh, West—should not get in the way of development and assistance.

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Our priority now should be to increase the support that we provide. In the current financial year we anticipate that our total support for Somalia as a whole will amount to some £3.5 million. That figure includes help for health through Médecins sans Frontières, education projects through the UN, support on governance, peace building and the issue about which the hon. Member for Buckingham (Mr. Bercow) particularly asked, humanitarian relief. This last includes the drought relief to which we have contributed £1 million through UNICEF by way of humanitarian assistance.
In addition we contribute 19 per cent. of the funding for the EU programme; that is $9 million out of the $50 million in total. It is rather difficult to disaggregate from within this total amount the specific spending in Somaliland because most projects cover the whole of Somalia. The best estimate that I am advised of is that about 40 per cent. of all international aid, which is about $170 million a year, is spent in Somaliland. I hope that is helpful, and I will happily undertake to write to the hon. Member for Buckingham with further information about how that figure breaks down. I shall add to his list of needs, which he read out so powerfully. In Somalia, there is less than half a doctor and two nurses per hundred thousand population. We have also provided support to the electoral process in Somaliland, specifically providing £160,000 to help secure these elections.
On the subject of female genital mutilation, I agree entirely. We should do all we can; indeed the Government supported the Bill that was referred to. I will find out the answer to the question on small arms.
Finally, I want to respond to the plea from the hon. Member for Banbury (Tony Baldry). We are in the process of drafting our country engagement plan. We do not normally consult on such plans, but I make this commitment to the Members who have spoken today: I propose to do differently in this case, and to consult the Select Committee formally or informally in whatever way they decide. When we have had a chance to reflect on this debate, they will have a chance to see what we propose to do in response to their plea to me today. I look forward to hearing their views on that offer, and I hope that it is acceptable to the House.

School Meals and Children's Diets
3.30 pm
Helen Jones: Over the past few months, there has been a great deal of public discussion about children's diets. We hear a lot about the large amounts of fat and sugar that they consume in fizzy drinks and snacks; quite rightly about the effect of advertising upon children; and about the likely health problems that will occur in the future.
However, we do not hear enough about the one area that the Government can directly influence, which is the provision of school meals. The decisions that the Government take now, and the regulations that they decide to adopt, have potential to improve the diets of our young people—particularly the poorest among them—and to set a pattern of healthy eating that we hope would continue. The money that is spent now on school meals could save us a great deal of human suffering, and cost to the health service, in future years.
Yet, as a country, we have failed to give this issue enough attention. We know what the facts are. The recent Food Standards Agency report on children's diets showed that mean energy intakes were lower than the average requirement in almost every age group from four to 18. It noted that diets were high in fat, salt and sugar but very low in fruit and vegetables. Sadly, none of that is new. The then Education and Employment Select Committee's report on school meals in 1999 quoted the Acheson report on the need to improve children's diets. It also quoted evidence from the National Heart Forum that showed that the propensity to develop diseases was set in early life, thus making intervention in children's diets essential. In addition, it cited evidence to show that cognitive functions, which are impaired by poor diet, can be put right by simple interventions, such as providing breakfast.
That is a truism; the importance of the issue has been known about since the 19th century, when charitable people started to provide school meals for children. We knew so much about it that in this country we enshrined it in statute in the Education Act 1944, which made local authorities provide a meal that was suitable in all respects as the main meal of the day.
We are now dealing with what happened as a result of the Education Act 1980, which was introduced by the then Conservative Government. That broke the consensus on the importance of school meals and ended almost all central control on the issue. The result of that was disastrous: staff were de-skilled and heated up pre-prepared foods; school kitchens closed down; and, in some cases, only sandwiches were available for children who were entitled to free school meals. There were fewer and fewer of those children as the social security regulations were tightened up. It was a prime example of knowing the price of everything and the value of nothing, for which many young people still pay the price.
The result of that was that when this Government first came into office in 1997, they faced an appalling situation with regard to school meals at a time when the whole education system required massive amounts of public spending. I commend what the Government have done since then. There are schools—Beamont junior school in my constituency is a very good example—that

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received great new dining facilities. The national school fruit scheme, which provides fruit for young children in school, is very popular in my constituency. The healthy schools initiative encourages schools to examine healthy living and healthy eating in the round. Those are commendable first steps, but they are only first steps. There is still a lot of work to do.
Mr. Kerry Pollard: Does my hon. Friend accept that other agencies have an equal responsibility in this; for example, television advertising, which force-feeds young children the desire to have some of this rubbishy food, and supermarkets and food manufacturers, who stuff food with the three S's, salt, sugar and saturated fat? The issue is much wider than just school meals, although I accept my hon. Friend's point that that is a starting point.
Helen Jones:My hon. Friend is entirely right. Because of those problems, we need to focus on what we can influence and control: school meals.
There is no use lecturing our young people about healthy eating if we do not provide them with good meals. Part of the problem with school meals, as the recent report from the Soil Association showed, is that we value our young people's diet so little that we do not spend much on it. Average spend on the ingredients of a primary school meal provided by local authority caterers is 35p. For those provided by private contractors, the spend can he as low as 31p. That leads to our young people being fed a diet of highly process food, mechanically recovered meat and lots of additives.
One does not have to be a devotee of organic eating—I freely confess that I am not—to be worried about some of the ingredients that are highlighted in the report. For example, there was a so-called fish product that contained only 35 per cent. fish; the rest was breadcrumbs, rusk, raising agents and water. A cheese product contained only 30 per cent. cheese, and again was filled up with breadcrumbs, additives and so on. Under current regulations, those two items counted as fish and cheese and as the protein part of a meal. That is a particular problem because so many of our young people are not eating adequately outside school.
I asked a group of young people at a secondary school in my constituency to keep food diaries for a week. I have them with me, and I hope that the Minister will look at them later because the results are horrifying. I commend the young people for their honesty and bravery because it would be easy for them to be singled out; lest anyone try to do that, I do not think that their diets are any better or worse than those of most youngsters in my constituency.
The results were startling. Many of the young people went to school without breakfast, although some got breakfast or a mid-morning snack in school because the school provided it. However, the mid-morning snacks were usually nothing that we would recognise as nutritionally adequate. It was what the young people ate for lunch, however, that was the most worrying. I shall give some examples; chips and gravy, pie and chips and cheese pizza, often accompanied by a fizzy drink. They ate lots of snacks, crisps and chocolate, but very little
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fruit or vegetables in school. Although many parents provided both breakfast and a hot meal at night, there were still examples, in the 21st century, of children who went through the whole day without a proper meal; they were merely snacking on bits. That is an indictment of our society.
When I discussed that with the head teacher, what was most worrying was that it was often the children from the poorest families who were eating the most inadequate school lunches. Although the diaries were a snapshot and not a scientific survey, they reflect what we know from other national surveys. The Acheson report highlighted the difference in nutrition between different socio-economic groups, and clearly showed that poorer people have a lower intake of fruit and vegetables and, hence, dietary fibre. I know that there are complex reasons for that, but I return to the idea that it is our duty to influence that part of the food chain that we are able to, which is school meals.
There are some examples of what can be done even under current regulations. I visited St. Paul of the Cross primary school in my constituency, where Jane Gallagher, who is the cook there, and her assistant, Sylvia Thomas, talked to me about how they cooked fresh food for the children and encouraged them to try new dishes. I am grateful to the primary school children who told me bluntly, in the way that children will, what they liked and what they did not. They liked things such as baked potatoes, pasta and fruit. That gives the lie to what people often tell us, which is that children will only eat highly processed food. All parents know that the truth is that children will eat what they are used to, and that it is our jobs as adults to get them used to eating decent meals.
I accept that things are much more difficult in secondary schools. There are two problems that we need to tackle there. First, too many schools are still using vending machines as a source of revenue, and they are usually stuffed with unhealthy products. We must give much firmer guidance on that to head teachers and governors. Secondly, pricing policies in school canteens make it almost impossible for those on lower incomes to eat healthily. All of us who have teenage children know that they are always hungry. For those on a limited budget, there is a temptation to eat things that fill them up quickly and seem to offer a lot for the money, whether or not they are healthy. That is particularly true of children who are entitled to free school meals.
The guidelines of the Department for Education and Skills state that a free school dinner ticket should buy a two-course meal and a drink. I know of very few secondary school canteens where that could be achieved. The value of a school meal ticket varies considerably between local authorities; in some cases, it can be as low as 90p. Government research on improving the take-up of free school meals showed that, and I congratulate the Department on commissioning the research. In every school surveyed, the average spend was higher than the value of a free school meal ticket. Even in the school with the highest-value meal ticket—£1.65, I think—the set meal of the day when the research team visited was fish and chips, which cost £1.75. That could not be afforded, even without vegetables or a drink. Therefore, it is no wonder that many children who are entitled to free school meals end up eating sandwiches and snacks. In another canteen the

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set meal of the day was sausage roll, gravy and chips with a drink. What price healthy eating in those circumstances?
We need to start turning that around by providing better meals for our children. That would fit in with the Government's overall policies because it would improve provision for everyone while having a particular benefit for the poorest children. It would benefit working parents, who would know that their children were getting a decent hot meal at lunchtime, so they do not have to rush home to cook one at night. It would also radically improve the diets of the poorest.
A number of things must be addressed. First, the quality of the meals that we provide could be radically improved were we to move away from the current food-based standards for school meals, which allow the serving of highly processed products that count as meat, fish and so forth. We should adopt the nutrient-based standards that were recommended in the 1999 Select Committee report and which are still recommended by many experts. That would, with one step, improve quality.
Secondly, the value of free school meals must be addressed. It is untenable that a national benefit, the entitlement to which is decided on national criteria, should vary so widely from one local authority to another. We must at least set a minimum standard of entitlement to free school meals that is sufficient to buy a two-course meal and a drink.
We also need to grasp the nettle with regard to hot meals. We must accept that many schools are still not serving hot meals. Some local authorities still only serve sandwiches, and we must decide whether that is acceptable for our children. I suggest that no other European country would accept it; we need to start to end that. It can only be done gradually. For example, we all recognise that school kitchens have to be reintroduced. If we are going to defuse the health time bomb that faces us, we have to think seriously as to whether we value our children enough to re-introduce kitchens.
I also suggest to the Minister that we need to remove the disincentives in the system for schools to encourage the take-up of free school meals. As a school's budget for free meals can be delegated by the local education authority at the beginning of the year, increasing the take-up of meals means that the school ends up funding the deficit itself. That is clearly nonsense. I do not believe that the finest minds in the DFES cannot find a way round that.
I also suggest to the Minister that when people claim any other benefits—such as income-based jobseeker's allowance or income support—that might entitle them to free meals, we need some joined-up government so that they can make sure that they apply for meals there and then. As well as that, we need to remove the stigma that is often attached to children receiving free school meals. We need to give schools much stricter guidelines on that. As the evidence shows, many parents abandon free school meals, even after they have applied for them. Evidence also shows that many who are entitled to do so do not apply in the first place; many abandon them after they have applied, either because their children are singled out or because the quality of the food that they can purchase is so poor that they would rather try to
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provide something themselves. We must seriously try to ensure that heads and governors appreciate that it is part of their duty to consider school meals, which are vital not just for children's health, but for their educational attainment.
As I said, we need to do something about the proliferation of vending machines in schools. It is time for a bit of central direction on that, because local decision making is clearly not solving the problem. The truth is that we cannot keep blaming the children and we cannot keep blaming their preferences. We are the adults and we have to steer our children in the right direction. I hope that in the future we face up to that as a country and face up to our obligation to start providing decent school meals for all our children.
3.47 pm
The Minister for School Standards (Mr. David Miliband): Ministers usually start licking their lips when an hon. Friend starts talking about the need for centralisation, but I thought that that would be an inappropriate response. I congratulate my hon. Friend the Member for Warrington, North (Helen Jones), not just on securing this debate, but on her continuing campaign to ensure that the Government are held properly to account and make best use of advice and ideas from as far and wide as possible to get this serious issue right. I applaud the work that she has done on the issue and applaud also the contribution of my hon. Friend the Member for St. Albans (Mr. Pollard). As members of the Education and Skills Committee, my two hon. Friends are a formidable duo. I fear that if we do not give them full answers today, we may find the Education and Skills Committee turning its fire on us.
I agree 100 per cent. with what my hon. Friend the Member for Warrington, North says about the value of high quality school meals, the necessity of meals for youngsters to develop properly in education, and the fact that that matters twice over in our poorest communities and for our poorest youngsters. That must surely be right. She spoke with all the passion of a mother and a former teacher in putting that case and I concur wholly with what she said.
I want to use my remarks to address both the supply side of the issue, what we are doing to raise the quality of meals provided, and the demand side, what we are doing to shape children's choices about what they eat. In the process, I hope to show that all is not bleak. I hope that I will be able to give some examples of outstanding provision, not in my hon. Friend's constituency but elsewhere. We should not neglect the fantastic work that is done by many cooks in communities and at local education authority level throughout the country.
The context for this is consistent evidence that children are growing not just taller but heavier; that many are consuming too much fat and eating too much sugar; that a significant number do not get the right amount of vitamins and essential minerals; that, like some parts of the adult population, significant numbers of children are getting fatter; and that those four items are especially the case in poorer communities. I was not referring to my hon. Friends. They are certainly not evidence of the burgeoning girth of the adult population, but significant numbers of children do suffer from that.

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By way of introduction, my hon. Friend raised some interesting points about the take-up and in-year registration of free school meals, which sounds like an issue that we should consider. She may be interested to learn that the Department for Education and Skills, the Cabinet Office and the Department for Work and Pensions, which is key to getting things right, are working to develop a new one-stop application process at Department for Work and Pensions offices. That will ensure that all parents are aware of the free school meal entitlement as soon as they register for the benefits that she described, and that they are not deterred by the plethora of forms that must sometimes be completed, but are fast-tracked through the process. We will ensure that my hon. Friend is informed as soon as we know of any results on take-up from that initiative. At the moment local education authorities have quite a lot of discretion in administering the free school meals package. Different authorities do that in ways that either maximise or fail to maximise the take-up. We do not want to venture into greater central direction of such matters because of the need to maintain stability and predictability in funding, but we shall keep the situation under review.
My hon. Friend did not dwell at length on the new nutritional standards for school lunches that have been in place since April 2001. I am sure that she would agree that those standards, which were the first for more than 20 years, were a big step forward. There was a wide debate in the run-up to their introduction. The consensus among a range of local education authorities and health and food groups was that, to be effective, the standards should be based on the familiar balance of good health diagram, which sets out the right types and proportions of foods, rather than nutrients, that make up a balanced diet. That was designed to ensure that the standards were more practical to implement and that children—the ultimate consumers—would understand them.
We are also honour bound to monitor the implementation of that commitment. An exercise is being conducted between the Department for Education and Skills and the Food Standards Agency, which is obviously an important body, to ensure that the standards are adhered to. Through that study we shall be able to gather a multitude of contextual information that was not previously available, such as the purchasing power of a free school meal ticket. The study that is under way will enable us to consider that in rather more detail than before and will help to put in place the most effective systems throughout the country.
We are also looking for information about the different catering contracts around the country, the visibility of certain types of food and the impact of other lunchtime activities. There is obviously a need to hold youngsters in the school—some people think it would be simpler to shut the gates and keep them in, as is done in some schools. My hon. Friend mentioned the quality of the dining rooms and the need to ensure that facilities are adequate, which is important. She mentioned the co-operation of the pupils from William Beamont high school in Warrington in work on children's food diaries, which I look forward to reading carefully. I hope that learning what is popular will inspire me as well as horrify
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me. We are also keen to ensure that the environmental aspects that my hon. Friend mentioned—sustainability and organic issues—are properly considered in that context.
Positive provision exists around the country. There are downsides to a decentralised system of 150 local education authorities, but there are also some upsides, which are embodied by the experience of Icknield high school in Luton. I can only describe the chef who has been employed to provide meals there as the Jamie Oliver of the free school meal world. He was trained as a chef at the Savoy hotel. Pupils at Icknield can look forward to boeuf bourguignon, mussels and pheasant, chicken teriyaki, seafood paella and fresh bread baked daily on the premises. Before hon. Members start running to Luton for their lunches, he also offers tasters of unfamiliar foods to encourage people to try something different. There are downsides to relying on this sort of inspired leadership at local levels, but it does show what is possible under the current rules, and it might be an inspiration to others who are providing similar services. Maybe we can do a better job of making the experience of Icknield high school more widely understood.
That relates to the supply side, but the demand side is also important. My hon. Friend referred to the frustration of seeing a range of foods on offer, but only those that fall into her cheese pizza and chips or sausage roll and chips category being chosen. I want to run through a few relevant aspects of Government intervention in this area. First, the national curriculum itself is important in this area. Food education in both primary and secondary schools teaches children about the importance of healthy eating and an active lifestyle. They also learn how to prepare meals. In the science curriculum in primary and secondary schools children study basic nutrition and receive information on the range and type of foods available, their nutritional composition, the function of different nutrients in contributing to health and well-being, digestion and human dietary and nutritional needs. This puts a particular onus on science teachers, but also teachers in other subjects such as personal, social and health education, which is important in this area.
Secondly, my hon. Friend mentioned in passing the growing schools initiative, which encourages teachers to use the outdoor classroom as a valuable, regular and integrated part of pupils' day-to-day learning, growing food in a school's own grounds.
A third aspect is the national healthy school standard, to which a significant sum of money is now attached—nearly £6 million has been spent every year since 2000. The standard was launched in 1999 and offers an opportunity to ensure that healthy eating is firmly embedded in a school's ethos. I do not have with me the details of how many schools have now signed up to the standard—as with Investors in People, it would be interesting to see how widespread it is—but I will write to my hon. Friend with details of numbers and of what we are doing to publicise this whole school approach to healthy eating.
Fourthly, there are design and technology issues, because that part of the curriculum allows pupils to learn about food and nutrition, and this is a central part of the food technology strand of design and technology at GCSE and beyond. I was struck by the fact that food

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technology is now taken by 100,000 14 to 16 year-olds a year. Ofsted reports that excellent work is to be found in these classes throughout England. My hon. Friend referred to the particular challenges for secondary-age pupils—I do not think it was only her son who was a challenge in this regard. The popularity of food technology, a subject that was not available when I was at school, is encouraging.
Fifthly, the food in schools initiative was developed in conjunction with the British Nutrition Foundation and the Design and Technology Association to produce practical guidance on how schools can develop their activities in this area. The guide "Establishing a Whole School Food Policy" links what is taught across the curriculum with the food provided for children to eat at school to ensure that consistent messages about healthy food choices run throughout all aspects of school life.
Finally, my hon. Friend the Member for St. Albans mentioned the importance of working with other partners in the wider community, notably in industry. The development of food education in the national curriculum is an ongoing process. A couple of examples sprang to mind when reading the briefing. The Waitrose
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focus on food bus and the Sainsbury's taste of success food awards scheme are part of this wider engagement with the community. Over 1,100 teachers are registered on the taste of success scheme, and over 115.000 pupils have been awarded certificates for excellence since the scheme began in 2000.
The issues raised by my hon. Friend the Member for Warrington, North go far and wide. They have a direct impact on youngsters' educational achievement, and they touch on difficult issues regarding the relationship between central and local government that is at the heart of our constitutional settlement, but is also a restraint on the centralising tendencies—dare I say Stalinist approaches—that my hon. Friend might like to see us adopt in ensuring that the entitlement and the requirement for every youngster to learn not just intellectually and emotionally, but about their physical development, is seen through. That links closely to sport, which I know she has talked about before. I hope that we can use this debate as a basis for moving forward and improving provision.
Question put and agreed to.
Adjourned accordingly at Four o'clock.