Westminster Hall Sitting of 20 January 2004

Preamble
[SIR NICHOLAS WINTERTON in the Chair]

Vocational Provision at School
Motion made, and Question proposed, That the sitting be now adjourned.—[Gillian Merron.]
9.30 am
Mr. Graham Allen: It is traditional for Ministers to congratulate the Member who initiates the debate, but I feel that I should commiserate with this Minister. Not only does he have to reply to this debate first thing in the morning; I understand that he is opening a debate later in the day—
The Parliamentary Under-Secretary of State for Education and Skills (Mr. Ivan Lewis): I shall also be replying.
Mr. Allen: He will be replying to a debate on behaviour in schools, so I have even more reason to commiserate with him. He will have the pleasure of my company then.
Dr. John Pugh: Will the hon. Gentleman also commiserate with the Liberal Democrat education spokesman, who has a similar task ahead of him?
Mr. Allen: Ours is indeed a hard life. Nevertheless, I welcome the Minister to the debate. We share a deep personal commitment to try to ensure that more youngsters stay on at school, and I am sure that that also applies to those who speak for the Opposition parties on the subject. I know that he feels passionately about it, and I am genuinely pleased that he will be winding up the debate.
I initiated this debate so that I could ask the Minister to keep his eye on, and where appropriate, support, our local efforts in trying to solve a particularly chronic problem in Nottingham, North. He will be delighted to hear that I do not want any money. I want something far more valuable—his personal commitment to overseeing the development of the project that I shall outline. It is probably easier for those who live busy ministerial lives to give money than to give time, so that is not a let-out, but a tough request.
First, I shall explain the problem. In Nottingham, North, seven secondary schools are compelled to turn their youngsters out of school at the age of 16. There is one sixth-form college to which a few of those youngsters can go and one school with its own sixth form, but we insist that the other schools force their pupils to leave school at 16. The fact that the local education system is structured in that way sends to youngsters in my constituency the message that their education ends at 16, unless they are prepared to make the journey to the two superb local further education colleges.
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The problems in Nottingham, North are well known to the Minister. As he knows, the number of youngsters from my constituency who go to university is the lowest among all constituencies in the United Kingdom. We have the lowest educationally attaining ward out of the 8,500 in the UK. Four Nottingham, North secondary schools are in the bottom 200 in the UK. That figure represents an improvement on past performance; we used to have six schools in the bottom 25. I pay tribute to the achievements of all involved in that improvement—the teachers, heads, parents and pupils who have climbed by their fingertips and crawled their way up the ladder. They may not be as high up as we want, but it is a monumental achievement and I am pleased to put it on record.
Far from resting our laurels, however, we should be redoubling our efforts to keep the statistics moving in the right direction. If Nottingham, North, with all its problems, can crack the culture of under-achievement and the waste of human potential, the Minister will know that it can be done anywhere in the United Kingdom. Everyone in our local and educational communities knows what we must do—enable our 16-year-olds to stay on at school—but we need him to help us bring that about. To be blunt, most youngsters will not stay on to seek academic qualifications, but a large majority of those who might otherwise be lost would seek vocational qualifications not by going elsewhere in town or to some multi-million-pound campus that has been scientifically located by some bureaucrat, but by staying on at their existing school.
There are several advantages to pupils staying on at their school. First, they would not have to make the physical and, more importantly, cultural leap from their localities to the city centre further education site, although that would, of course, be vastly more appealing once they had had a taste of FE at school, as the vista of going elsewhere and taking their qualification further would open up to them.
Secondly, although the two local FE colleges offer superb courses and pastoral care, youngsters who stayed on at their existing schools would remain part of a smaller group of students who were known personally to their teachers. They would benefit from their teachers' helping hand and personal knowledge, which could move them from the mindset of not giving a damn or being demotivated to one of saying, "Yes, I will attain." Just one little word from someone who knows them would inspire them to carry on and do vocational courses at school.
Thirdly, and perhaps most importantly, pupils who stay on would act as role models. They would be among the first kids in my constituency to be seen to stay on at school, which would directly refute the prevailing assumption that kids in Nottingham, North do not or cannot do so. The impact on younger brothers and sisters would be tremendous. Currently, those who stay on at school in my constituency are seen as not only unusual but almost weird, because the prevailing culture is for kids to leave school at 16 and then perhaps to get a job. If pupils acted as role models, the proposals would have achieved a big breakthrough.
I did not dream up the proposed solution to one of the educational problems in Nottingham, North to get an Adjournment debate. It is the product of many months and years of careful thinking by all the local players.

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They all support it, and I am simply acting as the mouthpiece for many of them this morning. I have received responses to the draft of my speech from across the board locally. I have received very supportive comments from local head teachers, the chairman and officers of the City of Nottingham education authority, the learning and skills councils, both the FE colleges and both the universities, the Nottingham, North education champion, Connexions and many others who care about our youngsters. There is a brilliant local partnership, which I would love the Minister to see in action. We are all keen to get on with the job—we simply need a smile from him, and we will deliver.
How might the proposals work? Each school could offer a small number of vocational courses—perhaps as few as two—on a small site on its existing campus. The LEA and the Learning and Skills Council tell me that courses could include information technology, nursery nursing, painting and decorating, plumbing and electrical skills, hair and beauty, catering and hospitality, engineering, automotive skills, business studies, travel and tourism, and some practical skills development. I am told that there is a ready local jobs market with vacancies in each of those categories, so we would be creating round pegs for round holes in the jobs market. The British Chambers of Commerce e-mailed me to say that one of the things that most attracted it to the proposals was that they would produce the right qualifications for the jobs market and get youngsters into productive work.
I leave aside the negative possibility of what will happen to youngsters if we do not keep them in further education. That is a debate for another day, concerning antisocial behaviour and the immense public expenditure needed to fund a youngster who goes wrong, whether it is spent on the police, the Prison Service, drug rehabilitation or other such things. I am concentrating entirely on the positive and on the tiny bit of effort and even smaller amount of money that would be a stitch in time and give such youngsters the future that they thoroughly deserve.
The proposals also fit neatly into the 14 to 19 perspective. I have used 16-to-18 as shorthand, because that is when youngsters in Nottingham, North are forced to leave school, but the proposals fit into the perspective of the wider age group, in which I know the Minister takes a close interest. The two FE colleges and the two universities have already made a commitment to help. The colleges already make great contributions in the constituency, and I would not want anyone to feel that that was not the case.
The People's college has worked in partnership with schools, pupils and parents to raise the profile of learning post 16. I am told that the total of 16 to 18-year-olds in further education has increased by 25 per cent. in 2003–04. There has been an expansion in foundation courses and entry into employment programmes for previously under-achieving youngsters. The college has worked closely with local schools such as Bigwood and Hadden Park high school in particular to raise young people's ambition to continue learning. Bigwood school already has a popular health and social care programme. Staff from the People's college joined the school team at Hadden high three years ago and now
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deliver a whole GNVQ over two years. That contributed to a 20 per cent. rise in the GCSE A-to-C score in a school that was restarted just a couple of years ago. That 20 per cent. improvement in 2003 is directly traceable to a vocational element. I want every school in Nottingham, North to achieve such a result, and they want the same thing. However, the People's college tells me that opportunities to deliver vocational training for young people remain limited. The young people want to do it, they need it and the schools know that they need it, and it is up to us to provide a route forward.
Our other further education college, New college, Nottingham, is also offering shared delivery programmes to Nottingham, North. It is working with schools including Henry Mellish, River Leen, Hadden Park and Bigwood. It would do more with the schools if it could get capital and revenue support. The college spends more than £300,000 of its own resources on sustaining the schools development team for planning and liaison with the schools. It does not have to do that; it chooses to do so because it sees the size of the problem. It gets only limited payments from the schools to cover the basic part-time hourly teacher cost and some short-term project funding through the LSC from the Department for Education and Skills.
The college could and would deliver programmes in construction trades, child care, basic catering and hospitality, bakery and customer care if it could get support. The Minister needs to address the rigidity of the line between DFES funding through local education authorities for schools and funding through the Learning and Skills Council for colleges. We need a little more flexibility, overlap and co-operation. If he agrees to take this matter on, his oversight will help tremendously.
The two universities in Nottingham are also involved. That may surprise some people, but they are enthusiastic about helping out on the ground. Branding our schools as Top Valley school and Nottingham university vocational centre or as River Leen and New college, Nottingham, vocational centre, for example, would have a fantastic impact on the local prestige and status of education and on youngsters' self-perception.
I spoke yesterday to the vice-chancellor of Nottingham Trent university, Neil Gorman. He said:
"Nottingham Trent University, in partnership with FE colleges, is well placed to provide vocational courses for such schools. This provides not only a unique opportunity for vocational development but also exposes the student to the opportunities within higher education thus promoting widening participation in Foundation and Honours degree courses".
He has also said:
"I will gladly discuss how we might best badge one on-site facility at a Nottingham North school, for example, Bigwood School/Nottingham Trent University 16–18 Centre."
That was a tremendous, generous and unnecessary offer; he was not obliged to make it. However, he wants to help us, and the offer stands. Nottingham university, our second university, is equally on board. Sir Colin Campbell has told me:
"Nottingham University would consider in conjunction with FE and school partners if we could designate a 16–18 centre at one of their local sites for this sort of provision."
Just imagine a Nottingham, North kid written off as a failure puffing out his or her chest and saying, "I'm going to a Russell group university", and taking

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vocational qualifications to improve his or her lot. That puts into perspective some of our recent esoteric debates on university fees. Nottingham's Connexions service has achieved the greatest reduction in unemployment among 16 to 18-year-olds in the UK. It can also see that it could go even further. If I could bottle the good will that local partners and players are putting into the project, we would not have a problem.
Relatively small amounts of capital are needed to build a small additional facility on each site. Regardless of whether we are successful in the bid that we have put to the Department for Education and Skills for the "Building schools for the future" programme, the LEA and LSC, with whatever help the Minister can offer, should be able to fund such small-scale developments. We are limited by the existence of separate capital arrangements for schools and further education, and we need to cross that divide in the interests of creating a new kind of learning to keep youngsters interested enough to stay on at school at 16. We can begin modestly; a lot could be achieved with a spend of about £250,000—a drop in the ocean of educational spending at local and national level.
We should prioritise schools in areas with the lowest achievement at 16 and the poorest progression to further education and training, and then work through the list, providing facilities as and when we can. Some schools already have spare classrooms and others are straining to get cracking if they can have temporary or prefabricated classes. For a more knobs-on but still modest facility, Brett Kerton of the LEA tells me that a flexible space of some 450 sq m with a good information technology facility and a small seminar space would support the delivery of a range of basic vocational courses, such as motor vehicle skills, construction and catering. That model is based on the people first centre, which the People's college now uses for its entry into employment programme. That is a Government scheme, funded through the LSC, to provide flexible vocationally orientated provision for disaffected 16 to 18-year-olds. It is a brilliant scheme that encourages innovative ways of motivating young people. People's college, like New college, Nottingham, would love to be able to do something similar for 14-year-olds in mainstream schools in Nottingham, North.
The city council believes that, ideally, over the next five years, most or all schools in the area should be equipped with a 16-to-18 or 14-to-19 centre of some description. The establishment of small purpose-built vocational centres on school sites would give schools, colleges and training providers the opportunity to offer basic vocational training programmes to many more young people and to provide those young people with the necessary skills to progress to the higher-level specialist provision offered by colleges. There is no reason why 14-year-olds could not use those facilities. Such centres would also give post-16 education and training providers the opportunity to offer more responsive and flexible provision to post-16 learners. They would be like a missing piece of the jigsaw—the link between kids who stay at school until 16 and another, often different, bunch of kids who enter FE and HE. That link is essential for independent learning.
Such centres would provide young people with the opportunity to experience new areas of learning, which would enable them to make more informed choices and
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consequently improve their chances of completing their post-16 studies. The idea is that if youngsters are given the chance to achieve at any level, they will get a taste for it and see a benefit. Often, they see a financial benefit in working. Then comes the motivation to study further, perhaps not at school but at the local FE college or university, or with one of a range of other providers. Giving people the desire to learn and reasons to do so is the crux of what we are trying to achieve. If we could get such centres on the road, they would change lives and break us out of the non- achieving culture. We are making good progress in that area, but we need the breakthrough of vocational provision on school sites.
I have several points to put to the Minister that I hope he will address. First, is he prepared to visit Nottingham, North in the near future to look at our progress on 16 to 18-year-old vocational provision at schools and, above all—this may stop him smiling—to take the personal interest that I spoke about earlier? Last year, I became the education champion for Nottingham, North—the first ever constituency-based education champion. As such, it was immensely valuable to me to have the help of my right hon. Friend the Minister for Children, who, without even visiting our city, made a strong impact on the progress of the local project merely by taking a personal interest and asking to be kept informed about any blockages. That is all that I ask the Minister to do. If he would care to visit Nottingham, North at an appropriate time, he would be very welcome.
Secondly, will the Minister consider helping with the project plan and perhaps with a pilot to help speed up local work already under way? Will he assign a named DFES official to the project? I am very grateful for the great and open assistance that I have so far received not only from him, but from officials in his Department.
Thirdly, will the Minister consider the rigidity of the line between DFES funding through LEAs for schools and the problem of colleges being funded through the LSC? Again, this is not a matter of personality. There is tremendous drive and a sense of purpose, vision and direction among all the local players, but people on the ground become worried if they feel that they might be transgressing some sort of line that has been drawn in the sand at a higher level. They need to be encouraged to be innovative in this area. There is a need for joined-up thinking from his Department and the Treasury. We in Nottingham, North would happily be guinea pigs for such joined-up thinking.
Fourthly, will the Minister examine the internal ordering of educational spending on this lost group of people, who sometimes fall through the cracks? In the past few weeks, there has been great interest in universities and graduates. We hear, quite rightly, about the importance of pre-school activity, which I hope to raise on the Floor of the House this afternoon. I do not seek to make any partisan points, but I am proud of the Government's literacy and numeracy strategy for primary schools and the effort put into secondary schools thereafter. However, the 16-year-olds who leave school are the lost group in education and do not have the same public profile. I am sure that he is as annoyed about that as anyone else. We need to reintegrate those young people not only into our educational experience, but into society itself. He has our good wishes in any efforts to re-order internal spending priorities towards that group, as I am sure he is already undertaking to do.

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Fifthly, I would most be grateful if the Minister could see whether the innovations provisions in section 2 of the Education Act 2002 could be imaginatively applied to the problem affecting both the 16-to-18 and 14-to-19 groups in Nottingham, North and elsewhere.
Every year that goes by in which we fail to address the problem, another 1,000 young people in my constituency leave school at 16. Many of them disappear from the educational experience. Unfortunately, there is not a great deal that we can do this year. Despite all the great efforts being undertaken locally, many young people will repeat that experience this summer. I do not wish it to be repeated any more summers after that, because those youngsters are just as capable and have just as much right to a decent future as anyone else. All those youngsters have a right to expect us, regardless of party, to deal with the problem.
I am grateful for the opportunity to have this debate. The Minister has listened carefully and I hope that he can give some positive encouragement in his reply.
9.57 am
Dr. John Pugh: I congratulate the hon. Member for Nottingham, North (Mr. Allen) not only on securing this debate, but, more importantly, on the hard work and research that he has done on behalf of his constituents. I also thank him for giving me precise information on the debate, which will make it more focused.
I have some knowledge of Nottingham, as my parents lived there. I also know something about the problems of areas where horizons are perforce limited by cultural factors. I started my teaching career in Bootle, where many young people's fundamental expectation was to be secured a job in the docks, regardless of whether they had any education. I am aware of the cultural pressures that exist in Nottingham, North. Anyone who has read D. H. Lawrence's "Sons and Lovers" must be aware of the difficulties that face young people who wish to advance themselves educationally in areas where education is not a constant theme.
There is a fundamental lack of educational confidence in areas of Nottingham, North and elsewhere. That is a feature of individuals, their families and, in the present case, the community. The hon. Member for Nottingham, North is entirely right to draw that problem to our attention and to ask for an imaginative solution. People's fears—fear of failure and fear that the course might not be right—must be confronted. Many people also fear peer pressure, because, as the hon. Gentleman said, pursuing education in his area can make a person the odd one out. That problem is well documented, but it is particularly severe in Nottingham, North and is perhaps complicated by the existence of the 11-to-16 school system. Such systems can work, but I suppose that in some cultures they can set a limit on people's educational experience. We are all familiar with monocultural environments, in dockland areas and mining areas, or wherever they may be. Perhaps the absence of 11-to-18 provision or significant diversity restrains pupils' expectations.
I am familiar with the working of low expectations, and the hon. Member for Nottingham, North is entirely right to draw the point to our attention. However, the
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Nottingham with which I am familiar increasingly has further and higher education establishments that offer slightly different ways out. Obviously, further education resonates with people who believe that their gifts are practical and who want to pursue a vocational route, or with people who have modest aspirations or modest experiences of the educational process. As the hon. Member for Nottingham, North said, even the obvious route may be beset by what are popularly called gremlins in an area such as Nottingham, North. Students do not want to take the step, which is difficult in some areas, even if it might seem effortless in others.
It is increasingly accepted that, in that sort of environment, further education must go to schools and schools must go to further education. That good practice is now widespread. In my area, students from 11-to-16 schools routinely go to further education colleges, and further education lecturers routinely come to schools. Good practice is springing up all over the place. Without paying the Government an undue compliment in advance, I may say that that process will be assisted by revisions to the 14 to 16 curriculum. Quite obviously, some of that good practice, which the hon. Member for Nottingham, North outlined, is already in place in his constituency. The FE colleges in his area are models of good practice—practice that the Department for Education and Skills would be happy to commend and to recommend. Higher education establishments in that area also have a very good track record of pitching in with schools. In particular, I commend Trent, which has done enormously important work in widening access to universities and in encouraging students to go to university who otherwise would not think of doing so. It is a trail-blazer in that respect, and is ahead of many other universities. It should be praised.
How innovative higher and further education establishments can be is conditioned not only by their ambition, which I am sure is considerable, but by their resources. All ventures, positive though they are, are a partnership between school and college. The hon. Gentleman drew our attention to the streams of funding available to them, which are different and not always easy to co-ordinate. Schools are funded by the local council or from the Standards Fund. Further education funding comes from the learning and skills councils and may be gauged using a different set of priorities. Capital funding is equally, if not more, complex.
We have a problem with certain structural difficulties. Many of the most attractive and ambitious schemes, such as those for information technology, automotive engineering and catering, are capital-intensive. Pupils need a seamless curriculum, but they are serviced to some extent by a fractured educational structure. It might be easier to return to the time when FE colleges were under local education authority control, which was not a bad state of affairs. As the hon. Member for Nottingham, North illustrated, however, problems between FE colleges and 11-to-16 schools can be replicated in part under the current system in an 11-to18 school, whereas vocational education in 11-to-16 schools can be funded by the local authority and vocational education post 16 can be funded by an LSC.
None the less, despite the structural difficulties that we have identified, the problems are not insuperable; they are simply harder to surmount than they perhaps

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should be. The hon. Member for Nottingham, North recognises that, but I sense that he wants more. He seems to be arguing for 11-to-16 schools with some sort of mini-tech attached. I appreciate his reasons, and I am not against experimentation. A priori, however, I find it difficult to see precisely how that will work, because quality education is costly, especially in those branches of education that the hon. Gentleman outlined. A mini-tech attached to a school must be limited in scope, which is a problem because some pupils will not find a course that is relevant or interesting to them. Alternatively, it could offer a full range of courses, in which case it could offer only taster courses without being prohibitively expensive. Perhaps that is the hon. Gentleman's concept of what should be put in place, but there is a reason why FE colleges exist, and it relates partly to the sheer cost of putting on credible, quality courses.
I understand that the hon. Gentleman is arguing for a halfway course between what the schools offer and what FE offers, because there is a problem in getting pupils from school to FE. I am not sure that that problem cannot be addressed in other ways. One advantage that FE has for pupils who have been in an 11-to-16 environment is that it is not school. They feel that they will be treated differently when they go to an FE college. Although, as he put it, pupils can feel that they are thrown out or rejected by their school, some pupils leave 11-to-16 schools with a sense of relief, if only because they can make a fresh start.
There are many examples of 11-to-18 schools that hang on to pupils to boost their numbers but essentially provide slightly substandard vocational education. In some cases, that education is available in a better form at the local FE college.
Mr. Allen: I am following the hon. Gentleman's discourse closely, and agree with virtually all of it. I might be able to assist him with the queries that he raised. First, we have given careful thought locally to the problem of the size of offer. Of course, it would be wonderful to be able to offer all the courses that I mentioned—there must have been a dozen—but we are rather modest, and we appreciate that if we are talking about a small number of schools, the offer will be very small. It may be two or three. The provision available would need to be discussed between the FE college and the school. We are conscious of that and of the problem of timetabling people in.
With your forbearance, Sir Nicholas, I will also respond to the second point.
Sir Nicholas Winterton: As we are not pressed for time this morning, I shall use my discretion in allowing a lengthy intervention.
Mr. Allen: You are very generous, as always, Sir Nicholas.
A large number of youngsters cannot wait to get away from school and get to an FE college, and that option will still exist for those youngsters. We seek to address the youngsters who will not go elsewhere if they leave the school environment. Sadly, in my constituency, as I have outlined, there is a large percentage of such youngsters. They are lost to us without school. At
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school, they will get intimate pastoral care. The teachers will know them and their history and will know which motivational buttons to press. That is the group of youngsters that I am considering—those who need that relatively small offering at school to be inspired to go on further, hopefully to FE or HE.
Dr. Pugh: I am not at all dogmatic in my views. I carefully used the words "a priori", and, a priori, I do not warm to the idea. In all its ramifications, I can see some problems. The thing about a priori thinking is empirical evidence. If pilots in Nottingham—I see no reason why pilots should not be used in Nottingham—show that the idea works, my a priori views will have to be revised.
The fundamental solution for the hon. Gentleman's constituency lies in getting the offer right at FE level so that pupils are attracted to it. I am sure that the FE colleges are working hard on that. May I give him what I hope is a helpful analogy? A technical college in my constituency offers a catering course that provides a restaurant where people can dine. It is in every respect a commercial establishment for part of the time. It is expensive in the sense that it costs the tech college a lot to put on, but it is an extraordinary popular course. It is so popular, and the employment prospects are so good, that pupils travel from Liverpool, Bootle and constituencies such as Nottingham, North to go to that college to acquire the kind of training that they know will support their needs and give them a career. I wonder whether, in the case of Nottingham, North, we need to look in the round at further and higher education in the Nottingham area.
10.9 am
Mr. Mark Simmonds: It is a great delight for me to participate in this debate. I offer the hon. Member for Nottingham, North (Mr. Allen) my congratulations oh securing the debate, and like the hon. Member for Southport (Dr. Pugh), I also congratulate him on all the hard work and detail that has gone into reaching the point that he has reached today.
Like the hon. Member for Southport, I know Nottingham extremely well. I spent my formative years in a town called Worksop just to the north and I was a student in Nottingham for three years. I was delighted that the hon. Member for Nottingham, North said that Nottingham Trent university was heavily involved in the proposals and was playing a positive role in what he is attempting to do.
I was also delighted that the hon. Gentleman spoke with such passion and knowledge about his concerns for the pupils or students who are having to leave the various schools to which he referred at the age of 16, with limited facilities, despite the good FE colleges in his area. I am interested in exploring the ideas that he has detailed today about creating specific vocational training on school sites and, ultimately, greater collaboration between schools and FE colleges.
I have some specific questions about the hon. Gentleman's proposals. First, is he suggesting that such training should be pre-16 or post-16 or both? I shall ask the Minister later about how that might affect funding arrangements. Secondly, how do his proposals differ

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from the Government's drive for specialisms in secondary schools and the enterprise culture that they are trying to create in certain schools, and how would the two fit together?
The problem that has been described is not peculiar to the hon. Gentleman's constituents. In Boston and Skegness, we have many similar problems regarding the lack of aspiration among pupils from certain socio-economic backgrounds who do not aspire to good jobs and do not necessarily aspire to qualifications. Therefore, it is a national problem rather than a local one, although I understand why he has raised it this morning.
Mr. Allen: It may help the hon. Gentleman and the debate if I quickly pick up those points.
I do not have a rigid view about deciding between 14 and 16. I come to 16-to-18 provision as a result of my personal learning journey in respect of my constituents and what they need, but it may be sensible to start the vocational element at school at 14. One of the schools that I mentioned, Hadden high, in its previous incarnation as Glaisdale school, pioneered nationally the concept of younger pupils doing work much earlier than 16 and indeed doing vocational training at 16. Therefore, this is an issue of horses for courses. It is also one of horses for money; if the money is available only from 14 to 19, I would gladly say that we should take that route; if it is available only from 16 to 18, I shall move as rapidly as I can to that position.
I hope that being a specialist school would not get in the way of under-achieving schools and schools that do not have such good results. Rather than forcing schools into a matrix that looks good in Whitehall, we must ensure local flexibility to go with or without specialist schools to some degree, if that helps the kids to stay in education.
As to whether the problem relates to Nottingham, North or is national, as I said, if we can crack this problem in Nottingham, North, the most chronically under-attaining educational area in the UK, the Minister and his colleagues will be able to take from what has happened massive implications for elsewhere. That is why the concept of piloting in the most difficult area is useful.
Mr. Simmonds: I am grateful for that intervention, which clarifies some of the issues that I was raising. I am also grateful for your tolerance, Sir Nicholas, in saying that we are not short of time this morning.
The hon. Member for Nottingham, North made a point about 14-to-19 provision. The current funding arrangements and the disparity between LEA funding per capita and LSC funding per capita will create enormous problems if both pre-16 and post-16 education are to be addressed. He dealt with that issue and I hope that the Minister will respond because there must be greater flexibility than seems to exist at the moment.
The problem exists not just in Nottingham, North, but throughout the whole country. The recent debate on the funding of higher education—I hope that the issue will be resolved one way or another, at least initially,
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next week—has overshadowed the important aspect of education under discussion, which has not been given the focus that it deserves. I hope that today is the start of a constructive, cross-party debate to help and facilitate better educational achievement by future generations and to increase the productivity and competitiveness of the UK in an ever-increasing global marketplace.
The Government have created some of their problems, primarily by setting an arbitrary 50 per cent. target to push youngsters into higher education. As many of those youngsters will come from the FE sector, that sector will thereby be denuded of many of its more capable participants. Tuition fees represent only a very small proportion of the cost of the 4 million adults in further education. To my mind, the vocational route has been undervalued and too often sidelined. Together, we must find a way of addressing that issue.
There is consensus on both sides of the House about the seriousness of the problem and we will no doubt hear from the Minister about the measures that the Government are taking to improve the provision of vocational education. However, the record of achievement to date is not good. The number of 16 to 18-year-olds in Government-supported training and employer-funded training schemes has decreased by 1.5 per cent. and 0.2 per cent. respectively since 1997. Britain ranks 12th out of 15 countries in the EU in relation to basic skills, and productivity in the United States is 40 per cent. higher than in the UK. There is a direct causal link between skills, learning and productivity.
I had great fun reading the Government's White Paper, "21st Century Skills: Realising our Potential", which correctly placed enormous importance on vocational skills and training. It argued that achieving better skills and higher productivity would require both the reform of secondary education—the point that the hon. Member for Nottingham, North is making—and the establishment of a world-class work-related education and training system. The skills White Paper, allied with the Green Paper on 14-to-19 education, which outlines the Government's vision and was purported to rectify the traditional neglect of vocational education, is absolutely right. However, those involved in vocational and skills training under Governments of all colours have worked extremely hard to change the lives of thousands of people to date to give them qualifications and skills and to prepare them for the wider economy.
The impact and improvements made in the provision of vocational education have been piecemeal, and there is little current improvement. The measures that are being taken are simply not enough and it is widely acknowledged that the provision of skills and education in the UK is too low, too complex and still does not excite and engage those in the 16-to-18 age group, as is evidenced by the comments made by the hon. Member for Nottingham, North and in my constituency and elsewhere in the United Kingdom. The lack of aspiration and role models drives the issue.
We must ensure that our education system delivers employability at all levels; it currently does not do so. We must address the skills gap and ensure that the measures being undertaken in that regard are correct and fully comply with the demands and needs of employers both locally and nationally. Again, they

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currently do not do so. Employers are deeply concerned that many employees lack basic skills of literacy, numeracy and communication and that many vocational routes do not meet their requirements. That is evidenced by FE colleges collecting only £44 million from employers towards costs of some £4 billion. Employers in the United Kingdom spend £23 billion per annum on training, but they are not spending that money in FE colleges or schools. There is a serious dislocation between employers and vocational training facilities.
I am sorry to say that the UK is still in a poor position compared with our competitors. I apologise to hon. Members, but I have a barrage of statistics that illustrate our problem; I hope that they will not bore people. Only 28 per cent. of Britons are qualified to apprentice, skilled, craft and technical levels, compared with 51 per cent. in France and 65 per cent. in Germany. Some 36 per cent. of adults of working age, or more than 13 million people, some of whom are in Nottingham, North or in Boston and Skegness, leave school with few basic qualifications. That compares with 28 per cent. in France and 17 per cent. in Germany. The number enrolled in apprenticeships, already lower than in most European countries, fell by 20 per cent. from 2000–01 to 2001–02.
A serious issue is that 63 per cent. of all construction employers in the east midlands area, in which the constituencies that the hon. Member for Nottingham, North and I represent are situated, face difficulty in recruiting the relevant skilled staff. As construction activity in the east midlands is expected to grow by 15 per cent. in forthcoming years, there is a real problem.
Those statistics have enormous consequences. A recent Ofsted report showed than 80,000 pupils are being left behind by a curriculum that fails to engage them. Half of 16-year-olds do not achieve five GCSE grades. Indeed, the situation has recently deteriorated: 67,000 pupils left school at 16 without reaching that criterion in 2002 and 69,800 did so in 2003. The current curriculum is not working. The Government are leaving behind many people from the most challenging socio-economic backgrounds.
I agree with the Government that they should be looking into ways of altering the curriculum from the age of 14 at the very least. I await the results of the Tomlinson report with great interest. Skills and vocational training must not be put in an academic straitjacket, deterring applicants who cannot respond to the—if I may use the word—academicisation of skills and vocational training that the Government seem so set upon to meet their HE target numbers.
According to the latest quango established by the Government, the Learning and Skills Council, almost a quarter of companies reported a skills gap in 2002. That is a significant increase on the number in 2001. The CBI and the TUC have expressed their concerns. The vocational education route is flawed and the Government's solution to the provision of such education has been badly focused. The measures that are being taken are a start, but they are not enough. Fundamental problems still exist.
Those who choose to embark on a vocational route often find that the schemes and courses that are available lack coherence and relevance to employers. I
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am interested to know whether the hon. Member for Nottingham, North has views on how we can address that particular problem in schools, FE colleges or other educational establishments. Schemes that lead to limited job prospects discourage participation and progression. There are myriad vocational occupational qualifications on offer. The chief executive of the adult learning inspectorate said that there were
"2,000, where 100 would do."
The latest guide to British vocational qualification—the fourth edition—details more than 3,500 vocational qualifications. We need to consider streamlining.
Mr. Allen: Let me answer the question directly. One way in which we can mesh local employers with the people who are not yet being trained properly for the jobs that local employers view as important is by using the partnership that operates in Nottingham, North, which gave rise to the proposal. It involves the Learning and Skills Council, the local education authorities, and all the other partners and players working together. They see that there is a need and a resource and that all we need to do is to put things together into the right format so that employers can use that resource—the young people in Nottingham, North. They will benefit immensely from training, getting a foot on the ladder at the lowest level—their level of attainment—and working their way up from school to further education or even university.
The partnership is there and I urge the hon. Gentleman to consider its introduction nationwide. I know of areas in his constituency that are almost as tough as some in my constituency. If we can get the partnership working, the proposal may be applicable in constituencies such as his.
Mr. Simmonds: I am grateful for that intervention. All of us would agree with the sentiment that we must encourage all pupils to aspire and get on the education and skills ladder. I support the hon. Gentleman, but the detail of his proposal must be considered more closely. With regard to his other proposals for improving vocational and skills training, one major issue that must be addressed is the rigidity and division of current funding streams. They are under different areas of responsibility and per capita funding is significantly different between the pre-16 and post-16 age groups.
I would like the Minister to explain how the streams could be clarified if we were to take the route suggested by the hon. Member for Nottingham, North and if the Government were to introduce vocational training on school campuses from the age of 14. If a school allowed vocational training to take place from 14 to 18, would funding be significantly different and greater for those doing part 1 of the course compared with those staying on from 16 to 18 and 16 to 19? Under current arrangements, it would be different, which would cause absolute chaos. Part 2 of my hypothetical course would clearly be considered of less value and fewer funds and resources would be allocated to it.
Mr. Allen: The hon. Gentleman is generous in giving way again. Since we have the time, I will again put on record that the educational maintenance allowance is an issue in which I am sure that he will be interested. We

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must consider the funding of post-16 education. My constituency has piloted educational maintenance allowances and they have been very successful. The rate of youngsters staying on at school for academic qualifications has improved dramatically through the use of the EMA. Some of us would like to see a FEMA or further educational maintenance allowance. Now that we have, or hope to have, the grant restored, we could even go as far as a HEMA or higher educational maintenance allowance, ensuring a seamless transition of financial assistance paying people to learn at whatever level they want.
That reflects the point that the hon. Gentleman made about the plethora of qualifications. Youngsters often face a jungle of options. if you have considered that area, Sir Nicholas, you must have wondered, as I have, what on earth all the initials mean. How on earth can a youngster who may not be highly literate or numerate make headway or—to use the technical term—navigate the different possibilities? If we can sort out my proposal by looking at the seamless transition of funding to pay young people to learn and at clarifying the navigation of qualifications, we will be in the business of making matters much more simple and opening up education to many people who are lost to us.
Mr. Simmonds: The hon. Gentleman makes some interesting observations. The EMA scheme will be introduced nationally after having now been piloted. Some pilots were more successful than others. There are some issues with EMAs, as there has been a disparity of take-up and not everyone is aware of the possibilities. How is the different way in which local authorities have handled EMAs to be translated to a national basis?
The hon. Gentleman is right to highlight the plethora of qualifications, and I am pleased that he agrees with me about that issue. I do not know whether he has a view on this point—perhaps he will not intervene on me again because I wish to draw my remarks to a conclusion—but it seems slightly strange that just as society, students and employers have been getting to grips with NVQs, the Government have chosen to abolish them in 2007, with no significant replacement in place. That situation needs to be dealt with and considered very carefully. It would have been more sensible to await the full report from Tomlinson and to see what he suggests and debate it, rather than to abolish NVQs before knowing what will replace them.
I want to give the Minister time to respond to the excellent points made by the hon. Members for Nottingham, North and for Southport. In conclusion, it is important to state that our young people need a decent, basic education and well-thought-out vocational courses that are designed in close collaboration with industry and business. Vocational qualifications will only work if industry is closely involved with the design of the curriculum of courses, as is significantly the case on the continent. There is currently a lack of incentives for students and companies to take up vocational and occupational training. We have yet to see a replacement for the disastrous individual learning accounts. I notice that in "21st Century Skills: Realising our Potential", the ILAs were swept aside, and they are supposed to be dealt with by other initiatives included in that document.
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It is essential that provision of vocational education is at the core of any Government's education strategy. I hope that, once the HE funding debate is put to bed one way or another, we can turn our attention to this critical and important area. It is essential that we find ways to encourage 16 to 18-year-olds in Nottingham. North and across the country to aspire to remain in education and not to get out as fast as possible, as they currently do. That will benefit those young people and their families, communities, companies, employers, productivity and earning potential, and the economy and the UK's competitiveness in an increasingly global marketplace.
10.32 am
The Parliamentary Under-Secretary of State for Education and Skills (Mr. Ivan Lewis): I congratulate my hon. Friend the Member for Nottingham, North (Mr. Allen) on securing this debate. More importantly, I congratulate him on focusing in his constituency on the most important issue facing any Member of Parliament—the aspirations of young people and the learning aspirations of the entire community. We know that that matter concerns not only the success of our country in the long term, but the life chances of individuals who have been denied for far too long opportunities that many in our society take for granted. The community leadership role that he is fulfilling in his area is an example of what the modern Member of Parliament often does. It is not spoken about outside this House, but in considering the major challenges facing our constituencies, we ought to be central to the process of bringing together organisations and challenging them to meet the needs of our constituents. There is no more important area in which that is the case than education and aspirations.
I agree with almost everything that the hon. Member for Southport (Dr. Pugh) said, which slightly worries me. I hope that that will continue in the months ahead; I almost said years ahead, but in this business, talking about years is sometimes a little optimistic. To respond to the hon. Member for Boston and Skegness (Mr. Simmonds), I would say that we agree on much of the agenda. We all agree on the importance and centrality of vocational education. We agree that we have failed to address that issue successfully in this country through the generations, and we believe that it deserves as much attention and focus in public comment and debate as schools and universities tend to get.
We define our education system as schools and universities. We do not talk about vocational or further education, and it is important that we seek to change that situation. It is a source of regret that, despite so much consensus, a great deal of misinformation has been promoted in the higher education debate that seeks to present the choice as between higher education or vocational education. I believe not only that that is a false choice, but that it is deliberately misleading in the context of the present public debate.
Vocational education is vital because it is central to our success in two ways. First, from a social justice point of view, it is a key vehicle for ensuring that every individual has an opportunity to fulfil their potential. Secondly, from an economic success perspective, we continue to lag behind our competitors in productivity. Skills are a key driver of productivity, but far too many

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young people and adults in or close to the labour market still lack the skills that will be necessary if we are to achieve maximum productivity.
As my hon. Friend the Member for Nottingham, North and other hon. Members have said, the great challenge facing the English education system is the non-participation rate at 17. We continue to do well with primary education and reasonably well with graduate-level education, but the real challenge facing us is the fact that, compared with other countries, our drop-out rate at 16 is far too high, with all the damaging social and economic consequences that that brings. That was the central thrust of his argument.
We must also address a cultural problem. There is snobbery in this country towards vocational education. It is looked down on and seen as second class or second rate. Those who continue to talk about vocational education on the one hand and higher education on the other perpetuate the view that vocational education is in some way of secondary importance.
We must debunk some of the myths. Let us consider the relationship between vocational education and skills. More than 50 per cent. of existing higher education degrees are vocational. Foundation degrees will be a major part of the expansion from the current 43 per cent. participation in higher education courses to the 50 per cent. participation that we aspire to achieve by 2010. In response to the comments of the hon. Member for Boston and Skegness on further education, I can say that approximately 15 to 20 per cent. of higher education is provided via further education colleges. We should remember that a major part of the modern apprenticeship offer, particularly for the advanced modern apprenticeship, is the opportunity for young people to progress from apprenticeship into foundation degrees. Therefore, the suggestion that the choice is between more university graduates or more people with vocational skills is a dangerous misrepresentation of the challenges that the country faces. It is also a false analysis of what is actually happening in the expansion of higher education.
The concerns about 14-to-19 provision to which all hon. Members have referred reflect exactly why we asked Mike Tomlinson to look at an appropriate long-term phase of education that would really work and make a difference. We do not want rushed revolution, but gradual evolutionary change, so that we can put in place a sensible approach to such provision and get it right. We will ensure that the Tomlinson recommendations, to which we will respond in due course, lead to the coherence that hon. Members have spoken about.
In the meantime, we have already started to put in place many of the building blocks that are integral to a sensible 14-to-19 phase. The Connexions service focuses on helping 13 to 19-year-olds to overcome barriers that prevent them from progressing in education, but places particular emphasis on reducing the number of young people who are not in any form of employment education or training at all.
We introduced eight GCSEs in vocational subjects in September 2002. The first cohort of young people will take those GCSEs this summer. Although we will not know the details until we see the examination entry statistics, all the evidence on take-up of GCSEs in vocational subjects has been very encouraging.
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As my hon. Friend the Member for Nottingham, North said, educational maintenance allowances will be extended to all 16-year-olds from September. They are an important vehicle for supporting young people in making the choice to stay on at 16 and progress, rather than drop out. I say to the hon. Member for Boston and Skegness that, if we tell young people that we will have a big conversation with them about education being essential and about wanting them to stay on at 16, and also pay them an educational maintenance allowance, but simultaneously tell them that higher education will not be an option for them because we shall cap the number of places since there are not enough higher education resources for the young people whom we need to go through the system, we know what will happen. Young people are smart and sophisticated. They will reject the idea of staying on at 16 and 17 if they know that the realistic prospect for many of them will not be the opportunity of a higher education place.
We are reducing the core curriculum from September. The purpose of that reduction is to enable us to build a curriculum that can increasingly meet the needs of each young person. In the past, we have had a curriculum straitjacket. We would tell young people that there was a very narrow way on which they could stay and progress. They could be motivated and enthusiastic about it, but we know what happened if it was not right for them. It led to disengagement and to young people dropping out long before 16 and sometimes long before 14. The capacity to create a more flexible curriculum is exceptionally important. The opportunity to pick and mix academic and vocational courses is another way of building a more personalised learning experience.
One of the great challenges facing the education system in all its stages at the beginning of the 21st century was the concept of personalised learning or being able to build a learning journey around the needs of each citizen and make a reality of learning for life. We have not always been as good as we need to be at making the links between, for example, young people and adult skills, not only in the sense that to meet our skills needs we must improve the education of 14 to 19-year-olds, but because we must focus on adults such as the constituents of my hon. Friend the Member for Nottingham, North who missed out on opportunities that they should have had during their compulsory education.
We also need to make the link between adult skills and the raising of school standards. If adults are brought back into learning—mums and dads, grandmas and granddads—it is far more likely that they will see the benefit and relevance of education and have the skills and desire to support their children and grandchildren in their learning. That is important in relation to raising aspirations. Low aspirations permeate far too many families and communities.
We have also begun a process of flexibility for the 14-to-16 age group. Some 80,000 pupils from 1,800 schools, some of them in my hon. Friend's constituency, are spending part of the week in school and part of it at the local college of further education. In some cases, they are spending a day a week with a local employer. That is a very important start, as it is beginning to build a learning experience that turns young people on to learning, instead of turning them off. That is one of the major challenges. We hope to build on the 14-to-16 flexibility programme.

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Work-related learning will become statutory in the curriculum from next year. That means that all young people will, it is hoped, have the opportunity of access to high quality work-related experiences as part of the 14-to-16 curriculum. As hon. Members know, we intend to introduce enterprise education into the key stage 4 strategy.
My hon. Friend referred to the entry into employment programme. Very few people outside this House would know about that programme, and it is not generally known about even here. It is for a group of young people for whom modern apprenticeship, even at foundation level, is too difficult or challenging at their stage in their education, and it is intended to ensure that an offer suitable to every young person is available. Entry into employment is an attempt to provide opportunities for young people and to give them a chance at 16 to move from being unable to enter foundation modern apprenticeships to being able either to do that or to enter directly into a skilled job.
I get extremely frustrated when I read in the newspapers or hear politicians who should know better repeat that it is a shame that we do not have apprenticeships in this country. I hear that suggestion when I speak to business audiences or to educationalists and when I listen to public debates. I can understand why such comments are made, because a lot of people genuinely do not know about our apprenticeship system, but it is galling when Members of this House who do know about the system choose deliberately to say that we need an apprenticeship system in this country when 230,000 young people are currently undertaking modern apprenticeships. That is a major step forward in the number of young people choosing this option over the past two or three years. It does not mean that we do not have major problems, however, as our non-completion rate is too high, and we need modern apprenticeships that are more fit for their purpose in terms of the needs of employers.
None the less, it should be a cause of celebration for us that so many young people are choosing to do modern apprenticeships. In addition, the non-completion rate relates not only to drop-out in the traditional sense. Many young people and employers are choosing to regularise their relationship without finishing the apprenticeship course. That is not something I welcome, and we need to challenge it. However, I think we have a good start regarding modern apprenticeships on which we can build.
We have also asked Tomlinson to come up with coherent proposals about a long-term 14-to-19 phase of education. In direct response to the comments of my hon. Friend the Member for Nottingham, North, when we respond to Tomlinson's recommendations we must, in addition to deciding on the appropriate curriculum, assessments and pathway from 14 to 19, examine any of the policy barriers which may prevent that 14-to-19 education from working. One of those barriers is the financial arrangements, the funding streams and the relationship between LEAs and learning and skills councils.
Mr. Allen: I know that my hon. Friend is keen to respond to the points that I made in the debate and I am
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keen to hear his reply. I underline to him that reviews—whether they be Tomlinson, a strategic review of the learning and skills councils or whatever else—can sometimes be seen by those lower down the food chain as a reason for delay, as when they are told that they must wait for Tomlinson's report and for the Government's response. People need action. Some 1,000 young people in my constituency are about to leave school this coming June. I hope that he will ensure that there is a sense of urgency in moving these proposals forward, particularly where they are local and specific and need only promotion from the Minister's level, and that the issue will not depend on reviews and other excuses for postponement of action.
Mr. Lewis: I agree entirely with my hon. Friend's concerns. However, if national policy is to be sensible and coherent in 14-to-19 education, which we have never been able to make work properly even though successive Governments have attempted to address it, it is right and progressive to have established an external group of credible people who can look at the issue objectively. It was both a brave thing to do, because the Government lose control of the process, and the right thing to do. We have also empowered the more positive LEAs and local learning arid skills councils to overcome the barriers at a local level, to be imaginative and innovative and to look at local needs.
I shall deal in a moment with the points that my hon. Friend raised in relation to his constituency. First, I wish to refer to some of the work we have done in relation to vocational education more generally. It is important that we also mention the centres of vocational excellence, of which we now have a network of about 400, based in further education colleges and among post-16 providers generally. We are rebuilding both the capital infrastructure and the skilled personnel to deliver vocational education. We must not forget that we have, over many years, dismantled the capacity to provide high-quality vocational education, both in terms of capital infrastructure and having the necessary expertise—the skilled teachers and tutors who can deliver such education. It is exceptionally important that we are in a position to rebuild that.
As the hon. Member for Boston and Skegness said, the agenda will also depend on a much better and closer relationship between employers in the labour market and the education system. We said in the skills strategy that we needed a far more demand-led system. That is why the creation of the sector skills council network is so important. I hope that we will have most of those sector skills councils up and running by the middle of this year, and their job will be to inform the education system about what the needs of the key sectors in our economy actually are.
On the qualification system, in terms not only of Tomlinson and 14-to-19 provision, but of the Qualifications and Curriculum Authority shake-up of adult vocational qualifications, unitisation, credit transfer and all the things for which employers have been asking for generations, we are making rapid progress in creating a more demand-led system. I agree, however, that we have to do a lot better in terms of the relationship between the labour market and the education system.

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Turning specifically to Nottingham, North, the first thing I want to do is to pay tribute to the secondary schools in my hon. Friend's constituency for the progress that they have made. He says that the system is not good enough, that it is slow and that we need to do better. He is absolutely right. Every educationalist working in Nottingham, North would accept that view, but when people begin to make in-roads after years of depression, misery and feelings of helplessness, we should pay tribute to the professionals and people on the ground who have made that happen. I echo his tributes.
In the context of the debate about barriers, the schools, FE colleges and universities in my hon. Friend's constituency have come together in a very imaginative and innovative way to look at how they can work together within the existing framework to tackle the problem of low aspiration and break down some of those barriers. I agree that there are national policy issues, whether they relate to funding streams and financial arrangements or to performance measurement of individual institutions. It is still very important that there is transparency about the performance of institutions. I think that such transparency is one of the reasons why standards in our education system have improved.
If we are asking organisations to move from a culture of competition, which is what existed in our education system for decades, to a culture of collaboration and partnership, we are asking them not only to overcome some of the policy barriers, but to make a cultural change in the way in which they work together. "Partnership" is a much used and abused word. What we need is authentic partnership in which people are sometimes willing to put to one side the immediate vested interest of their individual institution and to look at the collective needs of young people in their community and at how the institutions can together ensure that those young people can have access to a high-quality, high-status offer that, more importantly than anything else, supports their progress.
I say to my hon. Friend that we have made progress in the secondary sector. We have tremendous collaboration and we have a university that clearly takes very seriously its responsibility to widen participation while contributing towards tackling the culture of low aspirations in his constituency that is getting in the way of so much of the progress that could be made.
My hon. Friend asked me some very specific questions, which I hope to answer reasonably satisfactorily. First, I shall be delighted to visit Nottingham, North in the near future. Secondly, if local organisations and professionals and the Member of Parliament representing the area believe that it is worth testing a model to see whether it can make a difference in raising aspirations and supporting progress, we should support that. We should not pretend that we know whether it is the answer across the country or even the answer to Nottingham, North's problems.
The hon. Member for Southport was absolutely right to make his point about further education colleges, but we have also made it clear that we do not believe in one-size-fits-all solutions, and it is wrong for us to seek to impose such solutions on communities that, frankly, Westminster and Whitehall do not know. It is the people who represent those communities and work and live in
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them who are in the best position to consider solutions that will, within a sensible policy framework, really address some of their problems.
I accept that there is an urgency about the situation in Nottingham, North, so as well as visiting the constituency, I shall certainly take a personal interest in developments in that community. If there is a significant consensus about testing out the provision of vocational education on a couple of school sites, why not give it a go and see whether it really does achieve a transformation in terms of young people's desire to stay on and progress? I agree with the view expressed by the hon. Member for Southport, who said that some young people's desire to stay on is increased because they prefer the setting of a college of further education, even though they may attend a stand-alone sixth-form centre in that setting, to staying on at school. However, we should not assume that that is the case for all young people. Frankly, we know less about this group of young people, why they are turned off education and how we can be more imaginative and innovative at turning them back on than we know about almost any other group of young people. Testing out ideas such as the one promoted by my hon. Friend and many of the stakeholders in his constituency is therefore perfectly reasonable and legitimate.
While I believe that that testing could be introduced because of the will at a local level, which is supported by us nationally and in terms of removing any unnecessary barriers and obstacles, I recognise that my hon. Friend also referred to the possible use of the power to innovate by either the schools or the LEA. That could be a vehicle for removing any unnecessary legislative obstacles or barriers that would get in the way of the development of these pilot or test-bed projects. I would be more than happy to work with him to see whether the legislative empowering opportunity created by this Government is an appropriate way of removing any other barriers that are perceived to exist.
We will have the kind of country that people of all political colours want only if far more young people achieve their potential in future. That will mean different things for different young people.
Mr. Allen: I thank my hon. Friend very much for the commitments he has just made. I wish to press him on the problem of Treasury and departmental funding and the interface between the LEA and the LSC. Will he also remove that particular problem, or consider doing so? I am being very greedy, but I appreciate his comments so far.
Mr. Lewis: My hon. Friend is a very demanding man, but the answer is yes. We have the power to innovate and strategic area reviews, and we have the "Building schools for the future" programme. When looking at the needs of a particular locality, there is no reason why we cannot make sense of opportunities and significant resources that have not been available in the past in order to deliver the objective that that local community wants. Providing that there is a clear consensus that the people of Nottingham, North want to test out the proposal to see whether it can support progression post 16, I will do everything in my power and the Government will do all they can to get rid of any of the artificial boundaries and barriers that are preventing that from happening.

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Finally, I congratulate my hon. Friend once again on securing this debate, which is significant not only for the people of Nottingham, North, but for the future of this country and the kind of education system that we need to create if we are going to be able to respond to the challenges of the 21st century. I hope that we will battle collectively to ensure that vocational education is discussed far more seriously and in a far more high-profile way than hitherto. We all know that such education will be central to creating the educational opportunities to ensure that every individual young person has the chance to fulfil their potential.
Sir Nicholas Winterton: The Minister sat down in the nick of time. I thank him for his reply.
The next debate, initiated by the hon. Member for Wellingborough (Mr. Stinchcombe), is about married quarters in Osnabrück. For those who do not know, I can tell them that Osnabrück is in Germany, as I served in the Army there.

Married Quarters (Osnabrück)
11 am
Mr. Paul Stinchcombe: Thank you, Sir Nicholas, for giving me the opportunity to bring before this Chamber the case of four of my constituents, Mr. and Mrs. Michael Smith and their two children—and, more particularly, their treatment by the British armed forces. I am also grateful for the presence of the Minister, who will shortly reply to the debate; I look forward to his reply with real hope. I hope that he will take this opportunity to undertake to look again at the circumstances that I am about to describe, with a view to remedying what I perceive to be the injustice that my constituents have suffered.
The cause of that injustice lies in an accident that took place four years ago at the Army base at which you, Sir Nicholas, once served. At that time, Mr. Smith was a warrant officer. He was a member of the British Army, serving in the Queen's Royal Lancers. Warrant Officer Smith joined the Army as a 16-year-old in 1977. In 2000, when the accident happened, he had served for nearly 24 years. He had an entirely unblemished Army record, and was approaching the time when he would retire from the forces.
Warrant Officer Smith's last posting abroad was in Osnabrück in Germany, where he lived with his wife and children as the tenant of his employer, the Army; he lived in Army married quarters on an Army base. On 23 May 2000, he went to work as usual, as did his wife; and their two children went to school. But it was not a usual day. When they were away from home, an accident happened—and it was some accident. At a quarter past midday, an explosion ripped through their quarters.
It is sometimes easy when speaking in the House to cross the fine line between a passionate belief in defending one's constituents and hyperbole, but I have seen the photographs of my constituents' married quarters after that explosion. Indeed, I have them with me. Their accommodation was completely destroyed, and with it was destroyed all my constituents' worldly possessions—everything that they owned. When the insurance man came to assess the damage, his jaw dropped and he called his office on the mobile phone, "It's all gone," he said; "It's all gone."
As I said at the outset, the explosion was an accident. It was not terrorism that destroyed my constituent's Army home, nor was it enemy action. It was not even the munitions stored on the base that caused the explosion. It was far more banal than that. A faulty gas pipe had been laid when the Army base was constructed in 1964. Some 36 years later, some German workers were working on that gas pipe outside my constituents' married quarters, but they were unaware that it was faulty. They disturbed it, and it exploded. It was as simple as that and, as the gas pipe exploded, it took my constituents' Army home with it.
However hard we try to do so I dare say that none of us will ever appreciate—unless something similar happens to us—how traumatic that explosion was for my constituents. We may not know what it feels like to lose everything—what it feels like to wonder what would have happened if the children had not gone to school that day—but we can try. After all, we know

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how violated we would feel if a burglar had entered our home and tinkered with our treasured and private possessions. How much more traumatised would we feel if that home was not simply entered and trifled with, but totally destroyed—and with it, everything that we had saved for, everything that we owned, everything that we cherished, whether of financial or sentimental value? How would we feel if we lost the entire physical record of our family life? My constituents lost absolutely everything—not just some furniture and some fittings, but all their furniture and all their fittings. The schedule of items that they lost covered seven pages.
Mr. and Mrs. Smith claimed under their household insurance, and one might reasonably feel that £18,000 of cover would be more than enough to deal with any foreseeable eventuality. After all, they were living in an Army home and did not have to cover structural damage, and £18,000 is surely many times more than even the most expensive household item. However, their household insurance did not cover the loss that they suffered, because they lost their entire household. That must have been wholly unforeseeable, especially in the secure confines of Army quarters on an Army base. Indeed, Mr. Smith told me that he never thought that he could lose everything in those circumstances. However, the day after the explosion, he had to spend £100 simply to replace underpants.
In the end, Mr. Smith recovered £18,000, but what he lost cost £40,000. After nearly 24 years' service in the Army, he was £22,000 down—he had lost nearly £1,000 for every year of service. That is not a great amount in the grand design of global army budgets, when one missile might cost hundreds of thousands of pounds, but it is a small fortune for a soldier's family on an ordinary income.
Understandably, Warrant Officer Smith looked to the Army and, ultimately, to the Ministry of Defence for a bit of help as the members of his family tried to rebuild their lives. One might intuitively feel that he had good reason to feel optimistic that the Army, which he had served for so long, would at least stand by him sympathetically. After all, it was his employer and his landlord, and he was not only serving with the Army but living on an Army base when a faulty gas pipe outside his Army married quarters caused the accident. Through no fault of the Smith family, their home was blown up, destroying everything that they owned and leaving them £22,000 out of pocket. No wonder Mr. Smith looked to the Army for help and support.
In January 2001, after Warrant Officer Smith had completed his service, the Ministry of Defence held a board of inquiry into the accident. However, the Ministry simply denied liability for the fault in the gas pipe that had caused the explosion, suggesting that Mr. Smith pursue the German workers who had disturbed the pipe or even the German utility company that had laid it. My constituents duly instructed lawyers, but they could not help either, because they soon discovered that, despite losing £22,000 through no fault of their own, the Smith family had no legal remedy against anyone for the shortfall. Like the Ministry of Defence, everyone else denied liability. The workers who disturbed the pipe said that they did not know that it was faulty when it was laid and that they had
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not been negligent. The utility company, which was at fault when it laid the pipe, pointed to the German equivalent of a statute of limitations. The simple fact was that the pipe had been laid so long ago that any right to make a claim had expired. My constituents therefore had no redress against anyone. Through no fault of their own, they had lost everything that they owned and received only partial compensation. They needed £22,000 simply to get back to square one, but no one was legally liable to compensate them for that loss.
It was in those circumstances that I first wrote to the Secretary of State for Defence, on 19 July 2001, to ask him to intervene. I said that Warrant Officer Smith had served his country loyally for 24 years, but that he had been denied compensation for his furniture and possessions, which were destroyed when his Army home blew up through no fault of his own. I said that that simply could not be right and that, at the very least, the Ministry of Defence had a moral obligation to do better. The then Under-Secretary of State for Defence replied on 8 August 2001. He told me that no compensation could be offered, because the MOD had no legal liability. On that basis, he washed his hands of any responsibility to help the Smiths out of the mess that they were in through no fault of their own. He washed his hands even though Warrant Officer Smith was in the Army's employ, living in its quarters, on its base and under its instruction when his family home blew up. The then Under-Secretary suggested that, instead, my constituents seek Army legal aid to pursue the German companies even though, for the reasons that I have already given, no such action could successfully be brought.
Sir Nicholas, you will appreciate that that response was received with disappointment by both the Smiths and by me. I wrote back to the Minister on 4 September 2001, pointing out that the German companies denied liability and that my constituents had been advised that they had no remedy against them, and I took issue with his assertion that the MOD could not compensate my constituents, whatever its legal obligation. I suggested that the Ministry could not be wholly without discretion in such a case. Even if it was not technically responsible in law for the devastation nor obliged to offer compensation, it surely had the capacity to do so it if thought fit, just as any employer in the private sector has the discretion to help an employee as a matter of good practice or good will—not least because it is in the interests of the morale of the entire work force and therefore serves the employer's interests as well.
I urged the then Minister to take independent legal advice as to whether the Ministry had the discretion to make an ex gratia payment. His successor Minister replied on 2 September 2002, stating:
"In common with other employers, the MOD does not provide insurance cover for its employees' personal belongings. It is the responsibility of the individual to ensure adequate insurance cover is arranged."
That answer is so thin and lame as to be an embarrassment. It does not even purport to answer the question that I asked. It was a simple question, amenable to a one-word answer—yes or no—and it still is, so I ask it again: has the Army the capacity in law to make an ex gratia payment to my constituent?

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Could it, if it thought the circumstances so exceptional that fairness demanded that discretion be exercised in his favour, exercise such discretion? I ask the new Minister directly, and hope that this time I will receive a response. Moreover, I expect that response to be yes—the MOD has the discretion to compensate my constituent if it wishes to do so. However, it has in the past refused to exercise that discretion for reasons that are apparent, if one looks carefully, from its replies about the adequacy of insurance cover.
If that is the answer, I urge the Minister, at this of all times with the eyes of so many on his Department, to reconsider three simple reasons. First, it is surely wrong to treat Warrant Officer Smith and the Army that he served like all other employees and employers. Warrant Officer Smith was a soldier with an unblemished record of 24 years, willing to sacrifice his life in the service of the Army and the nation. That alone deserves a degree of consideration from his employer beyond the bare legal minimum. Secondly, I do not believe that even the civilian world would act so shabbily. Imagine a corporate analogy to this case—that of a foreign banker posted to Canary wharf and put up in a company flat, in a company tower, secured by the company's security guards. I bet that if that flat exploded through no fault of the employee and he lost everything, the company would make up any insurance shortfall, because it would know how hard it would be to recruit a replacement otherwise. In which case, how can it possibly be right for our armed forces to offer less support to our servicemen than a bank might to its staff?
Thirdly, I ask for discretion to be exercised. It is simply wrong to assert that Mr. and Mrs. Smith had been negligent or irresponsible in failing to insure themselves adequately. They took out £18,000 worth of insurance, which was more than enough to cover all the risks that anyone could reasonably have contemplated. The problem was just that they had never contemplated that, living in Army quarters, they would run the risk of losing absolutely everything. Surely the Army should share some responsibility for the fact that the unthinkable happened on its base.
The then Minister ended his last letter to me with the words:
"I am content that taking account of the compensation already received, Mr and Mrs Smith have not been unfairly treated."
I do not share that confidence. Even taking the compensation into account, my constituents are £22,000 poorer—about the level of a ministerial salary before tax—through no fault of their own, simply because they were living in an Army home when it exploded into smithereens. Does the Minister believe the case to be fair? Does he want to send the message to potential recruits that they should join the Army, serve loyally, live in quarters on Army bases that get blown up and lose the lot, because there is no duty—neither legal nor moral—to house people safely? If so, overstretch might last for quite a while.
I do not come to this Chamber to ask the Minister for the world or even for a decision to compensate my constituents for everything that they have lost. I ask
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the Minister for just one thing: to promise at least to review the case, so that justice, even now, might yet be done.
11.16 am
The Parliamentary Under-Secretary of State for Defence (Mr. Ivor Caplin): I congratulate my hon. Friend the Member for Wellingborough (Mr. Stinchcombe) on securing this debate, which gives me the opportunity to explain the Ministry of Defence position on such an unfortunate subject.
Osnabrück garrison is one of five British Army centres in Germany. About 5,000 of the 23,000 British soldiers based in Germany are located there, mainly as part of 4 Armoured Brigade. The garrison's domestic accommodation consists of about 1,500 serving families' quarters, which, like all accommodation in Germany, are not Ministry of Defence property. Some 746 are provided by the German Federal Government, under the terms of a supplementary agreement to the NATO status of forces agreement. Federal authorities lease the remainder on behalf of the Ministry of Defence. However, the Department is responsible for the maintenance of those properties, most of which were built more than 50 years ago. We are already investing in a range of improvements to those properties, which I hope will be completed in the next few years.
We provide quarters to all service families who need them, under the terms and conditions of their service. Entitlement to quarters is governed by scales that define the appropriate size and type of building, according to rank and family needs. The taxpayer, because of the unique role of our armed forces, rightly bears the risks associated with that commitment, which in Germany includes those associated with any damage to the property itself. However, the taxpayer cannot be responsible for the personal property of our personnel. We therefore make it clear to all service personnel that they should make arrangements to insure their possessions adequately. We also provide facilities in Germany, through NAAFI and other commercial outlets, to make arrangements relatively easy for those who wish to use them.
My hon. Friend presents his case eloquently and with some emotion. I recognise and understand that, and I am sure that the House would also recognise it in these especially difficult circumstances. I am, however, disappointed that he implied that the Ministry of Defence has been unsympathetic to Mr. Smith and his family. He did not mention the support that Mr. Smith's unit gave his family at the time of the accident, nor did he explain the efforts made by Army Legal Assistance and the claims staff in Germany in pursuing the case with the German authorities.
The family were re-housed within 24 hours of the accident, having stayed with friends overnight despite being offered hotel accommodation. The new house was fully furnished at public expense, and the family were given the support of the community and a small amount of money from regimental funds to meet their immediate needs. Army Legal Assistance also provided the family with free advice and support for three years, and explored every avenue to find a way of helping them.
On 24 May 2000—the day after the explosion—the German public prosecutor appointed an expert in gas installations to conduct an investigation to ascertain the

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cause of the explosion. The expert's report was completed on 16 June 2000. It concluded that a gas pipe, incorrectly fitted probably as long ago as 1953, had caused the explosion, and that the work that Osnabrück municipal services was doing at the time was unlikely to be the cause. Following that report, a full board of inquiry was held. Its report was published on 8 March 2001, and gave three opinions. First, it confirmed that the explosion was caused by a gas leak from a pipe fitted incorrectly during construction in 1953, which may have been disturbed during routine maintenance by the local German authority on the day of the incident. Secondly, the tests, inspections and maintenance of the gas installations carried out under the authority of the British forces during the period before the explosion were of a standard over and above that required by legislation and, in any event. would not have detected the fault. Lastly, the explosion was probably inevitable.
The Ministry of Defence incurred costs of about £1,500 as a result of damage to public property caused by the explosion. In the light of conclusions drawn by the board of inquiry, our officials in Germany lodged a claim through the German Ministry of Finance, which acts as our agent under the treaty. At the same time, the German claims company, which also acts as our agent, sought compensation for Mr. Smith of slightly more than £22,000.
After some debate, the claim lodged by the Ministry of Defence was rejected on the ground that the German authorities were not responsible for damage to publicly owned property in these circumstances, and that it was not possible, after so much time, to identify the contractor who might be liable—a point rightly made by my hon. Friend in his opening remarks. However, the Finance Ministry was persuaded to reconsider Mr. Smith's case, as personal hardship had been caused by the faulty installation. The matter was therefore referred to the Federal Ministry of Finance in Berlin, which finally refused the claim on 7 May 2003. I know that the refusal of the claim was a disappointment to Mr. Smith, his family and my hon. Friend.
While handling these issues, advice was taken from German lawyers employed by Army Legal Assistance and our Treasury Solicitor's staff, and the German authorities consulted their own staff. I have reviewed these issues, and am sure not only that Mr. Smith's interests have been fully considered, but that the legal position has been examined extensively.
Mr. Stinchcombe: I am grateful for my hon. Friend's considered reply. He says that the legal position has been fully considered. I asked a question of law on which
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I invited the Ministry to take independent legal advice: does the Ministry have the discretion to help my constituents, even it is not legally obliged to do so?
Mr. Caplin: I am coming to that. I know that my hon. Friends a much better lawyer than I am; I am not one, for a start.
I want to answer the question that my hon. Friend has raised in his intervention and earlier as directly as I can. It is within the Ministry of Defence's capability to consider an ex gratia payment to compensate Mr. Smith. We have never claimed otherwise. Indeed, we have considered the possibility of doing so carefully on a number of occasions. We have also taken legal advice and have debated the issues over a three-year period.
The Ministry of Defence has pursued every legal option that it has been able to identify to help the Smith family. It has even consulted the family's insurers to make certain that we have not taken any action that could disadvantage the family. The company's advice was clear: it is obliged to ensure that no profit is made as a result of the accident. Mr. Smith had effectively declared the value of his possessions, which resulted in a payment by the company of £18,000 in full settlement. Therefore, if he were now to receive any form of compensation from the Ministry, the company would be obliged to recover part or all of the original settlement. The House might agree that that would be a pointless exercise and would merely cause the family more distress.
I also refute my hon. Friend's assertion about commercial companies underwriting their employees' risks. I accept that some people might be employed under such terms, but Mr. Smith was not. He knew that, but he sill decided to take the risk, contrary to his employer's advice. To make an ex gratia payment in this case would fly in the face of that obligation and undermine the basis on which all service pay and entitlements are based.
The Government repeatedly reassure the House of their commitment to the welfare of their employees and especially of those who serve in our armed forces and are asked to lay down their lives for our country. I give that assurance again today without reservation. It is at the centre all our policies throughout the Ministry of Defence, but it is also part of that commitment that we should treat each and every employee fairly and, I stress, equally.
Sir Nicholas Winterton: We thank the Minister for his reply.
11.28 am
Sitting suspended.

Spirits Bottles
2 pm
Sir Nicholas Winterton: Having had an excellent lunch, I am delighted that we shall be discussing strip stamps on bottles of spirits this afternoon.
Mr. Alan Reid: I, too, am delighted, Sir Nicholas, that Mr. Speaker selected this important subject for debate.
The Scotch whisky industry produces an excellent product and supports 41,000 jobs in Scotland, many of which are in remote rural areas where alternative employment would be very difficult to find. The islands of Islay and Jura in my constituency are world famous for their excellent single malts. The seven distilleries in Islay and the one in Jura provide much needed employment on those islands, and any proposal that harms the competitiveness of the Scotch whisky industry would have a devastating impact. The Government should also bear it in mind that the whisky distilled on Islay and Jura is a huge source of revenue for them.
There are also distilleries in Campbeltown, Oban and Tobermory.
Mr. Michael Connarty rose—
Sir Nicholas Winterton: This is rather early for an intervention.
Mr. Connarty: It is never too early for a talk over a tot of whisky. Before the hon. Gentleman talks about lesser brands, I should say that he will welcome the fact that the new owner of Whyte and Mackay, which owns the Jura brand, is investing £20 million, much of it in a new bottling plant in Grangemouth in my constituency. Extra burdens such as the strip stamps make such investment less attractive.
Mr. Reid: The hon. Gentleman makes the important point that the strip stamp scheme places extra burdens on the industry and makes investment in bottling plants, distilleries, or in any other part of the industry, less attractive. I want to talk a bout that threat later.
As I said, the industry provides employment in remote communities, and there are distilleries in Campbeltown, Oban and Tobermory, as well as in Islay and Jura. The whisky begins its life in the remote parts of Scotland, but it also provides much employment in Scotland's industrial areas in bottling plants and other parts of the process.
The Scotch whisky industry, like the rest of the legitimate spirits trade, is very keen to stamp out duty fraud, but it is also concerned, with some justification, about the cost implications of the Government's strip stamp proposals. The Government do not dispute the increase in cost. The pre-Budget report states:
"The Government recognises that the implementation of tax stamps in particular would involve increased costs to the legitimate trade."
In the report, the Chancellor declared his intention to make provision for legislation in this year's Finance Bill to put strip stamps on all bottles of spirits sold in the
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United Kingdom. The legislation is intended to come into effect in 2006. The Chancellor also said that he would not introduce it if the spirits industry proposed what he considered to be a workable alternative. I will talk about the alternatives later, but first I want to talk about the strip stamp scheme.
The Government originally proposed a strip stamp scheme two years ago, but rejected it because Ministers accepted that the measure would have a severe impact on the legitimate spirits trade. It has been estimated that the scheme would cost the Scotch whisky industry £280 million. Costs would be involved in altering production lines and bottling plants so that stamps could be fixed to the bottles. Administrative costs would be involved in security and in procedures for handling the stamps, which would be valuable commodities, worth £5.48 each in excise duty. There would also need to be procedures to deal with damaged stamps.
Tax stamps would make free and open European trade impractical. Currently, the destination of bottles is unknown at the production stage, but a tax stamp scheme would force producers to decide at the bottling stage whether bottles were destined for the UK market or abroad. That would reduce flexibility and inevitably increase costs.
The main cost of the scheme, however, would be incurred in buying the stamps up front, long before the industry could recoup the money by selling the bottles. At present, duty is paid only when the bottles are sold. Having to buy the stamps at the bottling stage would mean that the industry had to find extra working capital, with consequential interest repayments. As I said, the total cost has been estimated at almost £280 million.
The Government have said that there may be a deferred payment scheme, but their current proposals lack detail. That must be remedied, and the system must be clarified. The Scotch Whisky Association told me that it had received no information about how the system would work. The pre-Budget report also lacks detail. It states that:
"once tax stamps were implemented, the Government would consider…how the current deferment arrangements for spirits duty could be extended as far as practical in recognition of the cash flow effects of purchasing tax stamps".
In other words, the Government will consider the possible deferment of duty only after the scheme has been implemented. They intend to invite the House to pass legislation, but they will explain how it works only after it has been implemented. That is simply not acceptable. The Government must tell us beforehand how the scheme will work and, in particular, whether there will be arrangements for deferring the payment of duty until after the bottles have been sold. Announcing a scheme without giving details of how it will work is bound to cause confusion. I should remind the House that whisky must mature for at least three years before it can be legally marketed as Scotch whisky. For premium brands, the period is many more years than that. The industry must therefore plan well into the future, but it cannot do so if the Government will not release details of a scheme that they plan to implement in two years' time and which could be very costly to the industry. Even the threat of such a scheme could damage the industry.
Ideally, I would like the Economic Secretary to the Treasury to announce today that the Government have decided to abandon the scheme, but I suspect that he will

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not do so. However, I expect him to give details of the scheme that he proposes and, in particular, to tell us whether there will be arrangements to defer the payment of duty and, if so, what they will be.
Experience abroad suggests that tax stamps have little impact on fraud. Several countries, including the United States, Greece and Ecuador, have abolished their tax stamp regimes. Others, such as Germany, Belgium and Norway, pulled back from introducing schemes in the first place. Hungary has tax stamps, but estimates suggest that illicit goods account for between 15 per cent. and 20 per cent. of the market. That is similar to Government estimates of fraud in the UK, so tax stamps do not appear to have worked in Hungary. The situation is even worse in Poland, which has tax stamps, but where about 80 per cent. of Scotch whisky is believed to be contraband. Other experience from overseas suggests that high-quality forgeries would appear within months and become common in the UK. Indeed, with duty at £5.48 a bottle, there would clearly be a strong incentive to produce forgeries, so the only growth industry as a result of the proposals would be counterfeiting.
The Scotch whisky industry also has significant reservations about the level of fraud suggested by the Government. The Government estimate that £600 million of revenue was lost in 2001–02 because of spirits fraud. That would mean that roughly one bottle in six of the spirits consumed in Britain is sold without the duty being paid. The Scotch whisky industry believes that that is a serious overestimate. If the Government's estimate is correct, 200,000 bottles—about 12 container loads—disappear every day. Nobody in the trade experiences the market disruption that would result from fraud on anywhere near that scale. Where is the Government's evidence? If the Government's estimate were correct, there would have been a 37 per cent. increase in spirits consumption over the past 10 years. Where is the evidence for that? If the Government's estimate that fraud is increasing were correct, we would also expect a decrease in legitimate sales. However, legitimate sales increased significantly in each of the last three years, which is more likely to imply a decrease in fraudulent sales.
The Government appear to lack confidence in their estimates. The Customs and Excise document "Measuring and Tackling Indirect Tax Losses", which was published last December, states:
"The scale of spirits fraud in 1999–2000 has been revised downwards."
Clearly estimating duty fraud is an inexact science. The Government now admit that they overestimated it in 1999–2000. How can they be confident that they do not still overestimate it? The Government cannot introduce a tax scheme that would be hugely expensive to legitimate industry without more convincing evidence.
In order to tackle fraud effectively, it is important to know which drinks were being sold without duty being paid. I therefore tabled two questions for the Chancellor. The first asked how many bottles of whisky and other spirits Customs and Excise had seized in the previous 12 months because duty had not been paid. The second asked how many prosecutions there had been for evading duty on whisky and other spirits in the previous 12 months. In reply to my first question, the Economic Secretary to the Treasury said:
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"The information is not available in the format requested. HM Customs and Excise central records collate the volume of spirit seized but do not distinguish the specific type of spirit."
The second question received a similar answer:
"The information is not available in the format requested. HM Customs and Excise central records collate the number of successful and unsuccessful prosecutions which involve spirits duty fraud but do not distinguish the specific type of spirit for which a prosecution is brought."—[Official Report, 6 January 2004; Vol. 416, c. 224W.]
In other words, the Ministers who propose the costly tax scheme do not even know how much of each spirit has been seized or over which spirits prosecutions have been brought. That is fundamental intelligence in the battle against fraud. I urge Ministers to do their homework first before urging costly measures against a legitimate trade.
Following my lack of success, I tabled another question for the Chancellor for answer on a named day, 12 January, to ask how many prosecutions there had been for evading duty on spirits in the most recent year for which figures were available. I thought that if Ministers could not break the data down into whisky and other spirits, I might be told the total. However, it was apparently too difficult for them even to find the answer to that question, and I am still waiting.
George Lyon, a Member of the Scottish Parliament and colleague, has had more success in eliciting an answer from the Scottish Executive, who revealed in a written answer that there had been only two prosecutions for duty fraud in 2001 and three in 2000. A total of five prosecutions in Scotland over two years hardly suggests fraud on a massive scale. The answer also revealed that the number of prosecutions had fallen year on year, from 27 in 1997. That backs up the Scotch Whisky Association's view that the fraud trend is downwards. The low number of prosecutions in Scotland indicates either that the level of fraud is low or that Customs and Excise is not devoting resources to the problem. The Government have not answered with the prosecution figures for England and Wales, but the Scottish figures show that there is not a major fraud problem and that the trend is downwards.
The Scotch Whisky Association, like all legitimate businesses, is keen to stamp out fraud and has put forward suggestions to the Government. They include additional monitoring, targeting and controls by Customs and Excise, where the patterns of trade are known to constitute the highest revenue risk. For example, investigations could be mounted where a new customer is buying in bulk or where unusual trading patterns emerge. The success of targeted measures has already been proven. There has been a recent steep decline in the amount of illicit spirits entering the country at ports, because that trade was targeted. I hope that the Minister will say today why the Government rejected the risk-based approach to tackling fraud proposed by the entire drinks industry last year.
Other Government proposals in the pre-Budget report for changes in the regulations have been proven uncontroversial. They include changes to the regulations governing warehouse keepers, producers and owners of duty-suspended alcohol, new requirements for the notification of cash transactions and advance payments and a scheme for recognising transporters with good compliance histories. Therefore, other methods could be introduced.

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Whisky companies have sophisticated tracing systems, such as numbers on the bottom of bottles. The legitimate trade can use its tracing system to find out where bottles have disappeared from the legitimate supply chain. If, as the Government allege, 200,000 bottles are being sold illegally each day, why has the industry not received a stream of inquiries from Customs and Excise to discover the source of those bottles?
One suggestion that the Chancellor could implement to eliminate most of the duty fraud immediately would be to reduce the duty on spirits to the same level per unit of alcohol as is imposed on wine. The big incentive to the criminal is the excessively high duty imposed in the UK on spirits, but not on other drinks.
I have some questions for the Minister. First, how will the proposed tax stamp scheme work? Secondly, why does he think it will work in the UK given the failure of similar schemes abroad? Thirdly, how does he justify the Government's estimate of the level of fraud, bearing in mind the low number of prosecutions in Scotland? Fourthly, why does he think the industry's alternative proposals to tackle fraud will not work?
The proposed stamp scheme would impose huge costs on the legitimate trade and would penalise the honest trader rather than the criminal. It threatens jobs in remote communities, such as Islay, Mull, Jura, Kintyre and Oban, where alternative employment is hard to find. The Government's estimate of the level of fraud is unconvincing. The proposed scheme failed in other countries. The Government should work with the industry to eliminate fraud and should throw these expensive proposals where they belong—in the waste bin.
Sir Nicholas Winterton: I congratulate the hon. Gentleman on his introduction to this important debate. It is my intention to try to call the Front-Bench spokesmen at 3 o'clock, commencing with the Liberal Democrat spokesman. If the other hon. Members who wish to speak can adjust their speeches accordingly, everyone will get in.
2.18 pm
Mr. Michael Connarty: This is a timeous debate, because it shows that all Scottish Members have realised the impact of the Chancellor's announcement and have reacted swiftly. I congratulate the hon. Member for Argyll and Bute (Mr. Reid) on choosing this as his topic.
I thought that the hon. Gentleman was a little rosy and one-sided in his arguments, but I can understand why, given that he is deeply embedded in the isles where whisky is produced. However, there must be balance in the debate. Obviously, people will ask whether there is fraud, and we must conclude that the answer is yes. The evidence may be considered anecdotal, but I have certainly seen some evidence of fraud. Bottles of the golden spirit were sold on industrial premises where I worked or that I was passing through for a lot less than the price I might have expected to pay in shops. I can only conclude that someone, somewhere was not paying the full price to the Revenue, given that most of the cost of a bottle goes to the Revenue in taxation.
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The issue is whether the Chancellor's proposal is disproportionate to the situation in which we find ourselves. As I have said in questions to the Secretary of State for Scotland, there was during the last Parliament—some hon. Members present were not then Members of this place—a general acceptance by the industry that fraud was a problem. The scale of fraud has always been under discussion, but the industry took seriously the Chancellor's admonition that it must do something about the problem or he would be forced to do so through a method such as the strip stamp, prepaid excise duty. There was agreement that the industry would do something significant to convince the Chancellor.
As we all know, it is difficult to convince the Chancellor about anything that would reduce his direct revenue take from enterprises or individuals in this country. I thought that the industry would take the matter much more seriously, but those on whose behalf I am openly arguing—people from the industry—do not think that the industry took it seriously enough. Whatever was said by the hon. Member for Argyll and Bute about what it might do, it is clear that it has not done enough to convince the Chancellor that sales of whisky and other spirits to the public without excise duty passing to the Treasury have been stopped, slowed down or reduced significantly.
Mr. Alistair Carmichael: Does the hon. Gentleman accept that the dialogue must be two-way? It is incumbent on the Chancellor and the Treasury to satisfy the industry about the scale of the problem, as significant doubts exist. A great deal may have to be done to improve relations between the industry and the Treasury if the Treasury figures are put to an independent audit.
Mr. Connarty: My suggestion to the Secretary of State for Scotland was that he should become involved in the debate—a meeting is planned for February—and that he seek some way of homing in on exactly how much fraud is taking place.
The Scotch Whisky Association stated that
"the industry has produced some figures suggesting the trend in spirits fraud has been falling, not rising,",
which was the point made by the hon. Member for Argyll and Bute,
"and that the level of fraud may be as little as one quarter"
of the Customs and Excise estimates. If that is true, an obvious question would be how much impact the stamp proposal would have on the industry and how negative it would be compared with the benefits to the general taxpayer. Possibly other hon. Members, like me, enjoy a small measure of a good single malt whisky, but we do not have a right to deny the people of the United Kingdom their proper tax take from it.
I do not accept the argument that we should treat whisky like wine. Anyone from lesser nations who suggests that the golden liquid should be treated as disparagingly as wine is totally wrong. There is no

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sensible argument that would be supported by the Scottish people, never mind the British people, for reducing the excise duty on whisky to that on wine.
Angus Robertson: Will the hon. Gentleman give way?
Mr. Connarty: I will not, because it was a trivial point and the hon. Gentleman will probably make a trivial intervention.
The Scotch Whisky Association makes a good point about the Chancellor's estimate of £600 million: in order to lose that amount of money, 12 container loads, or 200,000 bottles of whisky would have to be lost every day. I could say a lot about lack of staffing, vigilance, or other things in Customs and Excise, but I do not think that it would lose 200,000 bottles of whisky a day en route. Therefore, there is an argument that the Treasury claim is a bit exaggerated. If we were losing that amount of revenue, it would imply that there has been a 37 per cent. increase in total worldwide spirit consumption since 1992–93. I do not think that there has been such a massive increase, so, again, there is an argument that the Treasury's estimates go too far.
Fraud estimates seem to have gone up and down in the past three years. The estimate for 1999–2000 has changed: at first it was £450 million, then it went up to £500 million, then, in December, it came back down to £350 million. Funnily enough, that drop is equivalent to the purported saving that could be achieved using the strip stamp method. How can we get a proper audit? It is clear that excise duty is not being paid on all spirits. There has been a lack of application to the problem from the Scotch Whisky Association and, possibly, the Wine and Spirit Association, because the Chancellor was not driving them hard enough. When dialogue stops because one side stops asking a question, it is difficult to know whether someone should try to answer the original question. I think that the association was asked what it would do to stop fraud if we did not use strip stamps, but it has not properly answered that.
The likely impact of strip stamps will be increased costs and reduced competitiveness in the industry in general, but I want to focus on the impact on small producers and bottlers, because they are what I know best. As the hon. Member for Argyll and Bute said, it is not just a matter for the islands and the remote parts of Scotland. The impact would be substantial in many areas in Scotland that are considered to be fairly industrial. Grangemouth, in my constituency, has a major bottling plant, which is about to get a massive investment, thank goodness, from the new owners of Whyte and Mackay, which is talking about putting £50 million into marketing its brands—I will not list them all, although I did mention Isle of Jura and Dalmore earlier, of which I am very fond. They are good in both reputation and taste.
Many other areas would be affected by the proposal, including Fort William, East Kilbride, Airdrie, Broxburn, Tomatin in Inverness-shire, and the Isle of Arran. In Glasgow, there are five cases in which business would be affected. They include major employers and investors in the bottling industry and in the administration of the whisky industry. They would be affected disproportionately, not in the same way as larger owners such as Diageo.
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For smaller producers, such as Whyte and Mackay, the cost would be £33 million. Extra working capital would have to be raised to buy strip stamps, unless the scheme was moderated from the one proposed by the Chancellor three years ago. Putting excise duty strip stamps on bottles some time before money is retrieved from their sale, would cost companies an estimated £2 million in profit, which is a lot for a company that is about to invest £20 million in bottling and production and £50 million in marketing. It is a substantial argument against investment. Many investment houses would say, "The risk has gone up, the profit level has gone down, let's find something else to invest our money in." I hope that Whyte and Mackay's decision to build a brand-new bottling and processing plant at Grangemouth will not be affected by the Chancellor's decision, but I have no guarantee that it will not be; it could be seriously affected.
Angus Robertson: I commend the hon. Gentleman for starting to make a case in support of the Scotch whisky industry and remind him of the answer he received from the previous Secretary of State for Scotland, the right hon. Member for Airdrie and Shotts (Mrs. Liddell), almost a year ago, in which she stated that her office was heavily involved in the campaign to stop strip stamps. As the only Scottish Labour Member present in this debate—my apologies, I now notice that the hon. Member for Dumbarton (Mr. McFall) is sitting behind me—is the hon. Gentleman aware of the present Secretary of State for Scotland making any similar efforts in support of the campaign against strip stamps?
Mr. Connarty: I recognise that my hon. Friend the Member for Dumbarton (Mr. McFall), the Chairman of the Treasury Committee, is present in this debate, as I would expect. The reply by the Secretary of State for Scotland to me indicated that he does, in fact, take this seriously. He did rehearse some of the arguments that I have made as to whether there is a case to be answered about fraud, and he seemed to accept the Treasury figures, but his reply suggested that he is open to engaging in the debate, and l hope that we will be able to convince him that the level of fraud does not require such a draconian measure.
We must introduce a fair system that neither denies the UK its proper revenue nor encourages criminality, because it is criminal for so much whisky and other spirits to be sold by back-door methods without the excise duty being paid so that the revenue is lost. We want a "win-win" situation: a fair system that is not punitive towards the industry—certainly not towards the small producers, such as Whyte and Mackay, which I represent—but which allows the revenue that should be paid to be paid.
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Mr. Geoffrey Clifton-Brown: I congratulate the hon. Member for Argyll and Bute (Mr. Reid) on securing this debate. I declare my interest, if it is such, as the chairman of the all-party wine group.
It might help to set the debate in context if I were to quote exactly from the Chancellor's pre-Budget report, which gave rise to this matter:
"I have two announcements on whisky and spirits. While tobacco fraud, VAT fraud and oils fraud are now in decline, recent trends suggest that despite the freeze in spirits duties for six

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Budgets, an estimated one bottle in every six of spirits sold in this country is evading duty, so I will now make provision to implement in the next financial bill the Rogues report recommendation that we stamp spirits bottles. If, after discussion with the industry, there is still no workable alternative proposed, we will legislate. If we have to impose stamping, the Economic Secretary will discuss with the industry the most cost-effective scheme and I will then consider extending the freeze on the duty on whisky and all spirits, not just for one year but for every year of this Parliament".—Official Report, 10 December 2003; Vol. 415, c. 1066.]
That came completely out of the blue to the industry; it had had no prior consultation on this matter whatsoever. The Government are using the threat that if the industry cannot come up with a solution to avoid what the Government see as £600 million of duty evasion—I will come on to whether that is a realistic figure in a moment—this measure will be imposed on the industry, it seems, no matter what damage it does. The hon. Member for Argyll and Bute is, therefore, absolutely right. The damage that this proposal will do to the industry is clear.
The industry is very important for UK taxpayers. Excise duties on spirits, beer, wine and man-made cider and perry raised £7.3 billion in 2002–03, and of this, spirits raised £2.27 billion. The industry is a very large earner for the Treasury, and it would be very foolish to put it at risk—and particularly the scotch whisky industry, with its jobs in rural locations such as those that the hon. Gentleman mentioned on Jura.
As I pointed out, the Chancellor said in his report that Customs and Excise estimated that £600 million in revenue was lost in 2001–02 as a result of spirits fraud of around 16 per cent. of the total spirits market. That amounts to £1.6 million, or about 12 container loads, or some 200,000 bottles being lost every single day. There is no evidence that the fraud is anywhere near that level. Customs and Excise says that this would imply a 37 per cent. increase in total spirits consumption since 1992–93. Surely it is very easy to discover by audit procedures whether that is the case.
The Government have consistently indicated confidence in their figures. When they first published Customs and Excise estimates of spirits fraud in 1999–2000, the figure was £450 million. Last year, these estimates for 1999–2000 were increased to £500 million, but in the December 2003 pre-Budget report the same figure had fallen to £350 million, a fall equivalent to the purported saving achievable from the use of the stamps.
The industry believes that the figures are wrong. Its estimate of the methodology is relatively complex and involves a series of intermediate assumptions and calculations each with scope to introduce margins of error. According to the Scotch Whisky Association's gap analysis, based on the Office for National Statistics survey data—a more straightforward gap methodology than that of Customs and Excise—the level of fraud has been reducing since the mid-1990s, reflecting a wide range of Government and trade anti-fraud measures. Under this analysis, revenue loss from illicit trades has fallen from £250 million in 1999–2000 to between £100 million and £150 million in 2001–02. If the industry's figure is right, one has to consider what the compliance costs and all the difficulties of introducing these strip stamps would be.
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I refer to an article by Mr. Jack Hibberd of Harpers News, in which he says:
"The government's estimate that implementing the stamps will cost the industry no more than £20 million were also dismissed."
The Government both exaggerates the duty that is lost and severely underestimates the compliance costs. The article goes on:
"The Wine and Spirit Association (WSA) said stamps would cost £250 million to introduce".
Here we have the industry saying that fraud is £150 million and the cost of introducing stamps would be £250 million. The measure would be nonsense. The WSA goes on to say that stamps would
"reduce bottling-line efficiency by 10 per cent. or, if applied manually, add £1 to the cost of every case. Producers would need to buy tax stamps (strips of hologram paper, with a number code proving duty has been paid, that are applied over the top of the bottle) in advance at a cost of £5.48 each."
You, Sir Nicholas, enjoyed a good lunch. I do not know how many bottles you had, but you can imagine the difficulties that a factory would face in having to put a sticky label over each of them. You can also imagine how much time and, therefore, effort would be involved in putting extra sticky stamps on each bottle.
The WSA also says that
"it was estimated the cost of adapting bottling machinery to apply the stamps"
would mean that the industry would
"have had to find an extra £250 million of working capital to pay for the stamps upfront. Aside from the cash-flow implications the interest on that capital would have amounted to approximately £15 million a year."
It says that there are
"additional security concerns with holding and transporting the stamps"
as well as
"market access problems for overseas importers. The cost implications for small specialist importers may mean they are priced out of the UK market as a result of this proposal".
There will also be a costly
"requirement to administer differing product streams for the UK and overseas markets where stamps are applied at source".
We have a number of examples where the stamps are used. Hungary, for example, has stamps, yet illicit goods account for some 15 per cent. to 20 per cent. of the market—a figure far higher than here. Evidence from central and eastern Europe is that genuine tax stamps can be used to disguise breaks in seals after refilling has occurred, and unscrupulous traders use stamps to add authenticity to counterfeit products.
Tax stamps cause an obstacle to free trade. UK tax stamps would force distillers to maintain country-specific stocks, forcing up costs and fragmenting the single market. Any industry moves to challenge stamps overseas will be inhibited and a damaging precedent set. Export markets might seek to follow the UK, causing damage to international competitiveness. Of course, at the end of the day, it is the poor old customer who has to pay.
We are told that Customs could do a number of things to reduce such fraud. I recently visited Dover with the all-party wine group to see what Customs was doing to reduce fraud, and I pay tribute to those officers who

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stand day in day out in some pretty filthy weather examining vehicles coming through Dover. With the limited numbers they have, they do a jolly good job.
In discussions on the Finance Act 1997, when the Government proposed to cut the number of Customs officers, I pleaded with the Government to increase the number of officers and to introduce a machine that would X-ray an entire lorry. I am glad to say that both those things have now happened. The X-ray machinery very quickly detects not only the contents of the lorry, but any hidden cavities and even illegal human traffic coming through Dover. I urge the Government to introduce more of these undoubtedly incredibly expensive pieces of machinery to more ports of entry. That might cut the amount of fraud.
The fraud mainly operates because of the system of duty suspension that has been created to facilitate alcohol trade. This system allows registered traders or warehouses to take part in a process that involves not paying duty and keeping goods in an approved warehouse. The registered traders then pay the duty nearer to the time that they sell the goods. Duty becomes payable on the goods only when they are released for consumption or acquired by an unregistered individual.
There are two types of fraud: outward diversion and inward diversion. We were told clearly by Customs that paperwork is fraudulently altered so that a cargo going to or from a warehouse does not arrive at its intended destination, but simply disappears. It would be quite easy to produce the paperwork or the information technology that would stop such fraud. When one considers that a consignment of whisky is worth £250,000 or more, just one load going adrift involves a significant loss to the Revenue.
No one in the House would say that the Government and Her Majesty's Customs and Excise should not try to tackle whatever fraud exists, but there are better ways to do it. I commend five courses of action. The Government could establish a specialist team to check and discredit the paperwork covering the movement of duty-suspended goods; they could implement a tougher HGV seizure policy targeting those hauliers who fail to conduct simple checks to ensure that they are not caught up in fraud; they could commence the redeployment of 146 additional assurance officers to strengthen the Excise holding and movement system; they could start a review of all warehouse approvals; and they could increase the resources deployed to exercise intelligence and research. If all that work were done properly, it could cut the amount of fraud.
The Roques report to the Government in July 2001 made eight recommendations: a more rigorous approach to the approval of warehouses; tightening the registration procedure for warehouses and the owners of goods; improving information on the holding and movement of excise goods when duty has not been paid; improving the exchange of information with other member states; increasing the checks on warehouse compliance with holding and movement regulations; tightening controls on hauliers; the deployment of additional staff; and the very last was considering the use of tax stamps for alcohol. The Economic Secretary to the Treasury is aware that a cross-party group managed to persuade the Treasury in 2003 not to introduce these stamps. I hope in view of what I and other Members have said—it clearly demonstrates that
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such a scheme would be extremely damaging to the UK spirits industry—that a better way can be found to reduce fraud than the scheme that the Chancellor has outlined.
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Mr. Alistair Carmichael: I add my congratulations to those already offered to my hon. Friend the Member for Argyll and Bute (Mr. Reid) on securing this debate, as he has a substantial constituency interest in the subject. As ever, he has prosecuted his constituency interest assiduously and with vigour. He also continues to represent many members of my family, so I am pleased to see that their interests are in good hands.
The Government's proposals will of course not affect only the Scotch whisky industry; they will also affect the large number of gin and vodka and other spirits producers in this country. However, I believe that the Scotch whisky industry has a special case. As my hon. Friend indicated, distilleries are often to be found in smaller, rural, peripheral communities, if I can call them that. As the hon. Member for Falkirk, East (Mr. Connarty) said, there are still a number of smaller players in the industry, and I will speak of one later. The maturation process means that the money that was invested by the distilling companies in Scotch whisky is very much a long-term commitment. There are also industrial enterprises that are exceptionally sensitive to any downturn in the wider economic picture, and that has an impact on local communities.
One of my principal concerns about the Government's proposals and the way in which they have been brought forward is the damage that will be done to the relationship between the distilling industry and different Departments, particularly the Treasury. As well as having an interest in Scotch whisky, the hon. Member for Falkirk, East and I share an interest in the offshore oil and gas industry. He will know that the Government went to considerable effort to build a good partnership arrangement with the industry through the pilot project. They then undid a lot of that good work in one stroke with the changes that they introduced overnight to the corporation tax regime.
I cannot help but notice that a parallel situation is developing. I counsel the Minister strongly that the work that has been done with the industry is in danger of being lost. The Government must properly address and state their case for the scale of the problem that they perceive. The figures have been explained by hon. Members already, and I will not go over them again, but it is incumbent on the Government to say, "This is our working. This is the result that we have reached and, as an indication of our confidence in it, we will make that working available for independent scrutiny and audit." We can then, perhaps, make a realistic estimation of the scale of the fraud and whether the long-term trend is upwards, or, as indicated by the figures given to the House by my hon. Friend the Member for Argyll and Bute, downwards.
On the subject of smaller players, my constituency has a rare beast. That is a new distillery, which is in the process of construction, and a company that is trying to break into the market for the first time. I have Orkney Highland Park distillery, which is no longer producing,

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and the Scapa distillery, which are long-term, well established, highly respected brands. The Shetland distillery company will be in the very different position of trying to come into the market against the background of the need for long-term maturation and so on.
I spoke today to the director of Blackwoods Distillers, the company concerned, and she estimated that the cost per bottle would go from somewhere in the region of £2 to £6 with the addition of the duty stamp. That will require a massive increase in the working capital of that small, vulnerable, new business. I do not know how it is going to address that problem. I hope that the Minister has some comfort for Blackwoods Distillers and other small distilling companies, because to place that sort of burden on them to compensate for difficulties with Customs and Excise, to which the hon. Member for Cotswold (Mr. Clifton-Brown) referred, is simply not good enough.
That is a business that already produces Shetland gin and vodka, and which recently won a gold medal at the world spirits festival in Austria. So, we are talking about a quality product. It will be threatened by the Government's attitude and their insistence that the industry should bear the burden. As the hon. Member for Falkirk, East said, there has to be two-way traffic. As the industry has to play its part, so should the Government accept their responsibilities. To date, we have seen little sign of that
2.49 pm
Angus Robertson: I praise the hon. Member for Argyll and Bute (Mr. Reid) on having secured the debate. It is important for many of us who represent whisky-producing areas. I declare an interest in that I am a vice-chairman of the all-party Scotch whisky group, and more than 50 per cent. of Scotch malt whisky is sourced in my constituency. One would be hard pressed to find any major blended whisky without a significant Speyside malt component, so this damaging proposal is obviously of concern to me and to people on Speyside. It also impacts on parts of the country that do not necessarily produce whisky, but bottle, label or sell it or depend on the tourism bonus that whisky provides.
As has been mentioned, the Chancellor announced last December the latest detrimental Government proposal—whisky strip stamps. Within only 18 months of their being ruled out, we are set to see their possible return in an ineffective and inefficient attempt to tackle fraud. Sadly, they will damage this key industry, at home and abroad. This and previous UK Governments have maintained duty discrimination against Scotch whisky while claiming to be its friend. The hon. Member for Falkirk, East (Mr. Connarty) said that that was a trivial point. The level of duty is not a trivial point; it is very serious. One does not have to come from Dufftown to realise that it is perverse to be able to buy a bottle of whisky in Portugal at a fraction of the price that one pays in the country where it is produced.
Not only have we the perversity of discrimination against a leading product made in Scotland, but now we see the latest chapter in the targeting of the industry by a Treasury that views it as a cash cow. That is
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detrimental not merely to captains of industry but to the people who work in the industry and in the parts of the country that depend heavily on it. The hon. Member for Argyll and Bute rightly highlighted the financial burdens on the industry, and the hon. Member for Orkney and Shetland (Mr. Carmichael) the detrimental effects on new entrants to the whisky market.
However, there are other negative consequences. Earlier today, I spoke to a number of whisky producers on Speyside to find out their views of the proposals—the views not of the Scotch Whisky Association, the Scottish National party or other MPs representing whisky-producing areas, but of those who work in the industry on the shop floor. They said that it is a labour and logistical nightmare. The prospect of having to apply strip stamps to everything from miniatures to special bottlings, as well as maintaining separate stock for different markets, is a frightening one. They asked,
"Why is any of this necessary when bottles are already clearly differentiated with a lot number?"
and I asked, "What is a lot number?",
I had never examined a label closely enough—I tend to concentrate more on the quality of the whisky—but every bottle has a lot number. I examined a small bottle of whisky that I have stored away for medicinal reasons. There it is: a series of digits that clearly identify the brand, the bottling line, the distillery and the cask. Apparently, one can make an audit trail even to the very second when the bottle was filled with whisky. So, the question was a good one: why are strip stamps to be imposed when there is already an audit trail to the whisky? If the information exists on every bottle of Scotch whisky, why is that not being used to help in the enforcement that everybody recognises to be crucial for tax revenues? We should support 100 per cent. Customs and Excise and all who work in the area. Everybody wants to minimise fraud, but surely we should use the method that we have to create an audit trail rather than reinventing something that, going by the evidence elsewhere, clearly does not work.
One does not have to look far to find examples. Norway, is Scotland's closest neighbour outside our islands. In 1997, the Norwegians adopted legislation to introduce strip stamps, but in the end, and despite the country's strict anti-alcohol legislation, they decided not to proceed. The move towards strip stamps was then opposed by the UK Government, on the advice of none other than the Department of Trade and Industry. The UK Government were advising the Norwegians not to do it. They told the Norwegians:
"The proposed regulations…would constitute a barrier to trade for the following reasons."
They went on to say that the regulations would
"discriminate against imported alcoholic beverages…are likely to be inefficient and ineffective as a means of combating fraud and illicit trade…are disproportionate and conflict with the principle of the free movement of goods…will cause many practical and technical problems in respect of, for example, labelling and storage of alcoholic beverages; and…will involve significant additional costs for the industry in fulfilling these requirements".
What has happened since then? What has changed so dramatically that that advice is now wrong? Hon. Members should be entitled to an explanation of why the situation has changed so radically that the advice is now fundamentally flawed.

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The European Commission has given warnings about the costs and difficulties posed by strip stamps. The 1999 Fiscalis seminar in Oporto concluded:
"The existence of different duty marks in different formats and made of different materials requires frequent changes on production lines and makes it necessary to keep stocks of different duty marks and markers, resulting in increased costs for producers operating in the Single Market".
When the United States removed strip stamps in 1985, the US Department of Treasury said:
"The stamps have only negligible value in evidencing compliance with the law and payment of excise taxes".
Why, then, do the UK Government think the complete opposite; why are they now thinking of using them? Spain and Greece also say that strip stamps are the wrong way to help in the battle against fraud—a battle that we all support.
In the last few minutes left to me, I shall ask the Minister some direct questions. I hope that he can answer them. First, can he answer the question left unanswered by his right hon. Friend the Secretary of State for Scotland during questions last week? I asked whether the Secretary of State could name a single industry figure or trade union representative working in the Scotch whisky industry who was in favour of the introduction of strip stamps. Secondly, does the Minister agree that paper stamps are a 19th century solution to a 21st century fraud, and in view of the damage that strip stamps would inflict on the competitiveness of the industry, will he undertake to visit the industry to see at first hand the impact of the proposals? Thirdly, can he tell us whether a tax stamp design has been approved, and what design measures will be used to prevent stamps from being forged?
The Government would do themselves a huge favour if they withdrew their daft and damaging proposal. If they do not, they will reinforce the impression that Scotch whisky is viewed by the Treasury as a cash cow. The will be acting in a detrimental manner, which will add to overheads, increase regulation and cause barriers to investment and to new market entrants. The Government were right to turn down strip stamps 18 months ago. They should do so again.
Sir Nicholas Winterton: Before I call the last speaker, I can tell the hon. Member for Dumbarton (Mr. McFall), the Chairman of the Select Committee, that I am sure that he will be able to speak in an intervention, but I am obliged to call the hon. Member for Knowsley, South (Mr. O'Hara), who has been present for the whole debate.
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Mr. Edward O'Hara: I shall speak briefly, Sir Nicholas.
I speak with diffidence, being among so many indigenous experts on the Scotch whisky industry. However, as has been said, there are other producers. The products of Halewood International in my constituency are quite well known; they include Lambrini and Red Square vodka mixers and other unmixed spirits. I have no doubt that there is fraud: I see it all around me. Another aspect concerns me, however; I see young people in my constituency being debauched by those illicit products.
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I do not doubt that the Chancellor must introduce a measure. The only two questions are whether it is effective or cost-effective. There is a great deal of technical evidence from other countries of measures either not being introduced or being discontinued because of doubts about effectiveness, and good technical advice has been given on the problems of cash flow that are caused to small companies such as Halewood International.
In my brief time, I simply wanted to make those few points. I could have made more, but I hope that the Economic Secretary will take account of my views.
Sir Nicholas Winterton: Before I call the Liberal Democrat spokesman, I am indebted to the hon. Member for Knowsley, South (Mr. O'Hara) for his responsibility and honour in keeping to the timetable that I requested.
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Dr. Vincent Cable: I add my congratulations to my hon. Friend the Member for Argyll and Bute (Mr. Reid) on the forceful and compelling way in which he made the case on behalf of his constituency and for Scotland. Having lived in Scotland for some years, I am well aware of the importance of whisky both to the economy and to Scottish consumers. I confess that I remain deep down a rather boring Sassenach with a strict aversion to the drink, but I none the less recognise its importance to the UK economy.
I examined the pre-Budget report, and one of the more striking figures was that the revenue that the Government get from spirits, which is £2.4 billion—most of which is from whisky—is actually larger than the revenue from the North sea in the form of petroleum revenue tax. It is a major source of Government revenue, and policy has to be carefully crafted to get it right. There is a strong element of consensus, for which the hon. Member for Falkirk, East (Mr. Connarty) was reaching, in recognising that there is a fraud problem. It is inevitable that there will be fraud when there is a major gap between cost and sale price. That is the rent that attracts criminals.
We are not disputing points of principle. We are debating three issues of detailed implementation. The first concerns how much fraud there is. The second is whether the strip solution works, and the third, which the hon. Member for Knowsley, South (Mr. O'Hara) added, is whether the solution is cost effective. I shall touch briefly on each of those points. In relation to the size of fraud, the hon. Member for Cotswold (Mr. Clifton-Brown) gave a helpful range of the variety of figures that people come up with, from between £100 million and £150 million a year according to the industry, to £600 million a year from the Government's point of view.
It is important to have a consensus figure. I noticed, again in the pre-Budget report, that the Government are counting on bringing in an extra £175 million a year by 2006–07. That is their own estimate of the amount of fraud they will reduce in the form of increased excise taxes. It would be interesting to hear the Economic Secretary explain how that figure is derived, and the margin of error that surrounds it.

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There is no point in arguing that someone is right and someone is wrong. My hon. Friend the Member for Orkney and Shetland (Mr. Carmichael) put his finger on the point: an independent audit is needed. It could be carried out by the National Audit Office or by an independent audit company, but someone should look at the competing figures and come up with a sensible, balanced, middle-of-the-road assessment of how much fraud takes place.
The second problem concerns practicality. The industry asserts that one problem with the strips is that they can simply be forged. They are old technology and not immune to forgery. Is that true? If it is, it knocks a gigantic hole in the technical feasibility of the proposal. Have the Government carried out any cross-country studies of the practicalities? Numerous hon. Members, such as the hon. Member for Moray (Angus Robertson) and others, have set out specific examples of countries in which the proposal has either been rejected on grounds of technical unfeasibility or has been tried and found not to work.
The country that I noted in the literature was Poland, which has such a system, but where an estimated 80 per cent. of the market is still contraband. In other words, the system is very easy to evade. It is the Government who are changing the system; the onus is on them to demonstrate that it will work.
The third point is about cost-effectiveness. As a Treasury spokesman, I would be tempted to support the Government if the proposal brought in substantial additional revenue. However, it has to be balanced against the costs of enforcement and compliance, and what they will in turn mean for the price, sales and revenue of the product. We need a proper cost-benefit study, and I sense that no proper economic evaluation has taken place.
When other Departments introduce complex regulations, they are required to undertake a regulatory impact assessment that is evaluated by the Cabinet Office. I have no evidence of the Treasury or Customs and Excise embarking on any such assessment. It would be interesting to know whether such a study has been undertaken or contemplated, and when it will be published.
Several colleagues have drawn attention to the fact that, in the Government's assessment, the proposal was likely 18 months ago
"to have a severe impact on the productivity and compliance costs of the spirits industry"
One must ask what has changed since then. Several colleagues have explained, step by step, some of the compliance costs. One may need more staff to apply the strips, or the company might have to invest in equipment, which costs money, for a production-line approach. As a result of the imposition of strips, the production line will be slowed by an estimated 10 per cent.
I know very little about the industry but I understand that at the high end there are very small batches of different quality, all of which must have separate excises attached to them. The administrative costs are substantial. My hon. Friend the Member for Argyll and Bute stressed the cash flow problem because the excise is
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paid up front but sale takes place later. That means the industry requires working capital with all the costs that that entails. The hon. Member for Cotswold came up with the figure for all compliance costs of £250 million, which has been carefully worked through with the industry. I have heard nobody contradict it.
Where are the benefits to offset those considerable costs? If the costs are correct, where are they passed on? They must be added to the price of the product. We know that price is important in the whisky industry because when the right hon. and learned Member for Rushcliffe (Mr. Clarke) substantially increased the duty on whisky in one Budget, there was a substantial fall in sales. Governments have since learned their lessons. The industry is very price responsive, which means the proposed increase in costs will cause a fall in sales and revenue. None of that logic seems to have been thought through by the Treasury or Customs and Excise.
It is incumbent on those of us who are critical of the proposal to suggest what should be done. Clearly, there is a problem and some action must be taken. The hon. Member for Cotswold had a helpful list of action to take on compliance and enforcement. It must be intelligence-led with Customs and Excise, and the police must take action.
I have one rather self-promoting suggestion. I recently introduced a private Member's Bill on counterfeiting, which is one of the main sources of fraud and evasion in this country. That legislation is now on the statute book and it provides increased powers and penalties that enable the authorities to act against counterfeit whisky and other products. As far as I am aware, no action is being taken to use the legislation because of a deficiency of trading standards officers and resources and because Government authorities are failing to use the powers that they have. Much stronger action can be taken using the legal machinery and departments that already exist before we resort to a technically and economically questionable measure.
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Mr. Mark Prisk: I congratulate the hon. Member for Argyll and Bute (Mr. Reid) not only on securing a timely and useful debate but on his excellent exposition of the issues.
As we gathered from you, Sir Nicholas, all Members have what we might politely describe as an interest in the subject. I hope that the Minister noted that there is cross-party concern. It is clear that the spirits industry is vitally important to the UK economy. The Scotch whisky industry exports about 90 per cent. of its sales, which represents about £2,000 million in exports for this country.
The Government have told us that they wish to impose tax stamps on spirits because they believe that that will prevent fraud in the UK spirits market. Only last Tuesday, the Secretary of State for Scotland told the House:
"It is estimated that about 16 per cent. of the spirits market has been subject to fraud, amounting to about £600 million."—[Official Report, 13 January 2004; Vol. 416, c. 651.]
What is the basis for that assertion? After all, a 16 per cent. fraud rate is neither recognised nor accepted by any leading member of the spirits industry. When one talks to the people and organisations involved in the

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industry, such as the Scotch Whisky Association, it is clear that they believe that those figures are wrong and misleading. The figures distract us from the central question of tackling the issue.
I add my congratulations to the hon. Member for Knowsley, South (Mr. O'Hara), who perhaps gave us all a lesson by making his points in less than three minutes. He is quite right. The issue is cost effectiveness. As the hon. Member for Argyll and Bute said, if the figure that the Government are asserting is correct, the much discussed 200,000 bottles must go missing each and every day; that is an extraordinary figure when one stops to think about it. The Gin and Vodka Association of Great Britain shares the view that that figure is distorted. The question we must ask is this—on what is the figure based?
As several Members have shown, the problem seems to be that the figures on which the Government base their estimate are unclear and, for the most part, they run counter to much of the other evidence. Both the surveys used by the Office for National Statistics—the national food survey and the family expenditure survey—are based on a rather complex methodology, which does not, for example, reflect the true amount of customs clearances. They therefore make assumptions on incomplete and opaque data, as my hon. Friend the Member for Cotswold (Mr. Clifton-Brown) highlighted.
The Rogues report, commissioned by the Paymaster General in 2000, estimated that spirit fraud peaked in 1995–96 and that that type of fraud would steadily decrease from 1999–2000. Given that evidence, and the Government's statement in December—just a month ago—that customs clearances have risen significantly, the claim of £600 million in fraud seems completely at odds with the other evidence.
Although Her Majesty's Opposition recognise that fraud is an ongoing problem that should be countered, we are not convinced or persuaded by the Government's figures, and nor is the industry. I therefore ask the Minister to accept that if anti-fraud measures are to work, they must be based on accepted and verifiable data. If that is so, and I trust that he will agree that it is, what is the evidence for the claim of £600 million in fraud? Just as importantly, will he confirm that he will still accept representations on the question of the scale of the problem? After all, the industry want to work in partnership with the Government, and only such partnership will provide a sustainable solution.
The question is not only about flawed data, but about a proposal that is both crude and ineffective in seeking to deal with the problem. Many people are worried that the measure will end up damaging industry without getting to the root of much of the illegal activity. In April 2002, the Chancellor himself dismissed tax stamps as a viable option. A Budget press release stated:
"The Government also decided against the introduction of tax stamps on bottles of spirits, which would have significantly increased industry costs, and instead announced plans to work with the spirits industry to tackle the problems of fraud."
That is a direct quote, taken today from the Inland Revenue's website.
Why have the Government changed their mind? We know we know that tax stamps can be easily forged. Several Members have referred to that. With UK duty
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at £5.48 a bottle, the incentive for forgery is strong. Forged stamps add authenticity to illegal products, thus confusing customers and undermining their confidence in the industry.
We also know that tax stamps would damage UK exports by imposing significant costs on the spirits industry and undermining its international competitiveness. Colleagues have mentioned several different estimates of the cost to the industry, and the figure of £250 million mentioned by the Liberal Democrat spokesman, the hon. Member for Twickenham (Dr. Cable), has yet to be disputed. Such disproportionate costs to the industry completely undermine the Treasury's argument, given that the Government hope to recover only £160 million in lost revenue.
Spirits manufacturers would also face cash flow problems. The hon. Members for Moray (Angus Robertson) and for Orkney and Shetland (Mr. Carmichael) highlighted the fact that many businesses run on small profit margins. They would have to buy strips of stamps outright, but might not see a return on their outlay for some while. The problem would be especially acute at the smaller end of the industry, where price sensitivity and competitiveness are intense.
Is it any wonder that many of the countries that have considered a tax stamp scheme, which may even have started going down that road, have rejected the proposal as inefficient and ineffective? As the hon. Member for Argyll and Bute said, Greece, Ecuador and the United States abolished tax stamps, Belgium, Germany and Norway backed off introducing them once they realised their true impact, and the hon. Member for Moray told us of the Government's fascinating intervention in Norway's case. Hon. Members have highlighted one reason for such uncertainties—the example of Poland, where, bizarrely, 80 per cent. of the Scotch whisky that is sold is believed to be contraband, despite the fact that tax stamps are in place.
This debate is timely because it gives us a chance to ask the Economic Secretary to think again. To that end, several excellent suggestions have been made, not least by my hon. Friend the Member for Cotswold, but I want to deal with the alternative suggested by the industry in response to the consultation initiated by the Economic Secretary's office last July. The industry proposed that we take a risk-based approach instead of introducing a tax stamp scheme. It suggested that trade be categorised in three different ways: approved routes, notifiable routes and non-approved routes. Let me briefly explain what those mean. Under procedures for approved routes, Customs and Excise would regulate with a light touch, and companies' procedures would be subject to Customs and Excise audit. Under the provisions for notifiable routes, traders would be presumed to act with due diligence, but notification might be triggered where a new customer or unusual trading patterns emerged. Under the procedures for non-approved routes, additional Customs and Excise monitoring and controls would apply to movements with the highest revenue risk, such as those involving an unusual pattern or suspicious orders. By focusing on higher-risk movements, we would have a better chance of dealing with lost revenue while not placing an unfair burden on legitimate trade.

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No detailed feedback on those ideas has so far been forthcoming from Customs and Excise. What is the Economic Secretary's view of taking a risk-based approach as an alternative to implementing tax stamps? What is the Treasury's response to the specific ideas that were presented to the Government last year? When the hon. Gentleman replies, I hope that he will be able to reassure us that his mind is open to new ideas and his door to new representations. After all, it is no more in the industry's interest for fraud to take place than it is in the Government's interest for revenue to be lost.
3.19 pm
The Economic Secretary to the Treasury (John Healey): I pay tribute to the hon. Member for Argyll and Bute (Mr. Reid) for securing the debate, which is timely and topical. I also welcome the tone of his argument and that of all hon. Members who have participated. As the hon. Member for Hertford and Stortford (Mr. Prisk) said, there is clearly cross-party concern about the issue.
I recognise that the hon. Member for Moray (Angus Robertson) speaks for a very strong constituency in Speyside, but the accusation that the Treasury sees the Scotch whisky industry as a cash cow could not be further from the truth. The cost of the latest freeze in the series of duty freezes that we placed on the spirits industry is £40 million to the Treasury. I say to him and to the hon. Member for Twickenham (Dr. Cable), who expressed concern about what happens in other countries, that more than 40 countries to which Scotch whisky is exported retain and find a use for strip stamps as part of their duty regime. Some countries—Spain, Portugal and Italy—allow the stamps to be applied in Scotland before export.
My hon. Friend the Member for Falkirk, East (Mr. Connarty) rightly urged us to ensure that the debate was balanced and to implement a fair system for the industry that does not deny the criminality that bedevils the spirits sector more widely.
My hon. Friend the Member for Knowsley, South (Mr. O'Hara) reminded us of the damage done to communities throughout the United Kingdom by the illicit alcohol sales that we need to stamp out.
The hon. Member for Hertford and Stortford asked me whether the Government and I are still accepting representations on the scale of the problem, which I recognise is a subject of debate and close examination. We not only accept, but actively encourage such representations and discussions with the industry.
As the hon. Member for Cotswold (Mr. Clifton-Brown), who chairs the all-party group on wine, rightly said, this is an important industry for the UK economy and taxpayer. I welcome his comments about the work of Customs and Excise. We do not intend, as he suggested or feared, to implement measures that will put the industry at risk.
I agree with the hon. Member for Orkney and Shetland (Mr. Carmichael) that Scotch whisky has a special place in the spirits industry.
I say to all hon. Members who participated, and to the hon. Member for Argyll and Bute in particular, that I recognise concerns about the proposed set of measures
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and the harm that some fear they may cause to the Scotch whisky industry. I know that the industry shares those concerns. Following the pre-Budget report, there has been an unprecedented period of detailed discussion with the industry and with other concerned parties, including hon. Members. Officials have had 16 meetings since the report. I have met representatives of the leading producer associations such as the Scotch Whisky Association, the Gin and Vodka Association and the Wine and Spirit Association, and I plan further meetings with the key trade bodies.
I am delighted to see my hon. Friend the Member for Dumbarton (Mr. McFall), who is treasurer of the all-party group on Scotch whisky, in his place. I offered to continue the debate by attending a meeting of the all-party group. He bit my hand off, and we have fixed on 3 February, so I can tell the hon. Members for Argyll and Bute and for Moray, who are vice-chairmen of the group, that we may continue our discussions beyond this afternoon.
My hon. Friend the Member for Dumbarton also invited me to Scotland to visit a couple of distilleries, which I will visit later next month. I also aim to see the representatives of the Scotch Whisky Association during that visit.
As my right hon. Friend the Chancellor of the Exchequer said in his pre-Budget statement, and as we confirmed in the pre-Budget report—[Interruption.] I will give way, but I am anxious to cover the many points that hon. Members have raised.
Mr. John McFall: I thank the Minister for that announcement, and for his positive engagement over several years with the all-party group. However, the pertinent issue is the integrity of the figures for fraud. He mentioned that I chair the Treasury Committee, and he knows that there may be an opportunity for Customs and Excise to present its annual report to that Committee in the future. If that happens before the Budget, it will be thoroughly examined on the integrity of the figures, because competitiveness and productivity are crucial to the industry.
John Healey: We recognise that that is an issue. As my right hon. Friend the Chancellor made clear in the pre-Budget statement, we would welcome workable alternatives to the proposals on tax stamps that would have a similar impact on spirits fraud. If we have to introduce strip stamps, we shall carefully consider the costs to the industry of compliance. We shall also consider the case for freezing the duty on spirits for the rest of this Parliament and how deferment arrangements could be extended to address the concerns about working capital that some hon. Members have expressed. I should like to extend the invitation for constructive discussion and examination of workable alternatives not only to the hon. Member for Argyll and Bute, but to all hon. Members who have participated in this debate and to those who will continue it through the all-party parliamentary group.
The Government recognise the importance of the Scotch whisky industry and the UK spirits industry generally. My right hon. Friend the Chancellor has been doing his bit: in six straight Budgets we have frozen the

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duty on spirits, which is the longest continuous freeze since the 1950s. That means that the standard bottle of spirits now bears nearly £1 less in duty than it did in 1997. It is important to the industry and us that the UK retains its integrity and is not undermined by the activities of fraudsters. Like the hon. Member for Argyll and Bute, I pay tribute to the industry's declared determination to clamp down on such fraud.
The Government have been determined to tackle alcohol fraud, and we have largely done so as regards cross-channel smuggling. However, our central concern remains fraud in spirits, which is a complex activity that exploits the alcohol trade's very particular structure. The centuries-old system is designed to facilitate trade, but is also vulnerable to abuse by fraudsters. Diversion fraud, which hon. Members have so clearly explained, accounts for most illicit alcohol duty losses.
Let us be clear: the fraudsters are no Robin Hoods. They are not helping hard-done-by drinkers to get round our tax rules. The people behind the spirits diversion frauds are in organised criminal gangs that are often involved in other illicit activities. The vast majority of illicit spirits are sold through retail outlets, usually at normal market prices, without the drinker, or in many cases the retailer, being any the wiser.
The rise in spirits fraud has come despite customs action following the Rogues report, which many hon. Members mentioned. That work, which includes an extra 214 staff who are dedicated to alcohol assurance and anti-fraud work, is in addition to the valuable work done on the trade through the joint spirits fraud task force. Despite that, the fraud is not being significantly hit, nor could it be so, realistically speaking. A further consultation, led by my office, was held over the summer, as a consequence of which Customs will
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introduce a package of regulatory measures that are designed to tighten up some of the vulnerable points in the alcohol distribution and duty suspension system. However, those proposals are modest and incremental, and will not, in isolation, have a significant impact on fraud.
The consultation contained options aimed at reducing movement and sales of undutied, unsecured alcohol. We proposed to place a limit of one or two movements on sales in duty-suspended goods destined for the UK market. However, it became clear in detailed discussions with the trade that those proposals would not be effective, since EU law prevents us from limiting duty suspension for goods sourced from outside the UK and requires us to allow goods bound for other EU states to leave under duty suspension. There is also evidence that some retailers would either source more spirits from abroad or move their warehouse operations abroad to avoid a more restricted regime for intra-UK movements.
In sum, against the background of a worsening problem, success in tackling fraud in other excise regimes and the apparent lack of alternatives, the implementation of a tax stamp system on spirit bottles is a necessary and proportionate step. We recognise, however, the questions that the industry has raised about the figures, and we are sharing data to try to settle its doubts. The chancellor has made it clear that he wants to see whether an effective and workable alternative can be found. We shall discuss with the industry the most cost-effective way of implementing tax stamps if we need to. We shall consider the possible costs for the industry of complying with a tax stamp system, and we shall consider extending the duty freeze for whisky and other spirits not just for one year but for every year of this Parliament.

Learning and Skills (Somerset)
3.30 pm
Mr. Ian Liddell-Grainger: I am delighted to have secured this debate on a topic that is extremely important in the county of Somerset.
Last week, when I was told that I had been fortunate enough to secure this debate, my telephone started ringing. The callers were from Somerset county council. They sounded very twitchy. The county council's education department wanted to know what I was going to say. I could sense the panic in the callers' voices and I suspect that they are still panicking. Perhaps they thought that I was about to blame them for every single thing that has ever gone wrong in Somerset's schools and colleges.
Sir Nicholas, you may not be aware that my last intervention on the subject of education, which was in an exchange with the Prime Minister, led to Somerset county council passing a censure motion against me. All that I did was ask a question. I was trying to find out what had happened to the Government money paid to Somerset to spend on education. Many people in my constituency, teachers and parents included, believe that a lot of that money has been deliberately withheld. However, the county council does not like Members of Parliament interfering, so, I am told, it reported me to Mr. Speaker. I have news for Somerset: Mr Speaker seems to have ignored the council. He and I maintain the most cordial of relations, and I rather doubt that I would be standing here today, talking about education again, if that were not so. In fact much of what I want to highlight is extremely positive.
In Bridgwater, we are immensely proud of the achievements of Bridgwater college. It is an outstanding example of what can be done to provide first-class further education and skills training.
Mr. Adrian Flook: My hon. Friend mentions Bridgwater college. It is true that a number of my constituents in Taunton go to Bridgwater college, as I am sure a number of my hon. Friend's constituents go to Richard Huish college, an excellent academy for sixth-form learning, and to the Somerset college of arts and technology, which is based in Taunton. We are in agreement, and will he join me in congratulating those colleges too?
Mr. Liddell-Grainger: As usual, my hon. Friend is extremely eloquent in his defence of Taunton. He does a marvellous job, and I completely agree with him. Many of my constituents go to SCAT and to Huish, and they get a marvellous education there. As one may not speak about matters outside one's constituency, I bang the drum manfully for Bridgwater college.
It is a tribute to the dedication and hard work of its staff that Bridgwater college has been recognised at national level. I am sure that the Minister will endorse these remarks with his own congratulations. Such success, however, can illustrate problems elsewhere. My constituency is extremely large and contains very different communities. Bridgwater is a bustling industrial town, with a first-rate college. Minehead, at the other end, is best known as a seaside holiday resort, surrounded by the beautiful west Somerset landscape on
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the fringe of Exmoor. It is the home of the West Somerset community college, which has also achieved glowing testimonials but which is lower on the financial food chain than Bridgwater. It is a very good place to get a qualification, but it is only a community college. It could certainly do with some extra money spending on it. It must expand in order to compete. The Somerset learning and skills council would like to bolster West Somerset community college and introduce improvements, but money is the key; there is not enough.
I am not here to bleat for additional resources just for the sake of it, as the Liberal Democrats often do. My concern is more strategic and has a bearing on rural constituencies throughout the country, because a first-rate college such as Bridgwater is, by its reputation, bound to be a more attractive proposition for some students than a local college, however good that college may be. Inevitably, the best colleges act as magnets, and magnetism can be an extremely powerful and potentially disruptive scientific force. It is no secret that every day hundreds of students are bussed to Bridgwater college from all over Somerset and beyond. That is a daily round trip of 100 miles, and more in some cases. Bully for Bridgwater, but what about common sense and costs?
I can give the costs straight away. Somerset county council's school bus budget is in deficit to the tune of £800,000. For once, I do not think that that is entirely the county council's fault—I hope that it is listening. Budgeting for school buses has always been a lottery, but it becomes more absurd if councils are forced to second-guess the decisions of students to take up college places scores of miles from their homes.
Somerset has six colleges of further education. Further education is big business in my part of the world, employing 3,000 staff and catering to 40,000 students. In the past three years, the colleges have invested £40 million in new buildings and IT equipment. That is marvellous, but the bill for subsiding students' travel is huge. Together, the six colleges shell out £450,000 every year. A single annual bus pass may cost, say, £120 a year, but the student is charged only £50. The colleges have to settle the bills from any surpluses that they create. I am sure that the Minister can understand the burden that that places on colleges such as West Somerset.
The problem is much worse in rural areas where scheduled buses are few and far between. Often colleges must commission private coach operators, which does not represent common-sense policy making. Surely it would be better to spend more public money bolstering up West Somerset college than paying for needless bus rides across the county. I am all for extending choice, but it makes more sense to offer equal choice in education, wherever someone may live.
I know that the Government already have plans to alter the financing of school transport. In September, the education maintenance allowance will be introduced. That will lift some of the financial burden from the shoulders of local authorities for providing school transport, but it will bring a new and unexpected load for students. The allowance will be means-tested. If one qualifies, it will put £30 in one's pocket. Those who live in west Somerset who go to Bridgwater college by bus will just about be able to pay the fare with that

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money. However, those who live in Bridgwater, who make their own way to college, will be £30 better off. The policy needs serious reconsideration. I wonder whether the impact of that way of alleviating the plight of students in constituencies such as mine is right.
There is another source of anxiety. As the Minister knows, the colleges work to a three-year delivery plan. However, the current funding allocations do not match those plans. From what I can gather, that will be an immediate problem. Some colleges have been told that there will not be enough money to finance even next year's delivery plans. That is a stark problem, and a real responsibility. The Government may have promised to boost higher education, but the money available simply is not enough. There is a proven demand for learning, and a real hunger in the business community for students with proper skills, but the three-year delivery plans are already being cheese-pared.
Those who telephoned me late last week may be sitting back in some relief: "Phew", they are probably saying, "Liddell-Grainger did not sink his fangs into our ankles." However, I am about to discuss Somerset county council right now. There is serious disquiet in Somerset about the way in which the county council runs its affairs. In the past couple of years, it has managed to create around 500 extra jobs at county hall, in the constituency of my hon. Friend the Member for Taunton (Mr. Flook). It is a costly new generation of pen-pushers. As the bureaucracy grows, the openness shrinks, particularly when it comes to education.
I have become a hate figure in county hall for raising issues that my constituents have raised with me. The council hates me for doing my job. I shall spell out the nature of the disquiet that has been reported to me. Over the past few months, teachers, governors and parents have approached me directly, asking me to make inquiries. They are concerned, and somewhat alarmed, at the way in which money promised by Whitehall for education has failed to materialise. They point to teacher redundancies, to the appointment of classroom assistants instead of teachers, and to the number of inadequate classrooms that were meant to have been replaced. Somerset will lose many of its after-school clubs. They are valuable social units that offer real activity programmes to youngsters who might otherwise hang around on street corners. I understand that many clubs now face the axe. Is that at the decree of the Minister's Department, or is it another county council blunder?
Of greater concern is the fact that my teachers also cite the manner in which special needs children are being statemented. For the benefit of the uninitiated, I shall explain. If a child needs special help, it is normal to issue a statement, and then draw down additional funds to provide help. If the statements are issued later—perhaps when a child is 13 or 14—it will clearly cost the education authority a great deal less. The word on the street is that Somerset has been notorious for late statementing.
Why do teachers who complain to me not complain directly to the county council? It is because a lot of fair-minded teachers are scared for their jobs. The worst that Somerset county council can do to me is pass a censure motion and report me to Mr. Speaker. The worst that it can do to a teacher who informs is sack her.
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Last year, the Government provided considerable extra finance for my county. We could do with more, but it is a start. Since then, I have been trying, and failing, to find out how and where money earmarked for education has been spent. The Secretary of State told my hon. Friend the Member for Taunton and I fairly recently that he was not entirely sure. That is an extraordinary state of affairs. If the county council were a plc, it would be taken to the cleaners for failing to provide detailed accounts. The Secretary of State does not know the answer to my question, the schools do not know, and I do not know.
The longer I wait for the county council, the more suspicious I become. The longer I wait for answers, the more I listen to teachers and governors who believe that much of the money has been diverted, or sat on. I have raised the matter with the Prime Minister, who shares my doubt about Liberal Democrat-run councils. The people whom I represent need and deserve straight answers.
The debate is about learning and skills. I applaud the patient efforts of Somerset teachers and the foresight of heads and principals. However, it is fair to doubt the skills of the county council in administering what is, after all, public money.
3.46 pm
The Parliamentary Under-Secretary of State for Education and Skills (Mr. Stephen Twigg): I congratulate the hon. Member for Bridgwater (Mr. Liddell-Grainger) on securing a debate in Westminster Hall. I offer broader congratulations to hon. Members for Somerset constituencies, because this is the third consecutive Westminster Hall debate that I have attended relating to education in the county. The hon. Member for Taunton (Mr. Flook) secured the last of those, on schools funding, not so long ago.
I fully associate myself and my ministerial colleagues with the positive remarks made by the hon. Gentleman about the excellent work of Bridgwater college. He is rightly proud of its work. It is a beacon college—one of the top colleges in the country. Its most recent Ofsted inspection described it as outstanding, and I am sure that he would want to join me in paying tribute to the principal, Fiona McMillan, who is also the convener of the national tertiary colleges group.
I want to discuss some of the broader issues that the hon. Gentleman drew to our attention, and I hope that he and you, Sir Nicholas, will bear with me as I try briefly to outline the national context. The emphasis on skills and skills-based education is a key priority for the Government and our Department, for reasons of social justice and economic success. A fully skilled economy is critical to the country's future—a point with which I think hon. Members of all parties would agree.
Some good progress has been made nationally in that respect. Between April 2001 and July 2003, nearly 2 million learners participated in skills for life programmes, with more than 400,000 achieving qualifications. We are confident that we shall reach the target of at least 750,000 adults obtaining basic skills qualifications by the end of 2004. That is the national context for considering what is happening in Somerset.
One of our tools for ensuring the highest possible quality, which is, I know, what the hon. Gentleman has been concerned with today, is the process of strategic

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area reviews by the Learning and Skills Council. I want to talk about that process because it is relevant to the areas of concern that the hon. Gentleman raised, particularly transport and the position of the West Somerset community college in Minehead.
We have set out, nationally, five key principles to underpin the organisation of provision for the 16-to-19 age group. Those are quality, the distinctiveness of the provision, diversity to ensure curriculum breadth, learner choice and affordability, value for money, and cost effectiveness. I shall not go into each of them in detail, but they are relevant to the discussion that is going on in Somerset, and particularly to the hon. Gentleman's concerns about transport and learners' transportation costs. In considering 16–19 provision, we want to ensure equity of access to high-quality services. A young person's ability to get the best possible service should not be determined by where he or she lives. It is important for there to be distinct provision to meet the particular needs of the 16–19 age group. There should be separate management arrangements, and it should be clear who is responsible for ensuring that the learning experience of all 16–19-year-olds is appropriate and coherent.
We want to ensure that there is curriculum breadth and learner choice, a principle that is most relevant to the issue of transport. I welcome the hon. Gentleman's reference to the national launch of education maintenance allowances in September. They will bring great benefit to many young people. However, he is right to say that we want to ensure that there is equity in the process. One factor highlighted by the EMA pilots has been the cost of transport, particularly, for obvious reasons, in rural areas. As this is not directly my policy area, I should like to discuss with colleagues the specific points that the hon. Gentleman has made about EMAs and their relevance to his constituency and the county of Somerset. I undertake to write to him on that.
Mr. Flook: The Minister rightly said that he will look at the issue in the round. May I alert him to two written questions that I have addressed to the Office of the Deputy Prime Minister about funding for Somerset county council's transport budget? As Somerset is a rural county, the Government have appeared to be generous, but the county council sounds as though it is going to withdraw money, and it could therefore lose centrally funded rural provision. That could have an impact on students going to Minehead, some of them from the western end of my constituency, around Dulverton and Exford.
Mr. Twigg: I am grateful to the hon. Gentleman for putting that matter on the record. I am sure that he will receive a response from my hon. Friends in the Office of the Deputy Prime Minister.
It is important to gain maximum benefit from the money that has been made available to support work in rural areas. I am responsible for the draft School Transport Bill, which was announced in the Queen's Speech. That will enable a number of authorities to pilot alternative arrangements to ensure that the school transport regime is of the highest possible quality and equity. Although the statutory provisions do not apply
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to further education colleges, we shall be able to learn from the experience of FE and the EMA pilots that I have mentioned, and vice versa.
The Learning and Skills Council has a critical role to play. Its new powers enable it to fulfil its responsibilities for planning post-16 provision. It is vital that that be driven by the needs of individual learners, not by other bureaucratic processes and pressures, a fact borne out by the contribution of the hon. Member for Bridgwater. I acknowledge the constructive role that he has played by working with his LSC on the proposals to merge the colleges at Bridgwater and Cannington, seeking to learn from the excellence on the ground in his constituency that he described.
The hon. Member for Bridgwater referred to the broader picture of education in Somerset. He talked about two specific issues. One concerned after-school clubs, and the other the procedure for statementing for children with educational needs in the area covered by Somerset county council. He will understand that I am not in a position to respond fully to those questions immediately, but I will do so in writing. Suffice it to say that the statement that the Department and the Government have given keeps very much to the principle of the extended school not only as a resource for the core national curriculum but as a wider resource for the community. We seek to extend, not to cut back, the availability of breakfast clubs, after-school clubs and the opening-up of schools on Saturdays. I will consider the situation in Somerset, but I can say today with some confidence that the Department is not directing policy to close after-school clubs. We very much want them extended.
There is a general concern about late statementing. We will shortly set out an action plan on special educational needs, because the Department and the Government are acutely aware that the quality and efficiency of the statementing process for children with special educational needs varies enormously from one part of the country to another. We want to ensure the highest possible standards in every part of the country, so that every child with those needs receives the support that he or she has every right to expect.
Somerset schools and colleges have been involved with several projects, to which I want to pay tribute in the remaining couple of minutes. Building on the work of the sustainable development education panel's report, "Learning to last", the LSC funded two phases of development projects throughout the country, with 11 projects in each phase. Somerset further education colleges are involved in both phases, examining the work of sustainable development curriculum champions who are working between colleges and schools, and involving work-based learning providers, such as the Somerset College of Arts and Technology, in the constituency of the hon. Member for Taunton. These projects demonstrate the very good practice of those colleges and some of the lessons that the FE sector and schools throughout Somerset and in other parts of the country can learn from them. I want to say for the record how important that work has been and to pay tribute to SCAT and the other colleges involved in that important work, such as the centre of vocational excellence in construction at SCAT, from which I know other colleges have sought to learn lessons about how best to extend best practice in sustainable education. Broader lessons are also to be learned.

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The hon. Member for Bridgwater commented on his county council. I am wary of being drawn into conversations between him and members of Somerset county council, although I was pleased to hear him acknowledge the extra funds from central Government for schools in Somerset. I join him in paying tribute to the work done by schools in Somerset, and I pay special tribute to the head teachers, teachers, governors, other staff and pupils for their achievements. There is much to pay tribute to, especially when one considers the results of schools, especially of secondary schools, in Somerset. The measure of five A* to C grades at GCSE level and the 2002 Ofsted inspection report on Somerset, for example, demonstrate a pattern of performance that is consistently above the average for our country.
Recently published information about key stage 3 indicated that performance was very impressive, and that primary and secondary schools were achieving much with the new value-added measures that we published. I am delighted to join the hon. Gentleman in paying tribute to the excellent work done in schools in Somerset, and to the work of FE colleges in Somerset. I hope and trust that the strategic area of the review process will ensure that there is that high quality, high equity and high level of learner choice to which everyone in this House is committed, so that the excellence that we heard about at Bridgwater college is available to young people in all FE colleges throughout Somerset.

International Small Arms Treaty
4 pm
Mr. Barry Gardiner: If someone were to be shot in this Chamber now, I have no doubt that the Minister for Trade and Investment and I would abandon our debate to do all in our power to save the life of the victim and to apprehend the attacker. After all, what would be the point of debating the control of small arms but ignoring the practical effect? Not one life in this Chamber will have been taken by small arms by the end of our debate, but the fact is that 30 lives will have been extinguished elsewhere: one for every minute that we pontificate and prevaricate.
I know that my hon. Friend the Minister will have etched in his memory, as I have in mine, that day almost exactly three years ago when the Gujarat earthquake struck. The world was horrified at the loss of approximately 20.000 people, which ripped so many villages and so many communities apart at the start of the new millennium. Action was taken immediately by Governments around the world and millions of pounds in aid were given for relief and for the work of reconstruction. Does my hon. Friend share my incredulity that since the start of this year just 20 days ago, more than 28,000 people around the world have been killed by small arms, yet the Governments of the world have done nothing?
The death toll from small arms dwarfs that of all other weapons systems and, in most years, exceeds the toll of the atomic bombs that devastated Hiroshima and Nagasaki. In terms of the carnage they cause, small arms could be described as weapons of mass destruction, but there is still no global non-proliferation regime to limit their spread. Those are not my words, but the words of the United Nations Secretary-General, Kofi Annan in his millennium report to the General Assembly.
There are more than 500,000 deaths each year. That figure is hard to understand and those deaths have an enormous impact on communities, families and whole economies. What is even more difficult to understand is that there is no global non-proliferation regime to limit the spread of conventional weapons. Governments do not believe that it is practical. Governments do not believe that it is necessary. Governments do not believe that it is politically possible.
Today, I speak not for our Government or any other. I speak only for those ordinary people in our world who believe that an international arms trade treaty is not impossible and for those ordinary and decent people who consider it the duty of politicians, when confronted with such appalling carnage, to construct such a treaty and to make it happen. We need not only a binding treaty to deal with states that use conventional weapons against their own people, but a treaty that will also tackle those states that produce the weapons and sanction the arms deals that enable that to happen.
Such a treaty has already been drafted. It is the framework convention on international arms transfer, which was prepared under the auspices of a group of Nobel peace prize laureates and convened by Costa Rica's former President, Oscar Arias. It is supported

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by Oxfam, Amnesty International, Safer World and many other international non-governmental organisations working for peace and justice. I commend them for their work on that and urge people to join the "million faces" campaign that seeks to build support for it in this country.
Article 1 simply provides that contracting parties shall adopt and apply in accordance with their national laws and procedures a requirement that all international arms transfers be authorised by the issue of licences.
Article 2 provides that a contracting party shall not authorise international transfers of arms that would violate its obligations under international law, which include those pursuant to the United Nations charter, international treaties already binding on the contracting party and the prohibition on the use of arms that are incapable of distinguishing between combatants and civilians or are such as to cause superfluous injury and unnecessary suffering.
Article 3 sets out that a contracting party shall not authorise transfers of arms in circumstances in which it has knowledge, or reasonably ought to, that transfers of arms such as those considered are likely to be used in breach of the UN charter of corresponding rules of international law, in the commission of serious human rights violations, in the commission of serious violations of international humanitarian law, in the commission of genocide or crimes against humanity or used after they have been diverted and then used in any of those ways. I do not propose to adumbrate all nine clauses of the draft framework convention, but I hope that the clauses that I have referred to appear clear and sensible because that is what they are.
The Minister will be well aware that I have been critical in the past of the Government's failure to implement full extra-territorial controls, a register of brokers and checks of end-users as part of the secondary orders for the Export Control Act 2002. I recognise that the Government have gone further than their predecessors in strengthening arms export controls, but we have stopped short of the regulations that would establish the highest standards in the area.
In exchanges with the Quadripartite Committee and in response to 130 or so parliamentary questions that I have tabled on the issue, my right hon. Friend the Secretary of State for Trade and Industry has appeared to put what she considers the needs of industry above the humanitarian need that the arms industry creates. I well remember in one exchange with her officials being told that the Secretary of State was concerned not to impose bureaucratic controls on brokers who might legitimately be selling small arms to a foreign police force. I suspect that neither the Secretary of State nor her official had bothered to check the percentage of small arms held by police forces around the world. It is just 2.8 per cent. of all those in circulation—a tiny fraction.
That showed that our Government have lost track of the genuine scale of the problem. By contrast, 52.9 per cent. of all the world's small arms are held by private individuals. A further 37.8 per cent. are held by Government armed forces. Just 0.2 per cent. are held
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by armed opposition groups. It is the overwhelming availability of those arms that creates the desperate loss of life to which I refer, and yet our Government sought to justify their refusal to implement a register for brokers and full extra-territorial controls on the basis of the problems that that would create for just 2.8 per cent. of the global market. Let us face it. a lot of those police forces are ones to which we should not be too happy about selling arms.
We must realise that this has ceased to be a theoretical policy issue about bureaucratic interference in the legitimate export of arms manufactured in this country. It is a humanitarian issue about how we address global suffering on an enormous scale. Action is required now to deal with the humanitarian consequences of the arms trade and, because it is an international trade, the best way to deal with it is at an international level. We have binding international treaties on the movement of peoples and the flow of funds. It therefore does not seem unreasonable to have a unique and binding international treaty on arms control.
The availability of arms fuels violent conflicts. More than that, however, it distorts the real priorities of nations and communities. With global military spending amounting to $839 billion each year, the world is truly over-armed and underdeveloped. By contrast, it would cost just $10 billion to establish universal primary education for Africa, which is one of our millennium development targets for the continent.
Deaths from conventional weapons in developing countries do not give the full picture of misery, however. Of course it is crazy that there should be one gun—usually a Kalashnikov—for every 5.8 people in Pakistan. However, the arms and shooting fatalities figures do not show the number of people who die when immunisation programmes for children break down because of armed violence caused by the proliferation of weapons or how AIDS programmes in Africa cannot function in the middle of a war zone. It is important to understand that deaths at the end of the barrel of a gun are just the tip of a very cold iceberg. One person every minute dies because of conventional weapons, but we cannot calculate how many die because of the chaos that such weapons bring.
Highly developed countries do not experience civil war and armed conflict. Some 2 per cent. of the world's most developed countries experience any sort of civil war, but 56 per cent. of the world's least developed nations—a clear majority—are gripped by civil war. The opportunity costs to their economies are horrifying. The civil war in Sri Lanka was calculated in 1998 to have cost a staggering $20.8 billion dollars. Interestingly, more than $13 billion of that loss came not from direct expenditure on munitions and the military, but from the loss in economic output. Educated and skilled Sri Lankans fled the country and inward financial investment plummeted. The World Bank has suggested that conflict in Africa causes a 2 per cent. loss of economic growth year on year in every country on the continent. The world cannot afford to continue wasting its human and economic capital in that way.

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It is equally important to understand that the problems do not just disappear when a conflict ends. Half of all post-conflict countries revert to war again within 10 years of peace. If weapons are not removed and alternatives livelihoods are not found for returning combatants, the culture of violence begins to embed itself in a society and violence becomes the accepted means of resolving differences. Crime, smuggling and organised violence establish a pattern that once again destabilises any emerging civil structures.
Only a few months ago. I had occasion in this Chamber to warn of the folly of demobilising the Iraqi army without first depriving those men of their weapons or offering them any programme of reintegration into civil society and alternative paid employment. It is now accepted that that failure has in large measure contributed to the dangerous security situation that continues in that country. The consequent loss of life among both Iraqis and coalition forces has been a heavy price to pay for such an elementary mistake.
Conventional and small arms wreak global havoc. They do so first as the precursor to conflict, precipitating the transformation of civil disputes into wholesale civil wars. That is widely recognised to have been the case in Rwanda prior to the civil war there in 1994. Huge volumes of arms, shipped in from France and China, acted as the trigger that moved the country from tension to conflict and genocide. That genocide was ultimately carried out with agricultural implements, but it was precipitated by the build-up of conventional and small arms, which raised the tension to boiling point.
The availability of these weapons perpetuates and entrenches undemocratic and anti-democratic regimes that systematically violate the human rights of their citizens. All sovereign states have a legitimate resort to arms but that legitimate monopoly on the use of force is strictly circumscribed in international law. The resort to arms can be made only to protect the life and liberty of their citizens from either external attack or internal assault by others.
Arms cannot legitimately be used as a tool of repression by Governments to undermine those very rights to life and liberty. Yet our own Government, along with France and the United States, have recently approved enormous exports of arms to Saudi Arabia, knowing that the Saudi authorities allow no criticism of the state. All political organisations are illegal, and the country has a record of arbitrary detention of its citizens that goes back many years. I say to my hon. Friend that such arms exports ally and associate our Government with regimes that he and I should openly condemn.
Conventional weapons drain the coffers of developing countries, diverting spending from health care and education that is so desperately needed to raise the living standards of their people. Is it not obscene that a country as poor as Pakistan—I make no comment about the nature of its Government—receives $1.3 billion in aid from the US that is spent entirely on arms and so-called security?
An international arms treaty is required to control and monitor arms flows and to ensure that Governments are transparent in their arms deals and
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that there are no safe havens for illicit trading. The present system of weak international control on arms sales and highly unresponsive sanctions regimes delivers very little. People now want more.
A similar mood took hold in the mid-1990s when calls for an international treaty banning land mines reached fever pitch. In the UK, the Government were not prepared for those calls; they took them by surprise. Writing about the land mines treaty in 1995, the right hon. Member for Haltemprice and Howden (David Davis), then a Minister in the Foreign and Commonwealth Office, averred that a treaty would sacrifice
"the effectiveness of our armed forces on the altar of political correctness."
I have often wondered why any man as intelligent as the current shadow Home Secretary would ever willingly embrace political wrongness, but it was his policy, party and Government that the public found to be wrong politically. The Ottawa land mines treaty was one of the early achievements of our Labour Government. I trust that the Minister will consider the quotation as a cautionary tale and not treat the international arms trade treaty in the same cavalier fashion as his predecessor.
The international arms treaty would bring arms exports standards into line with existing responsibilities under international law. By explicitly linking existing international humanitarian legislation with the arms trade it will be possible to enforce breaches more easily. It would legislate for greater co-operation between countries, an international record of transactions and an international database of dealers. It would build on some of the good mechanisms already developed in the EU code of conduct on arms control and other agreements.
I realise that a commitment to sign up to a binding international arms treaty would be a bold step and that many would criticise such a move as anti-business and anti-competitive. The same arguments were used against on a ban on land mines. The call for an international arms treaty is not about ending the legitimate arms industry, or about stopping a country's sovereign right to protection and self defence; it is about developing an effective international system to prevent the humanitarian consequences of the current illicit trade. I do not deny that it could make legitimate arms dealing more expensive, but the idea of the treaty, just like the EU code of conduct, would be to stop undercutting by the illicit market and to allow legitimate arms companies to continue to offer a competitive advantage.
I make no pretence that my primary concern is the bottom-line costs of arms manufacturers. My concern is the cost to people affected by illicit arms, the cost to economic and social development in poor countries and the costs of maintaining national defences in developed countries against international terrorists, who use many of the same supply chains.
I am proud to be part of a Government who have placed an unprecedented emphasis on international development. They have not only increased spending on international development, but have dramatically raised the prominence of development issues at the international level through debt relief, the millennium

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goals and a radical agenda for stimulating growth and development in the poorest countries. This Government understand the humanitarian imperative. It is, therefore, all the more difficult to understand why they have so far failed to address the humanitarian imperative that is the need for a binding international treaty on arms transfers.
I ask the Minister three questions. First, will he meet me and representatives from Oxfam, Amnesty International and Save our World to discuss how the UK may contribute to a treaty along the lines of the Ottawa convention? Secondly, will the Minister commission a review to assess any problems that might exist in relation to the implementation of such a treaty into UK law? Thirdly, will he agree to end his speech 30 seconds before you call order, Sir Nicholas, so that we might spare 30 seconds to reflect in silence on the 30 people who will have died since the start of our debate because of the small arms that have taken their lives?
4.21 pm
The Minister for Trade and Investment (Mr. Mike O'Brien): My hon. Friend the Member for Brent, North (Mr. Gardiner) has spoken for 20 minutes, and although it would be right and proper to give him those 30 seconds, it would prevent me from dealing with many of the points that he has raised. Those points are important and therefore, if he will forgive me, and with the greatest respect for those losing their lives—half a million a year—I shall try to deal with some of his points so that we can make some progress.
I welcome the debate. The issues that my hon. Friend raises are important. As there is little time to discuss them, I shall do my best to respond to as many of his points as I can, and set out the Government's concern about the proliferation of small arms and light weapons. My hon. Friend claimed that Governments are doing nothing, but as far as this Government are concerned, we have acted, and done rather a lot.
We have an export control system that is responsible, transparent and accountable. In 1997, we established the first UK criteria on arms exports, which prohibit any exports of arms where there is a clear risk of their use for either internal repression or external aggression. The Quadripartite Committee of this Parliament has often praised the workings of the Government's export control system and its openness.
However, my hon. Friend is right to the extent that it is not enough for us alone to follow a responsible arms export policy. The British Government gained agreement for a European Union code of conduct during our EU presidency in 1998. That was a significant achievement. We regularly encourage other countries to adopt stricter arms export policies in the United Nations, the Organisation for Security and Co-operation in Europe, the EU, NATO and bilaterally. We consider that important, and it is certainly worthwhile work. For that reason, I strongly welcome the debate that the arms trade treaty proposal has fostered.
It is clear from the number of letters received by the Government that the issue of stopping irresponsible arms transfers is one that the British people take very
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seriously. I assure my hon. Friend that the Government take those concerns very seriously, too. The Foreign Secretary and other Ministers have already met representatives of a number of the non-governmental organisations that have been the main advocates of this treaty, to discuss its contents. In terms of the point that my hon. Friend raised, therefore, meetings have already taken place. If he wishes to organise a further meeting, we shall be very happy to talk with him and with some of the other non-governmental organisations.
We are also looking at the detail of the treaty and examining the way in which it would impact on arms sales. On the day that non-governmental organisations launched their campaign in support of the treaty, the Government praised it as an important contribution to the international debate on arms export control issues. I stand by that today. It has stimulated debate and pushed the agenda forward, and it is very strongly to be welcomed.
The Government judges initiatives in this area by the real world impact that they will have. Will the initiatives deliver as effectively as the NGOs say? In other words, will they change the practices of those countries—Ukraine and Belarus come to mind, but are by no means alone—whose export control standards are weak? Clearly, in order to be effective, any international instrument in this area would have to enjoy the support of such countries, and indeed of all major arms-exporting countries. It is no use merely trying to raise still further the standards of countries whose standards are already high. That would not address the problem that my hon. Friend has identified.
We are studying carefully the detail of the arms trade treaty and looking at the problems that it poses, and we hope to work through those issues with NGOs as they refine their wishes. We will take into account the results of the consultations that they are undertaking at the moment. Much of the treaty's substance is along similar lines to the EU code of conduct on arms exports. Consequently, the idea itself is not contentious for us, but there are some proposals that break new ground. Government experts are in dialogue with the representatives of the sponsoring NGOs better to understand the effect of those points.
That does not detract from the general welcome we have given to the draft treaty. What we need now, if it is to have some real impact, is to gather support from a wider range of countries, not just those, such as the UK, that are already seen as practising responsible policies. That will require a wide-ranging effort, not just sponsorship by a few western Governments. There are clear elements in common between the initiatives for an arms trade treaty and the work that we have undertaken to improve global export controls on small arms. I agree with my hon. Friend that the statistics are shocking: around 500,000 deaths a year result from the misuse of weapons. The easy availability of small arms is a major source of insecurity and poverty in many regions of the world today. I strongly commend the NGOs that support the arms trade treaty for their work to highlight the problem.
Controlling the supply of weapons is not straightforward. An emotive response does not get the job done. Arms have legitimate uses, and production or sales cannot therefore be banned outright. The problem is exacerbated because production and manufacture are

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highly decentralised. Strengthening national, regional and international export controls is essential to stemming the flow of arms from legal transfers to illegal possession and subsequent misuse.
The UK works hard to raise global awareness of the need to improve controls on small arms transfers, and to incorporate them into wider export controls. We lead in the global effort to develop common international standards on small arms exports. As a Minister who was closely involved in developing the controls, I can say that a key UK achievement in 2002 was securing the adoption of the best practice guidelines for export of small arms and light weapons in the Wassenaar arrangement, which is a group of 33 of the world's major arms exporters.
We have also fully supported the UN programme of action on small arms and light weapons. Between 2002 and 2004, we will make available more than £20 million to control and reduce the supply, demand and
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availability of such weapons. That funding supports projects that assist UN agencies, regional organisations, Governments and NGOs. We stay in close contact with interested NGOs on our work on small arms.
We are working practically and seriously to address the sorts of problems that my hon. Friend has rightly raised. The UK fully supports the call to highlight the need for co-ordinated and comprehensive approaches to arms exports and, in particular, small arms controls. I am confident that the outline that I have given shows that we are prepared to work with NGOs and to ensure that the efforts needed to reduce the threat that small arms pose to far too many people in this world are undertaken. The death of 500,000 people each year from small arms is a toll that can be significantly reduced. It requires international effort, and we are prepared to undertake it.
Question put and agreed to.
Adjourned accordingly at half-past Four o'clock.