House of Commons

Tuesday 3rd May 2011 Commons Chamber

Tuesday 3 May 2011

The House met at half-past Two o’clock

Prayers

Tuesday 3rd May 2011 Commons Chamber

[Mr Speaker in the Chair]

Oral Answers to Questions

Tuesday 3rd May 2011 Commons Chamber

The Secretary of State was asked—

[Julian Smith (Skipton and Ripon) (Con)]

1. What progress he has made on his proposals to reinvigorate the Commonwealth; and if he will make a statement.

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

4. What progress he has made on his proposals to reinvigorate the Commonwealth; and if he will make a statement.

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr Henry Bellingham)]

There has been a visible uplift in our relationship with the Commonwealth, and we have been working with key partners to reinvigorate this unique organisation. In particular, we support the work of the eminent persons group, and I look forward to its recommendations on how to build up the role of the organisation ahead of the Commonwealth Heads of Government meeting in October.

[Julian Smith]

Following the stunning showcase of Britain last Friday, does the Minister agree that diplomats and ambassadors should have a massive spring in their step as they promote trade and investment in the UK, to the Commonwealth and beyond?

[Mr Bellingham]

I agree completely with my hon. Friend. Last Friday was a remarkable event; it was Britain at its very best. I was in Guinea at the time, which is not yet a member of the Commonwealth. I watched part of the royal wedding on France 24 on a television in the deepest and darkest part of Guinea, and there was huge interest from everyone who watched that programme.

[Stephen Metcalfe]

Does my hon. Friend agree that given that there is more than $3 trillion of trade each year inside the Commonwealth, the organisation should be recognised as a beacon of trade globally and UK companies of all sizes should be encouraged to seek out commercial opportunities within the Commonwealth?

[Mr Bellingham]

Since the election nearly a year ago, my right hon. Friend the Foreign Secretary and his ministerial team have been to more than 30 Commonwealth countries, of which I have visited seven. I assure my hon. Friend that on the agenda for those meetings were trade diplomacy and building up business and enterprise with those countries. The Commonwealth has a vital role in pursuing the Doha development agenda.

[Kate Hoey (Vauxhall) (Lab)]

The Minister will know that the Commonwealth Secretariat, which works for more than a third of the world’s population, is run on a shoestring, yet we give billions to the European Union. Would our money not be better spent on maintaining our links with all the small countries and other Commonwealth countries, which have close links, deep loyalty and close family ties to the UK? In other words, should we not put the Commonwealth before the European Union?

[Mr Bellingham]

The Commonwealth does a first-class job, and it is exemplary in providing excellent value for money from its Secretariat here in London. I am delighted that the multilateral aid review by the Department for International Development concluded that the Commonwealth has a unique place in the international system and can play an even more significant role in development.

[Mr Virendra Sharma (Ealing, Southall) (Lab)]

Does the hon. Gentleman agree that if the Commonwealth is to be reinvigorated and live up to its ideals, it needs to take a tougher line against member countries such as Sri Lanka, which committed war crimes against its Tamil civilian population according to the recent UN report? Should the Commonwealth not call for an independent international investigation into those war crimes, and suspend Sri Lanka from the Commonwealth unless it co-operates with such an investigation?

[Mr Bellingham]

We supported the setting up of the report, and it is essential that the Sri Lankan Government respond to it in a timely fashion.

[Sir Alan Haselhurst (Saffron Walden) (Con)]

Does my hon. Friend agree that the forthcoming centennial conference of the Commonwealth Parliamentary Association provides an admirable platform for my right hon. Friend the Foreign and Commonwealth Secretary to expound this Government’s positive view of the Commonwealth and the CPA’s role in it?

[Hon. Members]

Yes.

[Mr Bellingham]

A resounding yes. An organisation that concentrated originally on Anglophone countries now attracts a keenness to join from countries outside the Anglophone sphere. Recently, Rwanda, a Francophone country, joined, as did Mozambique, a Lusophone country. Countries are queuing up to join this excellent organisation.

[Dan Jarvis (Barnsley Central) (Lab)]

2. What structures there are for co-ordination of post-conflict reconstruction in Libya.

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

The post-conflict stabilisation and peace-building effort in Libya will be an international effort, co-ordinated by the United Nations in support of the Libyan people. The UK has undertaken early, cross-Whitehall planning, supported by the stabilisation unit, focusing on how we can support the international effort. Staff have been deployed to the region to provide stabilisation expertise on Libya and Arab partnership programmes.

[Dan Jarvis]

We must learn the lessons from Iraq and Afghanistan, where in my experience we sometimes contributed what we were able to deliver rather than what was needed. What conversations is the Secretary of State having with Cabinet colleagues to ensure that should Britain make a contribution to post-conflict reconstruction in Libya, it is as effective as possible?

[Mr Hague]

We are certainly having those conversations, and the hon. Gentleman is quite right to say that there are lessons to be learned from previous situations, including Iraq. The National Security Council is already working well on the matter, and of course my right hon. Friend the Secretary of State for International Development plays a very strong role on the subject. We are working with the UN already, and the UN is making good progress with stabilisation planning, but of course it is constrained in what it can physically do on the ground by the absence of peace and a political settlement in Libya. However, the planning is taking place and the UK is playing an important supporting role.

[Mr Edward Leigh (Gainsborough) (Con)]

Will my right hon. Friend confirm that the best first step towards the reconstruction of the country would be peace and a ceasefire? Will he therefore assure the House that all his efforts are pointed in that direction rather than just at regime change?

[Mr Hague]

Our efforts are devoted to implementing UN resolution 1973, which begins by calling for a ceasefire and an end to violence. Of course, that means a genuine ceasefire in which the regime not only really does cease fire but pulls back its forces from the areas where it is attacking the civilian population. It is in the search for that ceasefire and the protection of the civilian population that we are doing what we are doing in Libya.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Have any companies been approached or approached the Government in connection with any post-conflict reconstruction that might happen in Libya?

[Mr Hague]

As I said, the UN is leading on the matter, and it will spearhead the reconstruction effort. The Department for International Development is handling the details of the British contribution and support, but if we have more information about companies’ involvement, I will write to the hon. Gentleman about it.

[Stephen Gilbert (St Austell and Newquay) (LD)]

5. What recent discussions he has had with his EU counterparts on the role of the European External Action Service; and if he will make a statement.

[The Minister for Europe (Mr David Lidington)]

I am in regular contact with my European counterparts about the work of the External Action Service, and with the EU High Representative, Baroness Ashton.

[Stephen Gilbert]

The Minister will be aware of the growing number of countries in Africa and the Pacific that do not have representation from either the UK or other European Union member states. Does he agree that the European External Action Service could provide representation to European nationals in those countries?

[Mr Lidington]

My hon. Friend talks about the EEAS’s role in consular representation. Of course, under the treaties, that competence is given explicitly to member states rather than to European institutions, but it is quite right that the EEAS should, in line with the treaties, support the work of EU member states, especially by signposting EU nationals who are unrepresented to embassies or high commissions of another member state where they can obtain representation.

[Mr Wayne David (Caerphilly) (Lab)]

During the ratification of the Lisbon treaty, the right hon. Gentleman was opposed to the European External Action Service. Does he agree that recent experience in north Africa and elsewhere in the world demonstrates the need for positive co-operation with our European partners?

[Mr Lidington]

Neither I nor my party has ever quibbled with the idea that there should be effective European co-operation between member states. The test of whether the External Action Service is effective will be, in large measure, whether the High Representative and her staff can work effectively with member states’ Foreign Ministers, because only when member states reach a genuine common position does the High Representative have a mandate to act.

[Jason McCartney (Colne Valley) (Con)]

7. What recent assessment he has made of the effectiveness of the Government's actions with respect to Libya; and if he will make a statement.

[Jack Lopresti (Filton and Bradley Stoke) (Con)]

11. What recent assessment he has made of the effectiveness of the Government’s actions with respect to Libya; and if he will make a statement.

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

The UK continues to take a leading role in international efforts to protect civilians in Libya. The case for action remains compelling. Gaddafi’s regime persists in attacking its own people and wilfully killing its own civilian population. We have taken diplomatic action, including co-chairing the Libya contact group, and have played a key role in military action by NATO and provided more than £13 million of humanitarian aid to the Libyan people.

[Jason McCartney]

With the no-fly zone over Libya having been in place for more than a month now, will the Secretary of State join me in praising Royal Air Force air and ground crews for their role? What level of sorties is now taking place compared with when the action started?

[Mr Hague]

Yes, I certainly join in what my hon. Friend says about Royal Air Force air and ground crews, and of course the Royal Navy is also playing an important role in the vicinity of Libya. The number of sorties continues to mount, with hundreds over the weekend, and the UK continues to play a very strong role, including through strike sorties. I am pleased to say that more nations have been involved in those strike sorties, reflecting the continued increase in the tempo of the military activity and the strengthening of the international coalition.

[Jack Lopresti]

What are the outcomes so far of having British military officers on the ground in Libya to advise the Libyan rebels?

[Mr Hague]

These are early stages for the deployment to which my hon. Friend refers. What I can say is that we are confident that that military liaison advisory team is giving real and worthwhile assistance to the transitional national council for the objectives of helping with headquarters operations—how to organise headquarters and logistics—which I set out in my announcement. That is beginning to have some effect, but it is too early to give a definitive account.

[Mr David Winnick (Walsall North) (Lab)]

Considering the killing of one of Gaddafi’s sons and his very, very young grandchildren, is it not the case that, despite the denials that have been made, the policy of NATO is now first and foremost regime change, and secondly to kill Gaddafi himself?

[Mr Hague]

We want Gaddafi to go, and virtually the whole world wants him to go—let us be in no doubt about that—but the incident to which the hon. Gentleman refers was an attack on a command and control location. NATO has increased the number of air strikes against the command and control functions of the Libyan regime, which in our view is wholly legitimate within the implementation of resolution 1973, and such attacks will continue.

[Sir Menzies Campbell (North East Fife) (LD)]

My right hon. Friend will remember that the support of the Arab League, and indeed that of virtually the whole House of Commons, was based on an understanding of the limitations contained in resolution 1973. Is he concerned that even the appearance of targeting Colonel Gaddafi may cause that support to be loosened?

[Mr Hague]

No, and there is no indication that that is leading to such a thing. In fact, I held discussions with the secretary-general of the Arab League, Mr Amr Moussa, in Cairo yesterday. Indeed, the restrictions in the resolution were the product of discussions between him and me on the day that the resolution was passed at the UN. He is supportive of how the resolution is being interpreted, and the Arab League continues to support our efforts. Arab nations will be strongly represented at the contact group meeting in Rome on Thursday, which I will attend. I hope I can reassure my right hon. and learned Friend on those points.

[Mr Douglas Alexander (Paisley and Renfrewshire South) (Lab)]

I have listened with care to the Foreign Secretary’s answers. Those on both sides of the House are on record as saying that Libya’s future would be better served with Gaddafi gone.

The Government have stated that the UN mandate allows for the targeting of command and control operations that threaten civilians, but for clarity, will the Foreign Secretary tell the House whether he agrees that the resolution excludes the direct targeting of individuals, and will he publish an updated summary of the legal advice, so that the House can be fully informed on those matters?

[Mr Hague]

I do not think that it would be right to expand on what I have already said about targeting. Whether individuals are targeted depends, of course, on how they behave, and whether they are part of command and control centres, and on where they are at the time. I do not think it right to provide a running commentary on targeting, and nor is it militarily sensible to do so, and I therefore do not want to expand on my earlier answers.

Of course, the Government will consider requests made in the House in respect of the legal advice. We published very clearly a note on the legal advice at the time of the 21 March debate. However, again, I do not think that it would be right for Governments to start to publish legal advice on a regular basis every few days, but we will consider any requests that are made.

[Mr Alexander]

Let me see whether the Foreign Secretary can be a little more forthcoming on this question. I understand his earlier answer—he said that it was too early to give a definitive account of the work being undertaken by British military officers on the ground in Benghazi—but will he undertake to publish the terms of reference under which they are operating?

[Mr Hague]

They are operating on the basis that I set out in the House of Commons. Last week, I think, when the House resumed, I made a statement on these matters and set out their purposes in a few sentences. Those are their purposes; they have not gone with an entire book of terms of reference. They have gone as a military liaison and advisory team to give their expertise on the organisation of logistics, headquarters and so on, as set out last week. There is nothing further to expand upon.

[Richard Ottaway (Croydon South) (Con)]

In my right hon. Friend’s discussions with the Arab League, did he convey the message that although it rightly called for a no-fly zone over Libya, there is widespread disappointment over its silence on Bahrain and Syria?

[Mr Hague]

Certainly, I discussed the wider region. In particular, we had a detailed discussion about the situation in Syria. I absolutely condemn the Syrian regime’s actions over recent days, particular in relation to the city of Deraa and similar places that have been under attack by the Syrian army. I have urged the Arab League to take a strong line on this. Arab League Foreign Ministers are meeting on Thursday. After the contact group meeting in Rome, they will meet in Cairo, and they will discuss Syria then.

[Mr Kevan Jones (North Durham) (Lab)]

8. What recent discussions he has had with his US counterpart on the situation in Libya.

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

I have regular discussions with Secretary Clinton on the situation in Libya, as on all other international issues. My right hon. Friend the Prime Minister has similar discussions with President Obama, and my right hon. Friend the Defence Secretary was in Washington last week. I look forward to seeing Secretary Clinton in Rome on Thursday.

[Mr Jones]

Has the Foreign Secretary had discussions with his American counterparts on the possibility of arms being smuggled to the Gaddafi regime from countries neighbouring Libya? Has there been an intelligence assessment yet about the possible influence of anti-western elements that might want to exacerbate the situation in Libya?

[Mr Hague]

Certainly, I have had discussions with Secretary Clinton and representatives of many other nations about the smuggling of arms or mercenaries into Libya by land routes. That is under discussion. I do not have anything to announce today about it, but clearly where such things are taking place, they are in breach of UN Security Council resolutions, so we reserve the right to take action. We have made representations to neighbouring countries in connection with these matters, and we will certainly continue to pursue them.

[Mr John Baron (Basildon and Billericay) (Con)]

What evidence can the Foreign Secretary disclose showing that the target of the missile strike that killed three of Gaddafi’s grandchildren was a command and control centre, and was being used for military purposes?

[Mr Hague]

I do not believe that it would be right to disclose evidence regarding each separate military operation, for obvious operational and security reasons. It would make those operations more difficult to conduct, if we felt we had to disclose evidence about them.

[Jeremy Corbyn (Islington North) (Lab)]

Will the Foreign Secretary confirm that, as it now appears to the whole world, the alliance has given up on a diplomatic solution, and is now involved in regime change and targeting individuals within the Libyan Government? Does he not think that at some point there will have to be a political solution led by the Arab League and the African Union? Does he not think it time to apply pressure in that direction, rather than continue the bombing of civilian targets?

[Mr Hague]

The hon. Gentleman refers to the bombing of civilian targets, but NATO and its allies have saved probably thousands of civilian lives from the intentions of regime forces that indiscriminately attack civilian targets. If we followed the course he recommended, civilian casualties would be immense indeed, because of what the Gaddafi regime would do to people across Libya. I can assure the hon. Gentleman that the international coalition is very strong on, and supportive of, the actions we have taken. As I said, more countries have moved their aircraft into strike activity. Of course, however, there must be a political settlement, but Colonel Gaddafi can open the way to that by departing from power.

[Martin Horwood (Cheltenham) (LD)]

Are the Government still in complete agreement with the United States on the clear need for legal authority for any military action against individual targets, however loathsome we may find the individuals?

[Mr Hague]

We are in complete agreement about the meaning of legal advice on these matters, and about the need—I stress this again as I stressed it to the House last week—to stay clearly within the United Nations resolutions in order to maintain the legal, moral and international support we have for these actions. So there is no disagreement between the UK and the United States. However, I do not think it is right to speculate about individual targets.

[Rosie Cooper (West Lancashire) (Lab)]

9. What recent discussions he has had with the Palestinian Authority to encourage the resumption of peace negotiations.

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Alistair Burt)]

My right hon. Friend the Foreign Secretary discussed the peace process and the need to return to direct negotiations with Palestinian President Abbas during his recent visit to London. We made it clear that we believe that only a negotiated settlement will secure a sovereign, viable and contiguous Palestinian state, living in peace and security next to a safe, secure and recognised Israel.

[Rosie Cooper]

Is the Minister concerned about Iranian influence in Hamas-controlled Gaza, and in Syria and Lebanon?

[Alistair Burt]

Briefly, yes. It remains our view, from all the available evidence, that the Iranian regime is interested in instability and disrupting the efforts of nations to build the necessary security and confidence between themselves that we all wish to see. So far, Iranian influence has rarely proved to be advantageous to the world community, but we live in hope.

[Mr James Clappison (Hertsmere) (Con)]

While the cause of peace will have been assisted by the Palestinian Authority’s response to the weekend’s news from Pakistan, does my hon. Friend share my concern about the reported comments of the leader of Hamas in condemning the operation?

[Alistair Burt]

Yes, indeed. The events of the weekend were an opportunity for the world community to come together and condemn those who had united Christian, Jew and Muslim against their murdering misery over the years. It is disappointing that Hamas did not take the opportunity to do that, as so many others did.

[Sir Gerald Kaufman (Manchester, Gorton) (Lab)]

Is the Minister aware that at 12.30 pm last Friday at Nabi Salih on the west bank, a peaceful demonstration against illegal settlements by Palestinians and Israelis, including women and children, was attacked by the Israeli army, which hurled hundreds of gas bombs and sound grenades at them, fired at them with rubber bullets and had a vehicle that hurled sewage at them? Will he condemn this kind of savagery and make it clear to the Israelis that it is impossible to have peace if Israeli troops behave in this abominable way?

[Alistair Burt]

I am not aware of the particular incident that the right hon. Gentleman raises, but there is no doubt that in the past, where there have been incidents involving people peacefully protesting—as we believe it is right to do—against settlements that we consider to be illegal, we have condemned such action, and we will continue to do so. This case only goes to illustrate, however, the need for both sides to return to negotiations based on parameters, because the spiral of violence—particularly what we have seen recently on both sides—is just leading to more misery before a settlement can be concluded.

[Robert Halfon (Harlow) (Con)]

Following what has just been said, and given Hamas’s commiseration on the death of Osama bin Laden as a holy warrior, will the Government confirm that they will have no direct or indirect talks with Hamas until it renounces terror and violence, recognises the state of Israel and abides by previous diplomatic agreements?

[Alistair Burt]

We have no plans to change our position on Hamas. The Quartet principles that my hon. Friend sets out remain the benchmark towards which Hamas should move—that is, a rejection of violence, a recognition of the state of Israel and an acceptance of previous agreements.

[Stephen Twigg (Liverpool, West Derby) (Lab/Co-op)]

There is real concern about the continuing lack of progress towards peace between the Palestinians and the Israelis. What is the Government’s assessment of the impact of last week’s reconciliation talks between Fatah and Hamas on the prospects of a peaceful transition to a two-state solution, and what role do they see for the European Union in this crucial period?

[Alistair Burt]

It is difficult to see the impact at this stage, because not all the details are available. It must always have been the case that at some stage there must be Palestinian unity, because there cannot be a sensible two-state solution unless all parts of what is deemed to be Palestine are involved. Therefore, the fact that Fatah and Hamas have come to some agreement is something that might provide a step forward. However, it is crucial that that should lead to progress and to both Palestinian wings continuing to reject violence, continuing with the peace process and recognising the state of Israel. As yet, Hamas has not made any move in that direction. We hope that the reconciliation will eventually lead to progress towards a democratic Palestinian state that will indeed reject violence and wish to live in peace and security with its neighbour, but we must judge it by its actions.

[Mark Lancaster (Milton Keynes North) (Con)]

10. What recent reports he has received on the condition of the Hazara population in Pakistan; and if he will make a statement.

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Alistair Burt)]

The Hazara community in Balochistan has been the subject of sectarian terrorist attacks for some years, although they lessened to some degree in 2010. We remain concerned, however, about the protection of minority communities and minority rights in Pakistan, and about the general instability in the Balochistan region.

[Mark Lancaster]

I am grateful to the Minister for that answer, and indeed for his meeting with members of the Hazara community in Milton Keynes recently. Is he prepared to get a representative of our high commission in Islamabad to meet the Hazara leaders in Pakistan, to ensure that their voice is heard and that the UK is well placed to end this persecution?

[Alistair Burt]

My hon. Friend is absolutely right; we keep an eye on this matter, and we should do so. Last year, representatives from our high commission met Syed Nasir Ali Shah, a member of the Parliamentary Assembly for Quetta, and Jan Ali Changezi, who is also a Parliamentary Assembly member and the Minister for Quality Education in Balochistan. We take these issues very seriously, and we are aware of concerns that have been expressed by the community here and in Pakistan. We will continue to raise these issues in support of minority communities. We hope that the inter-faith committees that might be set up by the Pakistan Government will include Hazara representation.

[Charlie Elphicke (Dover) (Con)]

12. What reports he has received on the situation in Japan following the recent earthquake and tsunami; and if he will make a statement.

[The Minister of State, Foreign and Commonwealth Office (Mr Jeremy Browne)]

The earthquake and tsunami of 11 March have had a devastating impact on Japan. As of 27 April, 14,508 people have been confirmed dead, and 11,452 are still missing. There are no confirmed UK casualties. The UK has mobilised various resources to help the Japanese Government. We have sent a search and rescue team and provided other forms of support to the Japanese Government, including nuclear assistance. We receive regular reports from the Japanese authorities regarding ongoing work to make safe the Fukushima nuclear plant, and we are ready to offer further technical assistance as required.

[Charlie Elphicke]

Japan is a major friend, ally and trading partner of the UK, and it is right that we should be there for a friend in need. Will the Minister tell us what help is being given to assist its economic recovery, and what steps are being taken to help following the nuclear disaster?

[Mr Browne]

I completely agree with my hon. Friend’s assertion about the deep friendship between the United Kingdom and Japan. We have expressed that friendship and it has been evident in our actions. Our economies are intertwined, but we are also leading the debate within the European Union on a free trade agreement between the EU and Japan.

[Barry Gardiner (Brent North) (Lab)]

Has the Nuclear Decommissioning Authority in the UK been asked to supply any expertise on the decommissioning of contaminated water at the plant? I understand that that is one of the more considerable problems that the Japanese authorities are facing.

[Mr Browne]

We have made it clear to the Japanese from the outset that we are willing to offer any expertise that might benefit them, but it is worth reminding the House that Japan is an extremely sophisticated country with an extremely developed economy and highly reputable scientists. It is therefore able to make many of those decisions for itself.

[Mr Speaker]

Question 13: I call David Morris. He is not here.

[Helen Goodman (Bishop Auckland) (Lab)]

14. What recent progress he has made in strengthening bilateral relations with India; and if he will make a statement.

[The Minister of State, Foreign and Commonwealth Office (Mr Jeremy Browne)]

There has been significant progress on building the bilateral relationship with India since the Prime Minister’s visit to India in July 2010, with increased co-operation across the full scope of activities.

[Helen Goodman]

Given the desirability for the UK and India of increasing the trade between the two countries, will the Minister tell the House what progress has been made on the negotiations for an EU trade agreement?

[Mr Browne]

I completely share the hon. Lady’s objectives. India is rising in importance, and that is most evident economically. Insufficient progress has been made, but progress is still being made and Britain is at the forefront of trying to conclude the negotiations as soon as possible.

[Joseph Johnson (Orpington) (Con)]

Does the Minister know of any plans for the Indian Prime Minister to reciprocate, in the light of our Prime Minister’s successful visit to India last July?

[Mr Browne]

Discussions are under way, and we would greatly look forward to welcoming such an eminent political leader to this country. There are no fixed plans at this point, but we hope to advance such plans as soon as possible.

[Emma Reynolds (Wolverhampton North East) (Lab)]

We welcome any progress made on the EU free trade agreement with India. However, as recent events have highlighted, a trade policy is no substitute for a broader foreign policy. Will the Minister therefore tell us what other foreign policy priorities the Government are pursuing in respect of our relationship with India?

[Mr Browne]

I accept that the relationship between our two countries goes beyond economics, although that is increasingly important. We share historical links; we share interests in global security; we share democratic and institutional relations; we share cultural ties; we share sporting links; and I understand that you, Mr Speaker, are expected to visit India later this year further to strengthen relations between our two countries.

[Nadhim Zahawi (Stratford-on-Avon) (Con)]

16. What recent assessment he has made of the security situation in the middle east; and if he will make a statement.

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

It is vital to acknowledge that no true stability can result from the repression of legitimate demands for political participation and the rule of law. Nothing can justify the use of lethal force against peaceful demonstrators. We are supporting peaceful reform in Tunisia and Egypt, just as we are opposing violence elsewhere and urging all Governments in the region to respond positively to popular calls for better governance.

[Nadhim Zahawi]

The security of the middle east depends on many factors, one of which is a responsible but independent media. With that in mind, I was shocked to see that, throughout yesterday, al-Jazeera’s Arabic channel, which broadcasts “Al-Jazeera English Live” in this country, allowed messages of hate, violence and revenge against the west to be posted on its coverage. Does the Foreign Secretary agree that broadcasting such messages is highly irresponsible and, indeed, illegal?

[Mr Hague]

I did not see the reports to which my hon. Friend refers. Clearly, he has seen reports that he found very disturbing and I hope that he will take those up directly with al-Jazeera. Al-Jazeera now broadcasts a very wide variety of material, but I hope that it will in no way encourage hate or the commissioning of crimes; we must be vigilant against that.

[Mike Gapes (Ilford South) (Lab/Co-op)]

Further to an earlier answer, what assessment has the Foreign Secretary made of the internal politics of Hamas and of whether there are conflicting voices—on the one hand about building a technocratic Government and conducting elections on a unity basis and, on the other hand, supporting and praising bin Laden?

[Mr Hague]

It would be surprising if there were not differing voices and internal tensions on these subjects. Clearly, many issues are moving in the middle east, with the changed situation in Egypt and pressure on the Syrian Government. Hamas has been encouraged by the new Government in Egypt to enter into the political reconciliation with Fatah, as discussed earlier. I believe that it might also feel less secure in its position in Syria. These are forces now at work on Hamas, and it is important in the light of the changes in the middle east that, as the Under-Secretary of State for Foreign and Commonwealth Affairs, my hon. Friend the Member for North East Bedfordshire (Alistair Burt) has been saying, it makes concrete movement towards acceptance of Quartet principles, which the whole world looks to it to respect.

[Ann Clwyd (Cynon Valley) (Lab)]

17. What discussions his Department has had with the UN special rapporteur on torture on the case of Bradley Manning.

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Alistair Burt)]

We are aware of discussions that the UN special reporter on torture, Juan Mendez, has had with the United States Government, but the Foreign and Commonwealth Office has not had any discussions with him on the case of Bradley Manning.

[Ann Clwyd]

I have raised the case of Bradley Manning on several occasions in this Chamber and outside it. Mrs Susan Manning, who is Bradley Manning’s mother, wrote to the Foreign Secretary three weeks ago. She has not yet had a reply. She asked for consular assistance and for somebody to visit her son in the very bad conditions in which he is being held. She also asked for any help that could be given, in Washington and elsewhere, to the family if they so request it. At the very least, Mrs Manning, who is very concerned by the situation of her son, should have had the courtesy of a reply.

[Alistair Burt]

The right hon. Lady knows from her Adjournment debate on precisely this subject that Bradley Manning does not consider himself a UK citizen and his lawyer has made it very clear that he does not consider that he has any contact with this country. We cannot therefore discuss his nationality and we are limited in both what we can say and what we can do in this case. Bradley Manning’s lawyer is well aware of the circumstances and of the United Kingdom Government's position.

[Clive Efford (Eltham) (Lab)]

18. What recent discussions he has had with his US counterpart on the situation in Egypt.

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

I am in regular contact with Secretary Clinton about the whole situation in the middle east. I met her most recently at the NATO Foreign Ministers’ meeting in Berlin on 15 April.

[Clive Efford]

It is feared in some quarters that the deal brokered in Cairo between Hamas and Fatah is influencing America’s attitude to the new regime there. Has the Foreign Secretary had an opportunity to hold any discussions about that with his American counterpart? In particular, has he discussed the future of aid for Egypt and of assistance with the delivery of free and fair elections in the near future?

[Mr Hague]

I believe the United States to be supportive of what the interim Government are doing in Egypt. Everything that I saw yesterday suggested that we should be supportive, as did the meetings that I had with Field Marshal Tantawi and the new Prime Minister and Foreign Minister of Egypt. They are trying to bring about a transition to democratic government in Egypt, but they face formidable economic problems, which I think will pose the most difficult challenge of all during the coming year or two. It will be very important for western nations to engage with the Government of Egypt and work together on their economic future, and I have received no indication that the United States is planning to do anything other than that.

[Jim Shannon (Strangford) (DUP)]

The Foreign Secretary has hit on the issue of the change and why it came about. That change swept across the whole of the middle east, but the economy and jobs were a key issue in Egypt in particular. What steps has the Foreign Secretary taken, and what discussions has he had with his United States counterparts, to ensure that something constructive will happen, and will happen soon?

[Mr Hague]

As I have said, we discuss these issues with the United States all the time, and President Obama will be coming to this country in a few weeks. The future of change in the middle east and how we should support that change—and Egypt is at the heart of that, for the success of the change there will be a key determinant of what happens in other countries—will be at the forefront of our discussions with President Obama and, indeed, the discussions at the G8 summit which will follow his visit.

[Oliver Colvile (Plymouth, Sutton and Devonport) (Con)]

19. What recent steps he has taken to ensure that diamond extraction standards in Zimbabwe comply with the monitoring standards under the Kimberley process.

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr Henry Bellingham)]

The FCO hosted an EU Kimberley process planning meeting ahead of the Kimberley process meeting in Dubai on 14 April. We are working with the EU to push for a robust agreement to ensure Zimbabwean compliance with the Kimberley process, and that includes strengthening the role of the Kimberley process monitor. The good news is that we have helped to secure broad international support for a new monitoring team led by Mark van Bockstael.

[Oliver Colvile]

Does my hon. Friend agree that the proceeds of the diamonds should go to the Zimbabwean treasury? What pressure can be placed on the Zimbabwean Government to ensure that civil society is included in the decision-making process?

[Mr Bellingham]

The Marange diamond proceeds have the potential to bring literally hundreds of United States dollars into the Zimbabwe exchequer. Last year $38 million—the first tranche—did get through, but I am disturbed by reports that hard-line elements are benefiting from the Marange mine. I entirely agree with my hon. Friend: it is essential for us to have a strong civil society involvement, and that is why the appointment of a new civil society focal point will play such a vital role in increasing transparency.

[Zac Goldsmith (Richmond Park) (Con)]

Is the Minister frustrated by the hampering of our negotiations on Zimbabwe diamonds as a result of our having to reach agreement through the sluggish EU? Does he agree that it would be better for us to adopt a more robust position on our own terms?

[Mr Bellingham]

It is worth bearing in mind that since the start of the Kimberley process, roughly 99% of the world trade in rough diamonds is now Kimberley-compliant. That is a huge improvement on the previous position. As for my hon. Friend’s point about the EU, he has made a very interesting suggestion, and I will certainly examine it.

[David Rutley (Macclesfield) (Con)]

20. What recent assessment he has made of the state of bilateral relations between the UK and Turkey; and if he will make a statement.

[The Minister for Europe (Mr David Lidington)]

We have excellent co-operation with Turkey on a wide range of issues, as was reaffirmed in the strategic partnership signed last July by my right hon. Friend the Prime Minister and Prime Minister Erdogan.

[David Rutley]

Given Turkey’s important role in helping the United Kingdom foster stronger relations with Arab nations at this time of instability, what steps is my right hon. Friend taking to engage Turkey further both in providing increased humanitarian aid in Libya to those who need it and in helping to enforce the arms embargo against the Gaddafi regime?

[Mr Lidington]

Turkey has already been active on both counts. My right hon. Friend the Foreign Secretary is in frequent contact with Foreign Minister Davutoglu about how to strengthen our co-operation both in supplying effective humanitarian aid to people in need inside Libya and in planning for the reconstruction of that country in the future.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Britain is Turkey’s best friend in the European Union, yet relations between the EU and Turkey continue to be bedevilled by the issue of Cyprus. What efforts is the right hon. Gentleman making to persuade both Cyprus and Turkey that a better relationship between the two of them will help the reunification of the island and Turkey’s membership of the EU?

[Mr Lidington]

The urgent need for progress towards a settlement in Cyprus is on the agenda at every conversation that either I or my right hon. Friend the Foreign Secretary have with both our Turkish and Cypriot counterparts. I am sure that that will continue to be the case, and I hope that once the forthcoming Cypriot and then the Turkish elections are over, all parties concerned will redouble their efforts to reach the solution that all communities in Cyprus need to see.

[Mr Speaker]

Graham Evans is not here, so I call Fiona Bruce.

[Fiona Bruce (Congleton) (Con)]

T2. rose—

[Mr Speaker]

Order. I am sorry, but in the circumstances the Foreign Secretary should first give a statement on his departmental responsibilities.

[The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)]

Yesterday I visited Cairo to underline the United Kingdom’s support for what the people of Egypt have achieved in the last three months and for their democratic and peaceful future. Across the middle east, this Government will continue to offer their support to ensure that the countries of the region can meet their people’s legitimate aspirations and that events do not result in the suppression of those aspirations, as we are seeing in countries such as Syria.

[Fiona Bruce]

I thank the Minister for his response with regard to the treatment of minorities such as the Hazara population in Pakistan. What can also be done to encourage and support the protection of the rights of minorities more widely in Pakistan, such as Hindus, Christians and women, in the light of accounts of human rights violations, such as forced conversion, forced marriage, beatings, rape, false imprisonment and even murder?

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Alistair Burt)]

My hon. Friend makes serious points about the concerns over human rights in Pakistan. They are points that the United Kingdom Government take up, which have of course been more sharply in focus in recent weeks given, sadly, the murder of Shahbaz Bhatti, the Christian who was Minister for minorities in Pakistan, who was known to a number of us in this House. We are all concerned about the circumstances there, but the Government are working with us and we will continue to support efforts to protect all minorities in Pakistan from the issues that my hon. Friend raised.

[Mr Douglas Alexander (Paisley and Renfrewshire South) (Lab)]

The House is aware that the Prime Minister will shortly give a statement on the death of Osama bin Laden, but I hope the Foreign Secretary will agree that the success of the Arab spring could yet be an even more significant blow to al-Qaeda. Given that, will he update us on the work being done to stop the repression of demonstrators in Syria? In particular, when will the European Union act, and will the Foreign Secretary give an undertaking to work to ensure that Syria does not take Libya’s vacated place on the UN Human Rights Council?

[Mr Hague]

I fully agree with the right hon. Gentleman. Indeed, this is a moment for people across the middle east to reflect that in so many countries it has been possible to bring about peaceful and democratic change—that may yet happen in more countries—and that the violent philosophy of al-Qaeda that only violence and death can bring about change is bankrupt and should increasingly be vanquished across the middle east. That does, indeed, bring us to Syria. The UK is at the forefront of pressing for action by the European Union. At the end of last week, we secured agreement on an arms embargo and the revocation of the association agreement that had been put in place with Syria. We are now working with our European partners on targeted sanctions such as asset freezes and travel bans—I will be discussing those further with the French Foreign Minister this evening—and we are also highly active at the United Nations Security Council on this issue, although the right hon. Gentleman will understand that Syria is a difficult issue at the UN Security Council and that some of the members, including permanent members, require a good deal of convincing that the United Nations should be taking any action.

[Julian Smith (Skipton and Ripon) (Con)]

T4. British business continues to be bogged down by regulation and directives from Brussels. What plans does the Minister for Europe have to work with ministerial colleagues to challenge that over the coming months?

[The Minister for Europe (Mr David Lidington)]

My hon. Friend is right in his analysis. Securing less costly, less burdensome regulation on European businesses, especially small and medium-sized enterprises, is a priority in our engagement with our European counterparts for every Minister in this Government, from the Prime Minister downwards. I am delighted to be able to assure my hon. Friend that the Prime Minister’s initiative in that respect is gaining increasing support from other Heads of Government across the European Union.

[Rosie Cooper (West Lancashire) (Lab)]

T3. Described as the single greatest advertisement for Britain, the value of the BBC World Service cannot be underestimated, especially given that Syrian demonstrators hold up placards with “Thank you BBC” on them. Will the Minister therefore consider making the appropriate representations to stop the disproportionate reduction in the BBC World Service output before it is too late?

[Mr Hague]

Nothing disproportionate has happened or will happen to the BBC World Service. The reduction in its spending between 2007 and 2014, the period for which the Foreign Office is under spending restraint, will be exactly the same as the proportionate reduction in the rest of the Foreign Office family and a good deal less than that for the British Council. It is important that we save money across the public sector—we have had to do so given the behaviour of the previous Government—but the World Service has a secure future, as does the Arabic service. Transferring the BBC World Service into the licence fee funding arrangement means that it has a secure future for the long term.

[Christopher Pincher (Tamworth) (Con)]

T5. Piracy off the west coast of Africa, particularly the coast of Somalia, continues to grow. It represents a clear threat to the lives of seafarers and costs international commerce billions of pounds. What steps does the Minister envisage taking, with the Government of Somalia, to bring to an end this dangerous form of robbery?

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Mr Henry Bellingham)]

Obviously, a long-term solution to the problem of piracy lies on the land, which is why we are working so hard to provide a stable Somalia. We have taken the lead in the international contact group on piracy, and last year we provided £6 million in support of regional prosecution and prisons capacity and some new equipment for the improvement of the Seychelles coastguard. We are taking the lead, and I hope that other countries follow it.

[Grahame M. Morris (Easington) (Lab)]

T8. Let us be clear about the impact of the spending cuts on the Arabic division of the BBC World Service. In one month it will be forced to reduce its daily output of live TV news from 15 hours to seven and of live radio from 12 hours to seven, and it will also lose 44 of its Arabic staff. In the light of the recent monumental events across the Arab world and the integral role of the BBC World Service as a provider of impartial information, will the Foreign Secretary act now to save this valuable service?

[Mr Hague]

The answer really is the same as the one I gave a few moments ago: we have to operate within all the spending constraints involved in repairing the budgetary catastrophe left to us after last year’s general election. Unfortunately, that has consequences for the World Service too, but the Arabic service, along with so many other services of the World Service, will not just be secure for the future; it can be developed further for the future, along with BBC World, which is also of importance in the Arab world, because we have secured its long-term future within the BBC licence fee.

[Simon Hughes (Bermondsey and Old Southwark) (LD)]

T6. The recent report to the Secretary-General of the United Nations made it clear that war crimes had been committed in Sri Lanka by both the Tamil Tigers and the armed forces of the Government of Sri Lanka. What action do our Government propose to take in the UN and the Commonwealth to make sure that Sri Lanka, a member of the Commonwealth, upholds the rule of law and that war crimes are punished?

[Mr Hague]

This is a vital subject and it is crucial for the long-term health of Sri Lanka that these problems are addressed as a part of reconciliation for the long-term future and in bringing different communities together in Sri Lanka. Our Government strongly supported the commissioning of the report by the Secretary-General. We are considering that report carefully, but in the meantime we look to the Government of Sri Lanka to respond to it in detail and make it clear how they intend to proceed.

[Andrew Miller (Ellesmere Port and Neston) (Lab)]

T10. In the light of the second bombing of the gas pipelines from Egypt to Israel and Jordan, what conversations has the right hon. Gentleman had with the new regime in Egypt to stress the importance of the 30-year peace treaty between Israel and Egypt?

[Mr Hague]

The hon. Gentleman is quite right—of course that is important. I had lengthy discussions yesterday with the Prime Minister and Foreign Minister of Egypt. Regional peace and the future of the middle east peace process are absolutely integral to this matter, so they formed an important part of our discussions. As part of that, we look to Egypt to respect that treaty with Israel, and it is in no doubt whatever about our position on that.

[Mark Lancaster (Milton Keynes North) (Con)]

T7. Will the Minister join me in commending the work of FCO Services for both the UK and international Governments and will he confirm that there are no plans to move the organisation from Hanslope park in Milton Keynes?

[Mr Bellingham]

I pay full tribute to FCO Services and all its staff at Hanslope park in my hon. Friend’s constituency. They are highly professional and it is an impressive trading fund, with a profit for the last financial year that will exceed its £4 million target. It now gets a quarter of its income from other Government Departments and is also bidding for contracts overseas, so it is one of the jewels in the FCO crown.

[Tony Lloyd (Manchester Central) (Lab)]

The situation in Syria has naturally been overshadowed by events in Libya and almost totally by the news from Pakistan yesterday. Clearly the deaths of so many people and the actions of the authorities in Damascus have been gross and unacceptable. Will the Secretary of State tell the House what pressure he has been able to bring to bear on those who have a voice in Damascus—those in the Arab League, for example, and, importantly, our good friend Turkey?

[Mr Hague]

Yes, this is a very important subject. We have of course made our own views clear directly to the Syrian Government. Last Wednesday evening I called the Syrian Foreign Minister and communicated directly to him the views of the United Kingdom about the unacceptable violence against protestors. I urged the Syrian authorities to go down the route of reform rather than repression, but, sadly, they are increasingly taking the route of repression. The hon. Gentleman is right that Turkey plays an important role and there have been Turkish representatives in Damascus over the past week, again urging reform. As I mentioned earlier, I took up the subject with the Arab League in Cairo yesterday to urge it to use its best efforts to encourage Syria down the right path.

[Eric Ollerenshaw (Lancaster and Fleetwood) (Con)]

T9. Two weeks ago, Bosnia’s Serb Parliament agreed to a referendum questioning the legitimacy of the Bosnia and Herzegovina state court, which deals with war crimes. Does the Minister agree that that potentially undermines the Dayton peace accord and could set off the worst crisis in the 16 years since the war finished? What is he doing with our allies to ensure the peace and stability that has been achieved so far will not now be squandered?

[Mr Lidington]

My hon. Friend is right that that is a potential challenge to the Dayton accord and it is not something that the British Government regard as acceptable. We are emphasising to our European partners and other members of the international community that we all need to work to strengthen the statehood of Bosnia and the integration of its communities within a single country, and we should be prepared, if needs be, to invoke the Bonn powers to make it clear that what the Republika Srpska is now proposing is simply not acceptable.

[Mr Ben Bradshaw (Exeter) (Lab)]

In his response to the Chairman of the Select Committee on Foreign Affairs about the Arab League’s response in Syria and Bahrain, the Foreign Secretary stressed the importance of consistency in our response to the Arab spring. How is it adequate simply to urge dialogue on both sides in Bahrain, given the Bahraini Government’s outrageous and continuing human rights abuses?

[Mr Hague]

That is not the only thing that we are doing. Of course, we have made our protests clear based on credible reports—and there are credible reports—of human rights abuses over the Easter period. I also spoke to the Bahraini Foreign Minister, Sheikh Khalid al-Khalifa, and made our protests. In Bahrain, there is still hope of dialogue and the situation is therefore different from some of the others in the middle east. Serious efforts at dialogue have been made by some of those who are now in authority, so we call again on them—on the ruling family and ruling group in Bahrain and on opposition groups—to enter into such a dialogue, which is the only viable way to a future for Bahrain.

[Jo Swinson (East Dunbartonshire) (LD)]

Gaddafi’s forces have been bombarding Misrata’s port, preventing essential food and medical supplies from reaching the population for four days now. Elsewhere in Libya, aid convoys have been intercepted and attacked, and supplies stolen. Does the Foreign Secretary agree that creating safe corridors for humanitarian aid is within the terms of the United Nations Security Council resolution 1973 in order to protect civilians? What will the coalition do to make sure that vital aid gets through to the people who so desperately need it?

[Mr Hague]

We have done a great deal to make sure that aid gets through, to take people out of Misrata, including vulnerable people such as migrants who have been concentrated near the port, and to get humanitarian aid in. However, my hon. Friend is right that that has been more difficult in recent days, again because of the barbaric actions of the Gaddafi regime. It is much preferable, of course, to take in humanitarian aid separately from military activity, for very good reasons which she will fully understand, but if that becomes impossible we will have to consider other ways.

[Richard Burden (Birmingham, Northfield) (Lab)]

Returning to the question of Hamas, does the Foreign Secretary agree that the reported comments of Ismail Haniya yesterday were appalling and are already being seized on by enemies of peace on both sides of the Israeli-Palestinian divide? Does he agree that we must not be deflected from the cause of peace but must recognise the potential for unity between Fatah and Hamas and recognise that peace is ultimately built between enemies, not with friends?

[Mr Hague]

Peace is indeed built between enemies rather than friends, but as the hon. Gentleman rightly points out, that cause would be assisted if it were possible to show across many different divides in the world a good deal of unity about what happened on Sunday night and about the removal from the scene of the author of some of the world’s greatest terrorist acts. It would have been better for Hamas to have joined in the welcome for that, as that would have been a boost in itself to the peace process.

[Mr Matthew Offord (Hendon) (Con)]

Judge Goldstone recently retracted the central finding of his UN report that Israel had intentionally targeted Palestinian civilians. What steps is the Secretary of State taking to inform members of the UN General Assembly of Judge Goldstone’s reconsideration of his report and admission about his inaccurate conclusion?

[Alistair Burt]

We know that Judge Goldstone would have much preferred the Israeli authorities to have co-operated with his report, which would have given it a different flavour. His comments are extremely important, but it is equally important to make sure that an investigation on both sides into the incidents, as he recommended, is done. He was satisfied that the Israeli Government had done their best to fulfil that commitment, but Hamas, we are afraid, has done nothing at all to fulfil that commitment.

[Several hon. Members]

rose—

[Mr Speaker]

Order. We come now to a statement by the Prime Minister.

[Ann Clwyd (Cynon Valley) (Lab)]

On a point of order, Mr Speaker.

[Mr Speaker]

Order. Points of order come after statements. I shall await the right hon. Lady’s point of order with interest and anticipation.

Counter-terrorism

Tuesday 3rd May 2011 Commons Chamber

15:33

[The Prime Minister (Mr David Cameron)]

The death of Osama bin Laden will have important consequences for the security of our people at home and abroad and for our foreign policy, including our partnership with Pakistan, our military action in Afghanistan and the wider fight against terrorism across the world. Last night, I chaired a meeting of Cobra to begin to address some of these issues, the National Security Council has met this morning and I wanted to come to the House this afternoon to take the first opportunity to address these consequences directly and to answer hon. Members’ questions.

At 3 am yesterday I received a call from President Obama. He informed me that US special forces had successfully mounted a targeted operation against a compound in Abbottabad, in Pakistan. Osama bin Laden had been killed along with four others—bin Laden’s son, two others linked to him and a female member of his family entourage. There was a ferocious firefight and a US helicopter had to be destroyed but there was no loss of American life. I am sure the whole House will join me in congratulating President Obama and in praising the courage and skill of the American special forces who carried out this operation. It is a strike at the heart of international terrorism and a great achievement for America and for all who have joined in the long struggle to defeat al-Qaeda.

We should remember today in particular the brave British servicemen and women who have given their lives in the fight against terrorism across the world, and we should pay tribute especially to those British forces who played their part over the past decade in the hunt for bin Laden. He was the man who was responsible for 9/11, which was not only an horrific killing of Americans, but remains to this day the largest loss of British life in any terrorist attack. He was a man who inspired further atrocities, including those in Bali, Madrid, Istanbul and, of course, here in London on 7/7. He was, let us remember, a man who posed as a leader of Muslims, but was actually a mass murderer of Muslims all over the world. Indeed, he killed more Muslims than people of any other faith.

Nothing will bring back the loved ones who have been lost, and of course there is no punishment at our disposal that can remotely fit the many appalling crimes for which bin Laden was responsible, but I hope that at least for the victims’ families there is now some sense of justice being served, as a long dark chapter in their lives is finally closed. As the head of a family group for United Airlines flight 93, put it, we are

“raised, obviously, never to hope for someone’s death”,

but we are

“willing to make an exception in this case...He was evil personified, and our world is a better place without him.”

Britain was with America from the first day of the struggle to defeat al-Qaeda. Our resolve today should be as strong as it was then. There can be no impunity and no safe refuge for those who kill in the name of this poisonous ideology.

Our first focus should be our own security. Although bin Laden is gone, the threat of al-Qaeda remains. Clearly there is a risk that al-Qaeda and its affiliates in places such as Yemen and the Maghreb will want to demonstrate that they are able to operate effectively, and of course there is always the risk of a radicalised individual acting alone—a so-called lone-wolf attack. So we must be more vigilant than ever, and we must maintain that vigilance for some time to come.

The terrorist threat level in the UK is already at severe, which is as high as it can go without intelligence of a specific threat. We will keep that threat level under review, working closely with the intelligence agencies and the police. In terms of people travelling overseas, we have updated our advice and encourage British nationals to monitor the media carefully for local reactions, to remain vigilant, to exercise caution in public places and to avoid demonstrations. We have ordered our embassies across the world to review their security.

Let me turn next to Pakistan. The fact that bin Laden was living in a large house in a populated area suggests that he must have had an extensive support network in Pakistan. We do not currently know the extent of that network, so it is right that we ask searching questions about it, and we will. But let us start with what we do know. Pakistan has suffered more from terrorism than any other country in the world. As both President Zardari and Prime Minister Gilani said to me when I spoke to them yesterday, as many as 30,000 innocent civilians have been killed in Pakistan, and more Pakistani soldiers and security forces have died fighting extremism than international forces killed in Afghanistan.

Osama bin Laden was an enemy of Pakistan. He had declared war against the Pakistani people and he had ordered attacks against them. President Obama said in his statement that

“counterterrorism cooperation with Pakistan helped lead us to bin Laden and the compound where he was hiding.”

Continued co-operation will be just as important in the days ahead.

I believe it is in Britain’s national interest to recognise that with Pakistan we share the same struggle against terrorism. That is why we will continue to work with our Pakistani counterparts on intelligence gathering, tracing plots and taking action to stop them. It is why we will continue to honour our aid promises, including our support for education as a critical way of helping the next generation of Pakistanis to turn their back on extremism. Above all, it is why we were one of the founder members of the Friends of Democratic Pakistan, because I believe it is by working with the democrats in that country that we can make sure the whole country shares the same determination to fight terror and terrorism.

I also spoke yesterday to President Karzai in Afghanistan. We both agreed that the death of bin Laden provides a new opportunity for Afghanistan and Pakistan to work together in order to achieve stability on both sides of the border. Our strategy towards Afghanistan is straightforward and has not changed. We want an Afghanistan capable of looking after its own security without the help of foreign forces. We should take this opportunity to send a clear message to the Taliban: now is the time to separate themselves from al-Qaeda and participate in a peaceful political process.

The myth of bin Laden was that of a freedom fighter, living in austerity and risking his life for the cause as he moved around in the hills and mountainous caverns of the tribal areas. The reality of Bin Laden was very different: a man who encouraged others to make the ultimate sacrifice while he himself hid in the comfort of a large, expensive villa in Pakistan, experiencing none of the hardship he expected his supporters to endure.

Finally, let me briefly update the House on Libya. In recent weeks we have stepped up our air campaign to protect the civilian population. Every element of Gaddafi’s war machine has been degraded. Over the last few days alone, NATO aircraft have struck 35 targets, including tanks and armoured personnel carriers, as well as bunkers and ammunition storage facilities. We have also made strikes against his command and control centres, which direct his operations against civilians. Over the weekend, there were reports that in one of those strikes Colonel Gaddafi’s son, Saif al-Arab Gaddafi, was killed. Let me be clear that all the targets chosen were clearly within the boundaries set by UN resolutions 1970 and 1973. These resolutions permit all necessary measures to protect civilian life, including attacks on command and control bases.

This weekend also saw attacks on the British and Italian embassies. We utterly deplore this. The Gaddafi regime is in clear breach of the Vienna convention to protect diplomatic missions, and we will hold it fully to account. We have already expelled the Libyan ambassador from London. The British embassy was looted as well as destroyed and the world war two memorial was desecrated. The UN has felt obliged to pull its people out for fear of attack.

Gaddafi made much of his call for a ceasefire, but at the very moment he claimed he wanted to talk, he had in fact been laying mines in Misrata harbour to stop humanitarian aid getting in. That is the regime—that is the man—we are dealing with. We will continue to enforce the UN resolutions until such time as they are fully in place, and that means continuing to turn up the pressure—sanctions pressure, diplomatic pressure and military pressure.

Bin Laden and Gaddafi were said to have hated each other, but there was a common thread running between them: they both feared the idea that democracy and civil rights could take hold in the Arab world. While we should continue to degrade, dismantle and defeat the terrorist networks, a big part of the long-term answer is the success of democracy in the middle east and, of course, the conclusion of the Arab-Israeli peace process. For 20 years, bin Laden claimed that the future of the Muslim world would be his, but Libya has shown, as Egypt and Tunisia did before it, that people are rejecting everything bin Laden stood for. Instead of replacing dictatorship with his extremist totalitarianism, they are choosing democracy.

Ten years on from the terrible tragedy of 9/11, with the end of bin Laden and the democratic awakening across the Arab world, we must seize this unique opportunity to deliver a decisive break with the forces of al-Qaeda and its poisonous ideology, which has caused so much suffering to so many across so many years. I commend this statement to the House.

[Edward Miliband (Doncaster North) (Lab)]

I thank the Prime Minister for his statement and join him in strongly endorsing the sentiments expressed yesterday by President Obama. The Opposition wholeheartedly support the action taken by the United States to bring Osama bin Laden to justice. We are grateful to President Obama for taking the decision and to the US special forces who carried it out.

At this time we remember the harrowing scenes of death and destruction of 9/11, and we remember, too, all the other atrocities carried out by al-Qaeda before 9/11 and since, including in Nairobi, Dar es Salaam, Bali, Istanbul, Madrid, Amman and, of course, the 7/7 bombings here in London. The world is a better and safer place without bin Laden commanding or inciting acts of terror. We should never fall for the idea that he somehow stood for a particular community or faith. In each case the objective was the same: to kill and maim as many innocent men, women and children as possible, of all faiths and all backgrounds.

Our response now must be to seek to use this moment, not to claim premature victory in the fight against terrorists, but to heal the divisions he sought to create. We should do that by rooting out the perpetrators of terror, by reaching out to all those willing to accept the path of peace and, at the same time, by ensuring continued vigilance here at home.

All parts of the House will welcome the co-operative and calm response of the Pakistani Government over the past 48 hours, but there remains a great deal of uncertainty about who was aware of bin Laden’s presence and location in Pakistan, especially given his proximity to Pakistani military bases. Pakistan’s leaders continue to take a brave stance against terrorism, but when the Prime Minister talked to President Zardari and Prime Minister Gilani, what discussions did he have about ensuring that the security apparatus in Pakistan fully supports their anti-terrorist efforts?

The developments of this weekend remind us why we took military action in Afghanistan, which under the Taliban gave shelter to bin Laden and to al-Qaeda, but those developments should also, as the Prime Minister said, reinforce the need for a lasting political settlement in Afghanistan as the only long-term guarantee of peace and security. Does the Prime Minister agree that we need greater urgency in the search for a political solution and to engage with those parts of the Taliban that are ready to renounce violence? Does he think that there are ways in which we can sharpen the choice facing the Taliban, including by deepening the political process in Afghanistan?

On Yemen and al-Qaeda’s remaining strongholds, we must do everything to combat terrorism and to increase pressure on their supporters, and we must also support movements that make it less likely that terrorism will take root, for is it not clear that the most effective long-term answer to al-Qaeda’s ideology of hatred is being provided by the peoples of north Africa and the middle east? During the Arab spring they have not been turning to an ideology of hate; they are demanding the right to control their own destinies with democratic reform and economic progress.

In that context, will the Prime Minister update the House on progress that has been made in consolidating the democratic gains in Egypt and Tunisia? What is being done not only to ensure that those Arab leaders who have promised reform stick to their commitments, but to force those still resorting to violence and repression, as in Syria, to stop doing so?

On Libya, it is clear that we cannot abandon the Libyan people to Colonel Gaddafi’s revenge, but will the Prime Minister also take this opportunity to reassure the House that, in all our words as well as actions, it will be clear that all the steps we take are in the terms of UN Security Council resolution 1973? Does he further agree that doing so is right in principle and essential to maintaining regional support for action to enforce the will of the Security Council?

On Israel-Palestine, does the Prime Minister agree that the reaction of Hamas, calling the killing of bin Laden an example of American oppression, is deeply regrettable? Does he agree that we should continue to make efforts to restart the middle east peace process? What discussions has he had with President Obama and the other leaders on that important area?

Finally, I support the Prime Minister’s call for UK citizens to show increased vigilance at this time. Al-Qaeda has suffered a serious blow, but it remains a threat. Can I also take this opportunity to offer my thanks and the thanks of the Opposition to the police and security services, which work tirelessly in public and behind the scenes to keep us safe, as well as to British forces throughout the world?

Above all, let me say this: 9/11 was one of the most horrific events of our generation, and for the victims and their families, including in this country, nothing can remove the pain that they feel, but the death of Osama bin Laden sends out a clear message that, in the face of terrorist acts, the world will not rest until justice is done.

[The Prime Minister]

I thank the right hon. Gentleman for his statement and for the way he has made it. He is absolutely right to praise the police and security services, particularly those in the security services who never get public recognition for the work that they do to keep people in our country safe.

The right hon. Gentleman is absolutely right to talk as strongly as he has about 9/11 and the memories people have of it. I am sure that everyone in the House remembers exactly where they were and what they were doing on that day, and how they felt, and he is right that we should use this moment to try to heal many of the divisions in our world.

On the specific questions, the right hon. Gentleman asks about Pakistan and the question, which I think will come up a lot, about who knew what and what we will do to find out who knew what. What matters most of all, as I said, is to back the democratic leaders of Pakistan, to work with them and those involved in security and military matters and to try to hold discussions with them together, which is what I did on my last visit to Pakistan.

On Afghanistan, the right hon. Gentleman asks how we can increase the urgency of a political settlement. That is absolutely the right thing to do, and again part of the answer lies in Pakistan and the discussions we can have with it to encourage all those involved to give up violence, to accept the basic tenets of the Afghan constitution and, critically, to renounce any link with al-Qaeda.

The right hon. Gentleman asks what more can be done to deepen the democratic process in Egypt and Tunisia. My right hon. Friend the Foreign Secretary was in Egypt yesterday. One of the key ways of doing this is through the European Union, and Britain, along with others, is pushing very hard for a total update of Europe’s relations with its neighbourhood to make them more attractive and something that has proper conditions attached to them.

On Syria, the right hon. Gentleman asked what more can be done to step up the pressure. I agree that what is happening in Syria is unacceptable. We are leading a process in Europe of setting about applying proper pressure—an arms embargo and taking the association agreement off the table—and we are looking at further steps, including travel bans and asset freezes, and other things we can do to show that what is happening in Syria is unacceptable.

On Libya, the right hon. Gentleman asks whether we will stick to UN resolution 1973. Yes, we will. What I would say, though, is that this does not mean just sticking with the existing set of things we are doing. All the time, we should be asking what more we can do to raise the diplomatic, military and sanctions pressure; and within all necessary measures to protect civilian life, I believe that there are many more things we can do and should do to keep the pressure up.

The right hon. Gentleman is right that Hamas’s reaction is very regrettable. I do believe, though, that the middle east peace process is, if you like, the third leg of the strategy to fundamentally defeat al-Qaeda. The first leg is the attack on the terrorist network—the blow so successfully dealt yesterday—and the second leg is democracy and progress in the middle east, in north Africa and in Muslim countries, but the third leg is a middle east peace process that works. I am seeing Prime Minister Netanyahu tomorrow evening, and we will do everything we can in our power to encourage both sides to recognise the historic times that we are living in and the historic chance there is to forge a deal that will last.

[Sir Malcolm Rifkind (Kensington) (Con)]

The Prime Minister has rightly paid tribute to the United States special forces who carried out yesterday’s remarkable operation. Will he make a similar tribute to the United States intelligence agencies, without whose patience and professionalism the actual location of bin Laden would never have been achieved?

[The Prime Minister]

My right hon. and learned Friend is entirely right. Clearly, this was a painstaking operation—if you like, a painstaking piece of detective work—that went on for many, many months. I can tell from speaking to President Obama that this was not some chance opportunity that came up but a piece of very careful work put in place over months and an operation clearly carried out with great professionalism and skill.

[Mr Jack Straw (Blackburn) (Lab)]

The Prime Minister rightly talks about three strands of a strategy to deal with the continuing problem of al-Qaeda. May I suggest that there is an additional strand, to pick up his point about the pernicious ideology of al-Qaeda, which in many ways remains the most enduring threat posed by al-Qaeda, notwithstanding the demise of its leader? Although there is no silver bullet, so far as here at home is concerned we need to continue programmes to deal with underachievement by some—not all—Asian heritage groups in schools and underemployment of them at work in order to reduce the opportunities for their minds to be taken over by this ideology.

[The Prime Minister]

I agree with the right hon. Gentleman, although I would say that there are two additional strands. One is dealing with problems of poverty, inequality and underachievement, which absolutely must be done, but separate from that is the whole bin Laden/al-Qaeda/extremist Islamist thread of painting Muslims and Muslim communities as somehow being in perpetual victimhood and saying that they can never successfully co-exist in western democratic societies. It is absolutely key that we target that ideology and challenge it, because in the end it is only by challenging the ideology that we will win this battle.

[Sir Menzies Campbell (North East Fife) (LD)]

While understanding the satisfaction, and even elation, of those who lost family members in the inferno of 9/11, does my right hon. Friend agree that the sober reality is that some things are unchanged by the death of Osama bin Laden? The threat remains, jihadism must be confronted, and adequate resources, effective international co-operation and good intelligence remain essential.

[The Prime Minister]

My right hon. and learned Friend is right. There is still a severe terrorist threat—there is still an al-Qaeda threat—and we should not overestimate what has happened, but clearly the end of bin Laden, who was the leader and inspiration of this movement, is a massive setback for al-Qaeda and for its terrorist affiliates, and I think it is worth putting that on the record. Clearly, we now have to go further and deal with the remaining senior leadership of al-Qaeda who are in the tribal lands in Pakistan. We then have to address the affiliates in places like the Arabian peninsula and in the Maghreb. But as my right hon. and learned Friend and the right hon. Member for Blackburn (Mr Straw) said, dealing with the pernicious ideology will be just as important as defeating the terrorists themselves.

[Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab)]

I endorse everything that has been said this afternoon. In the light of the agreed short-term risk, does the Prime Minister agree that the resources of the security and policing services in Britain should be focused entirely on this issue? In the light of the words of the Deputy Prime Minister this morning that the proposed changes to the police service are not set in stone, will the Prime Minister consider a pause in the Government’s changes to the police service so that it can concentrate on what really matters to the British people?

[The Prime Minister]

The right hon. Gentleman is obviously going a bit wider in his questioning. To me, it does not seem right to say that all the police’s attention should be on this issue; we have a serious situation in Northern Ireland as well. At all times, we are balancing the risks. On the police reforms, I say to Opposition Members that we have seen a successful model in London with the Mayor, which the previous Government put in place. That is a system in which the police feel more accountable to an elected individual, and I look forward to extending that across the country.

[Richard Ottaway (Croydon South) (Con)]

Pakistan is a divided and complex country, and the death of Osama bin Laden will only exacerbate tensions there. Does the Prime Minister agree that our priority should be to assist Pakistan to remain a stable state, if only because first, it is a nuclear power, and, secondly, it will have a crucial role in any settlement in Afghanistan?

[The Prime Minister]

My hon. Friend is entirely right. Of course there are frustrations, and questions will be asked about who knew what in Pakistan and about how this man could have lived in such a large house in such a comfortable-looking community so close to military installations. I am absolutely clear that the British interest is in working with the democratic politicians of Pakistan to deal with the shared issues of combating extremism; ensuring that we are dealing with a safe, rather than a dangerous, nuclear power; and, as my hon. Friend says, reaching a settlement in Afghanistan so that we can bring Britain’s brave troops home.

[Mr Bob Ainsworth (Coventry North East) (Lab)]

The brave and incredibly skilled individuals who carried out this operation deserve our profound gratitude, as do all those who put their lives on the line to protect us, including our own armed forces. In tackling the wider ideology of al-Qaeda, does the Prime Minister think that there are actions that we need to take abroad, as well as those that we need to take at home? The reconciliation track in Afghanistan is enormously important, and surely this operation gives us the opportunity to step up that activity. Did he talk to the President of the United States about that, and if he did not, will he do so?

[The Prime Minister]

I absolutely agree with the right hon. Gentleman that this is an opportunity, particularly in Afghanistan. Having discussed this matter with President Obama on many occasions, it is clear that there are two tracks that we should be pursuing. There is the military track, where we are building up the Afghan army and police, and having success against the insurgency in Afghanistan, where our troops are performing magnificently. At the same time, there is a political track, where we are saying to the Taliban that it is time for them to give up violence, break the link with al-Qaeda and enter a political process. Both tracks can continue simultaneously, but the death of bin Laden and the work with Pakistan present a greater opportunity for the second track to yield success.

[Mr Julian Brazier (Canterbury) (Con)]

Does my right hon. Friend agree that although the remarks by Hamas were as repugnant as they were wrong, the moves by the new masters of Egypt towards opening the border with Hamas-controlled Gaza are nevertheless the clearest possible illustration of just how important is the third corner of the triangle that he outlined? There will be no support from moderate Arab opinion without a long-term solution that offers justice for the Palestinians.

[The Prime Minister]

My hon. Friend is clearly right. We have to take the positive, optimistic view that although there will be all sorts of difficulties in the days ahead, Palestinian unity between Fatah and Hamas should be a step forward, and we must make sure that it is. What follows is trying to persuade the Israelis and others that although there are all sorts of uncertainties in the world today, this is an opportunity to take steps towards peace, as they will be dealing with more democratic neighbours.

[Hazel Blears (Salford and Eccles) (Lab)]

The Prime Minister will know that the vast majority of Muslims in this country entirely reject the violent ideology of al-Qaeda and Osama bin Laden. Will he therefore confirm that in the review of the Prevent programme, he will ensure that he puts in place a series of practical programmes to build the resilience of our young people to messages of hatred and extremism? Will he also confirm that he takes really seriously, as I know he does, the challenge to that ideology, on which I believe we have to do far more work to ensure that we really make an impact?

[The Prime Minister]

The words the right hon. Lady has uttered have been ringing through our review of Prevent. The problem has been not so much that a minority of British Muslims actually back al-Qaeda as that there has been a pernicious ideology among a minority of some communities that has given some comfort to the stories that al-Qaeda provides about victimhood and the rest of it. We have to address that issue in order to drain the swamp in which al-Qaeda has been swimming, if I can say so without mixing my metaphors.

[Dr Julian Huppert (Cambridge) (LD)]

Although it is clear that Osama bin Laden was deeply malign and it is good that that influence has ended, does the Prime Minister agree that the rule of law is very important and it is a great shame that we were not able to bring him before a court?

[The Prime Minister]

I listened very carefully to John Brennan’s briefing, and he made it clear that the forces were prepared to take bin Laden alive and capture him, but only if they were not actually in a firefight and at risk themselves. I think the Americans were completely justified in what they did and I think the world is much better off without bin Laden.

[Mr Jeffrey M. Donaldson (Lagan Valley) (DUP)]

In the context of counter-terrorism, if our allies can take out bin Laden in Pakistan and we can hit targets in Libya, why cannot we arrest a balaclava-clad terrorist who stands in a graveyard in Londonderry, in the United Kingdom, and threatens to kill police officers and destroy the political process in Northern Ireland?

[The Prime Minister]

As the right hon. Gentleman knows, I take a very strong view that what we saw in Londonderry is not acceptable and is an offence that the police should pursue. The Police Service of Northern Ireland is now well funded, well backed and an excellent police service, and I would encourage it in its work.

[Mark Pritchard (The Wrekin) (Con)]

Not withstanding the huge military sacrifices of the Pakistani army and the Pakistani people, in the Prime Minister’s conversations with President Zardari, did the President give him an assurance that should an evidence trail emerge from any subsequent investigation into the bin Laden compound that links some elements of the Pakistani state with the possible protection of bin Laden, the individuals involved will be brought before the courts in Pakistan?

[The Prime Minister]

In the conversation that I had with President Zardari, and then separately with Prime Minister Gillani, they first gave me their assurance that they did not know that bin Laden was living in Abbottabad and that they did not have such an understanding. I clearly made the point that the Pakistanis were going to be asked a lot of very searching questions by friends and foes alike over the coming days and needed to be prepared to answer them, but I come back to this basic point: what is in our national interest? Is it in our interest to have an enormous bust-up and argument with Pakistan over this, or is it in our interest to say, “Right, we’re going to work with the forces of democracy in Pakistan that want to fight terror and terrorism”? That must be in our interest, and it is what we should adhere to.

[Ms Gisela Stuart (Birmingham, Edgbaston) (Lab)]

Earlier, the Foreign Secretary tried to reassure the House that the future of the World Service was secure, but it is undeniably a diminished World Service whose future is secure. Given what has been said about counter-terrorism ideas in emerging democracies, will the Prime Minister strategically review the role and budget of the World Service?

[The Prime Minister]

Lots of Government Departments had very difficult settlements because, I am afraid, of the financial situation that we inherited. I think the deal with the World Service involving the BBC provided secure funding for its future. Of course it is having to make some economies, but I think it is perfectly possible to make economies and provide a good service at the same time.

[Dr Julian Lewis (New Forest East) (Con)]

Although I welcome the Prime Minister’s emphasis on the battle of ideas, does he share my concern that all too many people in all too many Muslim communities do not even accept that bin Laden was responsible for 9/11? What does that say about the failure of the west to get the counter-narrative and the counter-propaganda out worldwide and effectively?

[The Prime Minister]

My hon. Friend makes a good point, and that is very much what I was discussing with the right hon. Member for Salford and Eccles (Hazel Blears). Many in that minority of the Muslim community take the view that bin Laden was not responsible for 9/11. That does not mean that they actively back bin Laden; it just means that they have bought in to a narrative of Israeli plots and the rest of it. We must challenge that narrative. We cannot have young people growing up in our country believing that nonsense, and it is incumbent on all of us in the work we do in our constituencies—in mosques, community centres and so on—to challenge that thinking whenever it comes up. We should not believe that we are challenging cultural sensitivities in doing so—we are not. We are making a very clear point about what it means to be part of a modern democracy.

[Chris Bryant (Rhondda) (Lab)]

A lot of the coverage of Osama bin Laden’s death has referred to him as “evil”, and although we all hate the man, may I congratulate the Prime Minister on, I think, deliberately avoiding that sort of religious language? Osama bin Laden was not engaged in a holy war or crusade, and do we not need to hear a lot more Muslim clerics make that absolutely clear?

[The Prime Minister]

I think we do. I am not sure that I avoided the word “evil”—I will always take religious advice from the hon. Gentleman, who has more experience in that—but his point is a good one. We must remember that al-Qaeda’s narrative is not Muslims against the rest of the world, but Muslims against Muslims, before moving on to the clash of civilisations with the rest of the world. It is hopeful that we are seeing Arab and Muslim states saying that what they want is not that sort of sharia law society, but to move towards the building blocks of democracy, which will make for a better and more peaceful world.

[Mr Tobias Ellwood (Bournemouth East) (Con)]

I visited the UK Bali memorial today—a tribute to the innocent victims of just one of the many terrorist bombings that defined the past decade. News of bin Laden’s death did not fill me with any sense of victory, for the world is no safer, but I did feel that we are starting a new chapter and that the world is a better place. Bin Laden’s removal is long overdue. Is it not telling that the Arab spring is calling not for a seventh-century caliphate, but for a change towards a non-violent, democratic and secular society?

[The Prime Minister]

I thank my hon. Friend for his question, and I know that he suffered a loss in that Bali bomb. We can never bring back someone who has been lost, but he is right that the best tribute we can pay to the people who were lost in the murderous attacks in New York, London, Istanbul or Bali is not only to roll up the terrorist network that has created so much hatred, poison and death, but to see the Arab and Muslim world move towards democracy and freedom. That would be the most fitting tribute of all.

[Mr Pat McFadden (Wolverhampton South East) (Lab)]

Bin Laden is dead, but the ideology he represented is not, even though al-Qaeda has been a follower rather than a leader of the Arab spring. Does the Prime Minister accept that parts of that ideology—the perverted use of victimhood and the warped sense of faith—are often used as justification to kill others of the same faith? Is he aware that that ideology is sometimes shared by those who are not active supporters of terrorism? Does he therefore accept that even though bin Laden is gone, the struggle against the ideology he represented must continue at a political, an ideological and a security level?

[The Prime Minister]

I very much agree with the right hon. Gentleman and I hope there can be cross-party consensus on that. It would really help if we recognise in the review of Prevent and in what we do to deal with that ideology that it is not enough to say that we will prevent violent extremism, because we need to prevent extremism as well. Sometimes in the past, we have made a mistake in thinking, “Let’s talk to the extremists in order to stop the really violent ones,” but that is like trying to get the British National party to help to deal with a violent fascist. That would not be sensible in that context, and it is not sensible in dealing with extremist Islamism either.

[Kris Hopkins (Keighley) (Con)]

I want Pakistan to be a prosperous, peaceful and successful country, free of corruption. It is in our interests to support that, but lots of people in this country know that something stinks about where bin Laden was found and where he has apparently been living for the past five years. If this country is to continue to support and encourage Pakistan financially and morally, the Pakistani Government need to come clean about what has happened.

[The Prime Minister]

My hon. Friend makes an important point. Just because we are long-term friends and partners with Pakistan, as we should be, it does not mean that we cannot deliver a fairly tough message every now and again. When I went to Pakistan recently, one message I delivered was that it was unacceptable that so many people in Pakistan did not pay their taxes. It is not easy for us in the west to take money off our taxpayers to give to Pakistani education—vital though that is—if Pakistan is not collecting taxes from its own people. Dealing with corruption, making the country more transparent and ensuring that wealthy people in Pakistan pay their taxes should all be part of our bilateral agenda.

[Malcolm Wicks (Croydon North) (Lab)]

When the Prime Minister visited Pakistan recently, he announced various lines of co-operation, including technical co-operation on roadside improvised explosive devices. In the light of very recent events, will the Prime Minister review that co-operative agreement, lest technical knowledge gained could be passed rather quickly into the hands of terrorists in Afghanistan and elsewhere, with consequent threats to British and other lives?

[The Prime Minister]

Of course we consider all those things very carefully, but Pakistan has lost thousands of soldiers fighting extremists in south Waziristan and the Swat valley, where they are trying to root out a similar sort of Taliban to the one we are fighting in Afghanistan. We have to understand when we are talking to President Zardari that he lost his wife to extremist terrorists. Of course we must be careful in all that we do, but working with the Pakistanis so that they can combat extremism in their own country is clearly in our national interest.

[Mr Bernard Jenkin (Harwich and North Essex) (Con)]

May I commend my right hon. Friend’s tone towards Pakistan and his saying that we should deal with that country constructively and co-operatively? Should we not bear in mind what President Zardari himself has pointed out—that only 11% of the population of Pakistan has ever voted for radical Islamic parties, and that 85% is explicitly opposed to al-Qaeda? On that basis, there should be common interest and common cause between our two countries.

[The Prime Minister]

My hon. Friend is entirely right. Indeed, we need to co-operate not just on combating terrorism, but on the other matter we have been discussing today—combating the narrative of extremism. The same problem as the one we have been dealing with in our country exists in parts of Pakistan, albeit in a larger and different way.

[Mr Ronnie Campbell (Blyth Valley) (Lab)]

Although everybody welcomes the death of this evil man, does the Prime Minister not agree that the west should take two steps back when it wants to interfere in other people’s affairs?

[The Prime Minister]

The problem with that philosophical view of British foreign policy is that we live in too much of an interconnected world. The idea that we can just put the barrier up and say, “What happens in Pakistan or Afghanistan does not affect us” is wrong. The fact is that 1.4 million people of Pakistani origin live in Britain and travel between here and Pakistan. The fact is that we were threatened by terrorism sourced from Afghanistan and the tribal lands of Pakistan. I am afraid that that sort of “stop the world, I want to get off” foreign policy option no longer exists in this interconnected world.

[Mr Peter Bone (Wellingborough) (Con)]

Wellingborough is a fully integrated, interfaith community—in fact, this week we have Sikh, Hindu, Muslim and Christian candidates standing for the Conservative party at the local elections. [Interruption.] Does the Prime Minister agree that in my community of Wellingborough, yesterday’s events will be wholly welcomed?

[The Prime Minister]

My hon. Friend makes an important point. I think someone shouted, “What’s that got to do with it?” but it is important that all parties try to ensure that they are fully representative of all parts of the community. As we have learned in the Conservative party, it is not enough just to open the doors and invite people in; we have to go out and ask people in, so that we can say to people in every community that they are represented in whatever party they would like to support for whatever reason they would like to support it.

[Lyn Brown (West Ham) (Lab)]

Can the Prime Minister tell us anything about the reported counter-terrorism raids that have taken place in four homes in east London?

[The Prime Minister]

I can tell the hon. Lady that an arrest was made in connection with a group of people at Sellafield today. That is a matter for the police, but if there is further information to update her with, perhaps my office can contact her.

[David T. C. Davies (Monmouth) (Con)]

Bin Laden may have gone, but other members and supporters of al-Qaeda continue to live openly in the United Kingdom, protected by the European Human Rights Act 1998. Does the Prime Minister agree that we can put a lot more faith in US special forces to protect us than the bureaucrats of Brussels?

[The Prime Minister]

I have some sympathy with what my hon. Friend says. We are trying to deal with the problem in a number of ways. First, we are trying to sign a treaty with Pakistan on deportation with assurances, so that we can deport people of Pakistani citizenship and origin who may threaten this country back to Pakistan to be dealt with there. I discussed that with Prime Minister Gilani and President Zardari when I was there recently. However, we are also trying to reform the European Court of Human Rights from within, and my hon. Friend will be pleased to know that our right hon. and learned Friend the Justice Secretary had a very productive set of meetings with other Council members and there was widespread support for reforming the Court, so that it pays more attention to decisions taken by national courts.

[Stewart Hosie (Dundee East) (SNP)]

I thank the Prime Minister for his statement and for early sight of it. The conclusion was that what Libya demonstrated, as Egypt and Tunisia did before it, is that people are completely rejecting everything that bin Laden stood for. My hon. Friends and I fervently hope that that is true. Will the Prime Minister update the House on the concrete steps being taken to foster democracy and respect for human rights in north Africa and throughout the middle east?

[The Prime Minister]

I think there are bilateral actions that Britain, as an old and successful democracy, should take and links that we should make, such as updating the Westminster Foundation for Democracy, as we have discussed in this House before. However, the biggest step would be for the European Union radically to overhaul its programme of help and assistance to north African and middle eastern neighbours and countries. Frankly, its programme up to now has been quite expensive—there is no shortage of money being spent—but it has not been successful in putting in place those building blocks of democracy. That is what we should be working on.

[Geoffrey Clifton-Brown (The Cotswolds) (Con)]

Does my right hon. Friend agree that it is imperative to provide every possible military, diplomatic and development assistance to Pakistan, not only to build democracy in the longer term, but to help to improve security in the shorter term, which is inextricably linked with a successful exit strategy from Afghanistan?

[The Prime Minister]

I agree that we need to build those links. Clearly there has to be a two-way relationship: we must not be too transactional about it, but we need to be clear with the Pakistanis about what we hope to gain from the partnership that we enter into. Clearly, work on counter-terrorism is vital to Britain’s national interest, but we are prepared to do a huge amount with Pakistan to help with matters such as the education of children. There are 17 million children in Pakistan not at school today. If we want to keep them away from extremism and, indeed, if we want to deal with problems of migration as well, it makes sense for us to continue our aid programme.

[Jeremy Corbyn (Islington North) (Lab)]

Every terrorist attack is a disaster; every resulting war is a tragedy. Does the Prime Minister not agree that we should now think quite seriously about the whole strategy adopted over the past 30 years? Bin Laden was financed by the west in the war in Afghanistan in 1979; he had relations with US oil interests after that, and later he became the terrorist threat that he remained for the rest of his life. Do we not need to think seriously about where the west is putting money, who it supports and what eventually comes round to bite us in the back because we have not analysed what is happening in those countries and those societies?

[The Prime Minister]

Of course the hon. Gentleman is right that we have to learn the lessons of successes and failures of the past and try to apply them for the future, but it seems to me that there are some constants in all this, one of which is that the promotion of democracy and freedom, along with what I call the building blocks of democracy, is almost always and everywhere a good thing to do. In as much as we learn the lessons of interventions of the past, I hope that we hold on to that.

[Duncan Hames (Chippenham) (LD)]

It is entirely right that the Taliban should heed the calls from the Prime Minister to separate themselves from al-Qaeda and participate in a peaceful political process. What practical mechanisms exist whereby, in doing so, the Taliban can pursue a peaceful settlement in Afghanistan?

[The Prime Minister]

I thank the hon. Gentleman for his question. There are practical steps in place through the reconciliation and reintegration procedure that is available in Afghanistan through the President’s peace council. That enables Taliban fighters effectively to put down their weapons and join the political process, as long as they accept the basic tenets of the Afghan constitution. However, as well as that low-level reintegration, we need higher-level reconciliation, where we say to the Taliban, “If you accept the tenets of the constitution, give up violence and cut your links with al-Qaeda, there is a political path open to you,” because ultimately, insurgencies tend to end through a combination of force of arms and a simultaneous political process.

[Paul Flynn (Newport West) (Lab)]

Do not the six years of treachery by powerful people in Pakistan prove that the links of blood, religion, language and ethnicity between Pakistan and Afghanistan are far, far more powerful than the friendship of convenience between us and those countries, which depends on a continuing sacrifice of blood and treasure by us? Have not our excessive optimism and trust delayed the day when we can do a deal and bring our brave boys home?

[The Prime Minister]

I do not accept that analysis, because it can lead us to believe that the best option for Britain, and indeed America, is to cut ourselves off entirely from friendships, partnerships and co-operation with those countries and leave them to their own devices. That has been a mistake in the past. The lesson to learn is that long-term partnerships to help those countries are actually in our interests.

[Paul Uppal (Wolverhampton South West) (Con)]

The Prime Minister spoke about the myth of Osama bin Laden. One of the most powerful recruiting sergeants for al-Qaeda was the idea that he had moved away from a decadent western lifestyle to that of a penitent holy warrior. Is the Prime Minister heartened, as I am, by the truth that he was a hypocrite and that that hypocrisy runs through the core of the ideology of al-Qaeda?

[The Prime Minister]

My hon. Friend makes an important point. The idea that bin Laden was a hermit bravely living in a cave directing the insurgency has been given the lie completely, as we see now that he was living in a luxury million-dollar villa in a fairly suburban part of Pakistan. I hope that people who have somehow revered this man will now see the true picture of someone who was hypocritically living pretty high on the hog while expecting others to suffer hardship.

[Tony Lloyd (Manchester Central) (Lab)]

I warmly commend the remarks that the Prime Minister has made about Pakistan consistently throughout his statement. He is right that questions will have to be asked about who knew what, but the central tenet of what he says is that our relationship with Pakistan is not a friendship of convenience, as some of my hon. Friends believe. In fact, Britain and Pakistan have an unbreakable common interest in combating terrorism, and in many other areas. What more can be done to ensure that that is understood here in Britain and, importantly, in Pakistan?

[The Prime Minister]

It is about the hard work of building a strong partnership that is for the long term and not concentrating too much on the short-term transactions that two countries might want to undertake. The fact is that we have a shared interest in fighting terrorism, expanding trade, combating poverty, improving education and ensuring that the people-to-people links between our countries are strong. The more we discuss those matters with democratically elected politicians in Pakistan, the more the common interests will grow. I do not think that that is an impossible dream, as the hon. Member for Newport West (Paul Flynn) suggested; it is practical politics and completely in our national interest.

[Angie Bray (Ealing Central and Acton) (Con)]

May I turn the Prime Minister’s attention to Libya? He mentioned that he was seeking to tighten up the sanctions. What does he think about those countries that are not exactly signed up to the United Nations resolutions and that have been allowing Gaddafi to get hold of assets and funding by letting them slip through their countries and into Tripoli?

[The Prime Minister]

We think that that is unacceptable, and that, as well as implementing resolutions 1970 and 1973, there are opportunities to tighten sanctions—on oil and oil products, for example—to ensure that the regime comes to its senses and realises that it cannot go on terrorising its own people. In the coming days, we will look at ways of stepping up the action that we are taking, as well as encourage others to enforce measures already in place.

[Mike Gapes (Ilford South) (Lab/Co-op)]

The Prime Minister has referred several times to the need to combat the global jihadist Islamist ideology. In that context, will he have urgent discussions with the Foreign and Commonwealth Office and ask it not only to reverse the reductions in the BBC’s Arabic language services, but to implement an idea that has been talked about for quite a while—namely, to introduce a BBC Urdu channel to broadcast in Pakistan?

[The Prime Minister]

I heard the Foreign Secretary dealing with that matter extensively during questions. Many of the budget reductions being made are regrettable, but they are all part of ensuring that government is affordable and that we deal with the deficit that we inherited. I am quite clear that the settlement for the BBC is fair and that the BBC has to ensure that that money goes further in providing many of the excellent services that it does.

[Jeremy Lefroy (Stafford) (Con)]

In the context of Libya, may I ask my right hon. Friend what support the NATO-led coalition is receiving from other members of the Arab League?

[The Prime Minister]

We are getting good support from members of the Arab League: both the Qataris and the United Arab Emirates are providing planes, and logistic support is coming from some other members of the Arab League. The key is that the contact group, which my right hon. Friend the Foreign Secretary helped to set up, has already had a number of meetings and further ones are forthcoming. In those meetings, the support of the Arab League and Arab countries for what is happening in Libya is still extremely strong—

[Mr Dennis Skinner (Bolsover) (Lab)]

Declining.

[The Prime Minister]

No, it is not declining. It is still strong because Arab League countries know what they are dealing with in Gaddafi. When they watch what he is doing now—mining the port in Misrata, shelling and killing his own citizens—they know that is completely unacceptable and they are right to back the coalition.

[Nick Smith (Blaenau Gwent) (Lab)]

Will the Prime Minister say in which part of the world any possible retaliatory attack is most threatening? Do the Government have any plans to deploy UK military resources to combat that threat?

[The Prime Minister]

The whole point of the Cobra meeting last night was to review the evidence and concerns about potential retaliatory attacks. Clearly, we have to be on our guard across the world against attacks, whether they be here in the UK or on British assets or embassies in any other part of the world. We keep the threat picture permanently updated and keep permanently under review the advice we give to our embassies and the stance we take here. Certainty is never possible in these matters, but we try to be as vigilant as we can be.

[Gavin Barwell (Croydon Central) (Con)]

My right hon. Friend said that our objectives in Afghanistan remain unchanged. Does he believe that the death of bin Laden might allow us to achieve those objectives more quickly and hasten the day when our servicemen and women can come home?

[The Prime Minister]

I do not think it should automatically change our timetable; I think we should stick to that timetable. As I said, however, as well as the military track we are pursuing, there is also the political track of encouraging the Taliban into a political process. I would think that that will be helped by the fact that bin Laden is no more, as the futility of maintaining the link with al-Qaeda is seen. If the Taliban sever that link, there is every prospect of a political settlement, which prospect can clearly lead to British forces coming home. I do not think we should imagine that the timetable will be different, but we should work hard to take every opportunity brought about by the end of bin Laden.

[Barry Gardiner (Brent North) (Lab)]

The Prime Minister famously once accused the Pakistani Government of facing both ways. Is it not now clear that, whichever way they were facing, Pakistan’s Inter-Services Intelligence was clearly focused on Abbottabad and the security compound there, and that the co-operation of which he spoke must now have as part of its condition the root and branch reform of the ISI? If not, the fight against terror will be doomed from the beginning.

[The Prime Minister]

The hon. Gentleman makes an important point. As I said in my statement, it is clear that bin Laden had a “support network” in Pakistan. Those are the words that John Brennan used, and they are absolutely right. We do not know the full extent of that support network or exactly where it reached; what we do know is that we should do everything we can to support the democrats in Pakistan who want the entire country to face the same way and work hard to combat terrorism in every way possible. That is what we should do.

[Martin Horwood (Cheltenham) (LD)]

I welcome the content and particularly the promptness of the Prime Minister’s statement. The Foreign Secretary confirmed earlier that military action against individuals such as Colonel Gaddafi should take place only within the confines of proper legal authority. Does the Prime Minister expect it to be confirmed that that was also the case for the undoubtedly courageous action against Osama bin Laden?

[The Prime Minister]

The legal position and the legal advice are a matter for the United States. It was a US operation with US troops, so it is entirely a matter for that country. I think we should focus today on the fact that the world is undoubtedly better off without that man still being at large.

[Dr William McCrea (South Antrim) (DUP)]

I think the Prime Minister for his statement. Will he inform us whether intelligence sources confirm that Colonel Gaddafi is planning to use chemical weapons against the people of Libya? What further steps can be taken against the tyrant Gaddafi?

[The Prime Minister]

The hon. Gentleman has raised an interesting point. I believe that there have been press reports of gas masks being distributed by some in the Libyan regime, but we have no information about whether those reports are reliable or are linked with anything else. Obviously, however, we keep a close eye on everything that is happening in Libya, and on any threat that the regime could use such weapons in any way.

[Mr Edward Leigh (Gainsborough) (Con)]

Of course we reject the al-Qaeda characterisation of western policy as an attempt to impose our views on the Muslim world, but in order to win hearts and minds—particularly in the Arab world—will my right hon. Friend make it clear that it is no part of our long-term policy to impose or get rid of a particular regime in Libya, and that our aim is to secure a ceasefire, a settlement and, ultimately, peace, even at the cost of a divided country? I suspect that what most Libyans want is peace.

[The Prime Minister]

My hon. Friend has made a good point, which is linked to the point made at Question Time by the hon. Member for Islington North (Jeremy Corbyn). We are not there to pick a Government for Libya—to say, “You can have this sort of Government but not that sort of Government.” We are there, basically, to put in place United Nations resolutions 1970 and 1973, and to allow the Libyan people to choose their own Government in their own way. It may well be, in the end, a Government with whom we do not have 100% agreement, but one of the lessons that we have learnt in recent years is that that is how to make progress, rather than our trying—as I have put it in the past—to impose such things from above.

[Mark Hendrick (Preston) (Lab/Co-op)]

The Prime Minister spoke of the myths about bin Laden. Is he not concerned about the possibility that the swift burial of bin Laden will lead to conspiracy theories and further myths about whether he is still alive?

[The Prime Minister]

I think that the United States made a sensible decision on the basis that this was in line with all the correct Muslim practices for burial—a luxury, incidentally, that bin Laden never allowed any of his victims. This was done in an appropriate way, at sea, and I think that the Americans are to be commended for doing it in that way.

[Jason McCartney (Colne Valley) (Con)]

In the context of the rumours of conspiracy theorists, does the Prime Minister agree that it would be inappropriate and potentially unhelpful if the United States authorities released detailed and possibly gory footage of the operation in Pakistan?

[The Prime Minister]

I think that it is, in the end, for the United States to decide exactly what to release about the operation. All that I would say, on the basis of my limited experience, is that there are some conspiracy theorists who will never be satisfied. Some people still believe that Elvis will be found riding Shergar. You will never satisfy some people. I think that what the Americans have done so far is pretty sufficient in explaining to all reasonable people that bin Laden is no more.

[Richard Fuller (Bedford) (Con)]

On that bright September morning in New York, no one really seemed to give a fuss about anyone else’s religion, but over 20 years Osama bin Laden was responsible not only for the murder of innocents but for a raising of disadvantage for Muslims in many parts of the world. Does the Prime Minister agree that terrorists like Mr bin Laden abandon their faith the moment they determine to slaughter innocent people, and will he recommit himself to an open, inclusive society in this country, which includes our Muslim citizens?

[The Prime Minister]

My hon. Friend has put it extremely well. The fact is that there is no place in Islam for this sort of murderous ideology. It is against what Islam is meant to be all about. I hope that the argument that we can get across to people now is that that was an entirely blind alley for so many young people to go down, and that there is an alternative to the repression and frustration that they felt about regimes in north Africa and elsewhere: the democratic awakening that is taking place, which—as I said earlier—is one of the ways in which we will defeat al-Qaeda in the long run.

[Bob Stewart (Beckenham) (Con)]

Does the Prime Minister agree that, having suffered such a grievous loss—that of his wife—the President of Pakistan is totally on side in the battle against international terrorism, and that somehow or other we must help him to rid his governmental structure of people who are sympathetic to al-Qaeda, or indeed the Taliban? I do not know how we can do that, but perhaps the Prime Minister does.

[The Prime Minister]

My hon. Friend has put his question in the right way. A long-term commitment on the part of this country and, crucially, the United States to Pakistan is what is needed to help to convince Pakistan that together we will defeat this menace and give the country some prospect of peaceful progress. I have no doubt that that is President Zardari’s view. As my hon. Friend has said, the President has suffered from terrorism himself, and has shown considerable courage in sending Pakistani troops into the Swat valley and south Waziristan to defeat terrorism. So yes, Pakistan does need our help and long-term commitment so that we can deal with this issue together.

[Tom Brake (Carshalton and Wallington) (LD)]

What concrete steps are the UK Government and their allies taking to counter any propaganda campaign that may be launched seeking to portray bin Laden as a martyr?

[The Prime Minister]

That is a good point, and how the Americans have behaved over the burial—the fact that it was done in a proper Muslim way, and so forth—will help in that regard. Frankly, I do not think there is any magic button we can push or any magic campaign we can run. It is for all of us to make sure that people understand the evil this man did, the pernicious ideology he was pushing, and the fact that it led to a complete dead end for a generation of young Muslim men. If we make that argument, we can win that argument.

[Mr John Baron (Basildon and Billericay) (Con)]

Bin Laden’s death will be a severe setback for al-Qaeda, but as the Prime Minister knows, there are relatively few al-Qaeda in Afghanistan, and there are real differences between the Taliban and al-Qaeda, which could be worth exploring to provide a way forward. Will the Prime Minister therefore do more to urge the Americans to have open, meaningful, non-conditional talks with the Taliban? As we showed in Northern Ireland, it is possible to fight and talk at the same time.

[The Prime Minister]

The point I would make to my hon. Friend is that while there are clearly differences between the Taliban and al-Qaeda, there are at the moment still links between them. The Taliban are not currently willing to break the link with al-Qaeda, but that is a key step that needs to be taken in making sure that they can enter some sort of political dialogue and settlement in Afghanistan. It is not acceptable to ask Afghan democrats, and President Karzai and others, to have conversations with people who, even at the end of those conversations, are still going to be committed to violence and overthrowing all of the Afghan constitution, and who are going to be linked to a group of terrorists—al-Qaeda—which has done so much damage not just to Pakistan, but to Afghanistan itself.

[Mr Matthew Offord (Hendon) (Con)]

Does the Prime Minister believe the discovery of bin Laden in Pakistan serves to vindicate the speech he gave in Bangalore last July?

[The Prime Minister]

I am not going to row away from points I have made in the past, but the point I would repeat today is that it is in our interests to work with democrats in Pakistan so that all of that country, and everyone within it, is facing in the same direction in combating extremism, as their democratically elected politicians so clearly want to do.

[Stephen Metcalfe (South Basildon and East Thurrock) (Con)]

Does my right hon. Friend agree that the overwhelmingly vast majority of Muslims, both here in the UK and around the world, will welcome the fact that this evil criminal has been brought to justice? We must remind ourselves of that, to avoid stigmatising one particular group in society.

[The Prime Minister]

My hon. Friend is absolutely right, and it should ring out from this Chamber today that one of the groups of people who should be most relieved at the passing of bin Laden is Muslims all over the world, because he killed more Muslims than people belonging to any other faith. The point has been made right across the House today that only a minority of a minority of a minority, as it were, backed al-Qaeda, and another small group of people bought into some of the pernicious ideology it was peddling. We have to deal with both those problems, and it is remarkable how much common ground there has been on that on both sides of the House today.

[Robert Halfon (Harlow) (Con)]

From one Essex man to another! Will my right hon. Friend the Prime Minister confirm that the Government will take strong action against any conveyor-belt Islamist groups or individuals that use what has happened to bin Laden to promote jihad or other forms of violence?

[The Prime Minister]

My hon. Friend makes a good point, and as we have discussed today, we must combat not just violent extremism, but extremism itself. I think there has in the past been a sense of a conveyer belt, with some extremist groups and organisations taking people into a career of jihadism, and we will never deal with that unless we deal with the conveyor belt itself.

Points of Order

Tuesday 3rd May 2011 Commons Chamber

16:39

[Alison Seabeck (Plymouth, Moor View) (Lab)]

On a point of order, Mr Speaker. I seek your ruling and advice on whether the Minister for Housing and Local Government has breached purdah rules. Part 6 of the most recent Cabinet Office rules state that Government announcements should not be made in an election period, yet two days before elections the media and the Department for Communities and Local Government website confirm that he has made an announcement on self-build housing today. Is it not more appropriate for such announcements to be made on the Floor of the House outside the purdah period? Should not the Minister be required to come to the House to apologise or to explain, or perhaps to do both?

[Mr Speaker]

I am grateful to the hon. Lady both for her point of order and for advance notice of it. I have not been told of any intention on the part of any Minister, including the Minister to whom she referred, to make a statement. She has put her views on the record and can find other ways of pursuing this. I note in particular what she said about the code of conduct, and my response is that the question of purdah, and of statements not being made during a period of purdah, does not apply to or flow from any rule of the House. That is to say that there may be a ministerial procedure on this matter—the hon. Lady is welcome to pursue her line of questioning in relation to that—but there has, in short, been no breach of order. Her point will, however, have been heard, including by the Leader of the House.

[Ann Clwyd (Cynon Valley) (Lab)]

On a point of order, Mr Speaker. I know that half the Cabinet are not supposed to be talking to the other half, but I hope that Foreign Office Ministers are talking to one another. I say that because the answer given to me by the Under-Secretary of State for Foreign and Commonwealth Affairs, the hon. Member for North East Bedfordshire (Alistair Burt) on the case of Bradley Manning is misleading.

I have raised this issue on several occasions. I raised it with the Foreign Secretary on 16 March and again during business questions on 17 March. I raised it once more during an Adjournment debate on 4 April, when I was told that

“a senior official in our embassy in Washington called on the US State Department on 29 March”

to discuss Private Manning’s terrible situation in prison. The Under-Secretary of State for Foreign and Commonwealth Affairs, the hon. Member for North West Norfolk (Mr Bellingham) went on to say:

“the right hon. Lady's understanding of the British Nationality Act 1981 is accurate. Any person born outside the UK after 1 January 1983 whose mother is a UK citizen by birth is British by descent.”

He continued by saying that Mr Manning’s family had not made a “direct request” for help,

“but obviously, if it comes to consular assistance of any kind, we will look at that request as and when one is made.”—[Official Report, 4 April 2011; Vol. 526, c. 873-74.]

Such a request was made to the Foreign Secretary on 11 April by Bradley Manning’s mother, who said that she now understands that

“according to British law, Bradley qualifies as a British national.”

She continued:

“I visited Bradley at the end of February…I was very distressed by seeing Bradley”

in the condition he is in—

[Mr Speaker]

Order. I am extremely grateful to the right hon. Lady, who is a very experienced Member of the House. I know that she would not accuse any Minister of wilfully misleading the House; I am sure that she meant to say that she thought that the Minister was inadvertently misleading the House. She will understand, and the House will appreciate, that we cannot continue Foreign Office questions now. However, as the Minister, who is among the most courteous of Ministers in the House, is on the Bench ready and waiting with bated breath to respond, he should do so.

[The Parliamentary Under-Secretary of State for Foreign and Commonwealth Affairs (Alistair Burt)]

I am very grateful to you, Mr Speaker, for allowing me some extra time. Nothing that the right hon. Lady has said is wrong in any way. Her concerns were conveyed to the State Department by an official of the Government, but the crucial point is that although I can well understand her concern and what Bradley Manning’s mother may have done, we are not able to respond to that, as any request for assistance has to come from the individual. I can only stress what I have said to the right hon. Lady, which is that Bradley Manning’s lawyers are aware of the UK Government’s position and they are also aware of how to change it. That is the situation. I can help the right hon. Lady further only in private, rather than on the Floor of the House. I hope that is all right.

[Mr Speaker]

I am grateful to the Minister. We come now to the ten-minute rule motion, for which the hon. Member for Beckenham (Bob Stewart) has been patiently waiting.

Planning (Green Belt Protection)

Tuesday 3rd May 2011 Commons Chamber

Motion for leave to bring in a Bill (Standing Order No. 23)

16:44

[Bob Stewart (Beckenham) (Con)]

I beg to move,

That leave be given to bring in a Bill to increase the powers available to local authorities in relation to unauthorised development of green belt and greenfield land; and for connected purposes.

This Bill is about fairness. Laws apply to everyone across society in equal measure and the Bill reinforces the powers of local authorities so that they may take action against people who pay no regard to planning rules. It applies to developers who build a house beyond agreed specifications, the farmer who lives in a barn for a few years and then reveals it and claims it is his home, and to Travellers who attempt to circumvent planning rules. There is a need to tighten planning legislation to remedy the frustrations of my constituents about certain types of planning abuse, and the problem has been compounded in Beckenham by Ireland, which has expelled quite a number of Travellers through some of its draconian laws.

I fully support the Localism Bill and I want to reinforce some of its intentions. Everyone in the House thinks green belt land is precious and we have a duty to protect it for future generations. We all accept that unchecked urbanisation will lead to a steady eradication of both our forests and our green fields, and I am sure that we would all like to improve the speed and effectiveness with which local authorities can act when planning laws are flouted.

The local authority for my constituency is Bromley council, where I have spent some time with Bob McQuillan, the chief planning officer. I asked him what we could do and he suggested that anything that expedited responses to planning violations would be a great help. After all, only 150 yards from Parliament we see real difficulties in planning enforcement. The struggle by the authorities to move protestors has been a running saga for 10 years, and they were still there for the royal wedding on Friday. Surely we can do better than that.

Clearly, many problems relate to green belt infringements by members of the travelling community, and that is sometimes a particular problem in the Beckenham constituency. Of course the vast majority of people obey the law, but a small minority of Travellers and other itinerants often pay scant regard to it. That creates a perception that almost all who travel the roads behave illegally.

Our community relations between the settled population and the travelling community are often fractious, and that tension is only heightened when people see Travellers arrive illegally on green belt land. The settled community, after all, must jump through all the hoops of the planning process to obtain planning permission, even just for an extension. The same rule should apply to everyone in this country.

In my constituency there are several problem areas: for example, the entrance to St John’s church in Wickham court and the former All Saints school on Layhams road. Travellers have stopped there too often—three times in the past year. This is private land owned by the Roman Catholic and Church of England Southwark dioceses, and although the council and the police try their best, responsibility falls on the landowners to take action.

This problem is a continual one for many Members of the House, and particularly in my constituency for Councillors Anne Manning, Graham Arthur and Neil Reddin. Other places in my constituency have suffered too, such as Hayes lane, at the entrance to Norman park, and Pickhurst green. Norman park and Pickhurst green are council owned. Measures to restrict entrance have now been put in place and might deter illegal trespassing—a height barrier has been erected at Norman park and a gate at Pickhurst green. The problem is that local people have to deal with illegal sites. They have to foot the bill to remove the litter and rubbish and they have to pay for barriers, height restrictions or gates. Perhaps most importantly, there is a psychological impact when people wake up to discover Travellers parked right on their doorstep.

The previous Government were criticised by many local authorities for their circular 01/06, which compelled local authorities to build, sometimes on green belt land, and to engage in compulsory purchasing. The circular seemed to favour Travellers over the local settled community, and its contents have been used time and again at hearings to prevent enforcement. I am very pleased to hear that the Government are revoking circular 01/06 as part of the new planning guidance proposed by the Communities and Local Government Secretary.

What sort of changes to the law on the unauthorised development of green belt and greenfield land would I like to see enacted? Let me give two examples that I hope to see in the Localism Bill. First, I would like the options available to those who offend to be reduced. They should be able either to appeal against an enforcement notice or to apply for retrospective planning permission, but they should not be able to do both. Secondly, there should also be a time limit, of perhaps 28 days, in which appeal decisions should be made. These problems are not easy to address, but the law should be on the side of those who obey it. In short, I should like to see powers for dealing with planning violations strengthened and speeded up. I commend this Bill to the House.

Question put and agreed to.

Ordered,

That Bob Stewart, Stuart Andrew, Thomas Docherty, Mr Jeffrey M. Donaldson, Stephen Gilbert, Karen Lumley, Sheryll Murray, Priti Patel, Mr Dominic Raab and Iain Stewart present the Bill.

Bob Stewart accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 9 September, and to be printed (Bill 184).

Finance (No. 3) Bill

Tuesday 3rd May 2011 Commons Chamber

(Clauses 4, 7, 10, 19, 35 and 72)

[Relevant document: The Eleventh Report from the Treasury Committee, Finance (No.3) Bill 2010-11, HC497.]

Considered in Committee

[Mr Nigel Evans in the Chair]

Ordered,

That the order in which proceedings in the Committee of the whole House on the Finance (No. 3) Bill are taken shall be: Clauses 72, 19, 7, 4, 10 and 35.—(Mr Hoban.)

Clause 72

The bank levy

16:55

[Chris Leslie (Nottingham East) (Lab/Co-op)]

I beg to move amendment 9, page 41, line 27, at end add—

‘(2) The Chancellor shall review the bank levy and publish a report, before 31 December 2011, on—

(a) the Government’s analysis behind the rate and threshold chosen for the bank levy;

(b) the adequacy of the bank levy in the context of other reforms to the wider banking system; and

(c) the total tax revenues expected from banks across all categories of taxation in each year from 2011-12 to 2016-17.’.

[The First Deputy Chairman of Ways and Means (Mr Nigel Evans)]

With this it will be convenient to discuss clause stand part.

[Chris Leslie]

We find ourselves in the Committee stage of the Finance Bill, a rather large two-volume measure that, over the coming two days on the Floor of the House, we will no doubt explore in some detail. The Bill will then progress upstairs to Committee, where more detailed scrutiny will take place.

It is a peculiarity of Ways and Means resolutions and of the way in which proposed finance legislation is scrutinised in the House of Commons that hon. Members who are not Ministers may not table amendments to Finance Bills that would have the effect of raising the level of taxation. That was news to me, perhaps because I was in government and did not think about tabling such amendments, but the rules of order are as they are, so the amendment does not propose—because we cannot—an increase in the rate of the bank levy. Instead, it calls for a review of the rate and the general approach to bank taxation adopted by the Treasury. It seeks to look into the rationale behind the rate that the Treasury has chosen for the bank levy and why a number of other choices were made.

[Mr Andrew Love (Edmonton) (Lab/Co-op)]

Does my hon. Friend agree that in setting the rate the Government missed an opportunity? The bank levy could have raised significant sums to help with the other policies that we hoped they might pursue.

[Chris Leslie]

Indeed. Were it possible under the rules of order for the Opposition to table an amendment to increase the bank levy rate, we probably would have done so. However, we were unable to do so because of the slightly arcane rules of order. We need to examine the rationale behind the rate chosen by the Minister and understand why the Government moved from a threshold approach to triggering the bank levy, to a tax-free allowance of a certain amount before which banks would pay against the chargeable liabilities of the bank levy.

We also need to understand whether the bank levy is, as my hon. Friend suggests, an adequate step when considered in the context of the wider economy and public finances. Ultimately, we need to understand whether the Treasury is being straight with the public and honest about the taxes that the banks will pay over the years ahead. We have debated the Government’s approach to the banking sector before, and we look forward to the final report of the Vickers commission on the state of competition and regulation of the banks so that never again can these institutions take such extreme risks and gambles that land in the lap of the taxpayer when the going gets tough, as they did before the credit crunch.

[Barry Gardiner (Brent North) (Lab)]

The Government are seeking to take £2.5 billion in revenue from the tax that they have imposed, but has my hon. Friend assessed the corporation tax reductions that the banks will experience, which are thought to be £100 million this year? Has he projected the figure by the end of the Parliament? Can we arrive at a net figure to see the real impact of the Government’s policy?

[Chris Leslie]

My hon. Friend makes an extremely prescient intervention, because the Chancellor, under pressure from the Opposition, had to cave in to a concession on corporation tax in the March Budget. The Government announced the bank levy last June, so we knew that they would be introducing this tax, yet the corporation tax cuts will clearly benefit the banks significantly. The Treasury claims that in the March Budget it offset the benefit that the banks will apparently get as a result of the reduction in corporation tax rates, but we will have to wait to see whether the slight increase in the bank levy—around £100 million—introduced in the Budget will be sufficient to offset the full corporation tax cuts that the banks will enjoy over the lifetime of this Parliament. I recall that the written answer to a question I tabled on the predicted benefits to the banks of the corporation tax reductions suggested that that would be about £100 million in year one, £200 million in year two, £300 million in year three, and so on, but that largely reflects the reductions in corporation tax rates. That is something of a moot point, because we contend that the design of the bank levy is insufficient. Today’s debate should provide an opportunity to seek proper redress for the crisis and ensure that we put the banks on a fair tax basis, but that is not what the Government are seeking with this pathetically small bank levy proposal.

[Mr Love]

Will not the combination of measures on corporation tax being introduced in the Bill advantage the banks over other businesses, and must we not be very careful not to make it appear that the banks are being let off lightly?

[Chris Leslie]

It is indeed, and that is the crux of the argument that we will make to try to encourage hon. Members to support our amendment. The overall situation is that taxation levels on the banks are reducing, not increasing. The previous Administration introduced a bank bonus tax, which yielded more than £3 billion in revenue. The bank levy needs to be put in place alongside a bank bonus tax, which would be a fairer approach to take. However, the Government are refusing to continue the bank bonus tax, and I would like to hear their rationale for not doing so.

[Duncan Hames (Chippenham) (LD)]

In defending the bank bonus tax and the revenue that would have been raised by continuing with it, what allowance has the hon. Gentleman made for increasing levels of legal tax avoidance by those no doubt skilful bankers who would have been keen to avoid paying tax under that regime?

[Chris Leslie]

If the reason the hon. Gentleman refuses to advocate a repeat of the bonus tax is that the bankers might have sophisticated accountants who can avoid it, that is a pretty poor state of affairs for this Parliament. We ought to be introducing fair and just taxation on the obscenely high bonuses that are still being paid. Even though it is supposedly claimed in Project Merlin that the bonus pot has come down by 8%, we can see that the bonuses are absolutely enormous. Today’s debate is clearly about priorities. The Government are not on the side of families, teachers, nurses, working people or pensioners. Clause 72 shows that they are on the side of the highest-earning bankers who receive each year in bonuses sums that ordinary people dream of winning on the lottery once in a lifetime.

[Alison McGovern (Wirral South) (Lab)]

Would my hon. Friend be interested, as I am, to find out exactly what the financial value is to the financial services sector of the now implicit Government guarantee that it enjoys? If anything, that should point us towards greater recompense to the taxpayer for that implicit Government guarantee.

[Chris Leslie]

The ongoing implicit taxpayer guarantee for the banks is very significant. Indeed, I understand that the Bank of England has suggested in its financial stability reports that an implied subsidy of about £100 billion each year offers a safety net for the profitability of the banks. Without that taxpayer guarantee, banks’ borrowing costs would be higher, they would not be able to make such great profits and, therefore, their remuneration and bonuses could not be so high. Many bonuses and excessive profits are being made on the back of the taxpayer, but does that encourage the Treasury to take action? It certainly does not.

[Nic Dakin (Scunthorpe) (Lab)]

At a time when Roger Bootle of Deloitte reports that for the first time for four years in a row the real incomes of real people are falling, does my hon. Friend not think it particularly peculiar that the real incomes of bankers—of all people—are likely to rise?

[Chris Leslie]

My hon. Friend is entirely right, and that is why we have to take a step back and look at the context of today’s debate. The Government are clearly still on the side of the big banks at a time not just when the living standards and wages of ordinary people are being frozen or reduced, but when vital public services are being slashed. Indeed, it is worth reminding ourselves of the consequences of the cuts that the Government are pursuing.

Teaching assistants, youth workers, library staff and lollipop ladies are being made redundant; binmen, street cleaners, environmental health officers and park keepers are disappearing from our neighbourhoods; police detectives, forensic scientists, 999 operatives and police community support officers are no longer affordable in the fight against crime; and hospital cleaners, nurses, paramedics and ward clerks are having their posts eradicated when the NHS needs them more than ever. How dare Ministers say that we are all in this together when they take such a weak and feeble approach to the banks.

[Barry Gardiner]

My hon. Friend seeks to use an argument based on contrast, but there is also an argument based on causality. In his remarks, it has to be made clear that the causal relationship between the misery that some people will suffer over the next few years and the actions of some bankers is very real. There is real disquiet in the House about the Government’s proposal not just because some people are doing well and some are doing less well, but because, given that contrast, there is a causal relationship for those people doing badly.

[Chris Leslie]

Absolutely, and, as we have heard time and again, Government Members clearly do not understand the causes of the deficit, so they are not the right people to solve it. If they understood and acknowledged that the banks played a significant role in causing the deficit, maybe—just maybe—we would take up their suggestions on how we go forward, but they choose to ignore the role that the banks played—[Laughter.] If the hon. Members for Chippenham (Duncan Hames) and for St Austell and Newquay (Stephen Gilbert) think that the banks did not play a role in the deficit, we will all be interested to hear from them, but surely they have to acknowledge that point.

The bonus pools and pots continue to be significant, however, and some bankers receive obscene, life-changing sums of money, so we do not really need to worry too much about poor banking executives; we should worry about those who depend on vital services but will now go without as a result of Ministers’ choices.

[John McDonnell (Hayes and Harlington) (Lab)]

I have only just understood the criticism from Government Members. The criticism of the bankers bonus levy, however, which the previous Government introduced, was that there would be tax avoidance and it would not raise enough. I attacked the former Chancellor on the bonus levy, because I felt that his estimate of £500 million was pathetic and did not go far enough, but may I now admit guilt? It actually raised seven times that amount, £3.5 billion, so it was probably one of most successful tax regimes that the previous Government introduced. I thought I had better get that off my chest.

[Chris Leslie]

My hon. Friend’s arguments become increasingly attractive, and he makes an important point. The bank bonus tax, which the previous Labour Government introduced, appeared at first to be modest, but in fact the yield was very significant indeed. Did the banks collapse as a result of the bonus levy? No. Did they all flee abroad to relocate somewhere else, as threatened? Absolutely not. So, too, with the continuing scale of the bonus pot, which has hardly changed at all, it is absolutely right that we look to reinstitute the levy this year, along with a decent bank levy, as we are discussing today.

Hon. Members will know that the concept of a bank levy was first developed at the G20 summit in Pittsburgh in 2009, and then championed by my right hon. Friend the former Prime Minister and taken forward by the International Monetary Fund in its report, which aimed to encourage less risky funding to enhance financial stability. Two broad conclusions were reached at the Pittsburgh summit. There was a call for a financial activities tax, or financial transactions tax, which we need to debate another time when we consider some of the extra levies that might be put on activities. The Chancellor of the Exchequer himself still professes to be in favour of a financial activities tax, although he has done absolutely nothing to advocate it in ECOFIN or in other financial meetings around the world, so we will see whether anything comes of his repeated promises to pursue it.

The second prong of the IMF’s report was a financial stability contribution, otherwise known as a bank levy, to be charged on equities and liabilities rather than assets or profits because of the need to disincentivise dangerous potential charges such as those that landed on the taxpayer during the credit crunch. The bank levy is a sensible idea in theory, and we broadly support it. However, the yield suggested in the Bill—only £2.6 billion—is not just small but pathetic by international standards when compared with the rate being pursued in other countries. It is perplexing that Ministers settled on that figure, and there has never been any evidential basis published for why they did so. Will the Minister clarify why the Chancellor chose the figure of £2.6 billion, as that seems to be the pole around which all aspects of the bank levy revolve? If there is any sense in which the revenue might go beyond that envelope, the Treasury tweaks and turns down the dials on the other aspects of the levy to squeeze it back into that £2.6 billion of revenue—the predetermined level that it put out to consultation last summer, never explaining why it was set. Compared with the substantial amounts of taxpayers’ money put up in the bail-out of the banks—£76 billion of shares purchased in the Royal Bank of Scotland and Lloyds, £250 billion of guarantees, another £280 billion of other insurances, and a further £100 billion of annual implied subsidy, according to the Bank of England—a £2.6 billion bank levy is very puny.

It is interesting to look at the Treasury document that lists the respondents to the bank levy consultation. There were 44 respondents, all of which are major financial institutions.

[The Financial Secretary to the Treasury (Mr Mark Hoban)]

Did the hon. Gentleman respond?

[Chris Leslie]

I will respond to the Minister when I have heard his comments. If he wants me to respond again, I am more than happy to have Government time dedicated to the general principles of bank taxation.

The responses showed that the Treasury’s original design for the bank levy had a threshold that triggered payment of the levy for any organisations, institutions or banks with more than £20 billion of equity and liabilities. Ministers realised that that would yield £3.9 billion—nearly £1.5 billion more than the Treasury had expected—which, by the way, would be more than enough to reverse all their police funding cuts, for example. What did the Chancellor do when he realised that the Treasury’s own design for the bank levy could yield £3.9 billion? Did Ministers think that this might be something they should go ahead with? Absolutely not—they gave in, capitulated, and converted the threshold into a tax-free allowance of £20 billion. Hon. Members will know that the Liberal Democrats have long made great play of the increase in personal allowances, which is pretty much the only thing they are getting out of the coalition as they cling on to it, and there might be a few hundred pounds in that here and there. How about having a tax free allowance of £20 billion? That is what they have decided to give the banks. The banks now do not need to pay on their liabilities below that amount.

17:15

As I said, Ministers could have stuck to their guns and used their original design. In the response to the consultation, the Government gave their rationale for backing off that threshold and going for a tax free allowance:

“Respondents”—

remember, that is the 44 large banks—

“were generally of the view that the threshold would create potent incentives for banks around the margin to structure their business in certain ways, or disincentives to grow, in order to avoid crossing the threshold… The Government accepts this argument”.

That is a preposterous statement from the Treasury. The argument that the puny level at which the bank levy is being set—less than one tenth of 1% on the banks’ liabilities—is so punitive and high that it will stop banks from growing and prospering is ludicrous.

[Mr Kevan Jones (North Durham) (Lab)]

Would my hon. Friend also contrast that with the £7 billion that banks and financial institutions are paying out this year in bonuses?

[Chris Leslie]

Indeed; the machine rolls on. We will have to look at the detailed papers on Project Merlin when they emerge. The Chancellor supposedly persuaded the banking sector to change its ways. Of course, things have fallen apart at the seams since then. As I will say in a moment, some of the bonuses are still, frankly, obscene.

If we accept the Government’s ludicrous argument that they were worried about the cliff-edge marginal rate of the levy at £20 billion of chargeable liabilities, why did they not keep that trigger but have a smaller allowance, perhaps of £10 billion or smaller? But no; they caved in straight away with the £20 billion allowance and lost a phenomenal opportunity to redress the balance of the tax burden in this country. The Americans, who have not yet triggered their bank levy, have named their version a financial crisis responsibility fee. That says more accurately on the tin what it does. They have done so because it is incumbent on the institutions that caused the crisis and the consequential fiscal deficit to do their duty and pay back what they owe the taxpayer.

[Mr David Anderson (Blaydon) (Lab)]

Is it not amazing that we are talking about a minute bank levy when hundreds of thousands of public sector workers will lose their jobs, and when those who stay in their jobs will see their pay frozen for two years and their pension contributions go up by 50%, all as a result of the failure of the banks? The Government parties think that that is okay.

[Chris Leslie]

It is a crying shame that there will not be more publicity for this debate; perhaps the complexity of bank taxation is difficult to report, for whatever reason. If people knew about the Government’s weakness in trying to claw back the money that is owed to the taxpayer and their enthusiasm for cutting public services and raising taxes on ordinary people, they would see that it is a scandal.

[Nic Dakin]

Is it not a further irony that the Government are cutting so far and so fast, for which they have no mandate, while standing back from sorting out the bankers, for which there is an overwhelming mandate in the country?

[Chris Leslie]

Of course, the Liberal Democrats advocated the opposite of that before the general election. Obviously they had good, sound reasons to change their view rapidly over a weekend.

[Mr John Redwood (Wokingham) (Con)]

Will the shadow Minister say how much tax he thinks should be imposed on the banks, and how he would go about doing it?

[Chris Leslie]

As I said, we would repeat the bank bonus tax that we instituted last year, and we think that the bank levy needs to be more substantial.

The Government’s original design suggested that it would yield £3.9 billion—that was reported in The Observer, I think, back in November. Of course, that was why they panicked and decided that they would have to go back down to the £2.5 billion or £2.6 billion level. They stepped away from that original yield level.

Of course, we are not the Government; we are the Opposition, and we are not even allowed under the rules of order to table our suggested variants of the rate of the levy or the design of the clause. All that we can do for now is advocate a fairly urgent review of the general levels of bank taxation in this country.

[Graham Stringer (Blackley and Broughton) (Lab)]

Is not the irony, when comparing pay cuts in the public sector with bankers’ bonuses, that in effect some bankers are public sector workers because the taxpayer has had to bail them out? Does my hon. Friend agree that if we mainly own a bank, such bonuses should not be paid while the bank is still in deficit?

[Chris Leslie]

It is absolutely mystifying. There is a sense that the shareholder—the taxpayer—somehow has to allow all sorts of activity to take place as though it was nothing to do with them, even though those banks would not exist had we not intervened to save them. That shows the incredibly laissez-faire, hands-off attitude of Ministers, who are the shareholders of the banks making large awards.

[Mr Kevan Jones]

Does my hon. Friend agree that my hon. Friend the Member for Blaydon (Mr Anderson) is being a little unfair? Bankers are taking their share of pain. I understand that Eric Daniels, the outgoing chief executive of Lloyds bank, is getting only £1.4 million in bonus rather than £2.3 million.

[Chris Leslie]

I wonder whether Hansard is able to record the irony in my hon. Friend’s comments. Sometimes I wonder whether we need a new annotation in our proceedings, because I do not honestly think that he is showing sympathy. I think he is suggesting that even when there is an apparent reduction in bonuses, the sums of money involved are the sort for which our constituents would buy a lottery ticket in the hope of winning. If they won that amount it would change their lives tremendously, yet those life-changing sums of money are not even salaries but bonuses on top of salaries.

I wish to talk about the rate at which the Government have chosen to set the bank levy, because it is a low rate by international standards. It is less than a third of the level that has been set in France, for example. Ministers will know that the rate varies in a number of jurisdictions, but I think that it is 0.25% in France. The levels involved are still quite small, but in Hungary it is 0.53%, in the USA it is 0.15%—although, as I said, it has not been enacted at this point—in Portugal it is 0.1%, and so on. It is to be only 0.078% here in the UK for short-term liabilities, and 0.039% for long-term liabilities, which is very small by international standards.

[John McDonnell]

To emphasise a point that my hon. Friend made earlier, does he agree that the robustness of the statements of the Prime Minister and the Deputy Prime Minister on bankers’ bonuses before and just after the election led the general population to expect a much stronger and more ferocious levy?

[Chris Leslie]

Indeed, and not only can we see the low yield figures in this country; we can also look at international comparisons and see that the rate is clearly very low indeed. Ministers have let it drift—as soon as it looks as though it might be a serious tax, back they come from the rate they have set, saying that it would raise too much and they must reduce it again.

[Stephen Pound (Ealing North) (Lab)]

Many contributions have shown that the shade of the right hon. Member for Twickenham (Vince Cable) is noticeable by its absence.

With the exception of the National Bank of Cuba when it was governed by Ernesto “Che” Guevara, can my hon. Friend think of any example of any country where the bankers have recoiled from the brutal fiscal hammering imposed upon them by a state legislature and taken their toys and left? Is there any such country in the history of the world that he could mention?

[Chris Leslie]

In financial services it is called regulatory arbitrage. People come up with terminology that makes things sound mystical and obscure, but regulatory arbitrage is basically the threat to leave the country that is often peddled when a bank does not like proposals. We have heard such threats time and again, but they are not carried out, because banks locate in this country for reasons other than taxation. We have Greenwich mean time and the civilised rule of law, and any number of decent public services that bankers themselves like to enjoy.

[Stephen Pound]

And royal weddings!

[Chris Leslie]

And royal weddings, as my hon. Friend suggests. This is a great place to do business, and the small changes in taxation that the Opposition advocate are certainly not enough to send banks abroad.

[Lorely Burt (Solihull) (LD)]

In the spirit of helpfulness, the hon. Member for Ealing North (Stephen Pound) might be interested to know that in Sweden the banking sector diminished following the introduction of such measures.

[Chris Leslie]

Even the Swedish advocate a bank levy, and we must acknowledge that the alternative financial changes are being made in a number of jurisdictions across the world. Obviously, the more jurisdictions in which such measures are pursued, the better, because that will remove the argument on regulatory arbitrage.

However, it is worth looking at the pathology and history of the bank levy, and at how the Chancellor has tweaked the rate. The Government pull back from a higher rate when they think it is too much, but sometimes the Chancellor gets into hot water and feels the need to change that approach. On the fateful morning of 8 February, at 7.30, the Chancellor went on the “Today” programme and announced a mini-Budget. It just so happened, by pure coincidence, that that was on the day of Treasury questions, when he was struggling with the banks in the negotiations on the damp squib that was Project Merlin. While we are on Project Merlin, we should not let go the opportunity to note that borrowing is increasingly expensive for small and medium-sized enterprises, and that according to the most recent data, there is less and not more availability.

The Chancellor changed the rate again in the March Budget, when, as I said, the Government were forced into a U-turn in the face of criticism of the reductions in corporation tax. That would have been a massive cash-back bonanza for the banks—it could still turn out that way, but we must wait for the final figures. At no point during the design of the bank levy have the Government said why they are capping revenues at just £2.6 billion. What is their fixation with that yield?

[Mr Love]

Before my hon. Friend moves off the subject of Project Merlin, does he agree that it was more than pathetic that, after telling the banks that they would increase the banking levy unless the banks came up with the goods, the Government made a pipsqueak change which did not rise to the occasion?

[Chris Leslie]

Absolutely. I cannot figure out why the Government refused to go beyond that £2.5 billion or £2.6 billion. That is a strange way to design a tax. Normally, a Government would think about whether the rate set was fair and just, and about the requirement for revenue yield, and they might even analyse the effect of the levy in a regulatory impact assessment or whatever. However, at no point have the Government said why they are reluctant to go beyond that £2.6 billion. Perhaps there has been a deal behind the scenes between the Chancellor and the banks, but if there has been such a deal, it is probably the only one that he has been able to reach.

17:30

I have some specific questions for the Minister on the bank levy and I would be grateful if he could respond. The Minister conceded in the consultation response that derivative liabilities can be netted off against identifiable assets held with the same counter-party, along the lines, as I understand it, of the Basel II regulatory principles. Although bilateral netting between two parties might be straightforward, is the Minister confident that HMRC will be able to keep track of the obviously complex multilateral settlements, where thousands of varying derivatives products are apparently offset by supposedly thousands of other liquid assets? Can he explain what extra resources he plans to dedicate to ensure that derivatives netting does not become a licence to hide liabilities? We will be reliant on the reporting of those liability levels in the accounts of the banks themselves, but surely there will need to be some challenge, some capability within HMRC. I would be grateful, therefore, if he could explain what capability HMRC will have for understanding the netting of derivatives. I would also be grateful if he could answer the concern expressed by some that derivatives netting might create a perverse incentive for banks to shift their liabilities into more complex and perhaps more dangerous areas of business. What plans does he have to review and analyse the behavioural impact of the decision to pursue derivatives netting?

What work has been done to amend the double taxation treaties with other bank levy jurisdictions, where legal challenges could easily occur if anomalies are not resolved, which might disrupt the smooth operation of the levy in the UK? Many different levies are popping up in different jurisdictions all over the world, and it is important that the operation of the levy here is not disrupted. The UK levy is clearly calculated by reference to all chargeable equities and liabilities for UK entities, subsidiaries and branches, but some commentators claim that it is unclear what happens in respect of levies in other countries. Can the Minister therefore update the Committee on the international discussions to which the Treasury has presumably been party?

On the specific nature of some of the certain chargeable equities listed and described in the Bill, we understand that there is clearly a rationale in their design in respect of short and long-term liabilities. However, would the Minister care to explain the difference between his definition of short-term liability and long-term liability and where the line is being drawn?

[Chris Bryant (Rhondda) (Lab)]

I think that my hon. Friend is referring in particular to part 2 of schedule 19, which hangs off the clauses we are debating, and which contains a seven-step guide that actually has an extra step that does not apply in some cases. Is that not the most complicated way ever in legislation of determining a charge? Why does it need to be so complicated?

[Chris Leslie]

The Minister needs to answer that question. Hon. Members might care to turn to page 297 of the Bill. The steps might at first appear quite straightforward, but then we get to this odd provision in paragraph 7, with its proportions X, Y and Z of various different amounts and so on. I understand that that provision is triggered because the Treasury has to recoup retrospectively some of the money taken, since the Chancellor tweaked the levels of tax on 8 February and again in March. It therefore becomes incredibly complex and difficult to hold to account. The design of the bank levy has not been made easy by the Chancellor’s decisions.

[Mr Love]

On the intervention from my hon. Friend the Member for Rhondda (Chris Bryant), is it not rather strange, given that the Chancellor has set up an Office of Tax Simplification and announced as his first measure in the Budget that he wanted to put the principle of simplification at the forefront of tax consideration, that here we have something that is almost as complex as it gets?

[Chris Leslie]

As I said, the reason for the complexity is that all the variables in the design of the bank levy have to be amended because the Treasury wants to squash it around that figure of £2.5 billion or £2.6 billion of revenue. In other words, the whole of the bank levy is being driven by that particular sum, which is a very odd way of designing a tax.

[Chris Bryant]

In fact, there are not just one or even two different rates being introduced—which one might understand, given the difference between long term and short term—but 10, each of which will undoubtedly pay for thousands of accountants, as they crawl over what counts in each category. Surely that is nonsensical and an example of the kind of legislation that banks which might want to stay in this country will abhor.

[Chris Leslie]

Far be it from me to defend the poor banks in their compliance with the provisions, but obviously the more the compliance costs go up, the higher the likelihood that customers will end up footing the bill of taking on accountants to address the complexity of what should be a simple banking levy. Whether there are two rates or 10, however, all the rates in the bank levy are far too generous and far too low.

[Helen Goodman (Bishop Auckland) (Lab)]

I do not know whether Ministers have published the change to HMRC staffing needed to deal with these complex provisions. One would think that more staff will be needed, but my understanding is that staffing at the Revenue is being reduced.

[Chris Leslie]

Staffing at HM Revenue and Customs is under incredible pressures. Indeed, there have been a number of redundancies and posts lost. It has not been explained where the extra resources will come from to ensure that the bank levy, in all its complexity, can be enforced adequately. Again, the Minister needs to say what extra capacity HMRC will have to implement this increasingly complex bank levy.

[Mr Love]

Will my hon. Friend give way?

[Chris Leslie]

In a moment, but I need to make some progress.

I understand that there is a difference between short-term and long-term liabilities. However, what will be the impact on businesses in the real economy if short-term liabilities are less attractive to major banks? For example, if a small firm has a bank deposit of over £100,000—to protect its cash flow or whatever—that happens to be above the level of the deposit guarantee scheme, what is to stop the banks raising their bank charges on SME deposit accounts to try to divest themselves of such short-term liabilities? That is an important point, because there will be consequences from the design of the bank levy. I would like the Minister to explain to the Committee why short-term liabilities and long-term liabilities have been divided in that way.

Can the Minister explain the position on the reported legal challenge under European Union law, which I understand many in the banking community are watching carefully? The Hungarian Government have introduced a levy on their energy and telecoms sectors. I understand that a case has been taken—or is due to be taken—to the European Court to claim that a levy on a specific sector of the economy is somehow unfair or not possible. To what extent is the Minister confident that the case will not have a bearing on the implementation of a banking levy here in the UK?

I would also be grateful if the Minister could answer the question about complexity and opacity in the bank levy accounting systems. As I understand it, overseas banks can sometimes not use IFRS—international financial reporting standards. If those banks do not use them, they will need to re-compute their chargeable equity and liabilities with reference to the UK’s GAAP—generally accepted accounting principles—or IFRS, in other words, by preparing a notional consolidation under those systems, including for branches. Is that anticipated to create a problem? What do the Government foresee as a solution to that level? Obviously we have banks that cross jurisdictions and use a series of different accounting platforms, so I would be grateful if the Minister could clarify some of the comments that have been made about that.

However, it is the Government’s general approach to banks and banking taxation that concerns many hon. Members—a general approach that, as we know, is quite woeful. Hon. Members have already raised their concerns about some of the bonuses that we have seen and the breathtaking behaviour that the banks have engaged in, even though they were the root cause of the credit crunch.

That makes the Government’s tax giveaway to the banks even more staggering. The post-Budget reaction last June, when the bank levy was announced, was indeed positive from the bankers themselves. They enjoyed the Government’s decisions on the bank levy. One commentator said:

“We’d expect most domestically-orientated banks…to be better off after four years than they were pre-Budget”,

and a City insider said that

“some banks will have a feeling of glee at the way this has worked out”.

Clearly, we need to advocate a bank bonus tax to raise £3.5 billion, as it did before. That deserves to be repeated this year. Even if it were to raise just £2 billion, that would make a massive difference to our society and our economy. For example, we have calculated that such an amount could be used to establish a youth jobs fund—using a similar model to the future jobs fund, which this Government have abolished—creating 90,000 new youth jobs at a time when youth unemployment is close to 1 million, with one in five young people on the dole.

That money could also help to construct 25,000 new homes for low-cost home ownership and affordable social renting. That would create tens of thousands of jobs in the construction industry and new apprenticeships alongside them. The money could also provide £200 million of funding for the regional growth fund, the Government’s rather lamentable replacement for the regional development agency funding. That could help to provide for regional projects and promote growth. The Government’s changes represent a two-thirds cut on the previous funding, and the first wave of £450 million in grants was several times oversubscribed with bids. We therefore need to revisit the regional growth fund, and a repeat of the bank bonus tax could support that.

The bonuses being paid are still vast; they remain at eye-watering levels. Despite the smoke and mirrors of Project Merlin, in which Ministers broke their promises to take action despite the warm words in the coalition agreement, the bonuses remain high. Let us just remind ourselves of what the coalition agreement promised. The Conservatives and the Liberal Democrats said:

“We will bring forward detailed proposals for robust action to tackle unacceptable bonuses in the financial services sector; in developing these proposals, we will ensure they are effective in reducing risk.”

That is on page 9 of the agreement, right up front among the promises that the coalition made.

The Government could not even bring themselves to promote the basic transparency that we expect when it comes to bonuses and remuneration. The most that they could extract voluntarily from the banks in Project Merlin was an agreement to report anonymously on the total remuneration of the five highest paid senior executives of the bank, excluding board members. That is a weak and shameful compromise. The Government are not even forcing the banks to disclose all bonuses above £1 million, even though Labour’s legislation allows them to do so. That provision is already on the statute book.

[Mr Geoffrey Robinson (Coventry North West) (Lab)]

Will my hon. Friend return briefly to the alternative uses to which that £2 billion could be put—the very low figure that the re-imposition of our levy would yield? As a result of the abolition of the Advantage West Midlands regional development agency, the funding for the west midlands has been cut by nearly 70%, and the outlook for my constituents in Coventry is very poor indeed. The additional funds could be used for investment in the proposed NUCKLE—the Nuneaton, Coventry, Kenilworth, and Leamington—railway line, and a host of other important development projects that have been put on hold or simply thrown out as a result of that 70% cut. In the west midlands, and in Coventry in particular, unemployment levels are rising disproportionately compared with the rest of the country, and the level of output is dropping disproportionately in a key area that is vital to the eventual resurgence of manufacturing that we want to see. That money could be put to great use in the regional development fund.

[Chris Leslie]

My hon. Friend is entirely correct. As I have said before, this shows the failure of the Government to understand the paradox of austerity. When they take away some of that vital investment that would support jobs and growth, they are fuelling unemployment and raising welfare bills, which will cost the country more in the long run. That is why we are seeing borrowing levels rising rather than falling, and why, in the last six months of the economic experience in this country, we have seen economic growth flatlining. The House of Commons Library tells me that that will cost the Exchequer an extra £6 billion that will need to be added to borrowing. So this is the fallacy that the Government pursue—that simply cutting all elements of public investment is the way out of the deficit. They just do not understand how the economy works.

[Hugh Bayley (York Central) (Lab)]

Following up that point, this applies to investment not just in manufacturing, but in services, too. Yorkshire Forward had decided to make two investments: one of £5 million to help enable the National Railway museum to redisplay its collection; and a £1 million grant towards the cost of restoring York Minster’s great east window. Why did it do this? Because it realised that the additional tourism generated would create many jobs, particularly for people without high skill levels, in the York economy. When I raised this matter with the Minister, I was encouraged to get the National Railway museum to apply for the regional growth fund, which, with help from his Department, it did—yet it has received not a penny.

17:45

[Chris Leslie]

rose—

[The Second Deputy Chairman of Ways and Means (Dawn Primarolo)]

Order. Before the hon. Gentleman responds, may I remind Members that interventions are supposed to be brief—not mini-speeches in their own right? There will be plenty of opportunity to join in the debate later.

[Chris Leslie]

Thank you, Ms Primarolo. Notwithstanding your strictures, that was an incredibly important intervention from my hon. Friend, who is correct, particularly in his assessment of the attractions of York as a destination for tourism, which was of course helped by the investment that the previous Administration put into some of those key elements within his constituency. I do not want to be diverted, however, as time is short and we need to focus on the amendment.

The amendment relates to the level of the bank levy in the context of bank taxation and the bonus culture. As I said, the Government could not even bring themselves to have transparency on what the bonuses were, let alone take action against them. However, we know some things about the realities of bank bonuses today, and the figures are truly astonishing. From the limited disclosure that we have seen, we know that in 2010, John Varley, the former chief executive of Barclays, received a £2.2 million bonus; Stuart Gulliver, the chief executive of HSBC, received only £5.2 million in bonuses; Stephen Hester, the chief executive of RBS—wholly owned by the taxpayer, by the way—got £2 million in bonuses; and Eric Daniels, the chief executive of Lloyds, largely owned by the taxpayer, got £1.45 million in bonuses. Let us not forget Bob Diamond, the chief executive of Barclays since January this year, who received £6.5 million in bonuses in 2010. He was head of Barclays investment banking before that and perhaps his bonus relates to that. Poor old Bob Diamond, however, loses out in the bonus bonanza when compared with the top two managers at Barclays: Tom Kalaris received a cool £10.9 million in salary and bonuses in 2010 and its other top manager received a tidy £10.6 million.

Ms Primarolo, can you guess the name of that other top manager at Barclays? His name is Rich Ricci—and I kid you not! It would be the stuff of a Dickensian novel if it did not sound so far fetched, but it is indeed true. Between them, the top five earners at Barclays—including Mr Rich Ricci, but excluding executive directors—received more than £38 million in salary and bonuses in 2010 alone.

[Mr Kevan Jones]

I agree with my hon. Friend how mind-boggling the amounts are that these individuals receive. It makes one wonder what they do with the money. Was he shocked, as I was, to learn that more than 50% of donations to the Conservative party last year came from the City, including large donations from individuals such as Jeremy Isaacs, the former head of Lehman Brothers Europe, who donated £190,000?

[Chris Leslie]

“But surely that is a complete coincidence”, he said ironically! I do not know whether my hon. Friend was making the point that this is payback time, but the level of these bonuses is incredible.

Let me finish my point about Barclays. I was saying that £38 million in bonuses and salaries went to just the top five earners. That is enough money to pay the wages of more than 1,000 qualified nurses in our NHS. That gives some meaning to the scale—enough money to pay for 1,000 qualified nurses.

[Mr Love]

Does not the refusal to be transparent about bonuses lead to the conclusion that hidden behind the chief executives on whom we have the facts are a series of individuals whose bonuses dwarf those that my hon. Friend has listed?

[Chris Leslie]

Absolutely; but, quite apart from the obscenity of the scale of some of those bonuses, there is a hard-headed economic rationale for more transparency. If shareholders cannot see what senior executives in the banking sector are being paid, that indicates a dysfunction in the corporate governance of the banks, and if the bonus pots of certain executives are being swelled by their behaviour—by the choices that they make and the risks that they are taking—perhaps those were some of the antecedents of the credit crunch. We need transparency to prevent us from repeating the problems that occurred in 2008.

[Helen Goodman]

Surely, in the case of banks in which the Government were a major shareholder, they had an opportunity to deal with the situation as shareholders.

[Chris Leslie]

It is the inactivity of the Government, as the shareholder, that perplexes me. Ministers laugh with scorn at the idea that they, with the stewardship of the taxpayer’s share, should take any action in regard to the current activity of the banks. If the Minister wishes to intervene on the specific issue of his inactivity as a shareholder I shall be more than happy to give way to him, but he clearly does not wish to say anything at this stage.

[Nic Dakin]

Would my hon. Friend care to speculate on what would be the impact on the British economy if, rather than being spent on bankers’ bonuses, this money were used for lending to small and medium-sized enterprises?

[Chris Leslie]

That is one of the issues to which we shall have to return, perhaps in the Public Bill Committee. The banks are a social necessity—a utility, as it were—in our society, and whatever we think of their behaviour, it is necessary for them to exist to provide the credit that is required to keep the engine of the economy moving. We do not need a dysfunctional banking system; we need a functioning banking system that faces much more towards its customers. We need to stand up for the taxpayer interest, but also for the consumer interest, which must include businesses.

The bonus and remuneration projections are not diminishing, as the Government like to suggest. The Centre for Economics and Business Research recently released an estimate that, whereas bonus payouts in the City for 2010-11 were 8% lower than those for 2009-10—down from “only” £7.3 billion to £6.7 billion—they are forecast to rise from that level to £7.2 billion in 2011-12. The apparent fall in bonuses is largely offset by a 7% increase in the salaries of senior bank executives. So bonuses fall by 8%, and salaries rise by 7%. Obviously that pay rise outstrips pay rises in virtually every other sector of the economy.

[Alison McGovern]

Does my hon. Friend agree that for the financial services sector it is apparently business as usual, whereas for my constituents, who have seen pay held down and prices high, it is far from business as usual and incredibly tough?

[Chris Leslie]

Indeed, and I think it important for us to convince the Government of the need to act. I look forward to hearing the Minister demonstrate that he will stand up to the Chancellor of the Exchequer. We know that he is not a patsy in the Treasury. He is a senior figure there, and he is able to show the Chancellor that the House of Commons was determined to send the Treasury the message that we do not accept its policies on bonuses and bank taxation.

[Mr Anderson]

I thank my hon. Friend for giving way. He is being very generous.

UK Financial Investments, the Treasury body that manages the state’s role in the Royal Bank of Scotland, gave its approval for Stephen Hester’s package, which included £1.2 million in basic pay, a £2 million bonus, and share options that could amount to £4.5 million. It has already given in.

[Chris Leslie]

Again, I think that we need to engage in a proper debate about corporate governance of the state-owned banks. It is important for us to understand the potential powers that Ministers have, and the consequences of their choosing not to exercise those powers. If they choose to approve a certain level of remuneration, that constitutes intervention just as much as disapproval does.

[Mr Kevan Jones]

Will my hon. Friend give way?

[Chris Leslie]

May I make a little progress? Time is short.

As a result of European Union reforms championed by Labour Members of the European Parliament who tried their best to restrain some of the excess, some bank bonuses must now be deferred and given in the form of shares. Bankers cannot take them in cash immediately. However, the Minister needs to explain why he is counteracting those bonus deferral arrangements by introducing a loophole in new section 554H, in schedule 2, allowing a concession to bankers whose bonuses are paid largely in the form of shares rather than cash. Rather than having to pay the tax at the point at which the bonus is awarded, they will need only to pay it on a date down the line when the shares are sold, possibly avoiding the current 50p rate of tax. The Sunday Times wrote about that last weekend. There is speculation that the Chancellor will cut the 50p rate at some point, and that, as a result of the Minister’s reforms, bankers will be allowed to wait and to avoid it. Can the Minister explain why he has made that valuable concession?

[Barry Gardiner]

Will my hon. Friend clarify the chronology? Subsection (1)(d) of new section 554H states that the section applies if

“the vesting date is not more than five years after the award date”.

Does he believe that the Government are certain to reduce the 50p rate within the lifetime of this Parliament?

[Chris Leslie]

I do not know whether we have to hope that the Liberal Democrats will take strong action before that moment comes—I do not know whether that is an oxymoron—but the Government have dangled the prospect of a tax cut for only the very richest people. It is interesting that they are designing the Bill’s provisions to allow the potential avoidance of the 50p rate following what I considered to be a fairly positive change at European level to defer bonuses in an attempt to discourage short-term high-risk activities.

[Chris Bryant]

I understand my hon. Friend’s point and I disagree with what the Government are doing, but I suspect that he is wrong. I suspect that the Government will not obtain the tax take that they will need over the next few years. Because of the way in which they are managing the economy—because of the profound risks that they are taking with the economy—there is no chance that they will introduce tax cuts of any kind before the next general election unless they also engage in another massive round of cuts in public services.

[Chris Leslie]

However, the alacrity and, almost, relish with which the Government have introduced some of their spending cuts make me wonder whether their rewards for the bankers constitute a payback for the cover to get stuck into public investment in the way that they always wanted to do, and for which purpose many of them came into politics.

The bank levy is a weak response to the debts that banks owe the taxpayer. The Government say that they want a big society, but they are happy to see public investment shrink and rewards for banks grow, built on the backs of taxpayers. It is a big society if you are a banker, but a very small society if you are not. Our amendment would at least make the Government pause and reflect on their increasingly untenable position—we hear that they are good at pausing and reflecting—and I urge Members to support it.

18:00

[Mr Redwood]

I listened carefully to the shadow Minister’s speech, and it is quite true that the public mood is one of wishing to see both a just return on its forced investment in the banking industry and the banking sector—particularly the state-owned and subsidised banking sector—making its contribution to the recovery, in view of what happened in 2008 and 2009.

I remember in 2007 and 2008 being in dispute with the then Government, because I felt they were setting up a banking crisis that we could have avoided, but unfortunately my voice was not listened to; they did not take action on interest rates and money market conditions to prevent the crisis. When it started, I think I was the only MP who said, “Do not give all this money to the banks.” I felt it was wrong to buy shares in the banks and to support the bondholders. I thought we had a duty to the depositors and individuals who were tied up with the banks, but not to those who had financed and run the banks in those conditions. Unfortunately, the decision was made to embark on a massive subsidisation and share-buying programme, which the previous Government did. So we are where we are, and I think that we all agree that what we wish to do now is get the maximum value we can out of the banks that are subsidised or in state ownership, because that would make the public feel better about it. Surely, now is the time when those state-owned and state-subsidised banks should make their fuller contribution to the recovery, after their role in the recent crash.

[Chris Bryant]

I apologise in advance to the right hon. Gentleman if what I am about to say is an inaccurate representation of what he said in the past, but my memory is that he produced a report in which he argued there should be much less regulation of the financial services industry—in fact almost none—[Interruption.] He is shaking his head. I am sure he will be able to enlighten us by correcting me.

[Mr Redwood]

How many times will I have to deal with this idiotic canard that Labour dreamt up? The report was very clear: it said the then Government were not regulating cash and capital strongly enough, and it was a cash and capital problem that the banks had that led to the crisis. If the then Government had taken our advice, the banks would have been made to have more cash and capital at a much earlier stage of the cycle, so we would not have gone into the period of banking weakness during the credit crunch.

We also said that the mortgage regulation introduced by the then Labour Government was not fit for purpose, was useless and might as well be scrapped. Our case was proved extremely well, because it was the mortgage banks that crashed—the very banks that were the object of the extra regulation. The extra regulation was clearly regulating the wrong things. We were not against regulation: we said mortgage banks and other banks should be regulated, but it was vital to understand what the problem was. It was very clear in ’06 and ’07 that the problem was an excess of lending of poor quality. It was also very clear that the answer was more cash and capital, and that was what we recommended. It is a great pity that the then Government did not follow our advice.

[Graham Stringer]

I agree that it is clear that there was something wrong with the previous regulation, although I would not go along with the right hon. Gentleman’s argument entirely, but does he agree that there is a villain in the piece who hardly ever gets mentioned: the credit rating agencies that allowed the banks to sell snake oil to each other? Does he agree that we in this House should do something about that?

[Mr Redwood]

I hold no brief for the credit rating agencies, but nor have I prepared a case against them. I am sure the hon. Gentleman can make his own case and come up with his own remedies. In my view, there have been many villains in this historic piece, including the regulators, the Bank of England for its misconduct in the money markets, and the commercial banks that took advantage of ridiculously lax conditions and got themselves into a great pickle, which we had to sort out.

[Helen Goodman]

I am interested in the right hon. Gentleman’s argument, but does he seriously think we could have made significant changes to the way we regulated banks in this country without international agreement on the way banks are regulated?

[Mr Redwood]

Yes, I think we could, which is why I made that recommendation well before the credit crunch occurred. In ’06 and ’07, it was obvious to me and to some other commentators that things were getting out of control—indeed, it was quite common for Opposition parties in this House to say they thought there was too much credit about. I went a bit further and said that could be remedied by changing the way we regulated the banks. It was quite wrong to allow a bank to extend more credit when it only had a 4% tier 1 capital ratio. I remember that when I was a financial regulator, we lived in an era when banks needed twice or three times that amount of capital to be acceptable to the regulator. There was a clear diminution in standards at a crucial time, which fuelled the credit binge.

[Mr Kevan Jones]

I know that the right hon. Gentleman sometimes speaks at odds with his party, and he talked earlier about historical references. Was it not his party’s Government under Margaret Thatcher who deregulated the mortgage market, and is it not the case that up until the recent banking crisis hit, his party’s Front Benchers were talking about lighter regulation of the banking sector, not more regulation?

[Mr Redwood]

The Front-Bench team and I were at one on this issue: we were saying that what was needed were better regulation and less regulation. The Government were regulating too many things badly. As I have just explained, they were regulating mortgage banks in a way that allowed all, or at least several, of them to be crippled and caused a great many problems. The hon. Gentleman is quite wrong about Baroness Thatcher: much stricter controls over cash and capital were imposed throughout her period in office, and, of course, no major bank went down during that period. The same cannot be said of 2007-10, when the requirements were much laxer, as I highlighted in the report, and when we ended up with banks going down.

We are not here to debate past regulation, however; we are here to debate taxation. My purpose in sketching the history of this tragic situation is to express solidarity with all those who agree with the public mood, which is that we want to get a bigger return out of the banks, whatever we may think are the reasons why they are in their present position, but it is also to remind the House of a very important and salient fact, which is that two of the biggest banks are wholly or partially in state ownership or control. We are therefore talking about taxing ourselves in no small measure.

The issue before Ministers is a little more complicated than the Labour spokesman has suggested, because there are two ways in which we can get cash out of the banks: one is to tax them now on their stream of revenue, or their assets and liabilities in the case of the bank levy tax; the other is to move more quickly to sell off those assets back into private sector ownership and, I hope, proper private sector risk taking. If we are to get the maximum receipt, we do not want to be taking too much money out of the banks in the short term by way of taxation, because for every £1 of tax we take out of them, we lose £5, £10 or £15, depending on the multiple we sell them on when we come to sell them.

[Barry Gardiner]

The right hon. Gentleman is making a very coherent presentation, but does he not agree that if we do not want to be taking money out of the banks by taxing them, equally we do not want to see that money going out of the banks by way of bonuses paid to their high-end staff?

[Mr Redwood]

I hasten to correct the hon. Gentleman: of course I think we have to tax banks. We have to tax ourselves, and we need to tax the other banks in the system, as well as the state-owned ones, but we must also consider the balance of effects and the impact on shareholder value. I entirely agree with those who say that if a bank is state subsidised or largely state owned and is therefore in receipt of state money, it is surprising that it should be paying very large bonuses. It is even more surprising if the bank is loss-making, because although an individual employee in that bank may be able to say, “I personally made a profit to offset some of the losses,” the senior people in the bank are corporately responsible for the overall results. It is at the very least surprising if a loss-making bank is making rather big pay-outs, because that is taxpayers’ money and taxpayers’ wealth being paid out to those individuals, which, as the hon. Gentleman rightly says, is not then available to sell as a stream of profits when the shares are returned to the private sector.

[Hugh Bayley]

The right hon. Gentleman seems to be saying that it is important that the taxpayer gets the maximum value when the publicly owned portions of banks are put back on the market and floated, and I agree. Does he agree with me that it is therefore important that the mechanism at that time should not provide incentives for would-be shareholders such as shares being valued below their real market rate in order to encourage popular capitalism, but that the shares should be sold in such a way as to maximise the return to the taxpayer?

[Mr Redwood]

No, I do not necessarily agree with that, because I think that another way of returning value to the taxpayers who have supported the bank is to make those sorts of offer. However, I will wait to see what Treasury Ministers come up with before judging whether a measure is too generous or not generous enough, and how appropriate it is.

[Hugh Bayley]

My point is that if we maximise the return to the taxpayer, everybody in the country—rich and poor—gets a share of the benefit. If we put some of the value into creating lower-priced shares to boost popular capitalism, we spend our public money on only a small percentage of the population. Surely that is less fair than maximising the return and spreading the benefits across all taxpayers.

[Mr Redwood]

The hon. Gentleman is right that there are those two sides to the argument, but this is probably not the time or place to argue that through. We may have an opportunity to argue through how the bank shares are sold and the balance in the sale process when we get nearer to that point. The issue before us now is a taxation one. We are discussing the taxation of bonuses and the bank levy—the subject of the clause—and I agree with those who say that if we take too much out in bonuses in a state-owned bank, that detracts from the value that is available to sell.

Of course, the bank levy is not the means by which we can have any impact on bonuses. Interestingly, it was the previous Government who nationalised or bought shares in banks and signed off on all the original agreements for the top directors and executives. I believe that they included generous bonus terms at the time because, they said, they had to in order to have the talent needed. The criticism being made of the coalition Government now is that they took over those inherited contracts and lived with them, rather than broke them and disrupted the management of the banks, which I regard as a lesser charge than the one against the former Government of setting up all those contracts in the first place.

This should not be a party political issue. I regret some of the contracts that were incorporated at the time of the purchase of shares, but I regretted the whole purchase of shares because I thought it neither a particularly good deal for the taxpayer, nor a necessary deal to sort out the banking problem. I would rather have sorted that out more rapidly at the time, with managed administration or something else, than adopt this expensive way of putting all that money in. We are now trying to maximise the returns because we are where we are.

[Lorely Burt]

My right hon. Friend has partly answered the point I was going to make, but I wonder whether he could help me. What did the Labour party do to control the bonuses paid to loss-making banks when it was in government?

[Mr Redwood]

Labour Members would say that they could speak for themselves and that they imposed a bonus tax. However, as the hon. Lady is suggesting, they did allow very generous bonus conditions into the contracts for their state-owned or partly state-owned banks. Perhaps some would have come to a tougher judgment at that time, had they been in a position of power to do so.

The point I wish to make in this debate is simple. I hope that when Ministers are deciding the right level of the levy, they will weigh very carefully the important fact that we are, in part, taxing ourselves. I hope that within a few years, if not within a matter of months, as I would prefer, we will return those assets and get the money back that the taxpayers deserve.

[Helen Goodman]

The right hon. Gentleman is making a coherent case, but is he not worried that Government’s strategy is not as coherent as his argument? If we look at table C.3 in the Red Book, we see that no forecast is made of the value of the asset sales. Do we not need to see a forecast if we are to make precisely the judgment that he is asking us to make?

18:15

[Mr Redwood]

I, too, would find forecasts helpful, but I understand the uncertainties surrounding what bank shares might be worth in one or two years’ time. There may even still be considerable uncertainties about how much profit the banks will deliver. It would be much easier to get value for taxpayers if these banks deliver reasonable profits.

The second point I wish to make is that the other disadvantage of a bank levy tax is that it is a tax on exactly the kind of activities that we really want banks to perform at the moment to fuel the recovery: it is a tax on lending money to businesses and individuals. The loans that we probably most want, if we are to get the recovery going more quickly, will be the riskier ones, yet they are exactly the kind of assets that the banks will own that will score more heavily for the levy.

[Stella Creasy (Walthamstow) (Lab/Co-op)]

Does the right hon. Gentleman agree that we might want to deal with the banks’ behaviour in a more general sense and their impact on the economy? Might it not be worth considering a third way of dealing with the banks, particularly re-mutualisation of some of them? Might that be a way of getting banks that are more focused on their stakeholders, particularly the people to whom we might want them to lend, than on paying bonuses to people all the time?

[Mr Redwood]

I am always very happy to see ownership extended in ways that include that type of mutual, although the history of the mutual banking movement in the past 20 years provides no evidence that such banks were particularly good at reading the cycle or dealing with the capital problems—indeed, many of those institutions went to the markets and decided to exploit market opportunities because they had a capital problem that they thought they could solve by that route. It may be that we could go back to more traditional mutually owned banks with much more constrained balance sheets and activities, and that might be part of getting back to a more healthy banking sector. That is something that the market should decide.

I am firmly of the view that we need more competition and choice in the marketplace. One of the big errors was allowing banks that were too big. As a competition hawk, I was publicly very strongly against the takeover of HBOS by Lloyds; it was a great tragedy for Lloyds and for the country that that merger went through. We should have dealt with HBOS in other ways, which would have been less expensive. I was also a critic of the Royal Bank of Scotland takeover of ABN AMRO. Although the competition issues that raised were not as clear as the competition issues raised in the case of the Lloyds takeover of HBOS, I would have liked to have seen a tougher line taken. I hope that this period of change and reflection on banking, including how we tax it, can lead to a much more competitive structure. One of the ways of doing that would be to sell off some of the assets currently owned through Lloyds and through RBS in ways that created more banking challenge in the market.

[Mr Robinson]

The right hon. Gentleman wants to ensure that we get the maximum return possible when we bring the banks back into the market, and the whole House would agree with that. He referred to the need not to reduce by too much our prospects for doing that by reducing through an excessive tax charge the multiple applied to earnings in realising the sale value, but his point about therefore moderating any tax that might be imposed is specious and certainly does not allow him to invest the seriousness that he wants, given that the multiple used is nearly always a profit-before-tax multiple—certainly, it will always be adjusted for that if exceptional items are involved. For that reason, some people, with whom I would not agree, even opt for an earnings before interest, taxes, depreciation and amortisation—EBITDA—calculation for these purposes. The fact is that the quality of the earnings is more important here than any considerations about tax levels at any one point in time.

[Mr Redwood]

I do not agree with the hon. Gentleman about that. It is true that in the venture capital world EBITDA multiples are more common, although people would not give the same value or the same multiple to a highly taxed business as they would to a more lowly taxed business; but in the open share market in the major stock exchanges, it is more normal to look at price earnings multiples based on earnings net of taxation. There is no doubt that if more tax is taken out of a business, it is less valuable to its private owners—of course that must be true. The private owners are trying to buy a stream of profit or revenue and if some of that is taken in tax, the business will be less valuable.

I had just moved on to my final point, which is about the impact everything we are discussing has on economic recovery. I urge the Minister to bear in mind that the kind of tax proposed, if carried too far, can be damaging. It impedes banks making the sorts of loan and building up the sort of asset base that we want them to at a time of recovery. In addition, any given jurisdiction going too far could become a trigger for the bank’s moving some or more of its activities offshore or changing its arrangements in a way that it thinks would allow it to get around some or all of the tax impost. I would prefer that this tax had not been invented—there are better ways of taxing banks—but if we are to have such a tax, let us ensure that we have thought about two very important consequences of setting it too high: it might damage our own share values and it might damage lending for the recovery.

[Ian Lavery (Wansbeck) (Lab)]

The general public are outraged at the levels of bankers’ bonuses, which remain very high indeed. The Government were forced, as we are all aware, into multi-billion pound bank bail-outs during the financial crisis. Quite simply, people cannot understand why bankers and people employed in the financial institutions have been given billions and billions of pounds of taxpayers’ money at a time of great austerity.

To pay massive bonuses in the midst of a financial crisis is a national disgrace, as it is to pay massive bonuses at a time when public sector services are being destroyed and young people face an unprecedented attack via tuition fees, the abolition of the education maintenance allowance and changes in Sure Start. Last year, Barclays boss Bob Diamond and his two replacements at the head of the investment bank were paid an obscene amount of money: £28 million. The trio also received shares worth £40 million for past performance. That must have been some performance!

I have just done some calculations. The people who are now receiving redundancy notices in the public services—many council workers, nurses, doctors, police officers and the rest—would be lucky to have a bonus of £50 a week. That is £2,500 a year, £25,000 over 10 years and £125,000 over 100 years. So to make £1 million, they would have to live until they were 400. To make the £28 million that the Barclays heads were given, they would have to live to 11,200. That is highly unlikely—I am merely accentuating the point—but those figures are an absolute disgrace.

[Barry Gardiner]

I do not wish to disturb my hon. Friend’s flow, but is he aware that I was informed by the Independent Parliamentary Standards Authority the other day that I could not raise any of my staff’s salaries, even though they have been the same for a year, because they are public servants? If I wanted to give them any reward for exceptional service, the maximum I was allowed to give was a £15 token each year for a meal. Where can anyone get a meal for £15 around here? It is absolutely disgraceful, when such sums are being given out to the bankers.

[Ian Lavery]

I thank my hon. Friend for that question, which is a great way of introducing IPSA into the debate on the Finance Bill. I think we would have agreement on that point across the House.

Let me get back to the discussion. Barclays bosses were compared to Somali pirates by one of their own shareholders, amid anger over their obscene bonuses. Shareholders lined up to vent their fury at the annual meeting, complaining that their dividends had plummeted while senior executives continued to enjoy huge pay packets. Another shareholder accused the executives of rank historical folly, saying:

“In these times of austerity the seemingly excessive payments to senior bank staff seems to show the lack of wisdom reminiscent of Marie Antoinette saying let them eat cake.”

HSBC has tried to seize the high ground by announcing a reduction in maximum bonuses for top bosses, but chief executives could still receive a package of more than £12.5 million this year. This mammoth pay deal comprises a salary of £1.25 million plus up to £7.5 million in long-term bonus shares and a possible £3.75 million annual bonus. Some reduction. That is why the bankers must pay their share, and why the Labour party are seeking this amendment to ensure that that happens.

This recession was not made in Britain; it is a global recession. Let me set the scene for a minute or so. In the decade before the financial crisis, Labour cut Britain’s national debt and Britain’s deficit. Both were lower than the amounts we inherited from the Tories. Before the financial crash we had a lower national debt than America, France, Germany or Japan. The crisis was caused by the financial institutions—by these banks. Governments and central banks were also, of course, at fault, including in Britain, where we did not see it coming and should have been tougher in regulating the banks.

The cry from those on the Conservative Benches, and from the City, for lighter regulation of the banks should have been totally ignored—and, yes, Labour should have been tougher on the banks. When the City and the Tories called for lighter regulation, we should have ignored them and been tougher still. Our priority, however, was to prevent recession turning into depression and to keep people in jobs. We always said that once the economy was growing strongly, tough decisions would be needed to get the deficit down again. The plan, as we all know, was to halve the deficit in four years, including through a continuation of Labour’s bank bonus tax.

The crisis was not the result of our spending on essential front-line services such as the NHS, schools, police, local authorities or any other public service.

[Mr Kevan Jones]

Does my hon. Friend share my disappointment at the sparse attendance on the Liberal Democrat Benches? Before the election, the Liberal Democrats lectured us on bank bonuses and what we were doing about the banks—and now, in places such as Northumberland, they are devastating public services through the cuts that they say are needed because of the financial mess that the banks got us in to.

[Ian Lavery]

That is a very good point about Northumberland. In my constituency in particular, 60% of women and more than 40%—nearly 50%— of men are employed in the public services. Many are being subjected to enforced redundancies by the Liberal Democrat-led Northumberland county council. We hope that will change in 2013, but let us wait and see what happens on Thursday, as that will give us a good idea of what will happen in the coming months and years.

We must realise that the recession was caused by the financial institutions and, yes, by the banks. We are certainly not alone in Britain as a nation in deficit. The financial crisis affected every major economy, resulting in national deficits worldwide. It is the different way in which those nations agreed to tackle their deficits that is the issue. We are saying that we need financing from the banks and the continuation of Labour’s bank tax to ensure that we have the money to allow the programmes we had planned to go forward.

The Government are cutting too far and too fast and they are hitting the most vulnerable, as well as jobs and families. It is necessary to prioritise an economic plan that focuses on increased growth and increased employment opportunities, which would place Britain in a better position to emerge much more rapidly from the current economic situation, which has been flatlining, at best. Part of such a plan would involve repeating Labour’s bank bonus and investing in growth and jobs.

The economy remains extremely fragile. The Office for Budget Responsibility has revised down its growth forecast for the UK economy in 2011 from 2.6% a year ago to just 1.7%. Last week’s growth figures were hardly a triumph for the economy. Growth flatlined over the last quarter of 2010 and the first quarter of 2011—it was down 0.5% in the former before going back up 0.5% in the latter—an effect that the Office for National Statistics has largely attributed to poor weather in December.

18:30

The figures are less than inspiring, and I have to say that members of the Labour party are not in any way, shape or form deficit deniers; it is pure poppycock even to suggest that. We accept that we have to get the deficit down, but spending cuts need to be fair and just. They should not be hitting the easiest targets—the most vulnerable people such as the disabled, those on benefits and those on the minimum wage—but should be hitting everybody proportionately. That is something we have been shouting from the rooftops to everyone and anyone who cared to listen.

[Helen Goodman]

I agree with my hon. Friend. Does he agree that it is very odd that the rate of the bank levy is being cut in the second year and that the revenues from the levy, which start at £630 million, will fall to only £100 million by the end of the Parliament?

[Ian Lavery]

That is strange, but it is probably what we should expect. It does not surprise me one jot that the tax on banks will reduce in the years to come rather than increasing in line with profit or productivity.

Most Members will be lucky enough to have a credit card, and many of them will have maxed it out and might still have a maxed-out card. That is a new term I have learned since coming to Parliament—“maxed-out credit card”. Incidentally, returning to IPSA, my IPSA card has definitely been maxed out: it has been stopped, as there is only £1 left on it, but that is another issue. On a serious note, many hon. Members will have maxed out their credit card and will not be looking to pay it off in the next year or so. Instead, they will be planning how and when it best suits their pockets to pay it off, when they are able to do so. Paying it off immediately would mean having to go without even the most basic of necessities. That is life: it is about having effective financial means.

The world economy revolves around borrowing and debt. People the length and breadth of the nation live off debt, and the issue is how that debt is managed and repaid. That kind of debt is like a mortgage: people have to pay it off, but it becomes like a family deficit that is paid off over 25 years. If people were told they had to pay their mortgage off in two years they could not do it, because they could not survive. That is exactly the approach that the Government are taking with the deficit. This is about having a fair process; it is about financial management. We are definitely not all in this together, but the Labour party’s bonus tax would have helped to implement a number of social programmes that would have benefited many of those who feel they are being disproportionately affected by the cuts.

[Mr Kevan Jones]

I do not know whether my hon. Friend saw the Newcastle Journal on Saturday, but he knows that the housing market is struggling in my area. The Journal has reported that only 13 houses in the north-east were bought for more than £1 million last year. Is it not ironic that one of the bank bonuses that has been paid could have bought all of those houses?

[Ian Lavery]

I think that is ironic, and I assure my hon. Friend that not many houses in my constituency are valued in the region of £1 million. That is not only ironic; it is pretty sad and desperate when I think of the number of people in my constituency and elsewhere in the north-east who are looking for social housing and who cannot even get on to the housing ladder as a result of the austerity measures that are being put in place. That is why Labour says that although it is hurting, the signs are that it is not working.

The amendment calls on the Government to review the overall taxation burden on the banks. They have declined to renew Labour’s bank bonus tax, which raised £3.5 billion last year, and have instead proceeded with a bank levy that will raise about £2.5 billion. Labour is calling on the Government not to give a tax cut to the banks, but to use the money that would be raised from repeating the levy to invest in jobs and growth. The Bill’s provisions for the bank levy equate simply to a tax cut for the banks, because it is estimated that it will bring in £2.5 billion a year, which is less than the £3.5 billion that Labour’s bonus tax brought in last year according to the OBR.

Furthermore, the Government are giving banks a corporation tax cut of more than £100 million in 2011-12 and the value of that tax cut will rise considerably by the end of the Parliament. It is essential to repeat the bank bonus tax, to increase the bank levy and to invest in jobs, growth and housing. Labour believes that in addition to continuing with the bank levy the Government should repeat the bank bonus tax and raise at least £2 billion more, so that the banks do not get a tax cut this year. Frankly, I am opposed to the banks getting a tax cut in any year.

[Gavin Williamson (South Staffordshire) (Con)]

The former Chancellor of the Exchequer thought that it would be unsustainable to impose the bank bonus tax for more than one year. Does the hon. Gentleman disagree with his colleague?

[Ian Lavery]

The simple answer is yes. Things have changed dramatically since my right hon. Friend left office; even the hon. Gentleman would agree with that.

[Gavin Williamson]

Only for the better!

[Ian Lavery]

“Only for the better.” Of course.

In future years, the Government should increase the bank levy to ensure that the banks continue to pay their fair share of tax, so that taxpayers are not left picking up the bill for a crisis caused by the irresponsible actions of those institutions. The OBR’s November 2010 forecast showed that the bonus tax brought in revenues of £3.5 billion in 2010-11.

[Stephen Pound]

My hon. Friend might be surprised to hear that he is engendering in me some sympathy for bankers. The sheer, overpowering, pressing agony of having to spend £28 million would put so much pressure and pain on a person; one has only to look at Wayne Rooney to see the consequences of that. Does my hon. Friend agree that if bank bonuses are not about money, they are actually about mutual approval and standards? We could simply give bankers a golden tick on a badge, or a sticker, to show that we love them, and get the £28 million back to refresh the economy and get jobs into his constituency and mine.

[Ian Lavery]

That is the first time I have been accused of being sympathetic to the bankers, but I thank my hon. Friend for his comments. I would much rather give the bankers a nice little tick or an A* for the way in which they perform—or perhaps in this particular case a C, D, E, F or a fail. At the moment, an F would still equate to many tens of thousands of pounds for most bankers.

[Mr Kevan Jones]

Does my hon. Friend think that his constituents or mine believe that most of the bankers who got us into the mess we are in deserve a bonus at all, or even an F?

[Ian Lavery]

The reality is that people in my constituency cannot even get a loan from the banks. In the past they could get loans for all sorts of things, and that was a run-of-the-mill thing to do in my community and many others. If someone wanted a holiday, a carpet or a car and they could not afford it outright, they would have gone to the bank or building society and got a loan.

Now they not only cannot get loans, they cannot even get credit cards. The bankers are making billions, but the people at the sharp end, who are suffering the most as a result of the Government’s cuts, cannot even get a loan from the banks or building societies.

[Andrew Gwynne (Denton and Reddish) (Lab)]

My hon. Friend is right, but it is not just his constituents who cannot get a loan—many of his local businesses face the same problem. He spoke earlier about the need for growth in our economy. Is it not a scandal that many banks will not, as the right hon. Member for Wokingham (Mr Redwood) said, take a risk on small and medium-sized businesses? They will not even take a punt on a good business proposition.

[Ian Lavery]

That is exactly right. I was merely highlighting the plight of ordinary families. Small and medium-sized enterprises in every region of the country are suffering greatly as a result of the austerity measures and of the negative attitude of bankers, who think only about how much they will make at the top of the ladder, not about how anybody else—business people or ordinary people—will manage.

[Jeremy Corbyn (Islington North) (Lab)]

Does my hon. Friend realise the perverse effect of the difficulty in getting loans from banks is that many people are forced to turn to very expensive money lenders, corner shops and so on, where they pay ludicrous rates of interest, with no security whatever for what they are trying to achieve? That is simply wrong.

[Ian Lavery]

I thank my hon. Friend. That is a serious matter. Many people who were once able to get bona fide loans from building societies or banks are now forced to seek finance from loan sharks—

[The Temporary Chair (Mr James Gray)]

Order. We are ranging rather wide of the amendment under discussion. The Chair would be grateful for a little more focus on the amendment.

[Ian Lavery]

Thank you for your guidance, Mr Gray. I thought it was my duty as a parliamentarian to try to answer Members who were asking questions. Thank you for telling me that I may not.

[Stella Creasy]

Does my hon. Friend agree that one of the things that we could do is to consider whether the amendment on the adequacy of the bank levy could be used to deal with some of those practices and with illegal loan sharks who are preying on people to whom our mainstream banks will not lend?

18:45

[Ian Lavery]

I agree 100% with my hon. Friend’s suggestion, but as I have just suffered the wrath of the Chair, I shall not try to respond.

The OBR’s November 2010 forecast showed that the bonus tax brought in revenues of £3.5 billion in 2010-11. We cannot know how much a repeat of the tax would yield in 2011-12, but a cautious assumption by any measure would be about £2 billion. The Labour party’s view is that that estimated sum would go a long way to supporting many projects, such as, first, establishing a youth jobs fund and creating up to 100,000 new youth jobs at a time when youth unemployment is almost 1 million, its highest since records began in 1992-93. That is one thing we could do with the bank tax.

Secondly, we could build 25,000 new homes for low cost home ownership and affordable social rent. This could create tens of thousands of jobs and help create 1,500 construction apprenticeships. It is important to ensure that young people can get on to the property ladder. Thirdly, an additional £200 million could be provided as funding for the regional growth fund bids. Getting more people in work and paying taxes is the best way to bring the deficit down. The Tory-led Government are cutting too deep and too fast, and now the economy has stalled and unemployment is higher.

There is a better way. Instead of giving the banks a tax cut this year, next year or the year after, the Government should repeat Labour’s bank bonus tax and use the money raised to invest in creating more than 100,000 jobs for young people and in construction, and to build 25,000 affordable homes.

The cuts are going too deep and too fast. There is an alternative. If we were still in government we would be halving the deficit steadily over four years, in line with the pledges made by major economies at the G20 last year, not trying to cut it further and faster than any other major economy in the world. Yes, tough choices are required. The deficit cannot be brought down if the economy is not growing strongly and hundreds of thousands of people are being thrown out of work. That is a simple, basic message.

In conclusion, I repeat that the most important factor in getting the deficit down is what happens to jobs and growth in the economy. That is why last year, as the economy started growing again and unemployment was falling, the deficit came in more than £20 billion lower than expected. That changed as the economy stopped growing at the end of last year and unemployment is higher. Stop the tax cuts to the banks, invest in the future of our young people, invest in this nation, invest in jobs and growth and adopt the Labour example of the bonus tax on banks.

[Nic Dakin]

It is a pleasure to follow my hon. Friend the Member for Wansbeck (Ian Lavery), who gave a comprehensive account of why we should support the very precise amendment on the bank levy.

A banker writing in the 1920s wrote:

“April is the cruellest month, breeding

Lilacs out of the dead land, mixing

Memory and desire”,

and went on to talk about the present month as “depraved May”. I quote T. S. Eliot—

[Stephen Pound]

He was a bank clerk, not a banker.

[Nic Dakin]

I quote T. S. Eliot to remind us that bankers have played good parts in the world of culture, finance and many other things, and to remind us through his words of the pain of growth and rebirth. Economic growth is a difficult business. That is the business that we should be in, and we should make sure that bankers play their part in that.

Bankers were not always about bonuses, and conversations about banks were not always about bonuses. Sadly, since the credit crunch and the global financial crisis, more attention has been focused on how great the anomaly is. We have heard the telephone-number salaries quoted and compared with the situation of people in our constituencies who are doing their best to bring their families up to be aspirational and to move forward in their lives.

[Helen Goodman]

Does my hon. Friend agree that the criteria for awarding bonuses are strange? Is it not ironic that at a time when the clearing banks are closing branches in our constituencies, bankers are taking huge bonuses?

[Nic Dakin]

I thank my hon. Friend for that intervention. She draws attention to the fact that people see banks closing and services becoming less available and more remote at the same time as large bonuses are being given out, with no apparent transparency and no clear criteria.

The Bill delivers a tax benefit for banks—a bonus for banks, rather than for UK plc—in the form of the £2.5 billion bank levy, which should be compared with the £3.5 billion bank bonus last year, and with £100 million being given back through cuts in corporation tax. At a time when the banks should be putting more in to atone for the situation we are in and to help the engine of the economy, the Government are allowing them to take more out. That does not seem fair to me, and it does not seem fair to the people I represent.

[Mr Kevan Jones]

Does my hon. Friend agree that it is an absolute disgrace not only that those involved directly in the big five banks are earning such bonuses, but that those who have earned a lot of money from the misery that has been caused over the past few years are also doing so, including those companies that offer advice, such as Goldman Sachs, whose average bonus is about £270,000 per individual?

[Nic Dakin]

My hon. Friend draws attention to another interesting area where we would wish the Government to apply their imagination and attention to try to get more money back for the taxpayer so that it can be invested in the economy, in public services and in growth, the engines that would drive us forward. This is a no-mandate Government. A year ago there was clearly no mandate for what they are doing. They are taking their approach to bankers’ bonuses even though there is a clear mandate from the population—one of the few that exists—for cracking on, getting on top of bankers’ bonuses and ensuring that they play their part in reinvigorating the British economy. Where there is a mandate, the Government fail to act and give a dividend to bankers instead of a tax. There is no mandate for the things the Government are doing, such as the NHS reorganisation.

[Jeremy Corbyn]

My hon. Friend seems to have skated over the point that the majority of the banks are actually state owned, or have a majority state shareholding. Surely it is incumbent on the Government to intervene, either by appointing their own directors or sending directives to the banks on how they should behave, rather than pretending that it is nothing to do with them even though the banks are already publicly owned.

[Nic Dakin]

I thank my hon. Friend for his intervention about intervention. More intervention is needed from the Government, who have a stake in the banks. In fact, it is taxpayers and the public we serve who have that stake in the banks. He is quite right that the Government should be exercised about how they get the benefit back to the British people.

[Mr Love]

Have the Government not failed lamentably? If we look at Project Merlin, where they intervened with the banks on bonuses and on lending to small businesses, we can see the bonuses that are likely to be given this year and the fact that the Government have failed lamentably to deliver finance for small businesses in this country. They simply are not working.

[Nic Dakin]

I thank my hon. Friend for that observation. Project Merlin’s record is a sorry tale so far. We see a failure to deliver on bankers’ bonuses and a failure to reinvest the taxation from them in the economy. He is right that the record on lending to small and medium-sized enterprises is woeful. Small and medium-sized enterprises, as I think all Members recognise, are the lifeblood and the engine of our economy, and he is completely right to underline that point.

[Stephen Pound]

My hon. Friend refers to taxation arising from bankers’ bonuses flowing back into the economy. Would that that were so. Does he not agree that the ingenuity, skill and—I dare say—avarice of the average banker is best demonstrated by their ability to defer tax liability, so that the money, rather than coming back, tends to fructify in their pockets?

[Nic Dakin]

I thank my hon. Friend for his intervention. Clearly, the amendment aims to provoke a review of how we best ensure that bankers’ bonuses are taxed efficiently and effectively, rather than ineffectively, as the Government are currently, which is always a danger unless we are vigilant, as my hon. Friend suggests.

[Helen Goodman]

I shall of course vote for the amendment this evening, but it does raise the question of whether it ought to be the Chancellor who reviews the bank levy or, because of the serious problems in the way in which the Government have handled it, the Public Accounts Committee.

[Nic Dakin]

My hon. Friend makes an interesting and valid point, but amendment 9 proposes specifically that:

“The Chancellor shall review the bank levy and publish a report, before 31 December 2011, on—

(a) the Government’s analysis behind the rate and threshold chosen for the bank levy;

(b) the adequacy of the bank levy in the context of other reforms to the wider banking system; and

(c) the total tax revenues expected from banks across all categories of taxation in each year from 2011-12 to 2016-17.’.”

That is what we are debating today, although my hon. Friend makes a good point.

[Mr David Ward (Bradford East) (LD)]

On the hon. Gentleman’s point about the mandate, presumably if Labour had got 3% or 4% more in the vote and a majority of 60 or 70 seats on 35%, he would have considered that to be a mandate to do whatever Labour wanted to do?

[The Temporary Chair (Mr James Gray)]

Order. That has absolutely nothing to do with the amendment we are discussing.

[Nic Dakin]

Thank you, Mr Gray, although I think that the hon. Gentleman was reminding me of the part in my speech in which I referred to mandates, as it was important to reiterate that the Government have no mandate for the NHS reorganisation, for police cuts, for the VAT rise, for abolishing the future jobs fund or for trebling tuition fees, and they certainly have no mandate for cutting too fast and too deep. However, they do have a mandate for listening to the amendment we are considering today on the bank levy. There absolutely is a mandate for the bank levy.

[Mr Ward]

This point has occurred so many times, so can we pick this one off? The figure of £3.9 million is certainly bigger than £2.5 million, but £3.9 million for one year is surely smaller than £2.5 billion for four years. How on earth can this be a cut in the banking levy?

[Nic Dakin]

I thank the hon. Gentleman for his intervention. We are arguing that because of the fragility of the recovery, it is time to repeat the bank bonus tax. The Government should make their decisions now when they are not constrained. The decision now should be to repeat the bank bonus tax and increase the bank levy year on year, rather than leaving it static. That is what this review of the bank levy would allow us to establish, and that would produce an additional income, he will be pleased to hear, of at least £2 billion in each year of this Administration. That additional £2 billion could be used by the Government on behalf of the British people, the taxpayers and, indeed, the shareholders of these companies.

[Jim Fitzpatrick (Poplar and Limehouse) (Lab)]

Would my hon. Friend be surprised to hear that the hon. Member for Bradford East (Mr Ward) was in Westminster Hall this morning, alongside many other Members, seeking additional funding for ESOL—English for speakers of other languages—training? My hon. Friend is giving a solution that would allow the Government to provide that additional funding, which would produce growth in the economy, rather than the shrinkage we are seeing promoted by the coalition Government.

[Nic Dakin]

I thank my hon. Friend for his intervention. The review of the bank levy, which is at the heart of the amendment, would allow the Government to look at the sorts of things that that money could be spent on. It could be used for a youth jobs fund, for putting £25 million into new homes or for providing the regional growth fund with an additional £200 million. My hon. Friend the Member for Nottingham East (Chris Leslie) has already explored those issues in some detail.

18:59

There is a lot at stake in this proposal to review the bank levy and to publish a report before 31 December. Such a review and report would be the intelligent way forward, the intelligent government that the British people would expect and hope us to deliver, because reviewing the bank levy and producing an appropriate report would allow a full examination of whether those moneys are available to allow us to do such things, whether they be ESOL training, a youth jobs fund, more money for economic development or whatever. There is an opportunity here, which I hope the Committee will not miss.

[Stella Creasy]

It is a pleasure to follow my hon. Friend the Member for Scunthorpe (Nic Dakin) and his eloquent description of the problems facing us as a country. I rise to speak to clause 72 and amendment 9 because this debate is about the bank levy and whether it is being applied in the right way and to the correct extent.

I support the amendment, because it seeks to address the challenges of any new legislation and answer the question of how we as a Parliament ensure that the legislation that we pass is effective at doing what we want it to do. The amendment would meet the challenge of asking whether bankers pay their fair share of the cost of dealing with the global financial crisis, just as we as taxpayers have paid more than our fair share, some might say, in trying to support them. That goes to the heart of today’s debate about clause 72 and what the Bill will do for the financial future of this country, so I support the amendment because it highlights the need to address the adequacy of the bank levy.

I also pose a wider question about how the clause will work to ensure that all those who have benefited and, indeed, continue to benefit from the financial crisis that this country has endured pay their fair share in helping the economy out of recession and back into growth, not least because I am deeply concerned, as many Members know, about this Government’s policy of reducing the national debt by increasing private household debt, and about what that might mean for many of our constituents.

I spoke at length on Second Reading last week about the impact of that policy on families throughout the country, and I do not propose to repeat the measures that I put forward, but, on the adequacy of the bank levy, the clause makes an omission that I hope the amendment will address. High-cost lenders are benefiting disproportionately from the impact of the Budget on our people, and from the fact that mainstream lenders are not lending because of banks paying out more in bonuses than they do to the people of this country, who need that money. Indeed, perhaps the omission calls for a new clause to deal with that issue and, therefore, to make sure that that money benefits our economy.

The industry has certainly benefited greatly from this Government and from the events of the last year alone. Of the £216 billion of unsecured lending in this country, £8.5 billion comes from that market, which has increased by £1 billion in the past year, and £8.5 billion is the same amount of money that it would cost to repair all the schools in England—a cause dear to many Opposition Members. It is also the entire budget of the Department for International Development; we are talking about a substantial amount. The market is growing not least because of the lack of regulation—the lack of Government action to deal with the high-cost credit industry—and the amendment could deal with that omission.

[Mike Gapes (Ilford South) (Lab/Co-op)]

My hon. Friend refers to schools, and she knows from her constituency and borough how the coalition parties’ drastic, ruthless and unplanned cuts to Building Schools for the Future have caused great grief to her constituents, yet she says that they could have been compensated for by the measures to which she has just referred—

[The Temporary Chair (Mr James Gray)]

Order. I have been quite generous so far in not picking up hon. Members on what they have said, but we have to focus on the bank levy, how much it should be and whether it should be reviewed annually. Debating the way in which the Government might spend the proceeds from any such levy is not in order during discussion of this amendment.

[Stella Creasy]

Thank you, Mr Gray. I appreciate very much the passion with which my hon. Friend the Member for Ilford South (Mike Gapes) expresses his concern about BSF, which is a sentiment that I share, but I take the Chair’s point, and the bank levy is exactly what I want to speak to. I am concerned, because it offers an opportunity to deal with the challenges to our economy, and therefore the Bill should be amended by amendment 9.

I return to the case that I am trying to make about the high-cost credit market in the UK and its impact. It is precisely because the market has not been subject to any regulation, which could be introduced under the amendment, that we have seen a massive explosion in payday lending—a quadrupling of the industry in the past 18 months alone.

Dollar Financial, which Members may know better as The Money Shop, has already stated that the lack of regulation here brought it to the UK. The company had one store in the country in 1992, 273 by 2009, and it has announced plans for a further 800 this year alone as a result of that lack of regulation.

The question of adequacy, which the amendment raises, includes how those companies act—certainly, that is how I interpret it—and the opportunity that the levy and its review could provide for dealing with the impact of their actions on consumers in the UK. By using the review, we could ask whether the levy might be applied in such a way as to deter consumer detriment.

[Jeremy Corbyn]

I pay great tribute to my hon. Friend for her work on those scoundrels who lend money at huge rates of interest. What she has done is very welcome. Does she also consider it important that the bank levy be used beneficially to promote and to develop credit unions, which provide a decent system, help people when they are desperate, do not charge them excessive interest and are democratically run? They seem to me to be a beneficial service all round which should be encouraged.

[Stella Creasy]

My hon. Friend hits the nail on the head, because proposed paragraph (b) of amendment 9 talks about wider reform of our banking system. Many Opposition Members have called for action on access to affordable credit, but this is not just about credit unions; it is about the schemes that housing associations have put forward. In that context, I register my disgust at the fact that a housing association was recently taken to the Advertising Standards Authority by The Money Shop for daring to point out to their tenants the cost of borrowing from such companies—and was, indeed, censured.

The question of how we deal with banking reform, so that everybody can access affordable credit and there is not a new dividing line in our communities between those who can get on in life and families who are scarred with debt for generations, is a key concern for me, and many Opposition Members are concerned about what the Bill and the amendments can do to promote such measures.

[Barry Gardiner]

I welcome all the energy and work that my hon. Friend has put into that subject. Does she share my disgust at the fact that, here we are, debating an issue that affects literally hundreds of thousands of our constituents and, in terms of bankers' bonuses, dealing with one of the biggest issues before the public, yet there are precisely two people sitting on the Conservative Benches?

[Stella Creasy]

My hon. Friend makes a good point about the importance of this Bill putting first the needs of this country and, therefore, about the importance that others attach to it. I hope that we have support from members in all parts of the House for the need to act on the high-cost credit market. There has certainly been support among Government Back Benchers; noticeably, however, Government Front Benchers have so far reacted with negativity to that support. I hope that they will change their minds, given the possibilities that we have through the Bill, the amendment and, indeed, the regulatory measures being considered to make progress on an issue that concerns many Members. Our concerns are about a number of products—I want to put on record what we are talking about—and the lack of action on such products in contrast to dealing with the bank levy and whether it is applied appropriately.

First, there are payday loans. Many people will be familiar with the concept of a short-term loan, and given that almost half of households cannot make their pay cheques last to the end of the month, it is no surprise that almost one third of households are now considering such products. Interest rates on such loans include one from a company called Oakam, of about 443%; and many people will be familiar with Wonga, whose rates are more at the 4,000% level. We are also talking about the home credit industry and companies such as Provident. Many people will be familiar with Provident going from door to door in their communities lending money to people at interest rates of, say, 272%. That means that if someone borrows just £300 from the company—perhaps to buy a new sofa or TV, or to fix a washing machine or a boiler that has gone wrong over the winter—that will cost them £546.

Were we to use this amendment and the opportunity of the bank levy to deal with some of these problems and with the actions of some of these companies, we would be encouraging the Government to look at the concept of adequacy and consider some of the issues in that market. First, there is the lack of competition in providing credit to those who are denied mainstream credit. That is embodied in the fact that there is no innovation in these products; they are very similar. There is therefore a great contrast with people who are able to borrow from mainstream creditors. Many people will be familiar with mainstream banks offering preferential rates and loyalty schemes to customers who they want to hold on to because they know that they have alternative sources of credit. We could apply the bank levy to the question of adequacy and ask whether these companies are acting in a way that is detrimental to consumers and whether the lack of competition is detrimental to consumers and to our economy. Many people have expressed concern that our banking industry is already overloaded, which requires more competition. I would argue that there needs to be more competition in lending to people who cannot access mainstream credit, and this is one way in which we could achieve that.

A quarter of the customers who use high-cost-credit companies cannot borrow from other lenders. As a consequence, they do not build up the evidence of being good borrowers that would allow them to use mainstream sources of credit. These companies do not share information on their customers, making it incredibly difficult for customers to prove that they could use more mainstream sources of credit. The question of adequacy could also be applied to companies’ use of rollovers and stepping up of loans, which means that borrowers are stuck with using them. In particular, because they often lend only small amounts of money to begin with—

[The Temporary Chair (Mr James Gray)]

Order. The hon. Lady is making a passionate point, but it is associated only very loosely with amendment 9 to clause 72, so I wonder whether she could bring herself back to the matter that we are discussing.

[Stella Creasy]

I apologise to the Chair if I am not being clear, but I see this in the context of paragraph (b) of the amendment on the wider regulation of the banking system, and the importance of trying to use the opportunity that the bank levy presents to effect a positive impact on the way in which money is lent to those on low incomes.

[John McDonnell]

My hon. Friend has campaigned on this issue for a considerable period. Is it not true that the bank levy could be used as a lever to prise these other reforms out of the overall system?

[Stella Creasy]

My hon. Friend is absolutely correct. This is born out of my frustration at the fact that the Government have so far refused even to contemplate taking action. I hope that this time round the Treasury team will seriously consider how the bank levy could be used to effect such action. The concept of adequacy in the amendment offers us an opportunity to ask whether the bank levy is being levied in a way that deals with high-cost credit and its impact. This debate has been about the appropriate level of the levy and its impact on banks, and I would argue that it could be extended to an appropriate levy on high-cost credit industries. We could then look at the way in which such companies pass on their costs to consumers who are particularly struggling in the economic conditions that we face. As Debt on our Doorstep points out, the fixed costs of lending in the home credit industry represent about 15% of revenues, yet the cost of borrowing from such companies is £82 in collection charges for every £100 lent. It is therefore no surprise that their profits have gone up by 40% in the past year as the lack of regulation in the industry allows them to run riot in our local communities.

There is broad agreement on the need to act on the impact of these companies, and the clause could be amended and applied in such a way as to enable that to happen. Citizens Advice has argued that the Government should not use the need for regulation of the financial sector as a cover for failing to act in these markets, as has the Centre for Responsible Credit—and as have many Ministers. I urge Ministers to talk to colleagues who, prior to 2010, advocated caps on the cost of interest rates. The Minister with responsibility for consumer affairs was very supportive at that time, but he seems to have changed his mind. [Interruption.] I agree entirely with the suggestion that perhaps that is yet another broken promise. We are talking about the 5 million to 7 million people in our communities who are affected by not being able to access mainstream credit and who are forced to use such companies. The bank levy gives us the opportunity to send a strong message to those companies that the way in which they act is deleterious to our communities and to our economy as more people are stuck in debt.

[Mr Ward]

We have heard numerous calls for the additional bank levy that the hon. Lady supports, involving a couple of million pounds, I understand. The hon. Member for Ilford South (Mike Gapes) wanted it spent on the Building Schools for the Future programme, which would have blown the full amount. Does she support its use for BSF or would she like it all to be allocated to the very important cause that she is propounding?

19:15

[Stella Creasy]

The hon. Gentleman appears to be arguing that the money that would be raised by the bank levy should be given to the high-cost credit industry. Far be it from me to suggest that he wants to support those kinds of businesses. I know that some Liberal Democrat Members have been very supportive of these companies—mistakenly, because if they were to talk to the local communities affected by them, they would realise how damaging they are.

Let me be very clear: I am arguing for the ability of the Government to review the bank levy and for a review to consider whether it could be applied in such a way as to discourage lending that is detrimental to consumers. I have firmly in my sights the high-cost credit industry and the detriment that it causes to our local communities. I hope that Ministers will accept the amendment and explore whether the bank levy could be used to act as a positive behavioural challenge on these companies, because that would benefit many people in our country. I do not want to see investment in the high-cost credit industry, and I am sure that the hon. Member for Bradford East (Mr Ward) did not mean to suggest that, but I do want to see action on it, and I know that I am not alone in this House in hoping for that.

If the Government will not accept the amendment, I will table more amendments and keep pressing this issue, and I hope that other Members will join me in support. The Minister is shaking his head. I hope that he has spoken to the many Members on his own Benches who do not shake their heads and walk on by as people are preyed on by these companies. I spent yesterday with 900 members of London Citizens Black Clergy Caucus, who will be seeking urgent meetings with the Ministers responsible. Ministers may think they can ignore me or ignore Labour Members, but I hope that they will not ignore the millions of people who are struggling to pay their bills and make ends meet, and for whom these companies are increasingly the only option. Regulation has worked effectively in other countries, and it could be achieved through this Bill. I hope that the Minister will look at the case seriously and not dismiss it out of hand as he appears to be doing.

[Barry Gardiner]

It seems to me that when it comes to bonuses, the clue is in the word. If one looks at the etymology, the word “bonus” comes from the Latin: it means “good”. In fact, it should be “bonum”, as with “maximum”, “minimum” and “premium”, so that we had “bonum” and “bona”, but let us leave that aside. The bonus culture in the banks is supposed to be for something good—for good performance—and yet, certainly within the banks that are largely owned by the public, these bonuses are being given almost uniformly for bad performances: they are “malum”, not “bonum”. It is really quite ridiculous that these bonuses should be paid and that the Government should be proposing to levy such a low rate against them.

The right hon. Member for Wokingham (Mr Redwood) gave us a bit of the history of how the recession had come about and the context in which these bonuses were being paid. Interestingly, however, his history stopped in 2006 or 2007, when he published a paper about the regulatory regime and the need for tighter regulation. To find out the true history of this, one has to go back to a time before 2006 and 2007, and beyond this country, to look at the sub-prime market in the United States in 2000. At that time, the proportion of mortgages in the United States that were lent to sub-prime borrowers was just 5%. Between 2000 and 2005, that increased to 47%. That meant that by 2005, 45% of mortgages in the US were in arrears by two months, or more than 60 days. That is the origin of the problem.

Much has been said by Government Members to try to set the recession in context. For months, they have said that it was because of the Labour Government’s disastrous economic management. Of course, the context for it is in the United States, where what happened with Fannie Mae and Freddie Mac, the two major mortgage-lending institutions, was the beginning of the collapse of what had been a virtuous circle, and what became a vicious one. Those institutions could not lend because they were not getting revenues in, which was because people with mortgages were more than two months in arrears. That meant that there was a drying up of credit in the system in the United States.

One of my hon. Friends—I cannot remember who—mentioned the role played by the rating agencies. The way in which the situation impacted more widely on the economy, first in the United States and subsequently elsewhere, was through the securitisation of mortgages into bundles to create revenue streams for companies and, indeed, for financial institutions.

[Andrew Gwynne]

My hon. Friend is making a perfectly good point about the historical context of the global downturn. Is it not the case that the bubble burst because financial institutions across the globe were not certain about the packages that they had bought, because of the unpicking of those packages, and because of the percentages of those packages that were made up of bad debt?

[Barry Gardiner]

My hon. Friend is right, but perhaps he has missed a further element of that toxic mix. That is not the role of the rating agencies, although they played their part in bundling up sub-prime mortgages. In order to securitise them into revenue streams for companies, they had looked at the historical rate of default in the sub-prime sector in 2000, when only 5% of the market was being sold to sub-prime borrowers, not in 2005, when the figure was 47%. The effect was that many companies had security streams that were not very secure. The piece of the toxic mix that we need to introduce is the way in which hedge funds brought to bear their financial might.

[The Temporary Chair (Mr James Gray)]

rose—

[Barry Gardiner]

I give way to Mr Gray.

[The Temporary Chair]

Order. The hon. Gentleman is not giving way to the Chair, but resuming his seat. He is giving an interesting explanation of the causes of the banking crisis. He must relate his point to amendment 9, which we are discussing, rather than dilating more generally on the subject.

[Barry Gardiner]

Of course I wish to abide by your ruling, Mr Gray. I am referring to earlier comments in the debate, which I am sure you heard, from the right hon. Member for Wokingham, who was not ruled out of order. He gave an interesting explanation of the history of what we are discussing.

[The Temporary Chair]

Order. I was not in the Chair at that time. It seems to me important that we relate the debate to what we are supposed to be debating, namely amendment 9. I am not aware of what happened previously, but I suggest that the hon. Gentleman relates his comments directly to the amendment.

[Barry Gardiner]

I am very happy to do so, Mr Gray. We are talking about a bank levy, and amendment 9 refers to

“the Government’s analysis behind the rate and threshold chosen for the bank levy”.

It seems to me that if one is to perform an analysis of the rate and threshold chosen, one has to understand how these things came about and the historical context. More importantly, one has to understand the regulatory context and what went wrong in the regulatory system. Much of the debate has been about that regulatory structure. I am seeking to address subsection (2)(a) proposed in the amendment. That is exactly the import of my remarks.

As the hedge funds brought their pressure to bear, they identified the problem of the companies’ overvaluation in the market. They saw that the structure of the bundled streams of security was not providing the security to the companies that the market believed it was providing. The hedge funds then short sold on those companies. That was an important regulatory failure. There was no uptake rule and no clear limit on the arbitrage window that was allowed for trading on such shares, so the short selling allowed the hedge funds to beat down the value of those financial institutions in such a way that there was a precipitation of the collapse of the credit that could flow through the financial institutions, which infected all the other companies in the stock exchange. That is how the situation became a global crisis.

In addressing the analysis that the amendment asks the Government to engage in, I urge them to take seriously the regulatory failings at that time. [Interruption.] The Financial Secretary says from a sedentary position that those were the mistakes of the previous Government. What I am pointing out to him is that they were not simply mistakes made by the previous Government, but mistakes that were made on a global scale. The financial crisis started in the sub-prime market in the US, and that infected the global markets. The reason that it took hold in the UK, to the detriment of this country, was that we had placed an over-reliance on the financial markets and the financial sector as opposed to manufacturing and industry.

[Mr Kevan Jones]

Does my hon. Friend agree that if we had listened to those on the Conservative Front Bench, including the Chancellor of the Exchequer, who did not want to intervene in Northern Rock and wanted to let banks go bust, the banking crisis in this country would have—[Interruption.] The Economic Secretary chunters from a sedentary position, but what I am saying was said by the—[Interruption.] She can keep chuntering, but the truth hurts. The fact of the matter is that if we had listened to the Chancellor—

[The Economic Secretary to the Treasury (Justine Greening)]

rose—

[Mr Jones]

You cannot intervene on an intervention. I am going on because the Economic Secretary has been wittering on for so long.

[The Temporary Chair (Mr James Gray)]

Order. Interventions must be short. The tenor of the debate is moving widely away from the amendment that we are supposed to be discussing. The amendment is about the bank levy, the way in which it is raised and the way in which it affects the wider banking sector. I accept that there is a point about that, but we must return to our consideration of the amendment, rather than having such a wide discussion.

[Barry Gardiner]

I am of course always happy to abide by your ruling, Mr Gray, so I will move on to focus on the adequacy of the bank levy in the context of other reforms to the wider banking system. It is clear that those other reforms are necessary. We can debate the history at length, and we may take different lessons from that history about the type of regulatory reform that we wish to see, but I want to focus on the adequacy of the levy.

19:30

My hon. Friend the Member for Nottingham East (Chris Leslie) sought to contrast the payments that bankers would be receiving this year—the million pound-plus bonuses—with the situation of ordinary working families in this country, many of whom are seeing their own financial position severely worsened or are losing their jobs or benefits. He expanded on the modest emoluments that those people would receive this year.

However, the force of our argument is not just the contrast between the difficult situation of those people and the greed at the other end of the scale. It comes from the fact that there is a direct causal relationship between the two—the bankers are the ones who have caused the misery that our constituents will be enduring. More than that, the funds from the bank levy—the funds that are being paid in bonuses, from which we would seek to extract more for the Exchequer—could be better spent in tackling the problem in the other dimension. Instead of considering the matter from the point of view of its inequity, we should consider it in the context of achieving a resolution to the deficit crisis. That resolution can come through growth and through the spending of these resources in ways such as my hon. Friend the Member for Scunthorpe (Nic Dakin) explained clearly. We want the Government to accept the amendment, so that we can consider the adequacy of the bank levy in the context of other reforms to the banking system. We want a policy that is for growth in the economy, not simply one that is for taxes.

[Mr Love]

Is it not also the case that the taxpayer has given the banking system an unlimited guarantee, and that according to the Bank of England, we are subsidising the banks to the tune of about £100 billion a year? Yet even with all that support, they still demand that they should be able to pay massive bonuses.

[Barry Gardiner]

Indeed. The support that the country has given the banks is perfectly right, in my view. I disagree with the right hon. Member for Wokingham on the matter. He said that he would not have bailed out the banks at all. His position was very clear—he takes a very hard monetarist line and says that if the banks fail, they fail. Labour Members believe that the consequences of that failure cannot simply be ignored.

[Mr Kevan Jones]

Is that not exactly the line that the Chancellor took when he was shadow Chancellor? He argued that intervention was not important in the case of Northern Rock, for example. If we had followed what he suggested and had less regulation of the banking system, we would have been in a worse situation than we are now.

[Barry Gardiner]

My hon. Friend is absolutely right. To give the right hon. Member for Wokingham his due, he did distinguish his own position on the issue from that of his party’s Front Benchers. Both would have failed to support Northern Rock, the consequences of which would have been disastrous for savers, but the right hon. Gentleman would have gone further. He would have stopped any support for the wider banking system, including for Halifax, the Royal Bank of Scotland and Lloyds. There we see the consequences of policies that had their origin in “There’s no such thing as society.” Only if someone does not pay regard to society can they adopt such a hard-line position, because it ignores the consequences of failure and the effect on ordinary human beings—not just savers but, as he said, investors. The structural consequences of the failure would have been economically disastrous for this country.

[Andrew Gwynne]

Is it not also the case that the banking system is getting the best of both worlds? Over the past few years it has received very substantial support for the taxpayer, but at the same time as paying itself ever-increasing bonuses it is refusing to invest in local companies and valid business propositions in all our constituencies, thus hampering economic growth across the country. Is it not right that the bank levy is introduced for a second year and beyond through the reviews suggested in the amendment, so that we can get that growth back into the economy?

[Barry Gardiner]

My hon. Friend makes an excellent point in contrasting the lending policies of the banks with the bonuses that they seek to pay, particularly to their higher-end staff. The Government have to be much clearer in the regulatory demands that they impose on the banks, because they are speaking with forked tongue. On one hand, they are insisting that there is tighter regulation and that there is a regime to ensure that there are adequate reserves and far more stringency in the banks’ investment policies. On the other hand, they are on the side of business, urging the banks to lend more money. It is not possible for them to have it both ways, and we must not fall into that trap either. Either the Government have to say, “We want tighter regulation, and to hell with small business”, or they have to say, “No, we want small businesses to thrive, because we want growth in the economy”, in which case the regulatory regime for banks has to allow for that.

That does not affect my hon. Friend’s point, because he is absolutely right to contrast the bonus structure with the banks’ lending policy. The bankers expect the situation to be all good for them, but it is not so good when they are dishing out the money at the other end.

[Andrew Gwynne]

My hon. Friend is exactly right. Is not the real problem that we are actually getting neither of the things that he mentions? We are getting neither effective regulation of the banks nor money flowing into small and medium-sized enterprises.

[Barry Gardiner]

That is the sad fact of our situation. I am sure that all of us, as constituency MPs, have business people coming to us saying that they cannot get credit. Indeed, many successful businesses that have had no change in their circumstances are suddenly being told by their banks that their credit facilities are no longer there. The banks are unilaterally changing the terms of those facilities, and the Government must do something about that. They cannot on one hand let the banks off with a £20 billion tax allowance for bonuses and, on the other hand, say that they do not have to ensure that they are lending to small businesses.

The difference between Opposition and Government Members goes right to the heart of whether we believe that the most important thing to do is to get growth back into the economy, get money flowing into small businesses and pay people a decent wage rather than make them redundant—that means that their spending on goods and services does not contract, and they spend money on brown goods and white goods and generate wealth and jobs in the economy, so that we grow our way through the problems—or whether we believe that we have simply to cut, cut, cut the public sector and pay, pay, pay the bankers’ bonuses.

[John McDonnell]

I would welcome the amendment because I think it is time to stand back and review the future role of levies. The amendment seeks to prise out the Government’s analysis regarding the rate and the threshold of the levy, but it also gives us the opportunity to debate the overall adequacy of a levy and its role in the economic situation that we face.

I echo the right hon. Member for Wokingham (Mr Redwood) in saying that the world has moved on and the role of bank levies is different now. The first early-day motion on this matter, tabled by my hon. Friend the Member for Islington North (Jeremy Corbyn) and I eight years ago, in advance of the crisis, related specifically to the profligacy of the banks in their distribution of bonuses. We gained the support of 40 Members of the House. At that stage, the role of the proposed levy was fairly clear cut and straightforward: it was to act as a disincentive to the payment of such obscene bonuses, as others have described them.

Then, economic crisis hit us. The first sign was Northern Rock. I remember being in the Chamber when we exposed the role of Granite in Northern Rock and the tax fiddles, avoidance and evasion—whatever we want to call it—that were taking place. We called for the Government to use public ownership to nationalise and stabilise the banking system, but we added to that a call for the maintenance of a levy system, because we wanted to prevent a recurrence of the bankers’ bonuses during a period of recession caused by their profligacy.

As the right hon. Member for Wokingham said, the world has moved on, and we now have a bizarre situation. Yes, a levy on privately owned banks that are making profits and paying large bonuses is relevant, but introducing a levy on publicly owned banks is bizarre—it is a circular form of taxation—which is why the review proposed in the amendment is important. Surely if we own banks, we should end such bonuses by diktat and enforce reasonable lending using our management control. I hope that the review will examine the adequacy of future bank levy arrangements.

I compliment a number of my hon. Friends who have spoken in this debate, none more passionately than my hon. Friend the Member for Wansbeck (Ian Lavery), who reflected the climate of anger in which this debate takes place. There is anger about how individuals have been treated by the banks, but also anger about the impact of the banks on the overall economy. The impact has also been felt by families in the loss of jobs and cuts in services. If we are to have a review of the bank levy, I would welcome a commitment to absolute openness and transparency about the nature of the banks’ current operations. Many people are bewildered by the banks’ lack of adherence to the exhortations of successive Governments on the role that they should play, particularly in lending and long-term investment.

I welcome the proposed production of a report, but I would prefer it to be published earlier. The amendment proposes a deadline of “before 31 December 2011”, but I would want the report no later than the autumn, because I believe we need a tighter analysis and review regime for the banks.

I am no longer sure that the Government know what the levy is meant to achieve; they are certainly not clear on the appropriate rate, or even to whom and what the levy should apply. The previous Chancellor’s levy was clearly a bonus tax: it was an attempt to influence the behaviour of the banks and to end the remuneration system that encouraged reckless behaviour and the taking of excessive risk. The objective was also to raise income, although that was not the stated primary aim. Bizarrely—this is why I admitted an error earlier—the levy failed to influence behaviour, because the bonuses continued, but at the same time it was extremely successful at raising income. In fact, it was seven times more successful than was originally predicted. As I said, the original prediction was that it would to reap £500 million, but £3.5 billion was gained.

19:45

The review is important because when the current Chancellor was asked what the role of the proposed levy is, he replied that it was a lump-sum tax, or simply an aimed-for sum. However, that sum has changed as the rate has metamorphosed over the past year. On at least six occasions, there have been changes in the rate calculated, and therefore in the estimated amount to be gained. Why is the levy set at the level the Government propose? They have given us no clear understanding of that tonight. All we know, from various media reports, is that the bankers have laughed all the way to their banks. The tax take has been described as “relatively insignificant”. A number of commentators, some of whom appeared before the Treasury Committee, described the levy as generous, and others have described it as an easy ride for the banks. If the levy were set purely to generate a lump-sum tax take, why at that level? Why not double, triple or quadruple that level? I fail to see what analysis of the estimate has been made. In fact, so far, the Government have published no independent analysis that would allow the House to understand the rationale for the estimated take.

[Mr Kevan Jones]

Does my hon. Friend agree that if the levy was designed to change the behaviour of bankers, it has failed? Barclays, for example, paid more than £110 million to five of its top bankers.

[John McDonnell]

I agree with my hon. Friend, but I will come to that point later. The way in which the banks have continued their profligate distribution of bonuses looks like them cocking a snook at the Government and the level at which the levy has been set.

When the Chancellor appeared before the Treasury Committee, he advanced two arguments on how the levy was constructed. First, he argued that the levy was based on the price of the insurance that the Government and the taxpayer now implicitly offer for the wholesale funding of the banks; the levy is therefore a tax on the wholesale funding of banks’ operations. However, a calculation of the appropriate insurance for that scale of banking insurance, which could surely be done, would show that that sum is significantly more than the current bank levy proposal would raise.

The Chancellor’s second argument was that the levy was in the interests of equity: the banking sector, as well as the rest of us, should make a contribution to resolving the economic crisis. However, the amount that the bankers are being asked to provide to help to tackle the crisis that they created is piffling in comparison with the damage caused to our wider society, and minute in comparison with the burden that is being carried by others in terms of job losses and services cuts. Whole communities now face significant suffering and deprivation.

The Chancellor himself admitted that the targeted revenue sum was “relatively small” because, he argued, it balanced fairness with competitiveness, yet no study has been published and no evidence has been produced on the impact on banking competitiveness of varying the levy. Like my hon. Friend the Member for Nottingham East (Chris Leslie), I want to know what independent assessments have been made of the balance between fairness and competitiveness and how the calculation was arrived at. I agree with my hon. Friend the Member for Edmonton (Mr Love), who said that the measure throws the Government’s commitment to tax simplicity out the window. The taxation system on this issue is now more complex than any other point of taxation in the tax book, so I endorse the questions about how HMRC, with its current staffing cuts, can cope with the implementation of the levy. I would also welcome the Government publishing the consultation on the assessment of the amount of tax take from the proposed levy, because it looks like consultation was either non-existent or fairly minimal.

The amendment would require the report to consider

“the adequacy of the bank levy in the context of other reforms”.

Our understanding is that the levy was set to assist the implementation of the Merlin agreement and to ensure that the banks had a lending strategy to help get the economy moving and out of recession. As others have said, the levy must be set so as to ensure a continued influence on banks’ behaviour in relation to remuneration and bonuses. While promoting the bank levy, the Prime Minister and Chancellor exhorted bankers to show restraint. Is the levy set at the right level to ensure that the other reforms linked to it are completed and adhered to?

[Ian Mearns (Gateshead) (Lab)]

The evidence of our eyes and ears of the relationship in recent months between the Chancellor and the Prime Minister and the bankers is that there has been one word from the Chancellor and another word from the Prime Minister, and the banks have continued to do exactly what they want.

[John McDonnell]

That is exactly my point. It might be that the levy is being set in relation to other banking reforms, particularly those on bonuses and remuneration, but not only have we seen the complete disregard of the Chancellor’s and Prime Minister’s exhortations, with bonuses continuing at a very high level, but we have seen, as another Member said, a diversion into other forms of remuneration and salary increases. That is almost an abuse of the system as set out in the Government’s proposals.

If the debate is about the adequacy of the levy, and in view of the fact that in spite of the Government having set down a marker in the proposals, bonuses have continued and remuneration has increased, can the Government not support the amendment? If the review reported at least by December—I would prefer the autumn—we could consider increasing the levy to ensure adherence to the wider banking reform proposals the Government want implemented. It is clear from the evidence produced today that the banks need a continuing threat—a sword of Damocles—hanging over their heads, if we are to get any change in the bonuses and remuneration that are so offensive to all our constituents suffering in the recession.

It might be that the levy was set so that the Merlin agreement could become fully operable and lending might start in earnest again. As my hon. Friend the Member for Nottingham East noted, however, so far all the indications are that the revival of lending has not taken place. The Government’s proposals therefore warrant a review at the earliest stage, because even now, while they are still being implemented, they are not working. The evidence for that is all around us. It is clear now—this is why the review is so important—that the levy has become almost irrelevant to the real issues of capitalisation and regulation.

[Mr Love]

I agree with my hon. Friend about the review’s importance. On the one side, bankers are telling us that they are lending money and that money is available to lend; on the other side, we have small business organisations united in saying not only that money is not available, but that the terms on which it would be made available are so onerous as to make it impossible for them to take out a loan. The review could resolve who is right and who is wrong.

[John McDonnell]

The review would certainly test the adequacy of the levy as an instrument for influencing banks’ behaviour, which I believe is its purpose. However, the problem is not just the lack of lending; it is the continuing profiteering in the mainstream banking system—let alone the shadow banking system that my hon. Friend the Member for Walthamstow (Stella Creasy) has been so assiduous in exposing. In the main Budget debate, I highlighted some of the interest charges being made. A report by Moneyfacts last August showed that the profit margins enjoyed by the banks on fixed-rate deals are the highest since 1988, and that the average interest rate on personal loans was 12.6%, which at 12.1% over the base rate is an all-time high. So far, the threat of the levy has done absolutely nothing to change banks’ behaviour in any aspect, whether remuneration, bonuses or lending. We are in danger of allowing the banks not merely to return to business as normal, but to get even worse. Even those in public ownership are out of public control. I find that extraordinary.

The review must take place in the context of other attempts, such as the Basel discussions, to restrain or control banks’ behaviour. Basel II seems to let the banks off the hook on a range of issues, from remuneration to capital ratios. The levy is meant to come in the context of the reforms the Government are engaging in nationally and internationally, but the Financial Times reported today that discussions about global standards on bank lending risks are not moving towards an agreement, so now we are not even moving forward in capital ratio discussions.

We need to consider the levy in the context of the banks’ role overall and the anger in our wider communities. Many believe—rightly—that the banks played the key role in creating the recession, and now, if we are not careful, by not lending or engaging in economic growth, they will play a role if not in tipping the economy into a double-dip recession, at least in leaving the economy to scrape along the bottom of economic activity. I have referred before to the words of Graham Turner, from the Left Economics Advisory Panel. He works in the City and is an expert on what happened in Japan. We face the prospect of a long, low-level, depressed, deflationary spiral if we do not use the levy to stimulate the banks into playing a responsible role within our economy.

We will come out of recession only through an astute mix of fiscal and monetary policy. In the 1930s—this is the whole point about Keynes—it was about not just deficit funding and quantitative easing, but more importantly banking reform. Banking reform is one element of the strategy that any Government must adopt to take us out of recession, and the banking levy is one of the few tools and weapons at our disposal that can force through banking reform. So far, the threat of the banking levy has failed to engage even those banks that are in public ownership in a proper discussion about banking reform and the role that they will have to play in tackling the recession and encouraging economic activity.

19:59

I urge the Government and all parties to accept the amendment. All it does is seek a review, so that we can come back to this place—the amendment says in December; I would welcome doing it earlier—having reviewed the banking levy’s effectiveness. I do not understand why that is difficult for the Government to accept. At that stage, if we find that the banks are continuing to ignore the Government’s exhortations and to ignore the levy as a means of encouraging them to engage in constructive activity in our economy, we can adjust the policy. We can then use it as a proper lever to encourage new banking practices, increase transparency and accountability in the banking sector and get the regulation for which everybody across all parties is now clamouring, but which in the past has been ignored.

I support the amendment because it could be the start of a valuable process of engaging realistically with banking regulation in this country. I also support it because if the banking levy proves to be ineffective and we do not review it and make it effective, if the bonuses are let rip again next Christmas but lending is not happening and the bankers and the banks are not playing their full role in tackling our recession, the anger among our constituents will be immense, especially if they are on the dole or are facing cuts, or if their communities are facing severe deprivation. That anger will also fall upon our heads for failing to act by simply having a review to ensure that we have the right mechanism to tackle the banks and the recession.

[Mr Kevan Jones]

It is a pleasure to follow my hon. Friend the Member for Hayes and Harlington (John McDonnell), who summed up the anger that is still out there among many of our constituents, who do not understand why neither of the parties that now form this push-me, pull-you coalition is following through on their rhetoric in the general election.

I support the amendment, which stands in the name of my right hon. Friend the Member for Delyn (Mr Hanson) and those of my hon. Friends the Members for Bristol East (Kerry McCarthy), for Wallasey (Ms Eagle) and for Nottingham East (Chris Leslie). The amendment addresses clause 72 and schedule 19, which deal with the bank levy. The explanatory notes say:

“Clause 72 and Schedule 19 impose a new tax”—

the point that my hon. Friend the Member for Hayes and Harlington emphasised—

“the bank levy, which applies in relation to periods of account ending on or after 1 January 2011. The Schedule identifies who will be liable to pay the tax and how the tax is to be administered.”

The complexities have been referred to, some of which I will cover later.

I have already referred to the rhetoric that we heard in the lead-up to the general election. My hon. Friend the Member for Ealing North (Stephen Pound) has referred to the hobby of bashing bankers, which was certainly the sport of the day for the future Prime Minister and the Deputy Prime Minister. In every TV studio that we saw them in, they talked about who would be tougher on the bankers, arguing that if they were elected, they would be as tough as possible on the bankers—who, as everyone recognised, got us into the mess whose economic consequences this country and our constituents are now facing.

[Mrs Jenny Chapman (Darlington) (Lab)]

This is not just about banker bashing, as my hon. Friend will know; this is about an opportunity cost, particularly in regions such as ours in the north-east. My constituency did not succeed in securing any grants from the regional growth fund. It is that lack of opportunity, too, that makes people so angry.

[Mr Jones]

It does, and my hon. Friend makes a good point. The rhetoric from Conservative central office, now joined by the Liberal Democrats, is that we are in this economic mess because of the recklessness of the Labour Government, somehow forgetting both the international economic climate and the effects of the irresponsible lending by banks, on which the levy will now be imposed. My hon. Friend is quite right: I know that her constituency is facing a tough time at the moment, and not just in the public sector. A number of private sector companies are closing in Darlington as a direct result of the fiscal straitjacket that this coalition Government have put on the north-east region. Before the election the Prime Minister said that there would be a “day of reckoning” for bankers, but if this is a “day of reckoning”—[Interruption.]

[Stephen Pound]

Does my hon. Friend agree that we seem to have had an example today of the Sage of Twickenham being seduced by the subtle, perfumed blandishments of the banking industry? Might this not be time for us to say, “We’ve had enough of ‘Double Your Money’ and ‘Who Wants to Be a Millionaire?’ Let’s go for ‘Call My Bluff’”?

[Mr Jones]

That is exactly what the electorate will be doing: calling the bluff of this Government and asking whether they will live up to the promises that they made. Indeed, it is interesting that when I mentioned the Prime Minister’s “day of reckoning”, someone on the Government Benches said that it would be a bank holiday. If I was a banker, that is exactly what I would think this weak banking levy and these weak banking regulations were delivering.

The Deputy Prime Minister even joined in on the act, saying on Radio Sheffield that he wanted to

“wring the neck of these wretched people”.

I am not sure whether he was referring to the Conservatives or the bankers—or, after Thursday, some of his Cabinet colleagues, when the AV referendum delivers a no vote, which is how I recommend everyone should vote on Thursday. Despite all the overblown rhetoric, we have seen no action to follow it through. As was said earlier, many of our constituents cannot understand why, if we were going to tax the bankers through this levy—and thereby control their reckless behaviour, as my hon. Friend the Member for Hayes and Harlington said—they seem to have completely ignored it.

We need to consider that when thinking about the appearance of the head of Barclays before the Treasury Committee, when he said,

“there was a period of remorse and apology for banks.”

I am sure that many of our constituents are very grateful for that. However, he continued:

“I think that period needs to be over”.

It might be over for him, but it is not over for many of our constituents, including those running small businesses who are struggling to get loans from banks. He went on:

“we need our banks willing to take risks…so…we can create jobs”.

Well, lending money to those businesses would be a start. Another starting point for doing that might also be Barclay’s five top bankers. They have just received bonuses of £110 million, which does not—

[Stephen Pound]

Each?

[Mr Jones]

No—not yet.

Those bonuses do not reflect the behaviour of bankers who have been responsible in their lending.

[Andrew Gwynne]

My hon. Friend makes an excellent point. Does he understand the dismay of those from small and medium-sized companies in Denton and Reddish who come to see me? They would not mind their banks being a bit more generous in their lending now and then. They cannot even get a decent proposal through their local banks for funding to expand their businesses. These are not risks; they are sound business proposals that would generate jobs in my constituency. No doubt the same happens in my hon. Friend’s constituency, too.

[Mr Jones]

My hon. Friend makes a good point. Those examples can be seen up and down the country.

Given the amounts of money that some of the directors of Barclays are being paid, they could lend money to those small businesses themselves. The two highest-paid managers, Jerry del Missier and Rich Ricci—great name!— were handed more than £40 million each after share deals awarded over the previous five years. Bob Diamond, the chief executive, took the helm in January this year and, in that period of remorse, has received £27 million, including £6.5 million in bonuses for 2010 and £2.525 million awarded in shares, which could be paid out in the future. The share deal for the past five years paid out £40 million, and the one for 2007 paid out £5 million.

We know about those amounts because of the Government’s great deal under Project Merlin to force banks to expose what their directors are being paid. If that was supposed to act as a threat to them, they seem to be ignoring us and doing it all anyway. They seem to have very tough hides, because rather than being remorseful for the mess that they got us into, they are still taking the money.

[Ben Gummer (Ipswich) (Con)]

The hon. Gentleman is speaking of remorse. He was one of the more eminent members of the previous Government; is he remorseful about the pay-off given to Sir Fred Goodwin, who broke the Royal Bank of Scotland and who was given a knighthood by the previous Government and was a member of the council of “wise men” who advised the previous Chancellor of the Exchequer and Prime Minister?

[Mr Jones]

I had only a small walk-on part in the previous Government. However, when asked whether we can justify some of the bonuses that were paid, I would say no, we cannot. I agree with the hon. Gentleman about that.

When our constituents vote this Thursday, they should be aware of the lack of Conservative and Liberal Democrat Members present for this debate today. I note, however, that the hon. Member for Bristol West (Stephen Williams), who speaks for the Liberal Democrats on finance, has referred to the Barclays bankers’ pay deal as “obscene”. As part of the coalition, the Liberal Democrats need to speak out loudly to ensure that something is done about the bonuses.

The levy is supposed to curb behaviour, but I agree with the hon. Member for Ipswich (Ben Gummer) that the greatest scandal is the bankers’ bonuses being paid by banks controlled mainly by the Government. For example, the Royal Bank of Scotland is 87% owned by ourselves as taxpayers, yet more than 100 of its bankers were paid a bonus of more than £1 million last year, totalling more than £1 billion. We are talking about the bank levy raising more than £2 billion a year, but the banks are paying out £1 billion in bonuses. That raises the question of whether the levy is high enough. If it is not going to change the behaviour of the banks it clearly is not high enough, and we should look in greater detail at the idea of raising the levy.

We have heard a lot of rhetoric on the regulation of the banks, but we have seen very little action. The bankers’ bonus tax raised £3.5 billion for the taxpayer, but the levy that we are now discussing will raise only just over £2 billion a year. The new levy will add about £800 million to that. The banks have got off pretty lightly. In addition, as my hon. Friend the Member for Nottingham East said earlier, they will gain about £100 million from the reduction in corporation tax from 28% to 24%.

The danger that was threatened by the banking sector to Labour when we were in power, and is still threatened today, is that if we do not allow these large bonuses to be paid, or if we charge the banks too high a levy, they will move offshore or elsewhere. The example of Sweden has been mentioned as the only example of that, however. I have looked into whether the lack of such bankers’ bonuses elsewhere affects where people live. An interesting survey has been carried out by eFinancialCareers, which looked at 2,511 bankers, 654 of whom were in the UK. It showed that bonuses rose by about 5% in this country, whereas in the United States they decreased by the same amount.

20:15

Another issue of concern to many of us is the fact that banks will increasingly come up with ways of paying bonuses other than in cash. We have already seen arrangements whereby 40% to 60% of bonuses can be paid through share options at a future date. It was pointed out earlier that some of those individuals could defer accepting their bonuses for several years, possibly until tax rates have gone down, or in order to use other mechanisms to avoid payment of tax.

If we are to follow through on the rhetoric, we need to ensure that the proposed levy is justifiable, as my hon. Friend the Member for Nottingham East said earlier. But what is wrong with the amendment? It is simply asking for something quite reasonable—that the Chancellor

“review the bank levy and publish a report”

on that levy. Such an analysis would also examine the thresholds involved. I would also be interested to hear from the Minister why the first £20 billion is exempt. Why was the figure of £20 billion chosen? That measure will take out quite a number of small institutions. It has been argued that it was set at that level to discourage larger banks, but it will also benefit those banks, which will avoid paying anything on the first £20 billion.

[Andrew Gwynne]

Why does my hon. Friend think that those on the Government Front Bench are so apprehensive about having a review of their own banking levy? Does he suspect, as I do, that the findings could show that it was not working?

[Mr Jones]

Yes, possibly. The Government are getting used to performing U-turns on a daily basis: and after Thursday, the reinvigorated Liberal Democrats might be able to force a change and get the levy increased.

[Stephen Pound]

Irony!

[Mr Jones]

Indeed.

We need time to see whether the system is working, and whether it is a way of increasing the money that we get from the banks. At the end of the day, the taxpayer has put huge amounts of public money—rightly, in my opinion—into supporting the banking system. I do not agree with the suggestion made by the right hon. Member for Wokingham (Mr Redwood) that we should have let the banks fail three years ago. If that had happened we would certainly have had a real problem, not only with Northern Rock but with a large number of other banks. That would have ruined the UK banking system, and there would have been international implications as well.

[Mr Anderson]

It is not only my hon. Friend who disagrees with the right hon. Member for Wokingham (Mr Redwood); the OECD disagreed with him as well, saying that the actions of the previous Government prevented the recession from turning into a depression.

[Mr Jones]

I agree with my hon. Friend. The Tory spin doctors forget that if we had followed the first reaction to the Northern Rock crisis from the then shadow Chancellor, the right hon. Member for Tatton (Mr Osborne), we would have let Northern Rock go, which would have had a knock-on effect on other banking systems and the recession would have turned into a depression. It is perhaps not fashionable to say it, but we should thank the Chancellor and the Prime Minister of the time for the decisions they took to ensure that that depression did not materialise.

[Jim Shannon (Strangford) (DUP)]

It is a pleasure to see my hon. Friend the Member for South Antrim (Dr McCrea) in the Chair. I understand that this is the first time a Northern Ireland MP has chaired a Committee of the whole House, which is particularly fitting on the 90th birthday of Northern Ireland’s formation as a state.

Does the hon. Member for North Durham (Mr Jones) agree that one thing that annoys people about the banks and their bonuses is that after the Government and taxpayer bailed them out, they went on to make excessive profits? Does he agree that some of those profits should be returned to the taxpayer and the Government to pay off the money spent bailing them out in the first place?

[Mr Jones]

I agree. I am sorry that I forgot to welcome Reverend McCrea to the Chair; it is a pleasure to serve under his chairmanship. The hon. Gentleman makes a good point. It was taxpayers’ money that rightly bailed out the banks; if they are making excessive profits now, which clearly they are, the banking levy would allow some payback.

If the Government are feeling timid and do not want to upset the banking sector, the amendment provides them with an obvious get-out by making it clear that there is a review at the end of the year that would enable us to see whether the levy was having a detrimental effect. Evidence to date suggests that the £3.5 billion that the bonus tax took out of the banking sector has not damaged the banking system in any way, shape or form. The public expenditure effects, however—they will affect my region and also the area that the hon. Member for Strangford (Jim Shannon) represents—are going to be absolutely devastating.

[Ian Mearns]

I wonder whether my hon. Friend would reflect on the view of many of my constituents, who feel that the Government’s reticence in tackling the bonus culture or in tackling the banks in any tangible way has much to do with the number of Members sitting on the Government Benches who have an employment history within the banking sector?

[Mr Jones]

My hon. Friend brings me on to a new relevant area, because he shows how the banking and financial sector are able to influence the debate. The previous Labour Government as well as this Government might have been somewhat in awe of the threats made by the banking sector—for example, to move offshore, with a consequent effect on jobs, if too much regulation is imposed. It might just be coincidental, but since the right hon. Member for Witney (Mr Cameron) became Leader of the Opposition, donations to the Conservative party have increased, and about 50% of them come from the City and the financial sector, including some donations of £500,000 from four or five key individuals, including from Finsbury and Pelham PR, whose job it is to persuade politicians and other decision makers of the importance of, and the need for, the banking sector. As I say, it could be completely coincidental that the Tory party gets large amounts of money from this sector, but one could draw the conclusion that this is one of the reasons this Government have taken such a light-touch approach to regulation of the banking and finance sector.

[Hugh Bayley]

I wanted to follow up the intervention of my hon. Friend the Member for Blaydon (Mr Anderson). It was not only the OECD that praised the London summit, which got the leaders of the western world to work together through fiscal stimulus to avoid recession. I remember going to the IMF in spring 2009 and what it described as “the Brown plan” was, it said, the only thing that stood between a global financial meltdown and getting the world economy back on a level footing. Does my hon. Friend share my concern and dismay at the Prime Minister saying that he would not support the former Prime Minister if he decided to run for the job of managing director of the IMF? Surely the best way to test the Prime Minister’s thesis about whether the former Prime Minister’s leadership was good or not is to allow him to run and see whether other countries support his candidature.

[Mr Jones]

I would not want to stray too far down that avenue, but it does say something about the pettiness and smallness of our present Prime Minister, whereas the previous incumbent is not only respected in financial circles but has proven ability to do the job. Pettiness is one aspect of this Government but another part of their mantra is that they must sound tough. They won an election by sounding tough, but they have not followed it through when it comes to banking regulation.

The right hon. Member for Wokingham spoke about banking regulation. He is no longer in his place, but he used a wonderful phrase about his being in favour not of less regulation, but of “better and less regulation”. My hon. Friend the Member for Wansbeck (Ian Lavery) touched on whether the previous Government should have regulated the banking sector more. In hindsight, I think yes, they should. I think we all accept that; it is not an admission of failure to concede that. We also need to remember who else at the time was arguing, along with the right hon. Member for Wokingham, for less regulation and less red tape in all areas, including banking. The answer is, the Conservative Front-Bench team—those same Conservative Front Benchers who were arguing for the same spending levels that we had right up to 2007, although that seems to have been forgotten about in the revisionist history that has developed since they gained power with the Liberal Democrats last May.

The Government’s bank levy is estimated to bring in £2.5 billion a year—less than Labour’s bank bonus measures, which according to the Office for Budget Responsibility brought in £3.5 billion. We should not forget that the cut in corporation tax in 2011-12 will give the banks £100 million in tax relief, but that at the same time local government is being asked to make cuts. My own county council, for example, is going to lose 40% of its budget—£125 million—over the next four years as a result of the unnecessary austerity measure proposed by this coalition Government.

[Mrs Mary Glindon (North Tyneside) (Lab)]

On a day when a leading economist has said that affordable income is falling by 2% and that the average family will be worse off by £780, it falls on the Government to support this amendment and show some care for the people who are working so hard out there and suffering while the banks are simply laughing all the way to the bank!

[Mr Jones]

My hon. Friend makes a very good point. One of this Government’s favourite soundbites is that “We are all in it together”, but it is quite clear that we are not all in it together. When bankers are claiming bonuses such as the ones we know certain individuals have got, it is just mind boggling to think about what could be done with the money.

[Mr Ward]

It is useful to have on record your opposition to the reduction in corporation tax, which will enable the companies concerned to employ many of the people about whom you have been talking. However, what really interests me is why, when the Government are monitoring every single day the repayment of loans to the banks, the effect of the tax levy and its adequacy, banks’ lending to businesses—which was mentioned by the hon. Member for Denton and Reddish (Andrew Gwynne), who is sitting next to you—and the strengthening of the banks’ balance sheets, you are prepared to wait—

[The Temporary Chairman (Dr William McCrea)]

Order. Let me draw the hon. Gentleman’s attention to the fact that “you” refers to the Chair, and that I am not participating in the debate.

[Mr Ward]

I apologise, Dr McCrea. I should like to know why the hon. Member for North Durham (Mr Jones) is prepared to wait seven or eight months for a review of something that the Government are doing every single day.

20:30

[Mr Jones]

Given the hon. Gentleman’s interventions, I am pleased that he will be here for only one term. It is simply not worth responding to some of them. I should have more respect for him if he asked—

[Mr Ward]

Answer the question.

[Mr Jones]

I would answer the question if it were not so stupid. If the hon. Gentleman believes that the review would be delayed for too long, why does he not table an amendment demanding that it be produced immediately? I am happy to give way to him if he wishes to intervene again.

[Mr Ward]

If you are interested—if the hon. Gentleman is interested—in any of this, he need only table some written parliamentary questions. He could obtain answers to all of them without amending the Bill. This is absolute nonsense. The hon. Gentleman is prepared to wait eight months for answers that he could obtain in response to a written question.

[Mr Jones]

If the hon. Gentleman believes that it is possible to obtain all the answers that he requires by means of parliamentary questions, that demonstrates his naivety. Having been in the House for nearly 10 years and having, as a Minister, spent many hours trying to avoid answering parliamentary questions, I can only say “Good luck” to him.

Let me quote from the amendment—

[Mr Ward]

I have read it.

[Mr Jones]

Then let me remind the hon. Gentleman what it says. It refers to

“the Government’s analysis behind the rate and threshold chosen for the bank levy”—

we have not yet been given that analysis, a point made by my hon. Friend the Member for Nottingham East—and to

“the adequacy of the bank levy in the context of other reforms to the wider banking system”.

We have heard a good many statements on bank regulation and on how the bankers can be made to lend more responsibly, but if the hon. Gentleman thinks that he can obtain the information that he requires by means of parliamentary questions, he is a better man than I am.

[Stephen Pound]

According to the current edition of Private Eye, when the hon. Member for Ipswich (Ben Gummer) enters a room, it lights up. No doubt my hon. Friend agrees with me that when the hon. Member for Bradford East (Mr Ward) enters a room, a tenebrous gloom seems to hang around his shoulders. May I adjure my hon. Friend to resist the temptation presented by the hon. Member for Bradford East, and say quite simply that if the hon. Gentleman thinks that December 2011 is too late, we will happily consider an amendment from him that would introduce the damned thing next week?

[Mr Jones]

I agree, but I not am sure that it would help much. Given that subsection (c) of the amendment refers to

“the total tax revenues expected from banks across all categories of taxation in each year from 2011-12 to 2016-17”,

I think that that would be very difficult to do. However, I look forward to seeing all the written questions tabled by the hon. Member for Bradford East (Mr Ward). I am sure that his coalition partners in the Treasury are longing to get hold of them. May I suggest that the hon. Gentleman table his questions on a Wednesday on a named-day basis? That usually messes up Ministers’ weekend boxes.

[Stephen Pound]

He should not table them after 3 pm.

[Mr Jones]

No, because otherwise some Ministers might not get them in their weekend boxes. Anyway, it is nonsense to say that the information could be obtained in that way.

[Mr Ward]

Will the hon. Gentleman give way?

[Mr Jones]

With pleasure.

[Mr Ward]

Is the hon. Gentleman really not aware of the in-depth investigation conducted by the Business, Innovation and Skills Committee of the role of the banks and the contribution that they need to make to the economy?

[Mr Jones]

I am, but that is part of the scrutiny process, and so is this. If the hon. Gentleman is so interested in the banking levy and the effects of the Bill on his constituents, why does he not speak? At one point he was alone on the Liberal Democrat Benches. The Government Benches have been fairly deserted this evening: the poop deck of the Mary Celeste may have had more life in it. Members who support the proposal in the Bill should at least turn up to argue in favour of it. No doubt we will be receiving “Focus” leaflets from the Liberal Democrats—although after Thursday they may be called something different—describing how tough they have been in regulating the banking system, but it is clear that they have not.

The hon. Gentleman has until late tonight, and tomorrow, in which to contribute to the debate so that he can reproduce his contribution in his “Focus” leaflets ad nauseam, which I know the Liberal Democrats love doing. People will be able to learn about how he stood up for them against the bankers rather than just listening to the hollow words and rhetoric of the Prime Minister and the Deputy Prime Minister in the run-up to the general election. The beauty of being in government is that politicians can actually do things. I know it has come as a big shock to many Liberal Democrats that they are in a position of responsibility whereby they can actually affect the lives of ordinary people. [Interruption.] Yes, responsibility without influence, as my hon. Friend the Member for Gateshead (Ian Mearns) says from a sedentary position. As the Liberal Democrats are in government, they can follow through and make sure that the Bill deals with the people who were responsible for getting us into this mess three years ago. They also have an opportunity to tackle the excessive profits. I do not know what the average salary is in Bradford, but I am sure that £1 million is a lot of money to the people there. I know that in 1914, prior to the first world war, Bradford won the competition for being the place where the most Silver Ghosts were sold, because it was a rich mill town back then; I learned that from the predecessor of the hon. Member for Bradford East when I was working for him in a by-election many years ago. I doubt whether many Rolls-Royces are sold in Bradford nowadays, however, and the hon. Gentleman’s constituents can only dream of some of the bonuses he is supporting this afternoon.

[Andrew Gwynne]

Will not such a review serve to make it clear that many of the commitments made by the Liberal Democrats in opposition have not been implemented—and, indeed, have not even made it off the drawing board to become Government policy?

[Mr Jones]

Yes. I do not particularly like giving opportunities to Liberal Democrats, but it would give them an opportunity to show that they have the teeth that the Liberal Democrat Cabinet Ministers claim they have got in this coalition, because they would be able to say to the Conservative part of the coalition that they want change—that they want, for example, to increase the levy or to make sure that the huge bonuses being paid are taxed in a different way, or to bring in regulation. Let us be honest about this, however: most Liberal Democrat Ministers have not got sharp teeth—unless they have been to the dentist in the last few weeks. In the next few days we will see the beginning of the demise of the Liberal Democrats, and, as it were, the extraction of their teeth. It will certainly be interesting to see how sharp their teeth are after Thursday.

The current Government’s bank levy should take the same amount as the Labour Government’s bank bonus measure raised, which was £3.5 billion.

[Mr Ward]

As repeating the same point time and again is not a problem in this Chamber, I will do what everybody else here does and repeat myself: £3.5 billion is a lot less than £10 billion, which will be the amount generated—£2.5 billion times four years—so to talk about it as a reduction is just silly.

[Mr Jones]

This is becoming a bit like bashing Bambi to death. The fact of the matter is that the hon. Gentleman is either being very obtuse or something else that I will not say. We are talking about £3.5 billion for each year, which would add up to more than what is being proposed. We are talking about four times £3.5 billion.

[Mr Robinson]

Which is £14 billion.

[Mr Jones]

Yes, £14 billion.

[Mr Ward]

rose—

[Mr Jones]

Yes, the hon. Gentleman can intervene again if he does not quite understand.

[Mr Ward]

The amount levied by the previous Government was stated very clearly to be a one-off that could not be repeated. Everybody knows that, so why cannot the hon. Gentleman admit it?

[Mr Jones]

That is because I have said that we should do it again. I am sorry if the hon. Gentleman does not get that. He might say that it is a one-off deal, but perhaps it is a bit like one of those once and only, one-off sales that we see on television that furniture companies have every other week. I am proposing that we repeat the levy and raise that £3.5 billion again. Does he get it now?

[Mr Ward]

Yes, I do get it. I see not only Bambi before me, but the ice that the hon. Gentleman is stood on.

[Mr Jones]

That was too subtle for me.

The important point was made by my hon. Friend the Member for Nottingham East when he talked about what we would do with this money. As my hon. Friend the Member for Hayes and Harlington said, if the levy is seen as a tax, it is a pretty meagre tax on the banks, as it raises a small amount of money. However, the question is still about what we then do with the money. We could put it into rebuilding the economy by investing in housing and the regional economy, as has been said. The Government have allocated £1.4 billion over the next three years to projects, which is two thirds less than the £1.4 billion that the previous Labour Government invested in regional development agencies per year. In regions such as mine, the north-east, companies and individuals have to bid for that money. A banking levy could come in very useful for the investment that is being put forward.

The problem with the Conservatives—the Liberal Democrats have gone along with this—is that they have this notion of “Public sector bad, private sector good.” What they have failed to realise in regions such as the north-east is that large-scale public expenditure cuts have a huge knock-on effect on the private sector. The unemployment level is already 10.2% in the north-east, whereas it was as low as 4% under the previous Labour Government. Durham university has done a study suggesting that if 45,000 to 50,000 public sector jobs in the north-east are cut, 20,000 jobs will actually go from the private sector. Regions such as mine had no responsibility for the mess, but those responsible for it could pay for some of that reinvestment and that could be done through the banking levy.

[Ian Mearns]

The point that my hon. Friend is making about the north-east economy is appropriate. Clearly the job cuts in the public sector have not yet hit the employment market, yet the statistics for last month showed that although there had been a national decrease in unemployment of 17,000, it had increased by 11,000 in the north-east, which has a population of only 2.5 million. That is happening even before the job cuts hit the market, so the situation up there is very serious indeed.

[Mr Jones]

It is very serious. What my hon. Friend describes will have an effect on the private sector and on what has already been seen in the banks. The Government have set great store by making sure that banks lend to small businesses. That was one of the things talked about at the general election by both the Conservatives and the Liberal Democrats, but we have seen little evidence of it actually happening. As I said, it will be painful for many small businesses, particularly those in the north-east, when they see the amount of bonuses being paid to bankers and find that when they ask those same banks for investment they are told that either it is not available or that the terms on which it is available involve such horrendous rates of return. As my hon. Friend the Member for Wansbeck (Ian Lavery) has said, the same may also be true of personal finance, whereby certain individuals who would in the past have got access to credit will no longer be able to do so.

[Hugh Bayley]

It is not just that banks are still not providing finance for small and medium-sized businesses. Under the Labour Government, we had support through the regional development agencies—Yorkshire Forward in Yorkshire—to help businesses with the Government loan guarantee schemes, and in my constituency that secured a very important investment for a packaging factory. The RDAs are now being done away with and so there is not that support from the Government to get the banks lending.

20:45

[Mr Jones]

That is right. My hon. Friend might have examples from his constituency—I certainly did—of the RDA underwriting small business loans for small companies when the banks, particularly Barclays and others, suddenly withdrew the finance. One company came to me that wanted a £1 million overdraft for six months to get some investment and the RDA helpfully underwrote that to allow the investment to go forward and create in the region of 25 new jobs. That is the important point about the relationship between the banking system and the regions.

[Mr Robinson]

Before my hon. Friend leaves this point, I would hate for the Government not to realise the impact that their refusal to have this levy or even a review of it is having not only in the north-east and the north but in the west midlands—the area from where the Government are apparently looking for the big revival in the private sector and manufacturing to come. Advantage West Midlands, the RDA, has had its funds cut by no less than 70% and schemes that were going to have the go-ahead, triggered either by a guarantee or seedcorn funding, will simply be stopped. The resurgence in manufacturing and of the economy as a whole will certainly not come from the west midlands, where the level of activity is below the national average and where the level of unemployment is above it.

[Mr Jones]

My hon. Friend makes a good point. That small seedcorn funding made all the difference for small companies as they established themselves and grew. The problem we have in the north-east—I am not sure whether things are the same in my hon. Friend’s region—is the lack of confidence in the regional economy for the reasons mentioned by my hon. Friend the Member for Gateshead. The uncertainty about what will happen in the next few months as the public sector job cuts work their way through the economy means that there is no appetite to invest in small businesses. A few weeks ago, I was talking to someone from a small building company who relied for part of his turnover on school building contracts with the local council, which had suddenly been stopped, so the money is not available and people will have to be laid off. We have not yet seen the effects of such decisions.

If we add to that the fact that banks are not lending and are going to carry on in their own way, those involved with small businesses end up wondering why decent hard-working people like them who, in many cases, have built up businesses over many years are suddenly through no fault of their own having either to lay people off or to fold the businesses completely. These are family businesses which have been going for many years, and people see individuals getting bonuses that involve amounts of money of which they can only dream and which are equivalent to the turnover for their companies over two or three years, never mind one year.

[Stephen Pound]

My hon. Friend has teased out a very important element of the amendment. In Northern Ireland, the public sector accounts for approximately 74% of all economic activity and for perfectly sound and understandable reasons the private sector has not been able to generate economic activity. I implore my hon. Friend, following on from his points, to take on board the reality of the situation: a reduction in expenditure could have a disastrous effect, especially in Northern Ireland.

[Mr Jones]

I agree. I spoke in the last Budget debate about the effects of the public expenditure cuts on the north-east and our dependence on public sector jobs is very similar to, if not as high as, Northern Ireland’s. This is another example of the nonsense that is being put about that suggests that if those jobs and that money are taken out of the economy we can somehow replace them overnight with private sector jobs. Those jobs are not just there; they are linked directly to public expenditure. If we also have a situation in which banks are not lending and companies are fearful of borrowing because they fear what the economy will bring in future, one can understand how we can get into a downward spiral. As I have said before, I fear that we could have a recovery that bobs along the bottom, as my hon. Friend the Member for Hayes and Harlington has described. We could end up with a two-speed Britain with a boom in the south-east economy—possibly again drunk on the excesses of the financial markets—while regions in the north-east, Northern Ireland and elsewhere struggle and do not get a look in when it comes to the growth that is expected on the back of the huge numbers of jobs that the Government say will be created.

The bank levy is a missed opportunity and I do not think the amendment is at all radical. It is quite modest to ask for a review of the situation; the Government will have to review the levy sooner or later anyway. Political expediency will lead them to do so when it starts to dawn on people that, despite the rhetoric of the election, the Government are not being tough on bankers at all but are letting them off—and many people will ask why. I believe that in the past five years, since the Prime Minister became its leader, the Conservative party has accepted about 50% of its donations from the financial sector; that prompts questions about why it is not taking a tougher and more robust stance against the financial sector.

Let me conclude with a few questions that I think the Minister needs to answer. My hon. Friend the Member for Nottingham East raised the issue of the tax-free allowance of £20 billion. The explanatory notes on clause 72 and schedule 19 state:

“Paragraph 6 sets out the steps to be followed in order to ascertain the amount of the bank levy. The steps show how the allowance of £20 billion is to be applied and how the bank levy charge is calculated for long and short chargeable periods. Part 6 of the Schedule provides details of how to identify the entity responsible for payment of the bank levy.”

I have asked why the figure is £20 billion and not £5 billion, £10 billion or £50 billion? [Interruption.] Hon. Members say “Higher!” but we have not heard any explanation why £20 billion was the figure arrived at. If we are not only to maximise the amount of money we get from the banking levy but be able to justify to our constituents how fair the measures are, we must be able to explain how that figure was arrived at.

[Mr Robinson]

Does my hon. Friend know why the Government set £2.5 billion as the absolute limit for the amount they wanted to raise from banks and made everything fit with that? Does it not all come down to the fact that the Government have struck an awful deal with the banks? They have limited so much and got Merlin in return—and perhaps some other things to which my hon. Friend has referred but which I shall not go into now. They have tied themselves in knots, complications and contortions to deliver this deal and the banks have simply walked away from Merlin saying, “Thank you, very much.” Is not that the problem?

[Mr Jones]

My hon. Friend makes a clear point. I do not know which wag in the Treasury came up with the nickname Merlin for this project. Having dealt with the Treasury and Treasury Ministers I have never thought of them as having a sense of humour, but whoever came up with that name clearly had one. Again, my hon. Friend makes a good point. There is no explanation for the figure of £20 billion other than the yield that it is intended to produce. The Minister needs to provide the evidential basis for the £2.6 billion yield. If we levy, for example, £2.7 billion, £2.8 billion or £2.93 billion, at what point do the Barclays bankers pack their bags and move to Zurich? Would the entire system of bankers' bonuses fall apart if the figure were more than £2.6 billion?

I have raised the issue already, and I accept that international finance is a global business and can move, but in terms of bonuses, bankers are clearly not bothered about the £2.6 billion figure. May we see the evidential basis on which the figure was arrived at? What would be the effect if it were a little higher or lower than £2.6 billion? It is important that we know that.

[Mr Gregory Campbell (East Londonderry) (DUP)]

The hon. Gentleman makes an interesting point. The Government would be helpful to us if they clarified the figure that they think would be the tipping point. Would it be £3 billion, £4 billion or £5 billion? We want the banks to be profitable and to lend money to our constituents, but at what point would they move overseas? The Government have so far failed to tell us.

[Mr Jones]

The hon. Gentleman makes a good point. That is the acid test. The Government must explain why they set that figure. I am happy to listen to the evidence—even the evidence that the hon. Member for Bradford East could come up with. I do not think we are anywhere near the tipping point at which the entire banking system crashes, especially as Barclays and others are paying large bonuses. If we had a review and analysis, we could see how the figure was arrived at. Unfortunately, we are in the dark about that.

A further point is the progress that the Chancellor has made on tax activities. If we are to remain competitive internationally, is there an international tipping point across Europe in respect of bank levies and caps on bonuses?

The hon. Member for Bradford East seems to be dreaming if he thinks he will ever find himself in the Front-Bench team of the Liberal party or the coalition, but it is nice to see him sitting on the Government Front Bench.

Is work being done internationally to look at what other countries are doing? We need to study that in detail to see whether £3.5 billion would be too much. We need to achieve agreement across Europe.

The subject of Project Merlin has been raised. What leverage does the Treasury have over lending to SMEs? To what extent will the cost of the levy be passed on to customers of the commercial or private sector—in other words, to all of us who use banks? Will it become more difficult for SMEs to borrow money if bank charges are passed on? To explain Project Merlin, much more needs to be put forward. A review would enable us to look in detail not just at the bank levy, because we must remember that the amendment also relates to other areas of banking tax. That would also lead to the public having a lot more confidence in politicians actually following through on their rhetoric about being tough on bankers.

21:00

In conclusion, this is a missed opportunity. If we followed through on the rhetoric and showed that we were not only fair but tough on the banks, we would be able to stand in front of our constituents and say that we had stood up on their behalf to those responsible for the crisis that hit this country, which our constituents are all paying for today through the austerity affecting them, and that the mess we got into as a result of the crisis a few years ago will not be repeated. If they do not do that, the Government will have to review and change, because otherwise the electorate will do it for them. The Government will not be able to stand up and say that somehow they have been tough, that they have followed through on the rhetoric and, more importantly, that they have made sure that such a crisis will never happen again.

[Mr David Lammy (Tottenham) (Lab)]

It is a great pleasure to follow my hon. Friend the Member for North Durham (Mr Jones), whose eye for forensic detail and lucidity in these matters are second to none. He could not be described as brief, and on this occasion I intend to be a bit briefer. The amendment seeks a review of this proposal because, at its heart, this is about equity and fairness. You, Dr McCrea, understand better than anyone what fairness and equity mean.

There has been much talk about small business men. A small business man came to see me a month ago about the lack of finance from Barclays bank. It is true to say that even though we all have stories of small businesses that are unable to get loans, many constituents come and ask Members specifically not to contact their banks, because they are scared, frankly, that they will be cut loose and that the intervention of a Member of Parliament could make things worse. The fact that across the Chamber no party is suggesting that we have got back to a situation in which there is access to loans indicates that industry and small businesses in this country are in a very serious way.

That brings me to the other deceit, or conceit, that lies at the heart of what has been suggested. Much has been made of the manufacturing sector. Yes, it is hugely important, but it employs 4 million people or thereabouts, whereas 23 million are employed by the service sector, which is a depressed sector. That is perhaps why, alongside the public sector cuts we are now seeing, unemployment in Tottenham is the highest in London. The levy, set at the right amount and consistently reviewed, could have done something to ameliorate that.

It is about fairness and equity, and it is also about what the Government’s story on growth really is. Some of what we are hearing on how they see the levy and the box into which they want to put it, with the constraints of £2.5 billion only, can only mitigate the growth that we want to see in our constituencies.

The single mums who came to see me a few weeks ago because the after-school activity club is being cut for their young children and they are wondering how they are going to get back from work by half-past 3 to pick them up need to feel that bankers, too, are making a contribution. The elderly suffering from Alzheimer’s in one of my local residential homes, against a backdrop of three being closed because the local authority is being squeezed, need to feel and want to believe, because of the age they have reached and the contribution they have made to this country, having paid into the system, that the banking sector is also making a contribution that is fair. The many public sector workers who received their payslip for the last time just a few days ago also want to believe that bankers are making their contribution.

These people cannot understand why, despite the fact that growth in our economy is so sluggish, at barely 2% over the most recent period, City workers are taking home an increase of 7% on average. Why have 231 workers at Barclays bank managed to receive bonuses of £554 million between them? How is that possible, when the dividend for those who have shares in that bank was just over £600 million? That is a bonus culture that has not been checked, that has not been sorted out, and that feels brutally unfair.

When I was canvassing in Slough at the most recent general election, a 90-year-old said to me, “Love, you know what it is? The poorer you are, the more you give in this country.” That is how it feels at this point, when we have to come back to a subject on which really we ought to agree. We know that the banking sector led to this depressed economy, so why should it be let off the hook at this time?

When my hon. Friend the Member for North Durham asked, “Where did we get this £20 billion from?”, I asked the Minister to begin his contribution with the answer. Where did that £20 billion allowance come from? It is a staggering amount of money to slot in at the last minute so that the figure drops beneath the £3.9 billion mark which the industry itself originally predicted. Where did that money come from, and how did we secure the millions in tax relief for that sector? We owe a bigger contribution from the banking sector to the young people of this country, one in five of whom is currently unemployed.

This Government have led us to a situation in which the new arrangements for funding higher education are between the student solely and the university. They have taken the state entirely out of the picture, cutting teaching funding by 80% and abandoning arts and the humanities and any contribution to them. Effectively, with a proper banking levy they could have said that the state could stay involved. Industry, the other sector that benefits, could have made a contribution, too, but the banking sector is certainly somewhere where we could have started. The Government, however, turned their face against that, saying, “No, we’ll land the debt on our young people and let the very people who have led to their unemployment off the hook.”

I want to understand why the Minister has made that decision, and how we will get back to growth, given that young people are to be dealt with in that way.

[Mike Gapes]

My right hon. Friend asks why. Is it not clear why? This is a Government of millionaires and toffs, and they are in the pocket of the banksters. That is what it is all about.

[Mr Lammy]

My hon. Friend is exactly right.

The Government’s rhetoric prior to the general election about what they would do with the bankers, and about recklessness and bankers paying their dues, led some to believe that at least we could agree that bankers were responsible for the situation and that they should make a contribution—and a serious one at that, which we should constantly keep under review for obvious and clear reasons. As my hon. Friend the shadow Minister said, the amendment is incredibly tame: it simply asks for a review and says to the Minister, “Can you look at this again?” It seems reasonable to ask him to do so, given that the state of our economy could change between now and Christmas, but he has said no even to that. As other Members have suggested, that can only be because of the slightly peculiar relationship between the Conservatives and the many friends in the sector who bankrolled them. That is unfair, and it is not right, and the public know it. I suspect that on Thursday we will see that they have sensed this injustice in the balance of how we should deal with the difficulties that we face.

It is not the first time that we have had a debate in this House about how we deal with an economically depressed situation. There are those who believe that we should invest—in fact, reinvest. That is a Keynesian approach to growth from the same party that did not back away after the second world war, when this country was in rubble, but invested in the NHS. Then there is the party that says we should cut, and the cuts fall hardest on the poorest while those who can afford to make a bigger contribution get let off. Yes, there is a balanced argument as to why one would support a reduction in corporation tax: in order to see growth in the economy. However, when people set that tax reduction against this levy, which is minuscule relative to the huge sector that has brought us to this point, and then against the £20 billion tax relief that has come out of nowhere, of course they get suspicious. I hope that the Minister will explain why this proposal is fair to a young person who is one of the one in five who are unemployed, to someone who is experiencing their local authority cutting services that they desperately rely on, or to a public sector worker who has just received their last payslip because they have lost their job. Will he also explain how it gets us back to growth? If he is to let off this sector of all sectors, how are we to develop that growth strategy and generate the funds for the investment that we need to stimulate recovery?

The Chancellor of the Exchequer said that we must move from retribution to recovery. That is an interesting play on words. What most Labour Members want is not retribution but reciprocity—a bit of give and take, and something that is fair and honourable. I have to say to the Minister that this proposal is deeply dishonourable, unfair and wrong, and he should come to the Dispatch Box and explain why the simplest of reviews is not possible on this occasion.

21:15

[Mr Love]

I congratulate my next-door neighbour and right hon. Friend the Member for Tottenham (Mr Lammy) on a very competent speech.

It will not come as a surprise to those in the Chamber that I support the amendment. I support it primarily because there is so much public interest in and concern about bankers’ bonuses and the contribution being made by bankers when we are all supposed to be pulling our weight. I also support it for the reason given by the shadow Minister: a peculiarity of our system is that we cannot amend upwards any proposal in the Finance Bill, and the amendment offers an alternative way to look critically at the levy by proposing a review, which is not unreasonable. By December, we should have some idea of how it is working.

The most important feature of the amendment, as discussed earlier, is that it asks for a report to be published that can be debated by this House. Because of the importance of the issues involved, that is critical. The report will include an account of how the rate and the threshold were decided. As we have watched the measure’s development over the past few months, we have started to have a sneaking suspicion that Ministers decided what amount of tax should be paid by the banks and then worked back to what the threshold and the rate should be. I will come back to that point later.

Much has been said by Opposition Members about the measure’s adequacy. It is right to say that it will not raise as much as the bank bonus tax did and it is felt widely, within the House and outside, that the levy does not reflect the contribution that bankers ought to make. That relates to new subsection (2)(c) in the amendment. I will come back to bankers’ bonuses, because they have an important implication for the contribution that bankers should make.

In what the Government propose, we are being asked to agree to a levy on UK banks and building societies and on the UK operations of foreign banks. It is estimated that it will affect between 30 and 40 institutions, covering all the largest financial services institutions in the City of London and throughout the country. That proposal seems reasonable, but it is important that it is reviewed to see whether it is appropriate.

The tax will be levied on what the Chancellor termed the wholesale funding of banks, which is the liabilities and equity minus a number of items that are considered safe, such as tier 1 capital and insured retail deposits. I think that we are being asked to agree that that will incentivise the use of prudent balance sheets, rather than risky balance sheets. Of course, the wholesale funding that the Chancellor talked about was a major cause of the difficulties in the credit crunch. We all remember the collateralised debt obligations and the exotic funding regimes, although I do not think that any of the major institutions are into any of that now. The proposal, which mirrors the proposal that was discussed internationally, is intended to incentivise our banks to hold safer liabilities than they held before.

Many Opposition Members have commented on the threshold of the tax, which has been set at £20 billion. I hope that the Minister will respond to the concern that that figure is far too high. The rate has been a moveable feast, and there have been many different rates and proposals. As was mentioned earlier, the Chancellor got up one morning—it just happened to be the day of Treasury questions—and announced another change. Changes have also been announced presumably because of corporation tax, and there has been concern that the rate may have been raised as a result of the failures of Project Merlin, which I will talk about later. We have had many different threshold rates, and I ask the Minister to clarify how we reached all those rates, where we are now and how much money the levy will raise. It is suggested that it will raise between £2.5 billion and £2.8 billion, which, as other Opposition Members have said, seems a very low figure in the present situation. I hope that he will respond to that concern.

What is the levy meant to achieve? Supposedly, it deals with a number of matters. First, numerous speakers have mentioned the implicit public subsidy that we provide to banks. The Bank of England has done some work and suggests that there is a £100 billion subsidy; others have suggested lower figures, but there is consensus that the figure is very substantial. If the bank levy will raise only one twentieth or one fortieth of that sum, that puts the matter in context.

To pick up on a point that the right hon. Member for Wokingham (Mr Redwood) made, the bank subsidies make life for new entrants to the marketplace—they are called challenger banks—very much more difficult, as they do not have any of those subsidies, reflecting the idea of banks being too important to fail. That notion should be the crux of our discussion about the financial services sector, because it raises the question of moral hazard: will banks that are too important to fail take riskier decisions, as happened in the lead-up to the credit crunch? I would like the Minister to explain how those issues relate to the levy. We understand that it will provide only part of the contribution that has to be made, but what contribution will that be?

I mentioned banks being incentivised to hold less risky liabilities. The reason for that is clear: if things go wrong, it is not just the financial services sector that is affected. Unlike other industries, in which problems affect other companies in the same industry, if the financial services sector hits difficulties, the whole economy is hit, as we found out to our great cost in 2007. It is critical that we reduce the possibility of that contagion happening in future.

We must deal with a number of issues peculiar to our financial services sector. Many believe that too much is concentrated in four or five very large banks and that as a result there is not sufficient competition. I will not go into the details of the Banking Commission’s report or the most recent Treasury Committee report, but those who have read them will know that both have strongly suggested that consumers do not have a great deal of choice in our banking system, that the banks are too concentrated and that it is very difficult for new banking companies to come into being. There is not sufficient competition and, by common consent, the cost is that banks make excessive profits. The levy should tax those profits. I would like the Minister to say whether he believes it will do that sufficiently.

To return to a point that I made a few moments ago, in the light of the subsidy given to the banks—£50 billion is one suggestion, £60 billion is another and the Bank of England says it is £100 billion—a levy of £2.5 billion, which is between a twentieth and a fortieth of that subsidy, does not seem to address the problem that we face. Why does the Minister believe that the measure answers the concern about the financial services sector?

I could be more generous and suggest that the Government are moving in the right direction. After all, all the changes in the rate of the banking levy have been increases—from 0.07%, to 0.075%, and for longer held assets, from 0.04% to 0.05%. I think I got those right, but I would be unsurprised if someone stood up and said, “You’re wrong. It’s changed,” or if I woke up tomorrow to find that the Chancellor had re-announced the rate. Those changes have raised the take from the levy by £200 million or £300 million, so that £2.5 billion will be raised in the first year. However, as I said at the start of my speech, given how the £20 billion threshold was constructed and the rate changes, we cannot escape the conclusion that the Government have set the overall amount that they wish to take and then gone back to work out the threshold and the rate. I should like the Minister to explain why that is not the case.

Of course, critically, at £2.5 billion or £2.8 billion, the levy does not raise as much as the bank bonus tax, so the suggestion—I put it no stronger than that—is that the banks are getting off lightly. The corporation tax reduction—corporation tax seems to have been constructed because the banks do not invest a great deal but have high turnover—and other changes could have been ideally designed for the banks. There is therefore a suspicion that banks are doing really rather well out of this year’s Budget. If that is not so, I should like the Minister to tell us why not.

There are many good reasons why the Minister should have been more draconian in introducing the levy. After all, as has been said by many hon. Members, when the coalition parties were in opposition, they told us that negotiations between the Government and the banking industry on proposals such as Project Merlin would produce certain results; on bonuses, however, the Government got absolutely nowhere. Statements were made about constructive negotiations, so it was embarrassing to find bankers telling us that there was no change.

Of course, still more critically, we were told that small businesses are the lifeblood of our economy—that mainly small businesses in the private sector would make a reality of the Government’s so-called strategy of getting the private sector to take up the slack created in the public sector. If they are to achieve that, they need to grow.

[Roberta Blackman-Woods (City of Durham) (Lab)]

May I draw my hon. Friend back to the use of the bank bonus tax to promote growth? We heard last week that the construction industry was struggling to come out of the recession. Of course, applying the bonus tax and giving it to the construction sector to, for example, build affordable homes, which are very much needed in my constituency and many others, would have helped to stimulate the economy.

[Mr Love]

I agree with my hon. Friend. Clearly, the sector of the economy that has lost out the most is construction. If the Government intend to contribute only the homes bonus and changes to the planning regulations to the construction industry—they are creating uncertainty up and down the country—I foresee a bleak future for the construction sector in the next two to three years. I urge the Government to consider that carefully. They say they have a growth strategy but they do not, and we are now suggesting one. It would repay them to listen to what people are saying and to address the inadequacies of their response, particularly in the construction sector.

21:30

I was speaking about lending to SMEs. The failure of Project Merlin is risible, and it is a sad reflection that all the Government could get from the banking industry was a gross figure of an additional £10 billion of lending. If, as someone said earlier, figures are to be released to show how things are developing and to ensure transparency, I suspect they will show that the banks are not coming up to par. However, I hope I am wrong, so I ask the Minister to reassure me on that.

The cut in corporation tax is another reason why the Government should have been firmer in how they introduced the bank bonus tax. I understand that the cut is worth £100 million a year. If there are now to be two reductions in corporation tax—the Budget includes a further 1% reduction—the cut will be worth £200 million, which seems to me a good reason why the Government should have been tougher. They are giving back in corporation tax, so they should have been tougher on the bank bonus tax.

There is confusion in the Government about what they are suggesting the financial services sector ought to do. On the one hand, we are asking banks to lend more, and on the other, we are asking them to hold more capital and, into the bargain, to pay more tax, as the right hon. Member for Wokingham said. That is not a coherent policy. Banks have to lend to keep the economy going, but they also need to increase their capital. One of the major advantages of the bank bonus tax was that it incentivised the retention of profits, which would have helped to build up banks’ capital base.

The real failure of tonight’s proposal, however, is that it does not live up to the Chancellor’s own expressed reason for its introduction. When pressed on the matter, he said that equity was the reason. He had to prove to the public that he was looking to get from the banks their contribution to the austerity measures that had to be introduced as a result of the banking sector’s failures. In my view and that of other Opposition Members, however, he clearly has not done that. Although we look forward to him agreeing to the review that will tell us whether he has done it, perhaps the Ministers could gives us some reassurance.

That brings me to the bank bonus tax. I would like to refer to an earlier intervention. If, as is likely, we pass the bank levy in its present form, despite the amendment, we simply will not raise enough money to do all the things the economy needs if it is not to bump along the bottom, as someone characterised it earlier. If we are not to bump along the bottom for the next few years, we need to do something. I commend the work done on the bank bonus tax and how it would have been used. That was a tax of 50% only on bonuses over £25,000, so it did not tax the smaller end of the bank bonus market. The particular merit of the bank bonus tax was that the bank paid, not the employee.

I mentioned earlier that the bank bonus tax raised £3.5 billion. Why did we introduce it? First, it should be noted that it had widespread support among the public, who felt that we were directly addressing bonuses and the bonus culture. Taxpayers kept saying, “Why have you guaranteed the banking sector and not any other part of the economy?” We in this House know why that was, but they needed a justification for it. One justification for that implicit guarantee was that we wanted to rescue the economy. We did not give that guarantee so that we could enrich bankers a year later. That was not the idea. We were doing everything we could to reflect public concern, as well as ensuring that the system was stable and that bankers paid their fair whack.

However, the bonus tax was described by the bankers—these are direct quotations—as “populist”, “political” and, believe it or not, “penal”. There were also threats to leave the country. We have been looking out for additional electoral registrations in Zurich, Paris and New York, and although there is a flow backwards and forwards, to and from those countries, the reality is that the bankers did not leave. They did not leave because the banking industry recognised that we made the correct and appropriate response, which I would commend to the Minister.

Finally—this comes back to the earlier intervention—let us look at what the Government have brought forward in what they call their growth zones. Enterprise zones? I mean, come on! As for the idea that they are an appropriate growth strategy, we need only look back at the experience of previous enterprise zones to know that creating jobs under such a regime is prohibitively expensive. The national insurance holiday is another centrepiece of what the Government said they wanted to do. However, although they will not release any concrete figures, it was already clear from an article in the Financial Times in January that, far from 400,000 businesses being helped over the four or five years of the policy, at that time only 1,500 had been helped.

[Mike Gapes]

My hon. Friend mentions the national insurance holiday for new businesses, but it discriminates against London and Londoners. Some of the poorest people in the poorest communities in the poorest boroughs in this country are in London, as are some of the areas with the highest unemployment, yet the national insurance holiday does not cover London, which he, as a London Member, knows as well as I do.

[Mr Love]

I thank my hon. Friend for that intervention. He is correct. When that legislation was passed, we argued that many parts of London had suffered tremendously from the credit crunch and were as deserving as—if not more deserving than—other parts of the country. However, that argument was not listened to. Perhaps the policy would be a little more successful if the Government had included London, along with all the other parts of the country.

The policy has clearly not been a success. The Government’s growth strategy is not producing growth. I would therefore like to suggest an alternative growth strategy, the merit of which is that it was beginning to bear fruit at the time of the general election.

I will pick out just a few areas at which the Government need to look carefully, while searching their conscience and trying to construct a positive growth strategy and address these concerns. First, youth unemployment is just about topping 1 million. One in five of our young people aged 16 to 24 are unemployed, and to focus on getting young people back into work, as we were trying to do before the general election, would pay dividends. We shall lose a whole generation if we do not address the youth unemployment problem, and that should be a priority for the Government.

[Mr Robinson]

The whole House will agree with my hon. Friend that youth unemployment is the single biggest threat on the unemployment front at the moment, at 20% and rising. Was not the cancellation of the future jobs fund a short-sighted, perverse reaction by the Government that could well result in a repeat of what happened in the 1980s—a whole generation being lost to the working population because of the rise in youth unemployment?

[Mr Love]

Yes, the future jobs fund was the very vehicle to provide a job, training or relevant work experience so that our kids did not have to sit on the sidelines without a future, getting demoralised and not being in a position to take up the job opportunities that will be available when the economy turns round. It is a dereliction of duty on the part of the Government not to address that issue.

[Nic Dakin]

My hon. Friend is giving a cogent and coherent analysis of the amendment before us. Does he not agree that the review suggested in the amendment represents a real opportunity to find the money needed to invest in young people and their job opportunities? It is not too late for the Government to address this error.

[Mr Love]

Absolutely. The merit of the amendment is that it would give Parliament, and particularly the Government, the opportunity to review the operation of the levy, as well as providing the banking sector with other opportunities to make a contribution to sorting out some of the deep-seated economic problems in our country. I hope that the Liberal Democrat part of the coalition will be sympathetic to our arguments and speak up where it matters, to try to get the Government to recognise that there is an alternative that would be good for the economy and good for our society.

A second issue is house construction. In my local authority area we have the fourth worst housing stress in the country. Things are difficult, and they are going to get significantly worse. I mentioned earlier the Government’s incoherent construction policy, with its homes bonus that is not a bonus, and its planning system that is so riddled with inconsistency and lack of certainty that major construction is now off the agenda. It is a system that allows local considerations to dominate and outweigh much-needed construction in different parts of the country. I can see only a bleak future for public and private housing construction—but our proposal provides one small, modest way in which the Government could improve the situation.

[Mrs Chapman]

Does my hon. Friend agree that it is not only the house builders who have a hard time when the construction industry suffers? In Darlington last week, we heard the announcement of the loss of almost 200 manufacturing jobs in a company that builds conservatories. Obviously, that is a difficult business to be in with the construction sector in its present state.

[Mr Love]

I agree entirely with my hon. Friend, and I hope that someone on the Government Front Bench is listening. These are urgent problems.

Let me mention two other brief points about a growth strategy. We do not have a Sheffield Forgemasters contributing to growth. I remind Government Members of that because a viable, well-thought-through and supportable project was put forward, yet it has still not received any funding—

21:45

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

Order. As we know, we are debating the bank levy. There has been some stretching of the debate already, and we are in danger of stretching it even further. We have had a good debate so far, and I am sure that the hon. Gentleman will want to keep to the amendment.

[Mr Love]

I bow to your advice, Mr Hoyle. I will conclude my remarks about the lack of a growth strategy by saying that as an optimist, I believe that it is never too late. I hope the Government will think carefully and recognise that the growth strategy they produced on paper simply does not respond to the real needs of the economy.

I finish where I started, by commending the amendment to the Government. It poses no threat to them; it simply seeks to review the bank levy system that they are introducing. They will know, because they have spent a great deal of time on this, just how important the public think the role of the banks in getting our economy sorted out is. After all, it is widely perceived that the banks were the main cause of the problem in the first place, so people are looking to them to help our economy in a meaningful way. For the reasons that I have stated, the amendment will address some of those issues and provide an opportunity to examine how the levy is working in December. I hope that it will provide us with an opportunity to straighten out and ensure that the levy really addresses the needs of our country.

[Mr Hoban]

Amendment 9 seeks to require a report into the effectiveness of the new bank levy, which is introduced in clause 72. I will come to the components of the amendment shortly, but I think it would help hon. Members if I first explained the role and features of the levy.

The levy is a new tax that will ensure that the banks fairly contribute to the Exchequer, while encouraging them to move to less risky forms of funding. This levy forms part of the Government’s far-reaching plans for banking reform. We have already announced an overhaul of financial regulation, marking a break from the light-touch regime championed by the shadow Chancellor when he was the City Minister. We have created an Independent Commission on Banking, which published its interim report last month and is due to publish its final report in September.

When Labour Members were in government, they refused to debate the structure of the banking sector. They were afraid of banking reform and they were afraid to understand and tackle the lessons from the financial crisis. This debate would have been better if one of them had had the courage to accept the failures of the previous Government on the regulation of the banking sector. Not one of them did so. I think this whole debate is a cover for their bluster. When we proposed in March last year to introduce a bank levy, on a unilateral basis if necessary, Labour Members were against it. The then Chancellor was against it and the present leader of the Labour party, who wrote the Labour manifesto, was against it, too. What we have heard today is a whole load of bluster, rhetoric and empty words about how we must tax the banking sector properly when Labour Members lacked the courage to champion these moves when they were in government. We have taken the lead on the issue, when they would have hung back and waited for international consensus and agreement. We have taken the lead, as I say, and France and Germany have joined us in announcing levies. Others have since followed, including Hungary, Austria and Portugal.

The hon. Member for Nottingham East (Chris Leslie) made great play of the various rates that other countries were introducing. Let me point out to him, then, that in France the levy is expected to raise only €500 million. In Germany, the levy is expected to raise €1 billion annually. The hon. Gentleman prayed in aid the US on two occasions, but the US has not yet introduced legislation, so his comments are empty—

[Chris Leslie]

Will the hon. Gentleman give way?

[Mr Hoban]

No, I am not going to give way. We have had quite a long debate already, and it is time we made some progress.

[Chris Leslie]

On a point of order, Mr Hoyle. I understood that this was a Committee stage, and that we were considering the Bill in detail. Is it usual practice for a Minister responding to a debate not at least to give way and allow a dialogue on the clause in question?

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

That is not a point of order. It is up to the Minister to decide whether to give way, and I am sure that he heard the cries for him to do so.

[Mr Hoban]

Subsection (2)(a) of the amendment requires a report on

“the Government’s analysis behind the rate and threshold chosen for the bank levy”.

It might help Opposition Members if I explained how we designed the levy, and why we set the rate and threshold as we did. The levy is intended to ensure that the banking sector makes a fair and substantial contribution, reflecting the risks that it poses to the financial system and the wider economy. It is intended to encourage banks to move away from risky funding models, and complements the wider regulatory agenda to improve standards and enhance financial stability. During the crisis, it became clear that some banks had become over-reliant on short-term funding for long-term lending. When financial markets seized up, those banks were exposed.

I must emphasise that the levy is based on the liabilities of a bank, not on its assets. It is based on the bank’s deposits, its share capital and loans made to it, not on loans made by it. It applies to the global balance sheets of UK banks, building societies and banking and building society groups, and to the UK operations of banks from other countries.

In determining the scope of the levy, we concluded that foreign banks operating in the UK also posed potential risks to the UK financial system and the wider economy, whether they operated as branches or as subsidiaries. It therefore follows that they should contribute on the same basis, and branches and subsidiaries of foreign banking groups are included to ensure that they cannot avoid the levy by group restructuring. That will ensure the provision of a level playing field for all banks operating in the UK.

The levy will be paid by between 30 and 40 building societies and banking groups, and we have made it clear that we expect it to yield about £2.5 billion of revenues each year in its steady state. That appropriate contribution balances fairness with competitiveness, and the rates of the levy were chosen to allow it. We initially announced that a reduced rate would apply for 2011, recognising the uncertain market conditions prevailing at the time, but we no longer consider that to be necessary.

In December the Bank of England noted that the near-term outlook and resilience of the UK banking sector had improved. Markets also now have greater certainty about the timing and direction of regulatory change, with the Basel III regulatory reforms being introduced in 2013 and transition periods being extended to 2015. We therefore decided that from 1 March this year, the full rate of the levy should be introduced for 2011. The levy will now yield £2.5 billion in that year. The steady state target yield was set out last year, when we also announced our intention to make significant cuts in the main rate of corporation tax.

[Chris Leslie]

rose—

[Mr Hoban]

I am going to continue my speech.

We were clear at that time, as we are now, that the bank levy yield far outweighs the benefits that banks receive from the corporation tax change. Other sectors will benefit from the reduction in corporation tax, but the banks will not benefit because of the levy. In the March Budget, the Chancellor went further in helping our economy to grow, and announced an additional 1p reduction in the main rate of corporation tax. At the same time, to offset the benefits to banks from that further cut and maintain the same incentives for them to move to less risky funding, we announced that the rate of the levy would increase from 1 January 2012, to 0.078%.

The threshold has prompted some discussion. The initial announcement on the bank levy last year proposed that it would include a threshold of £20 billion. However, as part of the subsequent consultation exercise, we explicitly sought views on whether it would be preferable to make it an allowance rather than an all-or-nothing threshold. A threshold would provide a cliff edge that banks would avoid by restructuring. Respondents to the consultation made that clear to us, and even suggested that banks, or indeed building societies, might avoid growing their UK operations to avoid the threshold and to avoid paying the levy. We accepted that argument, and have therefore decided that there should be an allowance on the first £20 billion of liabilities liable for the levy. That means that smaller banks, building societies and foreign banks with a small UK presence—that is, those whose liabilities are less than the £20 billion allowance—will not pay the levy.

The allowance will ensure that the levy is proportionate to the risks inherent in banking businesses of different sizes. It balances the probability that the failure of a bank could pose a systemic risk against the relative burden imposed in order to gather additional revenue at the margin. While size is not the sole factor in determining risk to the system, it is an important one. Increasing the allowance would risk excluding banks or building societies that are highly likely to pose a systemic risk if they fail. Similarly, setting the allowance at a lower level—which Opposition Members seem very keen on doing—would risk imposing an unnecessarily high burden on institutions that do not pose a systemic risk to the UK economy in the way that larger banking institutions do. These details, along with many others, have already been made public, and I am sure that the Opposition Members who tabled the amendment are aware of the steps the Government have taken to explain the basis of the decisions. All tax measures now have a tax information and impact note, which sets out clear information relating to the measure and its impact, and which has provided a significant amount of analysis on the levy so far. It is clear that there is no need for a report to provide an analysis of the rates and threshold of the bank levy.

Let me turn to the second element of the amendment.

[Mr Lammy]

rose—

[Mr Kevan Jones]

Will the Financial Secretary give way?

[Mr Hoban]

Let me make progress. The hon. Gentleman spoke for over an hour and I am responding to the speeches made in five hours of debate. I therefore think the hon. Gentleman should hear me out, after which I may consider taking interventions.

Let me turn to the second element of the amendment, on the adequacy of the levy in the context of other reforms to the wider banking sector.

[Mr Lammy]

On a point of order, Mr Hoyle. In Committee, when Ministers have not answered questions from Back Benchers, is it normal for them not even to give way? Surely the Financial Secretary could simply photocopy what he is reading out, and send that to all of us so we can go home?

[The Chairman]

That is not a point of order. It is up to the Minister to decide how he wishes to reply to the debate.

[Mr Hoban]

I think that is the best suggestion the right hon. Gentleman has so far made in this debate. I shall send a copy of my speech to all hon. Members who are interested in it, so they can then go home.

The levy is a permanent tax, and is part of our wider package of far-reaching reforms. It is designed to be consistent with global regulatory practices, drawing on proposals from the International Monetary Fund and reflecting emerging proposals from the Basel committee. Excessive risk taking in the financial sector was a significant contributory factor in the recent financial crisis. As I said earlier, the levy is intended to encourage banks to move away from riskier funding.

The levy should not be seen in isolation from other reforms to the banking system. Domestic, European and international banking reforms will change the landscape of banking. For example, Basel III will lead to higher capital levels, and its liquidity reforms will change the funding profiles of banks. There is a vigorous debate within the EU and the G20 about whether the holders of bank debt should be required to contribute to the recovery or resolution of banks, for example through the conversion of debt to equity. As I said earlier, we have established an independent commission on banking to consider structural and related non-structural reforms.

The hon. Member for Edmonton (Mr Love) raised issues to do with the implicit guarantee, to make sure the right reforms are in place so banks are not dependent on the guarantee from the taxpayer. We have tackled that issue, whereas when his party was in government, it failed to do so. I wish he would give us some credit for the action we have taken to reform the regulation of the banking system during the year in which this Government have been in office.

The final element of the report calls for information on the total tax revenues expected from banks in each year to 2016-17. We have been clear that we expect the levy to raise about £2.5 billion each year. We have also taken other steps to ensure that banks pay their fair share. The previous Government introduced the code of practice on taxation for banks, but they utterly failed to get banks to sign up to it. They talk tough now, but they failed when in government; only four of our leading 15 banks actually signed up to that code of practice when they were in office. By the end of November, however, all the top banks had signed up to the code, and by March 2011 some 200 banks had adopted it. We therefore need take no lessons from the Labour party about getting the banks to sign up to codes.

We are very clear that banks should make a contribution reflecting the risks they pose to the UK financial system and wider economy. While amendment 9 calls for a report, this Government are delivering action. We have already set out the reason for the rates chosen and the decision to set an allowance at £20 billion. We have been clear on how the bank levy fits with and complements our wider reform package and we have been clear that we expect revenues from banks to grow as the economy recovers. We have also secured agreement from the top banks on the tax revenues they expect to pay over the spending review period. We are raising more in this levy than the previous Government raised through their one-off bank payroll tax. Labour Members refused to introduce a bank levy when they were in government. We backed it where they have failed to act and I ask hon. Members to support the clause.

22:00

[Chris Leslie]

rose—

[The Parliamentary Secretary to the Treasury (Mr Patrick McLoughlin)]

claimed to move the closure (Standing Order No. 36).

[The Chairman]

Order. I think it would be of interest to the House to hear from the hon. Member for Nottingham East (Chris Leslie), and I am sure that he will not take too long.

[Chris Leslie]

Thank you, Mr Hoyle. The Chief Whip really needs to take a breath and perhaps calm down for a moment. [Interruption.] I did not quite put it in the way that the Prime Minister might.

The Financial Secretary to the Treasury usually does act honourably by trying to respond to the debate, and probably he secretly would have done so today. Our debate was wide ranging and we covered a number of specific points on the detailed design of the bank levy, with which he entirely refused to engage. He refused to give way in this Committee stage of the Finance Bill, which shows the Government’s thinly veiled contempt for the parliamentary process. No debate, no scrutiny and no contributions came from those on the Government Benches, other than the speech by the right hon. Member for Wokingham (Mr Redwood). They have accepted absolutely no challenge and no scrutiny. They have put their heads down and ploughed on—the Lansley strategy of policy making in action.

The Financial Secretary gave no explanation of why the Government set the banking levy at this puny £2.6 billion or why they have given a very generous tax-free allowance of £20 billion to the banks. Their original design, as set out in June, could have netted £3.9 billion, but when the banks complained the figure went back down to £2.6 billion. He says that we should not criticise the levy for being set at such a low rate because the French levy will raise less, but of course it will because the French banking sector is smaller. The fact is that our banking levy is being set at a third of the rate that the French are pursuing. He did not answer any questions on the netting of derivatives, the double taxation treaties or what would happen in terms of accounting practice. He certainly did not address the outrage in the country, never mind in the House, about the continuing appalling abuse of bonuses in the banking system. That is an obscene ongoing process and although bonuses might reduce slightly in one year, that is offset by the increase in the salaries that those bankers are enjoying. He did not even address the new loophole he is introducing in the Bill so that those enjoying deferred bonuses will now be able to pay the tax rates in future years, thus perhaps avoiding the 50% income tax rate when eventually the Government scale back from that.

[Mr Kevan Jones]

Does my hon. Friend agree that we had a wide-ranging debate, including on bankers’ bonuses, and that the Financial Secretary did not even address that issue in his wind-up?

[Chris Leslie]

Astonishingly, the Financial Secretary, having had his coat tugged by the Government Chief Whip, did not even address many of these points at all. As I say, the right hon. Member for Wokingham made his points about the role of the state-owned banks, how they ought to behave and how perhaps they would change their behaviour in a different market position.

My hon. Friend the Member for Wansbeck (Ian Lavery) made an important point about the comparison between those who enjoy exceptionally high bonuses and ordinary working people who, I think he said, might take 125,000 years on average to earn the bonuses that some bankers earn in one year.

My hon. Friend the Member for Scunthorpe (Nic Dakin) said that the Government have no mandate for their approach, and that is absolutely true.

My hon. Friends the Members for Walthamstow (Stella Creasy), for Brent North (Barry Gardiner) and for Hayes and Harlington (John McDonnell) also made important points about the feeble nature of the design of this element of bank taxation.

My hon. Friend the Member for North Durham (Mr Jones), in his rapid canter across the landscape of banking taxation, made a point about the obscenity of bonuses, which the Government have singularly failed to address through their failures on Project Merlin. My right hon. Friend the Member for Tottenham (Mr Lammy) talked about the impact on his constituency of the public services that will be cut because the Government will not pursue the sources of revenue that could be necessary to help ameliorate some of those reductions.

My hon. Friend the Member for Edmonton (Mr Love) made, I think, the most important point of all: our amendment is no threat to the Government. We are simply asking for a review and a report on the levels of bank taxation and the banking levy. The Government are introducing a tax cut for the banks and the bank levy proposal is weak and fails to ensure that banks pay their fair share. This is a simple amendment that is surely unobjectionable and I think we should seek the Committee’s view.

Question put, That the amendment be made.

22:05

Division 261

Ayes: 153

---

Labour: 144
Scottish National Party: 6
Democratic Unionist Party: 3

Noes: 296

---

Conservative: 254
Liberal Democrat: 41

Clause 72 ordered to stand part of the Bill.

Clause 19

Fuel duties: rates of duty and rebates from 23 March 2011

[Kerry McCarthy (Bristol East) (Lab)]

I beg to move amendment 7, page 12, line 36, at end add—

‘(8) The Chancellor shall publish, within 3 months of the passing of this Act, an assessment of the impact of taxation on fuel prices.’.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

With this it will be convenient to discuss clause stand part.

[Kerry McCarthy]

The backdrop to today’s debate is an economy that is flat-lining, as the Chief Secretary to the Treasury admitted last week. Since the Chancellor’s spending review, we have had no economic growth, and it is ordinary people who are hardest hit by that stagnation, with 2.5 million people out of work, including nearly 1 million young people—one in five 16 to 24-year-olds. An increasing number of people have been jobless for more than a year—nearly 850,000 and rising. This year, as the Government’s cuts start to bite, hundreds of thousands more people could lose their jobs. I believe that that is what the Minister of State at the Cabinet Office called an

“immediate national crisis in the form of less growth and jobs than we need.”

Apparently, it is what the Chancellor describes as “good news” and a sign that the economy is on the right track. Families are feeling the effects of the crisis in their pockets. Prices are still rising by more than 5% on the retail prices index, while earnings are growing at just 2% a year.

Rising fuel prices are a big part of this squeeze. According to the Office for National Statistics, fuel prices are currently one of the most significant contributors to consumer price inflation. According to this week’s figures from the Department of Energy and Climate Change, the average UK pump price is now £1.36 for a litre of petrol and £1.42 for a litre of diesel. I am sure that many Members will be aware that at their local petrol pumps prices are even higher. That means that petrol is more than 3p a litre more expensive than it was last month, or 15p more than this time last year, and that diesel is 3p more expensive than last month, or nearly 20p more than last year. Unfortunately, the 1p saving we got from the Chancellor’s cut in fuel duty lasted barely a week before price rises at the pumps wiped it out.

[Mr John Spellar (Warley) (Lab)]

My hon. Friend rightly draws attention to fuel prices. Does she not find it extraordinary that the coalition Government are proposing to subsidise fuel prices in some of their friends’ constituencies, thereby increasing by default the duty on those in many of the urban constituencies that we represent?

[Kerry McCarthy]

My right hon. Friend is quite right that the Government are looking for a derogation in some rural areas, but only a very limited number. When the House last discussed the proposal, considerable representations were made by Government Members who argued that if there was to be a derogation, other areas should also benefit from it and that it was unfair that just a few remote islands should see the benefit.

[Stewart Hosie (Dundee East) (SNP)]

The argument that a derogation in remote and rural areas is somehow an increase elsewhere is an interesting one. Should we take it from that that the hon. Lady is opposed to the road equivalent tariff being implemented in the Western Isles as well?

[Kerry McCarthy]

The point that my right hon. Friend the Member for Warley (Mr Spellar) was making was that if taxes are to be cut for some people somewhere, but the same amount of revenue has to be raised, that means that someone else is subsidising it. That is a fairly simple point to take on board.

As I was saying, it is not just rising fuel prices that are hitting people. Rises in fuel prices feed through to higher food prices and higher energy prices for household bills. Despite a recent up-tick, the OECD estimates that food prices in the first quarter of this year were nearly 6% higher than they were last year, and energy prices more than 9% higher. As real incomes fall, spending on basic items, such as food—[Interruption.]

[Mr Kevan Jones]

On a point of order, Mr Hoyle. You have many attributes, but you do not have eyes in the back of your head. Would it be possible for you to ask those Members behind the Chair to leave the Chamber in order to reduce the noise level, so that others can follow the debate?

[The Chairman]

I must admit that, if there was noise interference, I did not know where it was coming from and could not hear it in front of the Chair. I am sure that Members will be quieter in future.

[Kerry McCarthy]

I thank my hon. Friend the Member for North Durham (Mr Jones) for that, because it certainly seemed quite noisy from where I was standing.

As I was saying, as real incomes fall, spending on basic items such as food, energy and fuel makes up an increasing proportion of the average family’s weekly spend, as the Office for National Statistics acknowledged in March when it changed the make-up of its retail prices index basket. That means that families are increasingly vulnerable when prices rise quickly.

The Opposition accept that no Government can control the price of oil, which the global markets set, and that the situation in the middle east is affecting people in countries throughout the world, to which the UK is of course no exception, but the Government have control over fuel taxation, and that has a significant effect on pump prices. When so many people are out of work and real wages are falling, the Chancellor has a responsibility to do all he can to help business and to promote economic growth and jobs; and when ordinary working people are struggling to make ends meet, he has a responsibility to do everything possible to help them get on.

That is why we tabled amendment 7. It is important that Parliament has the opportunity to scrutinise the Government’s policies on fuel taxation and their total effect on fuel prices at the pump, because the Chancellor’s cut in fuel duty, as set out in clause 19, is not all that it seems. In January the Government decided to increase VAT on fuel from 17.5% to 20%, even though the Prime Minister told voters just before the election that he had “no plans” to increase VAT. Without that VAT rise, petrol would be almost 3p cheaper now, swamping the 1p cut that the Bill brings in.

The Federation of Small Businesses said that the UK’s small and medium-sized enterprises would be “severely affected” by that hike in fuel tax. A survey of its members in January pointed to the increase as the single biggest threat to their business—something that will resonate with Government Members, who I am sure have been lobbied by the FSB on that point. Some 89% of businesses that responded thought that the Government’s measures would add £2,000 to their costs over six months. A spokesperson for the FSB said in response to the January rise in fuel tax:

“The Government have said it is putting its faith in the private sector to put the economy on a firm footing, yet 36% said they will have to reduce investment in new products and services and 78% said their profitability will be reduced—hardly conducive to growth.”

Many small business people in my constituency are struggling to stay afloat, particularly in the face of cash-flow difficulties. The VAT increase at the beginning of this year was expected to put severe strain on their cash flow, so the Chancellor’s 1p reduction in fuel duty has to be seen in that context.

Some people will be able to cut down on their use of fuel or even stop using petrol all together. Some people are switching to cycling or to public transport, and for those who are able to do so that is a good thing. As an MP for Bristol, which saw investment from the previous Labour Government so that it could become the UK’s first cycling city, I welcome people taking up cycling.

[Mr Kevan Jones]

The argument that my hon. Friend puts forward is very interesting, but does she agree that the situation is difficult for rural constituencies such as mine, where bus subsides are being cut because of the Government’s cuts to Durham county council and some communities will not have any access to any public transport whatever?

[Kerry McCarthy]

My hon. Friend makes an absolutely valid point, which I was just about to turn to. Some people will say that the rise in fuel prices is an incentive for people to use public transport such as buses, but they can only do so if they are in an area that is well served by public transport. Bus subsides are being cut, and increasingly some areas—particularly remote rural areas—are being completely left without a bus service, meaning that people simply have no choice but to use their car. They include not just people who are poorly served by public transport, but those who run businesses and have to visit customers and suppliers and transport goods throughout the country. They include those who have to run around in the morning dropping children off at different schools or at nursery and then get to work on time, and many other people besides. At a time when fuel prices are rising, adding to them with extra tax is hammering people at the worst possible time. These are often families who are already running a very tight budget, and even a few extra pounds a week on their bills makes a real difference to their ability to get by.

22:30

[Mr Chuka Umunna (Streatham) (Lab)]

Has my hon. Friend noticed the projections for the increase in household debt under this Government? The Office for Budget Responsibility is projecting that it will increase by more than £500 billion this year and over the next five years, and it is also saying that the reason for this is not only inflation but the comprehensive spending review and the Budget.

[The Chairman]

Order. We must keep questions to the subject of the amendment that we are dealing with.

[Kerry McCarthy]

Before the election, the Economic Secretary said in this House during a debate on fuel duty:

“What people want from the Government today is a helping hand to get them out of their financial troubles. Instead, what they see from the Government is no help at all. Far from providing a hand to pull them out of their troubles, the Government are pushing them further down into them.”—[Official Report, 16 July 2008; Vol. 479, c. 359.]

How astonishing, then, to find that that is exactly what she and her Government are doing. They may have made a show of helping people up with a small fuel duty cut, but that is after they have given them a much bigger push down with their VAT rise on fuel. Before the Chancellor gave his Budget statement, Labour Members called for him to look again at the fuel duty escalator, which I think the Economic Secretary is muttering about from a sedentary position. In previous Budgets, we cancelled or postponed fuel duty rises when pump prices were rising quickly. In the 2010 Budget, the then Labour Chancellor phased in the increase for that year in three stages to ease pressure on business and household incomes. In the 2008 Budget, the previous Government postponed the increase in fuel duty for six months, again to support the economy and help businesses and families. We therefore welcome the fact that the Chancellor has done so again in this Finance Bill. However, when that cut is put in context, we see that families and businesses are facing more pressure than before as a result of the Government’s policies on fuel tax.

This is not the only policy in the Bill that is not all that it seems when it is put in context. The Government have made much of their increase in the personal allowance for income tax. The Chancellor said:

“The increase in the personal tax allowance already announced will vastly exceed anything lost through employee NICs uprating”.—[Official Report, 23 March 2011; Vol. 525, c. 954.]

However, he failed to mention that the rise in the allowance is swamped by his VAT rise, which will take £450 a year, on average, from the pockets of families with children. Families earning as little as £31,000 could lose their child tax credits as the Government take £400 million out of the system, while the Government’s Welfare Reform Bill creates uncertainty for families over whether they will keep their child care support and free school meals. In a couple of years, a family with two children with a single earner earning just £44,000 could find that the Government have taken £1,750 a year away from them in child benefit. It is no wonder that the Institute for Fiscal Studies said that the Chancellor was

“giving with one hand…and taking away with lots and lots of other hands.”

Nor is it surprising that the economist Roger Bootle said today that household incomes were “all but certain” to fall.

All this comes at a time when Government cuts mean front-line cuts in services that people rely on—schools, the NHS, social care, even the police—and workers in those vital public sector jobs are facing redundancies. The Government may say that some factors are outside their control. When we were in government, oil prices rose substantially, as we are seeing now, but we left government with a proportional tax take on fuel lower than when we came into government—down from 75% to less than 65% on petrol and down from 74% to 64% on diesel. It is no coincidence that under the last Conservative Government fuel taxation shot up from 66% of the price of petrol in 1992 to 75% in 1997, and from 66% to 74% for diesel.

The Minister of State for International Development made the front pages in March, saying:

“if this does go wrong”,

referring to the Budget,

“£1.30 at the pump could look like a luxury, $200 a barrel is on the cards”.

He can hardly have expected that remark to put a stop to speculation in the oil markets.

Rather than helping people through the tough times, the Government seem to want to make things worse. There was an alternative for the Government. Before the Budget, we called on the Chancellor to scrap the hike in VAT on fuel. That would have been of genuine help to families and businesses.

[Andrew Gwynne]

Is my hon. Friend, like me, extremely surprised at the lack of ambition from the Government parties when it comes to seeking a derogation for the rise in VAT on fuel? Given that President Sarkozy managed to get a derogation on VAT for French restaurants, does she not think that the British Government should do the same for fuel?

[Kerry McCarthy]

My hon. Friend makes a valid point, which I will come on to in a moment. [Interruption.] Ministers are peddling the line that it would take six years to achieve such a derogation from the EU. I ask them, have they even tried? I suspect that the answer is no. It is a fairly defeatist attitude to say that we will not even ask because we know what the answer will be. That is not fighting for Britain’s corner in the European Union.

As I was saying, there was an alternative for the Government. We called on the Chancellor to scrap the hike in VAT on fuel, which would have been of genuine help to families and businesses. It could have been paid for from the £800 million more than expected that was raised from the bank levy. Unlike the stabiliser proposed by the Conservatives in the run-up to the general election, that would not have been “unbelievably complicated and unpredictable”, to use the words of the Secretary of State for Business, Innovation and Skills.

The stabiliser is based on the idea that taxation will vary according to fluctuations in petrol prices, so that

“when fuel prices go up, fuel duty would fall. And when fuel prices go down, fuel duty would rise”,

to use a direct quotation from the Conservative party consultation document on the issue. The stabiliser was a flagship policy for the Conservatives in the general election campaign. The present Prime Minister made an issue of it when he visited a Coca-Cola plant in Morley just a week before polling day, where he said that

“it would give you certainty as you go about your lives, knowing what your salary is, knowing what your mortgage is, we’d be helping with the cost of living by trying to give you a flatter and more constant rate for filling up your car”.

When the Conservative party got into government, it soon realised that that was an empty promise, made glibly without doing the homework required, as we have seen with so many of its policies in its year in government. In the Budget, the Chancellor resorted to a different so-called stabiliser by increasing the supplementary charge on North sea oil. We will discuss that issue later tonight when we come on to the next group of amendments.

It is true, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) mentioned, that asking for a special rate of VAT would require our asking for a derogation from the European Commission. The Chief Secretary to the Treasury said that the Government could not afford to “sacrifice income willy-nilly”. However, he was willing to go to the EU to ask for a derogation for remote islands, although not for the rest of Scotland or the UK. Even members of the Conservative party agree that the solution should apply to the rest of the UK.

[Justine Greening]

I just want to check that the hon. Lady is aware that she is talking about two entirely different taxes. The tax that relates to rural areas is fuel duty, and the other derogation that her party is unwilling to accept is illegal to pursue relates to the EU VAT directive.

[Kerry McCarthy]

I am making the point that there are precedents for applying to the EU for a derogation, and I will come on to examples of other Governments who have done so.

I was about to quote the hon. Member for Brigg and Goole (Andrew Percy), who said from the Conservative Benches when we were debating the rural derogation:

“The pressures that affect the islands of Scotland and the Scilly Isles affect our constituents too.”

He went on to say that

“if any solution is applied to one part of the United Kingdom, it must be applied to other parts of it as well.”—[Official Report, 16 March 2011; Vol. 525, c. 352.]

Incidentally, we have heard reports that the Chief Secretary’s derogation on that issue may be approved by this summer, after he applied only on Budget day. That is rather quicker than the six to seven years that the Government have claimed would be needed for a broader derogation on VAT for fuel.

The French Government were willing to go to the EU to ask for special dispensation for French restaurants, and several member states have asked for other derogations in the past. Derogations have been granted for goods as diverse as fertilisers, pesticides and works of art, and for services from amusement parks and hotels to cleaning and cable television. In 1994, the British Government secured a derogation for domestic fuel, and in the past derogations have been granted to some member states for reduced VAT on goods such as heating oil.

[Justine Greening]

Since the hon. Lady gives a whole list of derogations, perhaps she will also be prepared to tell the Committee how long they took their respective Governments to achieve.

[Kerry McCarthy]

As I said before, the Economic Secretary invents a mythical time frame which she says it would take for her to achieve a derogation from the EU on VAT on fuel. I have asked her several times now in various debates whether efforts have even been made to raise the subject with the European Commission, and answer has come there none.

[Justine Greening]

rose—

[Kerry McCarthy]

Perhaps the Economic Secretary is going to answer now.

[Justine Greening]

The hon. Lady obviously does not know the answer, but I do—it took more than six years. Does she think motorists should have to wait six years before her party’s policy can come into effect? It is unlikely ever to be accepted.

[Kerry McCarthy]

The hon. Lady invents a mythical obstacle to achieving a derogation, without even having tried. Many of her Back Benchers who are constantly urging Ministers to stand up to the European Commission will be very disappointed that they are using the Commission as an excuse. They could have avoided this situation by not introducing the rise in VAT on fuel earlier this year. They should have considered the consequences before entering into such a policy.

The UK has not applied for as many derogations as other member states. We have only one reduced rate, which is used largely for energy and energy-saving materials and a number of health products, as well as the zero rate. France, Italy and Poland have each secured three different reduced rates of VAT, in addition to a zero rate, so there is clearly scope for the UK to ask for a little more.

While Labour was in government, we never applied for a special rate of VAT on fuel, but the reason for that is simple: we never raised VAT on fuel in the first place. This is a problem that the Government have created, so rather than simply telling the Committee that a derogation would be illegal, perhaps the Economic Secretary can once and for all tell us whether the Government have made any serious attempt to start negotiations with the European Commission on the matter, or whether they are simply capitulating to the Commission without putting up a fight.

We have tabled the amendment so that the Government’s fuel duty cut will be shown for what it really is—a 1p cut that is wiped out by the 3p a litre increase resulting from their VAT rise on fuel. It comes at a time when petrol prices are already rising rapidly and reaching record highs, when families are already squeezed and when the economy is struggling to grow. It comes after the Government refused to take the alternative approach that we put forward, which would have been a genuine help to families. The amendment means that the Government will have to face up to the fact that they have made the wrong choice at the wrong time and are harming, not helping, working people.

[Alison McGovern]

I rise to speak in favour of the amendment, which states clearly that the Chancellor should publish

“an assessment of the impact of taxation on fuel prices.”

It is a short but, I think, highly important amendment, not least because fuel prices are a key part of our economy and have an impact on inflation. I want to say a few words about why taxation on fuel has a bearing on inflation and why that is at the heart of some of the economic problems that we face today, not just from a dry, technical point of view but from the perspective of families in Wirral, Merseyside and elsewhere who are struggling at the moment.

This country has previously dealt with severely high inflation, but for many years we have had relatively low and stable inflation. That is also true across the globe. The nature of the fuel industry means that fuel prices have a specific impact on inflation, but I would point out that inflation in the UK is slightly higher than in the rest of the EU. That should be a warning signal to us. I am not particularly hawkish on inflation and on saying that fuel prices could drive problems in our economy. We need to recognise not the danger of returning to the days of terribly high inflation, but the danger of inflation of nearly 5% when wages are being held down, which limits people’s quality of life. People see food and fuel price increases when they go to the shops or fill up their cars—as my hon. Friend the Member for Bristol East (Kerry McCarthy) correctly said, food prices are partly driven by fuel prices—yet their wages are held down, so at the same time, they face higher prices in the shops and less in their pay packets every month.

22:47

That means a falling quality of life for the average person in this country—[Interruption.] Some in the House clearly think that that is a laughing matter, and I will let my constituents know that they do—[Interruption.] I am very awake to the fact that my constituents are incredibly concerned about their quality of life and what this measure means. They understand that our economy has faced tough times, but they are not beating a path to my surgery to demand exaggerated pay settlements because of fuel and food prices. They are very realistic. However, as politicians, we must ask ourselves whether it is fair to expect people constantly to deal with higher prices in the shops and on petrol station forecourts when the Government are asking for their wages to be held down. That is an issue of fairness, by which I mean that it is not morally right to ask people to accept falling standards of living because of an economic situation that is no fault of theirs.

It would have been bad enough for the VAT increase to have occurred when wages are being held down just because of the period of economic cycle. My constituents would have seen their quality of life fall, but one of the biggest worries and fears that I hear of in my surgery every week is the impact of the Government’s other policies on people’s quality of life. My hon. Friend mentioned some of the impacts from this April. Cuts to the amount that parents can claim for child care will have an impact—they could be worth up to £1,560. That is not small fry. When it comes to making ends meet every week, the Government must think about the long-term plan for ensuring that, by and large, living standards for the average citizen in the country do not fall.

[Justine Greening]

The hon. Lady mentioned VAT. Given her concerns regarding the increase that she says the Government introduced, did she vote against it?

[Alison McGovern]

The VAT increase that the Government have introduced is clearly highly regrettable. I might just take the opportunity of the Minister’s intervention to correct a common way of phrasing what happened under the previous Government when my right hon. Friend the Member for Edinburgh South West (Mr Darling), the former Chancellor of the Exchequer, temporarily lowered VAT. Government Members often say that Labour increased VAT, as though the decrease was not intended to be a temporary measure to help the economy. There is a difference: the Labour Government helped people through with a cut in prices, but this Conservative-led Government think that the future of taxation in this country should be higher prices in the shops.

[Mr Kevan Jones]

A more relevant question to ask Conservative Members is why during the election they made a promise not to put up VAT, given that the first thing they did when they came into power was increase VAT.

[Alison McGovern]

My hon. Friend is absolutely right. I thank him for that intervention.

We voted against the measure to put up VAT because it was not right to increase pressure on prices in the shops that everybody pays no matter what their income.

[Stewart Hosie]

Will the hon. Lady give way?

[Alison McGovern]

And that is a fundamental principle that Labour Members hold dear.

[Stewart Hosie]

On a point of order, Mr Hoyle. It is entirely up to the hon. Lady to give way as she sees fit, but when the Scottish National party moved to strike out the VAT rise, Labour most certainly did not vote for it. Could she correct herself—

[The Chairman]

Order. As Mr Hosie knows, that is not a point of order.

[Alison McGovern]

Thank you, Mr Hoyle. It would be testing your patience not to stick to the amendment, as I shall endeavour to do for the rest of my remarks.

All Members will realise that the average family, the average couple and the average pensioner are facing a more and more difficult situation as the money coming in has to be stretched even further, and with prices going up in the shops. That is people’s experience. The impact of taxation on fuel prices and its role in driving up inflation and driving down living standards requires investigation and careful thought. This is not just my view or that of just some economist: when I looked into the possible causes of rising inflation in the UK, the first person I thought might have the answer was the Governor of the Bank of England, who, in his letter to the Chancellor about why the Bank had not met the inflation target, cited the VAT rise as one of the inflationary pressures facing the country.

As I said, I am not some inflation hawk who holds to a 1980s antediluvian economic philosophy that inflation is necessarily bad. Some countries have had relatively high inflation as well as growth. However, the important thing about taxation and fuel prices, and their role in inflation, is that it is possible to build in inflationary expectations in the long term through some of these measures. I wonder whether the Government have really thought about what they are doing in not combating some of the issues related to rising prices that we have seen.

There is also an obvious link with people’s worry about the lack of investment at this time. There is no doubt that investment means jobs today and productivity tomorrow, and therefore a more effective economy that enables people to have a better standard of living at less cost. That has to be the aim. At the moment, the Government are balancing the books using VAT and extremely flat taxes that do not pay regard to people’s income. They are asking people in my constituency on relatively modest incomes to pay the same higher prices at the fuel pumps as people in the Chancellor’s constituency down the road in Tatton, who by and large—not universally—are a bit wealthier. That is not fair.

We have to consider carefully whether the increased taxation on fuel resulting from the VAT rise is having a negative impact on the economy in a wide-ranging sense. It is not only about whether fuel prices are up—obviously that could be the result of several things—but, most especially, about what that is doing to inflationary expectations. We need to consider whether it is having a damaging impact on the broader economy, and whether it is a disincentive to growth and productivity improvements in the UK. We also need to consider what it is doing to the living standards of people such as those whom I represent in Wirral and Merseyside who have seen living standards fall severely in the past two years.

[Steve Rotheram (Liverpool, Walton) (Lab)]

I am sure that my hon. Friend would agree with the old adage, “You can’t fool all the people all the time”, but that is exactly what the Chancellor tried to do with his 1p tax cut to fuel duty. However, is it not the case that since the Budget, petrol prices have gone up several times more than that 1p tax bribe, and that the VAT increase in fuel duty is causing damage to motorists and businesses—

[The Chairman]

Order. Interventions must be short.

[Steve Rotheram]

It was short.

[The Chairman]

Order. I am ruling that interventions must be short and letting the Committee know that we will be taking only short interventions.

[Alison McGovern]

My hon. Friend makes an important, if a little lengthy point. People will not be fooled, because they will see fuel prices going up and ask themselves what the Government have done to help. People are connecting the impact on prices across the board with what happens when they fill up the tank. When they go to the shop, they see higher prices all around them and they wonder where they are coming from. There is one clear answer: No. 11 Downing street. The Chancellor has decided that people will have to pay more in the shops. Let us not imagine that he has said, “Well, I’m sorry everyone. These are tough times—we’re going to ask you to put your hands in your pockets until we can lower VAT again.” Rather, this is a permanent rise that will build in higher prices for the long term. Given the downward pressure on wages, the really worrying thing is that the rise is building in not only a reduction in quality of life, but inequality, which is very worrying and will hurt for many years to come.

[Ian Mearns]

I know that we are in Committee, but let me take this opportunity to send my best wishes to parliamentary colleagues from the north-east region who are unwell at the moment—the hon. Member for Hexham (Guy Opperman) and my hon. Friend the Member for North West Durham (Pat Glass), who are both incapacitated. I am sure that the House joins me in sending our best wishes to them both.

The amendment calls for the Chancellor to publish an assessment of the impact of taxation on fuel prices within three months of the Bill being passed. I will concentrate on the differential impact of fuel duty policy in the English regions. I say “regions” with some trepidation, because I know that the very concept, or even uttering the word, causes phobic shudders in some quarters on the Government Benches, but an analysis of road freight statistics by the North East chamber of commerce has demonstrated the extra burden that fuel taxation places on businesses in regions such as the north-east. Each tonne of freight brought in or out of the north-east of England delivers approximately £4.16 in fuel taxes to the Exchequer; although that figure probably changes daily, it is 18% higher than the average for English regions, which is only £3.52, and 74% higher than the figure for London. That analysis shows that more careful consideration should be given to fuel duty rates’ economic impact in regions and to differential rates.

Road freight statistics show the extra distance travelled by goods transported into or out of the north-east compared with other parts of England. Every tonne of freight transported by road into or out of the north-east travels an average of 119 miles, compared with an average of 111 miles for businesses across the whole of England. Only businesses in the south-west of England transport freight further by road, with each tonne of goods going into or out of the south-west travelling an average of 192 km, which is ever so slightly more than the average of 119 miles for the north-east. Duty on diesel is currently at about 58p a litre.

[Mr Kevan Jones]

Does my hon. Friend agree that the impact of fuel duty is exactly the kind of issue that could be raised in the proposed report?

23:00

[Ian Mearns]

That is exactly what I am suggesting such a report could achieve.

The VAT chargeable on the duty element of the fuel price brings the total impact of fuel duty to about 69p a litre—that figure is a few days old, so it might be more or less than that now, depending on the daily price rate. Using a typical fuel consumption rate for road haulage of 8.5 miles per gallon, that means that each kilometre travelled provides 22p to the Exchequer; given an average load of 10 tonnes, each tonne of freight transported into or out of the north-east region delivers £4.30 to the Exchequer in fuel taxes, compared with an average for goods moved between English regions of only £3.52. We are already starting to see the impact on an economically deprived region in terms of businesses developing there and on its prospects for employment, given its peripherality to the bulk of the English economy.

Many hauliers in the North East chamber of commerce membership have no choice but to pass a proportion of those costs on to their customers, the vast majority of whom tend to be based in the north-east region. The chamber of commerce has argued that decisions on fuel duty need to take greater account of the impact on businesses in each part of the UK, and that a more considered approach is needed than that of the automatic increases that have been fixed into Government policy for the upcoming period. The figures I have quoted exclude those for goods transported within regions, as the impact of fuel duty would be the same in each region for that type of journey.

If the amendment were accepted, I would ask that a detailed analysis be included of the introduction of a measure that would help to stabilise fuel duty. In fact, that is exactly what the Federation of Small Businesses has been calling for. We have had debates in the past about some sort of fuel duty stabiliser, and it remains to be seen whether that would be a workable option, but surely when carrying out such an analysis, the Government could look at measures that would stabilise fuel duty and the cost of fuel.

[Andrew Gwynne]

My hon. Friend is making a superb case stating the competitive disadvantage that the Government’s policies are placing on the road haulage industry in the north-east of England and in other English regions. Does he think that the reporting proposed in the amendment could help to determine Government policies for supporting economic growth in regions such as his?

[Ian Mearns]

I am trying to point out to Ministers that fuel duty imposed nationally has a differential impact across the different regions and indeed nations of the United Kingdom in terms of contacting the main hub of economic growth, the south-east of England. There has been a debate in my region about the dualling of the A1 north of Newcastle upon Tyne, but the main driver of growth in the north-east economy is actually to the south and west of the region in terms of the contact with the main drivers of our economic future.

[Mr Kevan Jones]

Was not the Conservatives’ promise at the last election to dual the A1 another promise that they have reneged on?

[Ian Mearns]

What happened over a number of years—I am afraid that our Government were not immune from this—was that, rather than planning roads to encourage economic growth and development, we planned them to accommodate congestion. That was not always the best thing to do from an economic perspective. Down that road lies ruin, if you will pardon the pun.

The Federation of Small Businesses has asked for a fuel stabiliser. I am not saying that I necessarily agree with the federation, but stability in fuel prices is important. The Chief Secretary said of a fuel stabiliser:

“It’s a complicated idea and it’s difficult to see… how we achieve it, but it’s something that we are looking at very carefully to see if we can reduce the burden of fuel duty”.

I wonder whether the concept could be more straightforward. When oil prices increased, the stabiliser—or a stabilising impact effect—would allow the Government to reduce duty to a lower limit; when oil prices fell, the Government would be able to raise duty to a higher limit.

Critics cite the difficulty of knowing whether the fluctuations in the price of oil are temporary or likely to persist beyond the near term, saying that it would be difficult for a fuel duty stabiliser to set fuel duties effectively. To counter the volatility in the price of oil, a fuel duty stabiliser or a stabilising measure would need to be based on an official forecast of the future price of oil, and then adjusted regularly according to the actual oil prices. It will be difficult, given the volatility in how the international oil markets are working at the moment, but we need to try to find some measure to help our small and medium-sized enterprises through this difficult process at this difficult time; otherwise, we are in real danger of seeing fuel become a major blockage to economic growth, not only in particular regions, but across the whole nation.

Would this be bad for the public finances? The Chief Secretary said that we cannot “sacrifice income willy-nilly”. Critics argue that a stabiliser or a stabilising effect would be too expensive to implement during a time of austerity, but that criticism fails to take into account the wider implications of high fuel prices on the UK economy. If set correctly, the measure could be fiscally neutral for the public finances and help to provide much-needed economic stability for the UK economy. My main point in asking for some sort of analysis in a review is that the measure is needed so much more in the regions of England, particularly regions such as the north-east, but the south-west as well.

[Mike Gapes]

The amendment states that the Chancellor should

“publish, within 3 months… an assessment of the impact of taxation on fuel prices.”

I will address my remarks to the scope of such an assessment. It is important not to focus solely on the narrow issues surrounding VAT, although they are important, or on the global increase in fuel prices, which is one of the factors causing the revolutions in north Africa and elsewhere in the world as people suffer from rising food prices as a result of rising fuel prices.

There is something very specific about how we in this country choose to tax fuel. Compared with other European Union countries, we choose to have very high taxes on fuel. One consequence is the problems from which our road hauliers have suffered in comparison with some of their competitors in European countries that have road pricing.

It is interesting to note that in the 2010 general election, the Liberal Democrats proposed to move towards

“a rural fuel discount scheme which would allow a reduced rate of fuel duty to be paid in remote rural areas, as is allowed under EU law”,

as well as to prepare for a system of road pricing to be introduced “in a second parliament”. That was the Liberal Democrat position. The Conservatives, of course, had a completely different view, promising a “fair fuel stabiliser”, presumably designed to help people in the rural communities.

I represent an urban area. My constituents suffer high fuel prices in London and, unlike some people in rural areas, they do not have the advantage of having to pay only 11.14p duty on a litre of so-called red diesel, instead of 57.95p duty on a litre of low-sulphur diesel. We know that there is abuse of the red diesel system by certain people who, when driving on main roads, use diesel that should be used only for off-road activities. That opportunity is not open to my constituents. People living in Ilford and elsewhere in Greater London do not have access to red diesel that they can abuse in order to avoid paying tax. However, people who are represented by the Liberal Democrats, who are in favour of giving priority to remote rural areas but not to those of us who live in urban areas, or by Conservative Members who are happy not to enforce adequately the provisions against abuse of the red diesel system, are not concerned about that. I want the review to examine the abuse of the red diesel system. I believe that a lot of money that should be going to the Exchequer is not doing so and that there is discrimination against people who live in urban areas and have no access to red diesel for their motoring purposes.

[Mr Kevan Jones]

I take my hon. Friend’s point about the abuse of red diesel, but may I disabuse him of the fact that it is not available in urban areas? When I was chair of trading standards in Newcastle, the abuse of red diesel in urban areas was just as prevalent as it was in some rural areas. The fact is that certain criminal elements in London can gain access to red diesel fairly easily.

[Mike Gapes]

Obviously I am not as accomplished as my hon. Friend at making contact with the criminal elements in London. However, he has raised a serious matter: there are criminal elements who exploit differentials in duty. We have seen that in Northern Ireland, when terrorist organisations financed their activities by smuggling fuel across the border from the south to the north and vice versa, and we have seen it in other contexts.

If we are to have a policy on fuel taxation, we need to ensure that if we introduce measures that discriminate in favour of certain people in remote rural communities, we do not also create loopholes that will be used in a discriminatory way to undermine the sense of justice and fairness that our people want us to exercise. If we have high levels of fuel taxation in this country, which we do, and if that causes problems for our road haulage industry and discrimination between rural and urban areas, when the review is conducted—I hope that the Government will support the amendment, because it is vital that we look at these issues in—

[Geoffrey Clifton-Brown (The Cotswolds) (Con)]

On a point of order, Mr Hoyle. The amendment is very narrowly drawn. I have listened to the debate very carefully. Can you tell the Committee whether it is in order to discuss the matters that have been raised in it, ranging from the abolition of child benefit to the widening of the A1 and, now, the abuse of red diesel?

[The Chairman]

The Chair will decide that. I find it strange that the hon. Gentleman, who is a very senior Member of the House, is questioning the judgment of the Chair.

[Mike Gapes]

Red diesel is taxed at a lower level than other diesel. We are discussing the taxation of fuel and the need for a review of fuel taxation. Surely that is extremely pertinent to the terms of the amendment.

[Mr Kevan Jones]

The amendment states:

“The Chancellor shall publish, within 3 months of the passing of this Act, an assessment of the impact of taxation on fuel prices.”

I am sure that that includes diesel.

[Mike Gapes]

I entirely agree.

I believe that one of the difficulties in our economy, which affects our haulage industry, arises from our tax levels compared with levels in other European Union countries. We all know that if we drive across to France and fill a tank with diesel, or “gas oil” as they call it, it is possible to pay—depending on where we are—40%, 50% or 60% of the amount that we would pay in the United Kingdom. The haulage industry based on the other side of the channel therefore has a competitive advantage. The great lorries with Polish and other countries’ number plates that we see bringing goods into this country have a competitive advantage over those of our own haulage industry.

We need to look at these matters. I have to say that I think the Liberal Democrats were right. [Interruption.] Yes, occasionally they are right, and I think they were right when they said we need to look at road pricing. Unfortunately, the only person who has done anything serious about road pricing is, of course, the former Mayor of London, Ken Livingstone, who introduced the congestion charge, which the Conservatives have now accepted even though they opposed it when it was first introduced.

[The Chairman]

Order. I think we are now beginning to stray a little from the subject under discussion. I am sure we will return to the topic of the fuel levy.

[Geoffrey Clifton-Brown]

Hear, hear.

[The Chairman]

I do not think we really need to hear from the hon. Gentleman at this stage.

23:15

[Mike Gapes]

Thank you, Mr Hoyle. I will, as always, take your sagacious advice.

We need to look at the consequences of the way in which our economy is integrated globally, and the knock-on consequences of our competitive position in European markets. We need a review of fuel taxation, taking account of the position of the haulage industry and the discrepancies and disparities between different parts of the UK—I accept what my hon. Friend the Member for Gateshead (Ian Mearns) said about the north-east region. There are difficulties and we need to look at this issue in the round. It is eminently sensible to have a comprehensive review of fuel taxation policy, as called for in the amendment.

Everybody agrees that the current arrangement is not working well. There is a huge amount of public disquiet—all of us receive e-mails and letters on the subject, and the Federation of Small Businesses and others write to us. People are concerned about high fuel prices. There are things we can control, such as not increasing VAT on fuel, and there are things we cannot control, such as the impact of global events, but as long as we have an economy that is dependent on fossil fuels and oil, we will always be vulnerable to such things. The debate embraces wider issues than are dealt with in the terms of the amendment. I will not talk about those issues now Mr Hoyle, but it is important that we address them in a comprehensive review of fuel taxation policy. I therefore support the amendment.

[Hugh Bayley]

First, I want to compare the records on fuel taxation of the most recent Labour Government and the previous Conservative Government. My view is that the Labour Government were a great deal kinder to the motorist, and the following figures are provided by the current Government. Figures from the Department of Energy and Climate Change show that in 1990, when the Conservatives were in power, 59% of the price paid at the pump by the motorist and road haulier for unleaded petrol was taken by the Government in fuel taxation, and that it rose to 75% during the following seven years of Conservative rule; the Government therefore took more and more and more in taxation. When Labour was in power, however, the proportion of the price of unleaded petrol taken in fuel taxation fell to 65%. The figures for diesel are almost the same. Under the Conservatives, the tax take rose from 57% to 74%, whereas Labour brought it down to 64%.

I would like the Economic Secretary to the Treasury to answer one question in her response, on the following subject. Since the general election, Government policy—not just Conservative policy, but Conservative and Liberal Democrat policy—has been to increase the tax on fuel by about 3p a litre through the increase in VAT and to give back roughly a third of that, 1p a litre, through the reduction in duty. That policy will slightly help road hauliers, because the duty element will reduce. The VAT element increases, but hauliers are able to recover the VAT, or at least pass it on in the VAT they charge their customers. So the effect of the Government’s policy will be to clobber the private motorist to the tune of 2p a litre, because they will have to pay the VAT increase out of their own pockets, while providing slight relief to businesses, particularly hauliers. I say “slight” because the price of fuel has increased as a result of a number of factors, including the increase in the cost of oil and the fall in the value of the pound on the international exchanges. So motorists and hauliers have been clobbered by the market and by the Government, but hauliers are being hit slightly less hard than the private motorist because they are able to recover the VAT increase.

My question to the Economic Secretary is as follows: is it a deliberate act of Government policy to make life slightly easier for businesses but to clobber the private citizen, or is it just an accident that that has happened? This is one of the things that ought to be studied in the review that the Opposition amendment proposes. We should examine the relative merits of taxing fuel for vehicles through VAT as opposed to through fuel duty, and who the gainers and losers are.

My hon. Friend the Member for Wirral South (Alison McGovern) made a very powerful speech about the impact that the increase in VAT on fuel has had on family budgets, and the impact that inflation generally, and fuel inflation in particular, is having on families who are having their earnings squeezed. My Front-Bench colleagues’ amendment proposes that the review ought to consider that matter.

I would like such a review also to consider one other issue, because I do not believe that the Government have yet done so—although I would be delighted to be corrected if they have carried out the sort of analysis that I propose. The review should also examine the impact that taxation has on the demand for fuel. The previous Conservative Government, one and a half decades ago, introduced a fuel price escalator. I understand that their reason for doing so was environmental: they wanted to increase the price of fuel to depress the demand for it, and so reduce carbon emissions. That was the policy intention, and it is one of the reasons why Conservative policies cost taxpayers and consumers so much. I mentioned that the fuel tax take rose from 59% to 75% in their last seven years in office. I wonder whether the Minister can tell me whether that sharp increase in fuel taxation under the previous Conservative Government actually did depress the demand for fuel, because that is an important consideration. If we change the marginal rate of fuel taxation, economics suggest that there should be some elasticity in demand.

The Government say that they want to be the greenest ever, so they ought to consider the carbon emission consequences of changes to fuel duty and VAT on fuel. I hope that Treasury Ministers have taken advice on that from both the Department of Energy and Climate Change and the Department for Transport. They ought to have done, if they really are—[Interruption.] Does the Financial Secretary to the Treasury want to intervene? No, he is back in his seat. The Government ought to take advice before they make such proposals, so that they can assess the environmental impact of a fiscal measure. I am waiting to hear from a Minister, but it sounds as though that has not happened. It ought to if the Government are serious about the environmental consequences of their fiscal policy.

[Justine Greening]

rose—

[Hugh Bayley]

The Economic Secretary wants to intervene, and I hope she can tell me that the analysis has been done and what its outcome is.

[Justine Greening]

I direct the hon. Gentleman to the tax note that we issued at the Budget. The answers to his questions are there; clearly he has not read it yet.

[Hugh Bayley]

I have not read it—[Interruption.] That is why I ask the question. If the hon. Lady would care to read it to the Committee, I would be pleased to listen.

[Justine Greening]

As the hon. Gentleman could not read the note himself in advance of the debate, I shall read it to him now:

“Removing the fuel duty escalator and cutting duty by 1ppl could result in a small increase in CO₂ emissions in 2011-12 of 0.4Mt. However, emissions from road transport are forecast to be approximately 1 per cent lower than current levels by 2015-16 owing to underlying trends in”

fuel efficiency.

[Hugh Bayley]

Is it the Government’s policy, then, to use fiscal measures to reduce carbon emissions? Is that what brought about the carbon variation of 1.4 megatonnes—is that what the hon. Lady said? [Interruption.] It is 0.4 megatonnes; I am grateful to stand corrected. Has the reduction that she mentioned come about as a result of the Government’s proposed fiscal changes, or as a result of the economic downturn that is a result of their policies? There is an important difference. One would expect the fall in economic activity that we have seen as a result of the Budget—the Office for Budget Responsibility has revised down its forecast for growth as a result of the Government’s fiscal measures so far—to lead to a decline in carbon emissions from both road transport and other sources. I am not clear from what the hon. Lady has read out whether the reduction in carbon emissions will be a result of the fiscal measure or of a reduction in demand because of a contraction of the economy.

[Barry Gardiner]

If I interpreted the note correctly, it was a projection of what might happen as a result of the fiscal measures. It did not answer the question posed by my hon. Friend, which concerned an analysis of the results of the differing policies on carbon reduction hitherto. Does he agree that it is vital that we use green taxation only as a means of changing behaviour, and never solely as a revenue-raising measure? That is the question that he posed about past policy, and the Economic Secretary did not answer it.

[Hugh Bayley]

One would assume that a Government estimate has been made on the basis of some evidence. My hon. Friend shrugs his shoulders, but he was in government for a time and I certainly give a Government the benefit of the doubt. I believe that their civil servants would make the best estimate they could based on the evidence they had. Past responses to fiscal changes in the taxation of fuel would of course be a good indicator. Either the Minister can tell me that that is the basis on which the estimate has been made or she is not certain. If she is not certain she should be honest and say so, because we will then need the further analysis proposed in the amendment.

23:30

[Jim Fitzpatrick]

Technological advances such as hybrid vehicles, greener cars, electric vehicles and biofuels might lead to a reduction in emissions. Could they therefore be incorporated into the review? They will surely have an impact on taxation policy in future.

[Hugh Bayley]

The premise that my hon. Friend puts forward is absolutely right. The fact that more and more people are using low-emission vehicles will obviously have an impact. However, the purpose of the review proposed in the amendment is to consider what effects the fiscal changes will have. If the price of fuel is raised, some people will consume the same amount of fuel anyway because they are in business and they do not want to contract their business, but generally speaking it has a marginal effect. Private motorists will reduce the number of discretionary journeys they make by trying to take their cars to the shops less frequently and perhaps abandoning some leisure trips, and businesses will look for ways of economising as prices rise. I have heard the Minister’s comments and I am grateful to her for drawing my attention to the estimate that the Government have made, but it is a fairly bald statement and it does not answer my question about whether the measure is driven by the Government’s environmental concerns or their revenue-raising concerns, and we need a clear answer on that.

[Mr Kevan Jones]

Will my hon. Friend give way?

[Hugh Bayley]

I am going to sit down shortly to let my hon. Friend himself make a speech, but I shall certainly give way.

[Mr Jones]

May I propose a third reason for the reduction—political expediency and creating the impression that the Government are doing something about fuel prices?

[Hugh Bayley]

That could very well be the case, and we will listen with great interest to what the Minister says in reply to the debate. All we are asking for is transparency. We want to know whether the Government are doing this for environmental or revenue-raising reasons, what the implications of the rise will be in environmental and revenue terms and what the impact will be on family budgets. I believe—indeed, I know—that all that information is not known, so I think that the Opposition’s amendment is a sound one.

[Julie Hilling (Bolton West) (Lab)]

Will my hon. Friend give way?

[Hugh Bayley]

I keep trying to sit down, but my hon. Friends are preventing me from doing so.

[Julie Hilling]

My hon. Friend mentions the potential effects on the environment, tax-raising and families. A project has been brought to my attention because it can no longer afford the fuel for the vehicle it uses to take young people with mental disabilities out on trips, so those disabled young people are no longer getting the benefit they used to get from going out. Is he aware of similar issues in his constituency?

[Hugh Bayley]

Yes, I have had third sector organisations coming to me and saying how much more difficult life is getting because sources of funding are drying up.

It is clear from the interventions of my hon. Friends that the point I have raised has wider implications that ought to be studied by the Treasury and other Departments. I know what the process is for tabling amendments that ask for reviews and reports regarding legislation, and they are tabled not just to frustrate or irritate those on the Treasury Bench but to pose serious questions and seek serious answers. The Minister is waving her piece of paper again, and I promise I will read it properly, but what she read out to me did not answer my questions. It is an input—an estimate of one figure—but as we have heard, further study of the environmental and social impacts, the impact on family budget impacts and the overall economic impact is needed. I hope that as a result of that analysis the Government will produce better, more coherent cross-government proposals for the taxation of fuel in future.

[Mr Kevan Jones]

I support the amendment, which asks for a review. In the previous debate, we asked for a review of the implications of the bank levy. Similarly, the amendment calls for an assessment of the impact of taxation on fuel prices. It would be disingenuous to suggest that all Governments have perfect relationships when it comes to dealing with fuel duty. Clearly, the previous Government had problems with the cost of fuel and difficulties over taxation, but my hon. Friend the Member for York Central (Hugh Bayley) exploded one of the myths about the tax-take from fuel duty. Under the Conservative Government from 1990 to 1997 the tax-take on unleaded petrol rose by 16%, and under the Labour Government between 1997 and 2010 the tax-take fell from 75% to 65%.

The Government delayed the planned fuel duty rise, as Labour Governments did previously, as oil prices rose. Was that the right decision? Yes. At a time when many hard-working families are affected not only by higher inflation and increased taxation, but by wages being driven down and in some cases by family members facing unemployment, the Chancellor’s VAT increase puts about £1.30 on the cost of filling up a 50 litre tank of petrol.

[Justine Greening]

Will the hon. Gentleman tell the Committee whether he voted against the VAT increase? I suspect he did not.

[Mr Jones]

I am becoming concerned. The hon. Lady’s blood pressure does not seem stable tonight. She seems to be turning red and getting rather excited in tonight’s debate, which I am not sure is good for her health. Why did she argue for and push through an increase in VAT when she and her Prime Minister stood on a manifesto saying that they would not put VAT up? That is not being honest with the British people. What she has to explain to hard-working families in my constituency, North Durham, and in Putney is why she reneged on that promise.

There has been much talk in recent weeks about trust in politicians, and a lot of nonsense talked by the yes to AV campaign about whether MPs are hard working and trustworthy. When the Prime Minister and the hon. Lady say clearly that they will not increase VAT, and then that is the first thing she does, I understand why my constituents and hers are rather cynical about certain promises.

In the Budget the Chancellor used the gimmick of cutting the price of petrol by 1p. We will shortly debate how he will pay for it. It has had disastrous consequences for the economies of parts of Scotland and north-east England. He also increased VAT by 3p. He took it off with one hand and put in on with the other. Paying for that will have consequences for oil exploration in the North sea not only in the next year or so, but for a generation.

[Andrew Gwynne]

Does my hon. Friend recall that the Chancellor of the Exchequer, soon after the Budget, took a very dim view of those retailers who did not pass on the 1p decrease in fuel duty, and does he agree that the purpose of having such a review is to see whether the Government’s policy was ultimately a success or a failure?

[Mr Jones]

That is a very good suggestion. That is one of the issues that could be included in the review. Do the Government honestly think that they can con my constituents and others and that a 1p reduction in petrol duty will really be a vote clincher for them? Late last Friday I was in the excellent Sainsbury’s in Pity Me in Durham, and I noted that customers who spent £70 on their groceries could get 5p a litre off their fuel. It is a deal offered by other supermarkets—I do not want to favour Sainsbury’s. Are those on the Treasury Bench really convinced that constituents will be conned by the 1p reduction, when the cost is being increased by 3p, and if they can get 5p a litre off when they spend more on extra groceries?

My hon. Friend the Member for Ilford South (Mike Gapes) made a good point, which I accept, about the differences in fuel prices in different parts of the country. I think that there is a case for part of the review looking at why fuel is priced differently across the country. I hasten to add that at the weekend, when I was in Worksop in Bassetlaw visiting my father, I went to a Sainsbury’s—it happened to be the supermarket there—and noticed that diesel was £1.38, although down here in London and in parts of Durham it is £1.42. Clearly the constituents of my hon. Friend the Member for Bassetlaw (John Mann) are getting a good deal from the Sainsbury’s in Worksop. These are the issues that could be looked at in a review.

[Mr Graham Stuart (Beverley and Holderness) (Con)]

The hon. Gentleman is speaking movingly about his desire to see regional variations in taxation. He was a highly distinguished Minister in the previous Government, so will he tell us how many representations he made to the then Chancellor of the Exchequer when his voice stood a real chance of making a difference?

[Mr Jones]

If the hon. Gentleman had been listening, he would know that I was not arguing for regional variations in fuel taxation. I was saying that if we are to have variations in fuel prices, which we already have, and if the Government are to introduce a derogation and cheap fuel for certain island constituencies, clearly buying off the Liberal Democrats, the effects on the economy need to be assessed. I would also argue that if that is to happen for some of those rural communities, it must also happen for parts of County Durham where having access to a car is not a luxury, but a necessity for getting into work along the A1 corridor to Newcastle and other places. The fact that the Government are also reducing the public subsidy that local government can give to bus companies means that in the next few months parts of my constituency will have no bus services whatsoever on some days of the week.

[Jim Shannon]

The hon. Gentleman mentions the price of fuel. In Northern Ireland this week the price of diesel was £1.44.9 per litre, which is probably one of the highest in the United Kingdom. If there is to be regional help for the islands of Scotland, there must also be help in Northern Ireland for rural communities. Although he might have some concerns about that, would he not agree that it is only fair that that should happen?

[Mr Jones]

It is, but the islands derogation has been brought in as a sop to the Liberal Democrats. They have to get something out of this coalition, after all, and a few pence off fuel may well help them at the ballot box, but I doubt it in the long term. The hon. Gentleman makes a fair point that, if we are to assess the effect of the increase, regional variations will need to be considered.

23:45

As I said to my hon. Friend the Member for York Central, the measure was clearly a political gimmick by the Chancellor, who thought that somehow he was the motorist’s friend, but a 1p decrease will have no effect on most households’ budgets, when they are affected by other prices going up—some of which have been mentioned already—in terms of the cost of living.

The other point that needs looking at, and which my hon. Friend the Member for Gateshead (Ian Mearns) made very eloquently, is the cost of fuel for hauliers. There is a disproportionate effect on the north-east, and if any review were to be undertaken that would be an important one, because that cost sends the price of goods up. The point that the hon. Member for Strangford (Jim Shannon) made about Northern Ireland could also be considered in any assessment.

The Government clearly do not want to go anywhere near the idea, however, because they realise that it will open a can of worms. I include not just this Government in that, but other Governments as well. It is time, however, that we took an overall look at how we tax fuel to ensure that we understand why fuel prices increase, the tax-take and how it impacts on the economies of certain areas and on individuals’ economies—on individual families and their household expenditure.

At a time when the Government are providing a tax giveaway to the banks of more than £100 million by reducing corporation tax, many hard-working families who are struggling to fill up their family car will find it unacceptable and unbelievable that they are being asked to shoulder a bigger proportion of the tax-take than those bankers, and the Government need to take that point into account.

The Government should support this amendment, which would allow us to address all the issues that have been raised in tonight’s debate, including the important points that were made by my hon. Friend the Member for York Central, who takes a great interest in green issues. I just hope that we can somehow persuade the Government, if not tonight then in the future and, possibly, with some cross-party support, to change the way in which we tax fuel to ensure that regions such as mine are not disadvantaged by arbitrary taxation increases, which this Government have imposed by increasing VAT.

[Justine Greening]

Clause 19 cuts fuel duty by 1p per litre. In fact, it has already happened—at 6 pm on Budget day. That was the first step in removing the Labour party’s planned fuel duty escalator and, instead, putting in place a fair fuel stabiliser, which will ease the burden on motorists.

The hon. Members for Gateshead (Ian Mearns) and for North Durham (Mr Jones) talked about the burden that the planned tax rises would have placed on their own region, and I can tell the hon. Member for York Central (Hugh Bayley) that, in fact, under the previous Government fuel duty rose by 55%, so it is simply wrong to focus totally on the previous Conservative Government. His Government increased the burden on motorists substantially.

The amendment calls for the Chancellor to publish an assessment of the impact of taxation on fuel prices within three months of the Act being passed, and it aims to determine the extent to which the cut in fuel duty has been passed on. By introducing such a measure, Opposition Members clearly intend to distract the public from their policy, which would have seen pump prices rise yet further as they introduced their planned escalator. In addition, the Opposition appear keen to suggest that the cut in fuel duty and the cancellation of their fuel duty escalator has not offset the effect of the VAT increase at the start of the year—a VAT increase that as a party they did not vote against.

I will go on to set out the Government’s assessment of the impact of this measure, as Members have requested, and to address the points raised in the debate, but perhaps I should start by explaining to the Committee why the Government took the action they did in the Budget to support motorists at this time of record pump prices. It is true that motoring is an essential part of everyday life for many households and businesses, as mentioned by the hon. Member for Wirral South (Alison McGovern). The Government also recognise that the rising price of petrol has become an increasingly significant part of day-to-day spending, and we know that high oil prices are causing real difficulties in ensuring that motoring remains affordable. It is important that when shocks such as the steep rise in the oil price occur a responsible Government are able to listen and respond.

The previous Government would have introduced a fuel duty escalator, which involved seven fuel duty increases, three of which have been implemented, adding 3p to pump prices, and they had planned another above-inflation increase for the start of last month.

[Andrew Gwynne]

Is the Minister not even slightly embarrassed that her Government did not seek the powers to get a derogation from the European Commission? Her party has gone from being the party of “No, no, no” on Europe to the Putney shrug.

[Justine Greening]

The hon. Gentleman’s party does not even have a position on that because Labour Members abstained on it. If the policy in clause 19 is so bad, I expect them to vote against it, but I suspect that it will be another case of abstention making the heart grow fonder. I do not think that that will work with taxpayers, who remember exactly who was planning to bring in the fuel duty escalator had they remained in power.

This Government listened to hard-pressed motorists and businesses. We declined to increase the escalator and to introduce the 1p per litre fuel duty increase, which would collectively have added 6p to pump prices compared with what they are now. Instead, we responded with a £1.9 billion package to ease the burden on motorists at this time of record pump prices. We acted by cutting fuel duty by 1p per litre from 6 pm on Budget day. We cancelled the previous Government’s fuel duty escalator for the rest of the Parliament. We introduced a fair fuel stabiliser that will better share the burden of high oil prices between motorists and oil companies, and so fuel duty will increase by inflation only when oil prices are high.

[Hugh Bayley]

I read from a Library briefing:

“In its Budget in March 1993 the Conservative Government introduced a ‘road fuel escalator’—a commitment to increase duty rates on these fuels in real terms by a specified percentage each year”.

I accept that that was continued for a number of years by the Labour Government before being abandoned, but the Minister should not say that the public do not forget things and then gloss over the fact that it was a Conservative Government who brought in the fuel price escalator.

[Justine Greening]

I will tell the hon. Gentleman one thing we did not do, and that is hand over a huge fiscal deficit to the incoming Labour Government.

[Hugh Bayley]

Will the Minister give way?

[Justine Greening]

No, we have heard enough from Labour Members.

We had to take decisions to support motorists in spite of the catastrophic state of public finances that Labour handed over. We have made sure that there are no fuel duty increases this year by deferring the inflation-only increase that was planned for April to 1 January 2012. This is real help for families and for businesses. As of 1 April, average pump prices are approximately 6p per litre lower than if we had continued with the previous Government’s escalator.

[Penny Mordaunt (Portsmouth North) (Con)]

I have listened to this debate with great interest, because I was previously spokesman for the Freight Transport Association and I remember that one year into the Labour Government’s stewardship of the fuel duty escalator hauliers were on the streets of London on a go-slow programme because of the way that they approached taxation.

[Justine Greening]

My hon. Friend is right to refer to the response of hauliers to the previous Government’s policy.

The hon. Member for York Central called the action that the Government have taken for hauliers in the Budget “slight”. Actually, the average haulier will benefit by approximately £1,700 in 2010-11 as a result of those measures compared with what they would otherwise have faced. I also draw his attention to the remaining part of the package for motorists, which includes freezing vehicle excise duty on HGVs, providing further help to hauliers. The package is even broader than that, because for motorists who are required to use their own vehicle for work, the approved mileage allowance payments rate, which had not been increased by the previous Government since 2002, was increased from 40p to 45p per mile for the first 10,000 miles. An average AMAPs user claiming for 2,500 miles a year will benefit by £125 a year.

[John McDonnell]

In the Budget statement, the Government informed us that they were submitting a derogation request to the European Union for the rural fuel duty rebate pilot scheme. The Chief Secretary to the Treasury told us that permission would be received over the next few months. Will the Economic Secretary inform us of whether permission has been received? Given the representations that have been made today for an expansion to other regions, is that not something that should be considered as part of a review as a matter of urgency?

[Justine Greening]

The hon. Gentleman will be aware that the derogation is to carry out a pilot to look at how we can support rural areas with a fuel duty discount. He is right to point out that we have submitted a formal request to the European Commission, and we wait to hear its response. I assure him that we got on with that derogation request, just as we said we would.

If I may, I will make progress on the issues that have been raised by hon. Members.

[Hugh Bayley]

Will the hon. Lady give way?

[Justine Greening]

I will give way to the hon. Gentleman once more.

[Hugh Bayley]

The Economic Secretary has been extremely generous. A few minutes ago she referred to the deficit and the debt inherited by the incoming Government. Has she forgotten that during John Major’s premiership, the national debt almost doubled, and that during the first 10 years that Labour was in power, the Government reduced the national debt by 40% through good stewardship of the economy?

[Justine Greening]

The hon. Gentleman is obviously one of the Labour party’s structural deficit refuseniks. He simply refuses to accept that the deficit exists. I am sure that he would also refuse to accept that his party left unemployment 400,000 higher by the end of its term in office. We understand the problems that our economy faces and the Budget was all about tackling them.

I will turn to the substance of the amendment. For motorists to realise the benefits of the cut in fuel duty, retailers need to pass it on at the forecourt. If the cut in fuel duty had been fully passed on to average pump prices, including VAT, they would have been 1.2p per litre lower. The amendment seeks a published assessment of the degree to which the cut fed through to pump prices. As I said, we have already published a tax information and impact note that sets out our analysis of the impact of the cut. Following the Budget, the website petrolprices.com, which gives independent average daily prices and which the previous Government used to track prices, showed that average pump prices fell by approximately 0.8p per litre between 23 and 28 March. It can be clearly seen that the reduction in fuel duty largely fed through to prices at the pump. Therefore, prices are lower due to our actions and motorists are benefiting from the cut in duty. Let us not forget that average pump prices are approximately 6p per litre lower as a result of the cut in duty and our scrapping of the previous Government’s planned escalator, which they would have gone ahead with.

[Julie Hilling]

I am a little bit confused, because the Economic Secretary is talking about how wonderful the Government’s actions on fuel prices have been, but it seems to me that in the past 12 months, fuel has gone up by something like 25%. I do not see why the Government are saying how brilliant their actions have been when people are paying something like £1.40 a litre instead of £1.10 a litre. A penny off, 3p on, 40p on—it does not make sense to me.

23:59

[Justine Greening]

As the hon. Member for Wallasey (Ms Eagle) said back in May 2009,

“there are very few even socialist theorists who would suggest that commodity prices were somehow controllable”.—[Official Report, 13 May 2009; Vol. 492, c. 918.]

I do not think the hon. Member for Bolton West (Julie Hilling) can expect the Government to control commodity prices, but what we can do is take action to lessen the effects of swings in the oil price as they feed through to the pump. That is precisely what we are doing in clause 19 on fuel duty, and we will shortly debate the mechanism by which we can pay for that, which is the fair fuel stabiliser.

Of course, the Labour party has suggested that we should create a separate VAT rate for petrol. As has been pointed out even by Labour Members, that would have provided no help for hauliers, and I remind the Committee of why the Chancellor rejected the proposal. It would take six years, and it would not even be able to come into effect then, because the current EU VAT directive means that it is illegal. I do not think motorists should have to wait for six years, and the Government are not going to wait six years. We listened, and we responded as of 6 pm on Budget day.

Finally, I shall address the issue of VAT. I know that it is not strictly within the scope of the debate, Mr Hoyle, but it is important. The Opposition have been quick to point out that although the Government cut fuel duty by 1p in the Budget, pump prices have increased by about 3p following the VAT increase. They appear to be implying that motorists would be better off under their plans for an escalator and a VAT rate of 17.5%, although of course we know that the right hon. Member for Edinburgh South West (Mr Darling) was planning to increase VAT himself. I suspect that they wish to use the amendment to prove their point.

It is simply not true that motorists would be better off under the previous Government’s tax plans, and let me be absolutely clear that even comparing the changes that we announced in the Budget with the previous Government’s fuel duty and 17.5% VAT plans, it is likely that on 1 April pump prices were 3p a litre lower than they would have been. Even after the two increases in fuel duty next year, average pump prices could still be about 1p a litre lower than they would have been under the previous Government’s plans. Cutting fuel duty and scrapping their escalator more than offsets the impact of the VAT increase, and I should not need to explain to Opposition Members that an increase in VAT was needed to cut the deficit that they left behind. They did not even have the political courage to vote against that measure, which they were so upset about—absolutely shameless.

In government, Labour Members ran our country’s public finances into the ground, and now, in opposition, they bring forward this feeble and unnecessary amendment. Dare they even push it to a vote? We will find out. I suspect that in the case of clause 19, it will be a case of another day, another abstention. The Government are providing motorists with a fair deal. Where the previous Government left tax rises, we have taken action, and I ask the House to reject the amendment.

[Kerry McCarthy]

We have had an interesting debate over the past couple of hours. It is notable that although we have had some significant and thoughtful contributions from my hon. Friends, not a single member of the Conservative party, apart from the Minister, or a single Liberal Democrat has felt the need to speak up for their constituents and talk about rising fuel prices. I am sure their constituents have lobbied them about it, but their silence in the Chamber today speaks volumes.

My hon. Friends the Members for Wirral South (Alison McGovern), for Gateshead (Ian Mearns), for Ilford South (Mike Gapes), for York Central (Hugh Bayley) and for North Durham (Mr Jones) have all highlighted the impact of the rise in fuel prices and of the Government’s decision—and it was the Government’s choice—to raise VAT from 17.5% to 20%. They described the impact on families’ living standards, on businesses in their constituencies, on the haulage industry and across the board.

The point is that the Minister’s view of the impact is short-sighted. She cited the impact of the measures in the Budget from 23 March to 28 March, which must be the smallest, most selective economic data ever cited in the Chamber. It would be interesting to know what happened after 28 March, to which she did not refer. She also tried to lead us down the garden path by talking once more about the fuel duty escalator, but she knows full well that the Opposition called for the Government to reconsider that in the Budget and welcomed the fact that they did so.

The debate is on the VAT increase, which the Government chose to introduce. We are asking simply that they publish an assessment, within three months of the Bill becoming law, of the impact of taxation on fuel prices. I do not think that that is too much to ask. I was surprised to hear the Minister say that we would not press the amendment to a Division, because I can inform you, Mr Hoyle, that we do indeed intend to do so. With that, I rest my case.

Question put, That the amendment be made.

12:05

Division 262

Ayes: 121

---

Labour: 112
Scottish National Party: 6
Democratic Unionist Party: 3

Noes: 277

---

Conservative: 242
Liberal Democrat: 34

Clause 19 ordered to stand part of the Bill.

[Mr James Gray (North Wiltshire) (Con)]

On a point of order, Mr Hoyle. I should apologise to you and the Committee for an inadvertent breach of the conventions of the House, namely that having chaired the Committee earlier this evening, I inadvertently forgot the convention that I should not vote. I have, in fact, voted twice in Divisions since then. I apologise for that oversight.

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

The Committee is grateful for that explanation.

Clause 7

Increase in rate of supplementary charge

[Malcolm Bruce (Gordon) (LD)]

I beg to move amendment 13, page 2, line 36, leave out ‘for “20%” substitute “32%”’, and insert

‘after “a sum equal to 20% of its adjusted ring fence profits for that period”, insert “increasing by 1 per cent. for every $5 by which the reference hydrocarbon price exceeds $75 subject to a maximum rate of 32%”.’.

[The Chairman]

With this it will be convenient to discuss the following: amendment 14, page 2, line 36, at end insert—

‘(1A) A reference price will be determined by an independent arbiter agreed jointly between the Government and Oil and Gas UK and will determine separate prices for oil, gas and condensates.’.

Amendment 15, page 2, line 36, at end insert—

‘(1B) The increased charge shall not apply to fields producing more than 90 per cent. gas. Where a field produces oil and gas the charge will be based on the price of oil equivalent taking into account the ratios of oil to gas produced.’.

Amendment 16, page 2, line 36, at end insert—

‘(1C) The supplementary charge may be abated or offset against the cost of investment to increase production.’.

Amendment 2, page 3, line 2, leave out ‘24 March 2011’ and insert ‘30 September 2011’.

Amendment 17, page 3, line 2, after ‘2011’, insert

‘and before 30 September 2012’.

Amendment 3, page 3, line 4, leave out ‘24 March 2011’ and insert ‘30 September 2011’.

Amendment 18, page 3, line 4, after ‘2011’, insert ‘or 30 September 2012’.

Amendment 4, page 3, line 8, leave out ‘24 March 2011’ and insert ‘30 September 2011’.

Amendment 19, page 3, line 8, after ‘2011’, insert ‘or 30 September 2012’.

Government amendments 11 and 12.

Amendment 5, page 3, line 27, leave out ‘24 March 2011’ and insert ‘30 September 2011’.

Amendment 20, page 3, line 28, after ‘2011’, insert ‘or 30 September 2012’.

Amendment 10, page 4, line 7, at end add—

‘(11) The Chancellor shall produce, before 30 September 2011, an assessment of the impact of taxation of ring fence profits on business investment and growth including an assessment of the long-term sustainability of oil and gas exploration in the North Sea.’.

Clause stand part.

[Malcolm Bruce]

The purpose of this group of amendments is to persuade the Government to engage with the oil and gas industry to ensure that no major new investment opportunities are lost. I will explain the purpose of the main amendments, and I very much hope that Ministers will respond in a constructive way, because these are intended to be constructive proposals.

The Government are on record as saying that they understand the need for stability in the fiscal regime, and the Chancellor has described this as a Budget for growth. It is worth saying, however, that in contrast to the cautious way in which the Government have applied new taxes to banks, which have squandered our resources to the extent that many of them had to be nationalised, it is quite harsh to apply a marginal rate of tax of 82% to our single biggest industry. It is an industry that invests in real infrastructure and real engineering, and it takes risks in regard to weather, geology, exchange rates and cost unpredictability, as well as taxation.

I accept that the current spot price of Brent crude, at $125 a barrel, allows for unforeseen profits, at least for some fields. However, that does not apply to gas fields or to fields with large quantities of associated gas and, as Ministers will know, that is not the price that many operators actually realise, as they often contract their production at an average well below the spot peak.

I say in passing that the link between the oil tax changes and the fair fuel stabiliser are tenuous. Many of the companies operating in the North sea have no retail division, and there is no direct connection between their returns and the pump price. Also, the Government are themselves the recipient of a windfall. According to the Library brief and, I think, the Red Book, North sea profits are running at between £1.5 billion and £1.9 billion per annum over the next four years. That is additional revenue that was not anticipated in the pre-Budget statement in November. The Government have also received a VAT windfall on pump prices, averaging about 6p a litre. However, my point is not that there is no case for additional contributions from North sea operators and field shareholders. I do not take issue with the Government about that. My point is that this should be done after proper consultation and taking due account of the complex character of the mature North sea industry.

I have monitored the industry for 40 years. Indeed, 40 years ago this September, I started work as research and information officer for the North East Scotland Development Authority. Towards the end of that year, 1971, BP announced the successful commercial test of a well, which turned out to be the discovery of the Forties field. However, it is interesting to note that, believing that it had reached the end of its useful life, BP sold the Forties field to Apache in 2003. Since its acquisition of the field, Apache has greatly enhanced recovery from Forties and sees long-term potential for its development. It is worth noting that Apache has been one of the most vigorous critics of the Government’s policies, and that it questions whether its investment will be fully committed or realised.

[Andrew Gwynne]

I accept the right hon. Gentleman’s points about the North sea, but will he acknowledge that it is not only the North sea that is affected by these measures? For example, gas is a major industry in the north-west of England, and only this week, we have heard of the decision to cease operations in Morecambe bay and the Irish sea. Does he agree that that would be catastrophic for the economy of the north-west of England?

[Malcolm Bruce]

That is a very fair intervention. Perhaps I am using the term “North sea” in a slightly generic fashion. The term “UK continental shelf” is a bit long-winded, but that is what I really mean. Perhaps the House will take that as read for these purposes.

The hon. Gentleman is right: Centrica, the operator in Morecambe bay and other gas fields, has indeed indicated that it might not be able to resume production in the current regime and with the current prices. That makes the point, which I hope Ministers will acknowledge, that it is important for the industry and the Government to come together and negotiate, in order to ensure that we do not lose investment and production that might otherwise be lost altogether.

[Mr Kevan Jones]

One of the arguments put forward by the Treasury is that the 82% tax rate to which the right hon. Gentleman has referred applies only to mature fields. Does he agree, however, that those mature fields still need investment if they are to continue to produce oil?

[Malcolm Bruce]

That was precisely the point of my illustration about Apache and the Forties field. It wants to invest, and I believe it will continue to invest, but it is actively reviewing the extent to which it will invest in the light of these tax changes, which clearly make the investment less attractive.

[Mr Mike Weir (Angus) (SNP)]

Will the right hon. Gentleman give way?

[Malcolm Bruce]

Before I do, I want to point out that today I received the Oil and Gas UK index of confidence in the industry, which is to be published tomorrow. It is not surprising to note that the index reveals a very sharp fall in confidence within the industry in the first quarter since the Budget. For example, exploration and production companies’ confidence has fallen from an index level of 71 in the fourth quarter of 2010 to 46 in the first quarter of 2011. Even the confidence of supply chain companies has fallen, albeit less so, from 61 to 54, and when asked why the fall was less sharp, they said it was because their business was now much more international and they expected to pick up business elsewhere that they would otherwise have lost in the North sea. That gives a clear indication that the industry is facing a loss of confidence as a result of these changes.

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Is the right hon. Gentleman happy with what his Government are doing in the North sea?

[Malcolm Bruce]

The fact that I am moving the amendment makes fairly clear what I think and what I am trying to do. What I am saying to the Government—[Interruption.] I accept that the Government have introduced a Budget that has made these changes. What I am trying to do is to get Ministers to understand that the industry is complex and that Government decisions might lead it to a review of investment, which could lose production, jobs and export opportunities. It is possible to retrieve the situation, however, if we have an active process of negotiation. Previous Governments have made the same mistake and realised the need to engage with the industry.

[Mr Robinson]

The right hon. Gentleman makes a fair point about the lack of consultation and involvement with the industry in this heavy change, which has been introduced on the hoof. The Economic Secretary, who is replying to the debate, having worked for three years as a senior executive in Centrica—a firm the right hon. Gentleman cited as having lost confidence—should have known better and realised the importance of consulting the industry beforehand.

[Malcolm Bruce]

At this stage, I am not here to attribute responsibility for the decision. My concern is—[Interruption.] With great respect, Members should acknowledge that, speaking as someone who represents a major North sea oil and gas constituency, I know my own industry and my own constituency. I also know the need for the Government to engage with the industry and I hope to persuade them that they can retrieve the situation to a degree by so doing.

Let me refer to a table that will appear in the UK Oil and Gas publication tomorrow. It shows something of which Labour Members should be fully aware—the correlation with the past. Interestingly enough, in 2009, North sea oil prices peaked at $145, yet within 12 months they were down to $35. At that peak level of production, investment had fallen £3 billion a year as a direct result of negative tax changes in 2006. The time lag, Ministers should be aware, is two to three years, after which investment falls away; it is then several years beyond that when we see job losses, lost investment and lost opportunities.

[Mr Weir]

The hon. Gentleman makes a good case, but he will know that it is not just the immediate impact that is important. With these mature fields, we need to make sure that the infrastructure remains in place, particularly if we are serious about carbon capture and storage, for example, which relies on much of the infrastructure from depleted fields in order to work in the North sea.

[Malcolm Bruce]

That is a perfectly valid and fair point, and it is clear that Ministers across all Departments understand it. What I am anxious for Ministers to appreciate is that the complexity of the industry in its mature phase, the number of different players and their variable requirements all require active negotiation. Across-the-board changes in taxes without that negotiation will lead to a loss of investment and lost projects.

[Several hon. Members]

rose—

[Malcolm Bruce]

Let me make some progress.

With an oil price of $125, people will often say, “Most projects in the North sea are viable.” Well, yes they are, but the industry has to compete for other projects around the world where the price is also $125 yet where the tax regime is more attractive and the risks lower. That must be taken into account in negotiation, because it is the basis on which investors in the mid-west of the United States, or in other parts of the world, will decide whether to back projects in the United Kingdom continental shelf or elsewhere.

[Dr Eilidh Whiteford (Banff and Buchan) (SNP)]

The right hon. Gentleman has rightly drawn attention to the loss of confidence in the oil and gas sector that has resulted from the Government’s policies. How does he think that it can be restored? Trust is what has been lost, and no matter what negotiations may achieve, what will be hardest will be restoring that trust in the industry when it comes to future investments.

12:30

[Malcolm Bruce]

That is precisely why my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) and I tabled the amendments. We want Ministers to begin in the process of building that trust.

The Government have made their case for this change and have defended it robustly on a number of occasions, but that is not the response that we need tonight. They have made their decision and I do not expect them to reverse it, because the Budget depends on it. What I expect them to do is engage with those in the industry, to explain the position to them, and to negotiate in detail on allowances and other flexible ways of ensuring that oil and gas that would otherwise be lost continue to be produced.

[Helen Goodman (Bishop Auckland) (Lab)]

I understand that the right hon. Gentleman seeks flexibility on the part of Ministers and is trying to persuade them of the value of his case. If the Government give him a negative response, will he still vote with them at the end of the debate?

[Malcolm Bruce]

I think the answer is that I want to hear what the Minister has to say.

[Mr MacNeil]

Answer the question!

[Malcolm Bruce]

Hang on a minute. We have had a series of debates tonight, and have heard a number of lengthy speeches, not all of which have contributed much to the argument. We are now engaged in a very material debate about the most important industry that we have, and in a serious attempt to persuade the Government to engage, piece by piece, with the industry and rebuild the trust which, as was rightly pointed out by the hon. Member for Banff and Buchan (Dr Whiteford), has been damaged and needs to be repaired The industry was very pleased that the Economic Secretary engaged with it soon after her appointment and went offshore. It is important for her not to lose that good will, and to demonstrate that she has that degree of understanding. I am sure that she will do so, because I think that she has learned a great deal from her experience.

[Mr Anderson]

Will the right hon. Gentleman give way?

[Malcolm Bruce]

I want to make a bit more progress.

The Government have made their case, and have defended it. I am simply asking them to consider the real and legitimate concerns of the industry, to look at the independent assessments, and to accept that there is a danger of losing as much as £20 billion of investment and between 1 billion and 2 billion barrels of production over the next 10 years or so. That is a Forties field that we would simply discard. It would be a huge loss, and it would be very significant in the context of the British economy. If that investment is lost—or, indeed, secured—future jobs, export opportunities, imports and future tax revenues will be affected. They all hang on the restoration of that trust, and on the industry’s being persuaded to invest in the marginal projects that might be put at risk in the absence of negotiation.

[Malcolm Wicks (Croydon North) (Lab)]

Will the right hon. Gentleman give way?

[Malcolm Bruce]

I will give way to the former Minister.

[Malcolm Wicks]

The right hon. Gentleman is making a very thoughtful speech. Does he agree that there is a geopolitical and a national security implication? With global demand for energy increasing by a third or more over the next two decades, at the very time when the United Kingdom is becoming more dependent on imports, is it not important from a national security point of view for us to look after and nurture the North sea, and for that to have an impact on our fiscal treatment of North sea gas and oil?

[Malcolm Bruce]

It certainly is. The United Kingdom continental shelf has the potential to supply up to 70% of our requirements for quite a few years ahead. It is a more secure source, geographically and practically, than other parts of the world where the politics are uncertain. Given a high oil price, the Government, the industry and the economy can all benefit if we get the balance right, and can all lose if we get the balance wrong. It seems to me that negotiation is the way forward.

Let me explain how the amendments address some of the industry’s specific concerns. On amendment 13, the Government stated in the Budget that they will reduce the supplementary charge back to 20% on a “staged and affordable basis”. That is a welcome approach, but it would be more welcome if the charge had also been raised on a staged and affordable basis, instead of having a sudden 22% step increase. The amendment therefore proposes a graduated levy, increasing by 1% for every $5 the oil price rises above the Government’s arbitrary set trigger price of $75, up to a maximum of 32%. I stress that these amendments express the proposals of myself and my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) as to how this could be done in a staged manner; they are not the amendments of the industry, although it is aware of them.

Amendment 14 sets up the basis for calculating the reference price. The Government seek to choose the spot price, but as I have said, few producers actually receive anything close to that. Indeed, it is not clear what calculations of what price the Treasury has made in determining its revenue projections. The amendment therefore proposes that there should be an independent mechanism for calculating a reference price, based on what producers actually receive. That would give predictability to the process and ensure that the tax base would adjust more smoothly when prices are volatile. I do not expect the Government to accept this proposal, but I hope they will accept that it is a constructive contribution to how an escalator could work both up and down, and in ways that would give the industry a lot more predictability than the Budget proposals as they stand.

[Dame Anne Begg (Aberdeen South) (Lab)]

I am very interested in what the right hon. Gentleman has to say, but would not what he is proposing have the opposite effect to what he has suggested, in that it will make things less predictable? The oil and gas price is already volatile, and to add in this extra unpredictability would make that 10 times worse.

[Malcolm Bruce]

No. I have listened carefully to the case Ministers have made, and it is important to acknowledge that Ministers are looking at a very high spot price and saying, “This is in excess of what the industry planned for, and there is a case that it should make a contribution to the economy.” I do not find that a totally unacceptable proposition, but I am concerned about it being introduced in a sudden bite from 20% to 32% and with no consultation or warning. What I am proposing is not an ideal; this is, perhaps, not where I would start from, but given where we are, it would be greatly preferable if it were to change in easily managed stages up and down, as that would enable the industry to predict where it would be and what level of taxes it would face. The alternative, which would not be very acceptable to the Treasury to pursue, is that it would go up on the basis of the $75 reference price to 32%. Are the Government really going to be comfortable, if the price falls to $69.95, to take it all off? I suspect not, and the industry suspects not. Even if the escalator up is not very well received by the Government, it is important that they try to ensure that it comes down on a predictable basis, because I think many in the industry feel it might never come down.

[Stewart Hosie]

I take it the right hon. Gentleman is not unhappy that tax levels are sensitive to profit, and I think that is perfectly reasonable, but why does he think that Ministers fail to understand that investment decisions are sensitive to tax, and why does he think Ministers fail to understand, notwithstanding the spot price, that the cost of extraction varies depending on the depth of the water, where we are in the North sea and even the type of oil that is being brought up?

[Malcolm Bruce]

I think, hope and believe that Ministers do understand it. That is one reason why I believe that if they do engage constructively with the industry we will get some progress and reforms that will enable the confidence to be restored and investment to be brought back.

Amendment 15 acknowledges the fact that the gas price is well below the oil price and the Government’s own trigger price of $75; $55 to $60 seems to be the average sort of price. The industry should not be facing the charge at all. There are also a lot of fields that have associated gas—in some cases quite significant amounts—so this amendment simply suggests that that should be taken into account. One way to do that would be to tax the gas produced and the oil produced separately, and another would be to aggregate the two and take the average price; either way would be fairer. As has been said, Centrica is indicating that the UK does not look like a good prospect for it; the company is clear that it wants to diversify its investments elsewhere in the world, and that would be to our detriment.

[Mr Robinson]

A series of reasoned and reasonable amendments stand in the name of the right hon. Gentleman and that of the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith). Does he realise that the impression that would be left were he bought off tonight by some sweet sounding but meaningless words from this Tory-led coalition is that the Liberal party has a lot of responsibility but, sadly, absolutely no influence in the decisions being taken?

[Malcolm Bruce]

Time will tell—that is all I can say to the hon. Gentleman. My hon. Friend the Member for West Aberdeenshire and Kincardine and I together probably represent more oil and gas jobs than any other Member, except perhaps for the hon. Members for Aberdeen South (Dame Anne Begg) and for Aberdeen North (Mr Doran). It is important to point out that our areas account for only about a quarter of the oil jobs in the UK, as many of the jobs are in London, the north-east and elsewhere—

[Mr Angus Brendan MacNeil (Na h-Eileanan an Iar) (SNP)]

Tell us more.

[Malcolm Bruce]

Indeed, some are even in Stornoway. It is important that this is seen to be a national industry.

I have debated oil and gas in this House for 28 years. I have seen every Government make the same mistake and I am disappointed that the present Government have done so, but I have also seen every Government engage and reach an understanding because they have learnt the complexities of the industry. All I am asking is that this Government engage in the same constructive way and that we reach a position where we get the balance right. The amendments seek at least to provide a framework for the sort of conversations that should take place between the Government and the industry.

[Mr Robinson]

I do not wish to delay the House, but I must ask the right hon. Gentleman: when did the Labour Government of 1997-98, in which I had some responsibility for sounding out and consulting the industry, make any mistake such as has been made by this Government? We simply did not do so. We talked to the industry; I met John Browne and he explained the situation. Although we were prepared to do so, we did not even get into any formal consultation because he convinced us in the initial soundings that it would be the wrong move to make.

[Malcolm Bruce]

The evidence suggests that sudden step changes to taxes have been made by successive Governments and they have had the same effect: a drop in investment. [Interruption.] No, it has happened under Labour too—the party was in power for 13 years. The figures produced by Oil & Gas UK show that the last time this happened, capital investment dropped by £3 billion per annum over the subsequent three years, and that is a huge sum. Although negotiating field by field is a long drawn out and time-consuming process, too complicated for some investors, who will go elsewhere, that is preferable to simply standing one’s ground and waiting for the worst to happen.

I hope that the Government will acknowledge that some projects are bound to be delayed or cancelled because the rates of return after the tax changes make them simply unviable. If the companies can negotiate to demonstrate to the Government the level at which such projects would become viable, which requires both parties to show their hands, capital allowances or other mechanisms could be brought into play in ways that would benefit both the Government, because the investment, jobs and spin-off could be secured, and the companies, because they would be able to develop viable projects, which of course will subsequently pay taxes to the Government.

[Mr Kevan Jones]

Will the right hon. Gentleman give way?

[Malcolm Bruce]

No, because I wish to make progress and reach the end of my remarks.

The final amendments in the group would delay implementation. The only purpose of that—this relates to the intervention from the hon. Member for Coventry North West (Mr Robinson)—would be to use the time to negotiate and decide whether or not we could come up with a slightly more sophisticated mechanism to meet the needs of the industry.

The amendments, taken together or in part, set the framework for the sort of concerns that the industry has and how it would like to engage with the Government. The one comment that everybody I have spoken to in the industry has made to me in the past week or two is, “Whatever else you do, can you just persuade the Government that we need to talk to each other? If we do that, we have a fair chance of getting a settlement that will not prejudice too much investment.” Ministers will notice that the rhetoric has calmed down on the oil and gas industry’s side, because people there actually want to talk.

I hope that the Government will acknowledge that this is a real concern for a substantial industry. I hope that they will also acknowledge that if it can be demonstrated that there has been negotiation, although it will not completely wipe out the shock of a sudden increase, it will, I think, show that the Government are serious in understanding that this is our biggest industry, that it has huge potential and that it still has a big future in this country.

12:45

It is important that the Government back up the Budget’s rhetoric by saying that we are open for business, we want to encourage investment and we understand that the tax regime is relevant. The Government will accept, after all, that we are keen to encourage other new industries to develop in the UK, such as those that provide renewable energy, and they need to know that whatever the price regime or tax regime to which they are being committed, it will have predictability and stability in the long term. I accept that the Government have made this decision, but I urge them to engage constructively with the industry. If they do, the whole country will benefit.

[Kerry McCarthy]

It is always a pleasure to follow the right hon. Member for Gordon (Malcolm Bruce). He has made an eloquent case on behalf of his constituents, who are directly affected in more ways than most people by the Government’s proposal to increase the supplementary charge on North sea oil to 32%. Amendment 10 simply asks the Chancellor to produce, before the end of this September, an assessment of the impact of taxation of ring-fenced profits on business investment and growth, including an assessment of the long-term sustainability of oil and gas exploration in the North sea.

The amendment should not be at all controversial, although we saw in the debate on the last group of amendments that the Government were not happy to be asked merely to produce an assessment of the impact of that policy. That is surprising because, after all, the Government say that they want more consultation and more transparency in their tax policy making. They say that they will—I am quoting their tax policy making document—

“embed impact analysis in the policy development process”

and

“integrate impact analysis into the consultation process.”

Those are both the kind of sentences that one has to read several times before one can work out quite what they are on about, but my understanding is that the Government are trying to say that they want more transparency and consultation. We have had to table amendment 10 because, in reality, none of that has happened.

The Government are right to consider increasing taxation on sectors of the economy that are enjoying windfall profits. We did the same when we were in government. There is an urgent need to deal with the fiscal deficit that is recognised on both sides of the House, and it is right that we should ask for more from those who are able to pay, but this change has been rushed through without consultation, as the right hon. Member for Gordon said, surprising the industry, and inevitably it has fallen down at the first scrutiny.

If the Economic Secretary had consulted representatives of the industry, they might have told her that the stability and predictability of the North sea tax regime is important for investment. Oilfields are long-term investments that require long-term certainty and stability to attract investors. The industry believes that the value of investments in UK oil and gas has fallen by 24% as a result of the 2011 Budget. That will cause long-term damage to the industry’s trust in the Government for short-term political gain.

I agree with the Select Committee on the Treasury, which said:

“The decision to increase the supplementary oil and gas levy by 12% without warning, less than a year after the Government had undertaken to provide a ‘stable’ tax regime in the sector, may weaken the Government’s credibility in seeking to establish a stable tax regime in this and other areas.”

[Andrew Gwynne]

My hon. Friend is making an excellent point. Given the concern I raised earlier about people in the north-west of England who work in the industry, particularly in relation to Centrica’s decision about Morecombe bay, does she find it all the more surprising that the Economic Secretary once worked for Centrica?

[Kerry McCarthy]

My hon. Friend makes a valid point. I wonder what the current sales and marketing finance manager for Centrica thinks of the actions of the holder of that post from 2002 to 2005, and what experience the Economic Secretary had during her three years working for the company that has caused her to turn against it in such a fashion.

As I was saying, there is a real requirement, as the Treasury Committee has noted, for a stable tax regime in the sector. The Chartered Institute of Taxation has said that

“the last minute and precipitate change in Oil tax rates for an industry that is particularly dependent on long-term planning seems wrong”.

Does the Minister agree?

The threshold chosen by the Government may also be a problem for stability. The average oil price in 2008 was $100 a barrel, but in 2009 it was $60 a barrel and in 2010 it was $80 a barrel. If prices carry on fluctuating above and below the $75-a-barrel mark, as they have over the past three years, the uncertainty about the tax rate and whether companies will be caught by it could drive more investment away from the UK.

Had the Economic Secretary consulted the industry before the Budget, it might have reminded her that the supplementary charge applies to gas as well as oil. Gas prices are on the rise, but at less than 60p a therm they are still significantly below the Government’s $75 a barrel trigger price on an equivalent basis. In the UK, gas prices are less closely correlated with oil prices than in other jurisdictions, where there are often still contractual links between the two. Whereas oil prices are set by the global market, gas prices are more localised. Graham Parker of the Office for Budget Responsibility told the Treasury Committee quite recently that gas prices were “quite variable” so even if the Government think they have chosen the right level for oil, they might have set the balance wrongly for the gas sector. That could be disastrous given that gas accounts for 46% of the North sea industry’s production.

[Mr Kevan Jones]

Does my hon. Friend find it remarkable that such a decision should have been taken in such haste that the Treasury did not realise that that issue relating to the difference between oil and gas prices would arise?

[Kerry McCarthy]

Certainly, when I met Oil & Gas UK, it was very surprised and seemed to be of the view that the Treasury had forgotten that gas would be affected by the measures. The policy is very much back-of-a-fag-packet stuff. It seems that, in a knee-jerk reaction to the rise in public concern about petrol prices, the Government felt they had to act on that front, and so had to came up in haste with some sort of mechanism to raise revenue to fund the 1p cut in fuel duty. The effect on gas is an important issue, and the cost could end up being passed on to ordinary people in their gas bills, either because the increase itself is passed on to consumers or because UK gas production drops, meaning that we have to import more gas from abroad.

Had the Minister consulted the industry prior to announcing the measure in March, it might also have reminded her that when the previous Government increased North sea taxation, they introduced measures to promote investment alongside that change. When we introduced the supplementary charge in 2002, we also introduced a 100% first-year allowance for capital expenditure in the North sea. That not only provided a buffer for companies to make the transition to the new regime but encouraged investment in UK oil and gas fields. When, in 2005, we increased North sea taxation again, we allowed further flexibility on the capital allowance. To maintain the stability of the tax system, we also gave a commitment not to increase the tax again in that Parliament. I wonder whether the Minister can echo that commitment today.

It was right to increase taxation on oil and gas at a time of windfall profits, and now is also such a time, but we were conscious of the need to create stability for the industry and to maintain investment for the future. If this Government had thought their changes through, they could have taken a similar approach, but instead the effects of their hasty and ill thought out decision are already being felt. We have heard the reports about disinvestment in the industry. Centrica, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) has mentioned, has hinted that it might decide not to reopen its Morecambe Bay field, which produced 6% of the UK’s annual gas requirement. I wonder what the Minister’s former colleagues have to say about that. Statoil has suspended $10 billion-worth of investment in the Mariner and Bressay oilfields, which together hold reserves of 640 million barrels of oil. Research from Aberdeen university has gone further, suggesting that over the next three decades the Government’s tax change could slash oil and gas investment in the UK by £30 billion. Production could be reduced by up to a quarter, leaving the UK more reliant on imported oil and gas.

This debate is not just about the profits of oil and gas producers. The oil and gas industry directly and indirectly supports 440,000 jobs in the UK. There are reports that at least 40,000 of those jobs are at risk because of the Government’s action, at a time when 2.5 million are unemployed, including an increasing number of people who have been out of work for longer than a year. The Government have a responsibility to act with extreme caution before putting those jobs at risk.

[Mr Kevan Jones]

Does my hon. Friend agree that many people in the north-east who were previously made redundant from shipbuilding yards, for example, travel regularly throughout the UK and internationally to work in the oil and gas industry? Surely the Government’s proposals will affect those people, who have come to rely on home-based employment and travelling overseas, in some cases long distances, to support their families?

[Kerry McCarthy]

My hon. Friend makes an important point. The jobs being lost are in areas where there is little other employment. As he says, people in the area he represents have been affected by the decline in other traditional industries under the last Conservative Government. Now they are being hit by a double whammy with their jobs in the oil and gas sector being put at risk.

[Dame Anne Begg]

Does my hon. Friend agree that the best way to deal with the deficit is to grow the economy? The industry was growing and investing, but that growth and investment could be put at risk as a result of the measures.

[Kerry McCarthy]

Precisely. We come back to that time and again with this Government. They are looking at the very short term for quick revenue gain or political gain, not taking a longer-term approach. The point should not have to be made that if the Government want to encourage growth in the private sector, which they are always talking about, they need to encourage investment and have the right economic climate for that investment to take place. If the tax regime is not stable, that is put in jeopardy.

I accept that it may not be possible for the Government to consult widely on every tax policy. There is a balance to be struck between robust scrutiny and consultation and the Government’s freedom to act when necessary in the national interest, and consultation may flag up to certain companies that they ought to engage in tax avoidance measures, but in this case, the Government not only ditched their brand new tax policy framework, but went back on specific assurances to the oil industry.

The previous Government had formed a good working relationship with the industry, which may now be damaged. After a meeting in 2008 between the then Prime Minister and Chancellor and the oil and gas industry, the Government consulted with the industry to develop a package of new measures to revitalise investment in UK oil and gas reserves. Those were announced in the 2009 Budget and included the new field allowances and other incentives for companies to invest in the UK’s smaller and more difficult fields. Such close working together is vital to the stability of the tax system for North sea oil and gas. Unfortunately, it will become more difficult if the Government cannot restore trust with the industry.

Although it sounds hard to believe, as I said earlier, last year the Government created new golden rules for themselves to make tax policy more predictable, more stable, and more transparent. We can only conclude that the Government have ditched those rules altogether, just a year after taking office, because we cannot see how Treasury Ministers are

“committed to providing clarity and certainty on the future direction of tax policy.”

The industry body for the UK oil and gas industry agrees with us, saying that the measure has damaged the industry’s confidence and trust in the tax regime. I cannot see either how the Treasury still believes, as it said last year, without a hint of irony, that consultation is

“an integral feature of all policy making”,

which

“helps ensure that changes are well targeted and without unintended consequences, and that legislation is right first time.”

What happened to that statement of intent from the Government? Clause 7 is a perfect example of a policy for which there was no consultation. As a result, it is poorly targeted, has potentially serious unintended consequences for the industry, and is certainly not a policy that they got “right first time”, and all because the Government did not consult on their decision.

01:00

The Government also called specifically for tax stability for the oil and gas industry. In the last Budget, their only message to industry was that they recognised the importance of a stable and fair UK oil and gas tax regime that provides certainty for business. In 2009, the then shadow Chancellor even told the industry in Aberdeen that he would fix the oil and gas tax regime for the lifetime of the remaining reserves in the North sea. After all those fine words, why have the Government ended up hitting the panic button on oil and gas? Were they scrambling for a quick response on fuel tax after their last idea failed to stand up to scrutiny?

Before the election, the Conservative party told voters that it would consult on a fair fuel stabiliser. It said that it would ensure that families, businesses and the whole British economy were less exposed to a volatile oil market. The Prime Minister was very clear about how that would work:

“Our plan is to say when the petrol price goes up the tax should come down. Sadly that means when the price goes down the tax would have to go up but at least it would give you certainty as you go about your lives.”

He said that it would

“help with the cost of living by trying to give you a flatter and more constant rate for filling up your car.”

The then shadow Chancellor was also very clear that that would be delivered in the Government’s first Budget.

[Mr Kevan Jones]

The Economic Secretary said in her winding-up speech on the last group of amendments that the result of the Government’s policy on fuel duty has led across the board to a 0.8p reduction in the price of fuel at the pumps. Is that really a price worth paying for the effect it will have on the oil and gas industry?

[Kerry McCarthy]

The Economic Secretary said that it had led to a drop of 0.8p at the pumps between 23 March and 28 March, which seems very selective. It is clear now that petrol prices at the pumps have gone up and that the Government have gained very little from their approach.

In the run-up to the general election, both the current Chancellor and the current Prime Minister were clear that they would deliver on a fuel duty stabiliser. Voters were led to believe that the Government could and would act on that. However, in March, as we approached the Government’s second Budget, the Opposition pointed out that the fair fuel stabiliser was still nowhere to be seen. Even with fuel prices rising above £6 a gallon, due to the rising price of oil—the very situation that a stabiliser was meant to help with—the Government had still been unable or unwilling to act. That was because their original plans would never have worked.

The Conservative party had believed that rising oil prices led to higher tax revenues for the Government, which could then be shared with motorists. It turned out that, just like the proposals we see in the Bill, they had been poorly thought through. They were told that they were wrong not only by Labour Members, but by the Institute for Fiscal Studies, which stated that

“the claim that the Treasury receives a windfall gain when oil prices rise that it can “share” with motorists is incorrect.”

They were told that they were wrong by the chair of the Office for Budget Responsibility, Robert Chote, who said it

“would be likely to make the public finances less stable rather than more stable.”

They were even told that they were wrong by the current Secretary of State for Business, Innovation and Skills, who said before the election that the fair fuel stabiliser would be

“unbelievably complicated and unpredictable.”

[Justine Greening]

The hon. Lady is providing a critique of our policy, but her party has just decided not to oppose our fuel duty reduction, which, compared with what they proposed for the public finances, represents a difference of approximately 6p per litre. How does she propose to pay for the change in fuel duty that she has just not voted against?

[Kerry McCarthy]

The Minister is trying to return to the topic we debated in the previous group, so perhaps she should have been a little quicker and thought up her intervention then. I am talking now about stability in fuel prices and the empty promises the Government made to the electorate in the run-up to the election that they would be able to do something to stabilise fuel prices at the petrol pumps.

Representatives of the oil and gas industry tell us that as recently as February the Government were giving assurances that they wanted to keep the North sea tax regime stable, as they had said in their previous Budget, but between February and April they very swiftly changed their mind. Perhaps the Minister can tell us why? What caused the Government to have such an urgent rethink on the fair fuel stabiliser? Many of us suspect that the increased scrutiny that the Opposition brought to bear on the Government’s policy might have prompted them belatedly into action—action they would have realised much sooner was needed if they had only done their homework and listened to what people were trying to tell them.

Inevitably, given the panicked way in which it was put together, the Government’s new version of the fair fuel stabiliser is equally as half-baked as the proposal put forward before the election. As a result, potentially tens of thousands of jobs, as well as billions of pounds worth of investment, are at risk, and the Government have broken their commitment to stable, consultative tax policy making.

[Andrew Gwynne]

My hon. Friend is making a superb case about the short-termism of the Government’s approach. Is she not absolutely right to point out that, in a short-term fix on gas and oil, this discredited Government are going to risk jobs, industry and investment in this country?

[Kerry McCarthy]

Again, that is a very good intervention by my hon. Friend. The industry needs stability and long-term investment, because we cannot dig an oil well or develop an oilfield overnight, yet the Government are creating uncertainty that will send investors off to other countries where the tax regime is more stable.

The Government have also completely damaged the trust between themselves and the industry, and that is why we have tabled our amendment. We simply call on the Government to do what they said they would do before making major tax changes: carry out a proper assessment of the impact, so that we can scrutinise it and have transparency. The Government were right to look towards North sea oil and gas to ensure that the burden of taxation was fairly spread, but without stability tens of thousands of jobs could be at risk. For the Opposition, that is not a price worth paying for short-term political gain.

[Stewart Hosie]

The right hon. Member for Gordon (Malcolm Bruce) said in his opening remarks that the Government wanted the UK to be seen to be open for business. That is a very good objective, but the problem is that an 81% marginal rate of tax on anything, and the instability caused by a shock 60% increase, puts at risk their stated aim of promoting the UK in that way.

The right hon. Gentleman made the point about investment, and investment levels are unchanged generally, but there is now less focus on frontier developments than on investment in the mature North sea, and that is a huge concern. The 60% rise in the supplementary charge that was created, it is told, by the Chief Secretary to the Treasury—whom I see leaving the Chamber barely at the start of the debate—was the most damaging thing that the Government did in the Budget.

The Government will take £2 billion a year extra in tax from the sector, on top of the £4 billion windfall that they got last year, to which the right hon. Member for Gordon referred, and on top of the windfall that they will get this year—2011-12—over the 2010 forecast. All that runs counter to the Chancellor’s stated objectives of tax stability, delivering a growth agenda and production here in lieu of imports.

Let us remember that when that bombshell was announced, leading industry members reportedly met in a state of disbelief about the Government’s plans. There were immediate reports about the threat to some 40,000 jobs. Statoil immediately announced the suspension of the Mariner and, possibly, Bressay investments, and it was argued that a slowdown in North sea activity would increase the UK’s reliance on imported oil and gas, with the consequence of an even higher balance of payments deficit and the corresponding impact of a suppression of GDP growth.

On tax receipts, Alan Booth, the chief executive of EnCore Oil, rightly said:

“Undeveloped and undiscovered oil and gas pays no taxes,”

and it got worse, of course, because Valiant immediately announced that it was not going to invest in its £100 million project, saying that it was

“no longer viable because of the surprise Budget move.”

Chevron warned that there would be “unintended consequences”, and let us remember that Oil & Gas UK was very clear when it said that the measure had

“shaken investor confidence to the core.”

The right hon. Member for Gordon said at one stage that Ministers had robustly defended their position. I do not believe that they have. When these fears and concerns were put to the Chancellor, a Treasury spokeswoman said:

“Mr Osborne did not expect investment to be damaged.”

That is not a robust defence of a position; it is intransigence and a failure to understand the consequences of the actions that the Government had undertaken.

There are other consequences. Jim Hannon from Hannon Westwood, the drilling analysts, said that 30,000 people could lose their jobs if exploration activity dropped by merely 15%. The detailed work by Professor Alex Kemp—I will not go through it in detail but it is well worth everybody in the House reading it—has warned that up to 2 billion barrels of oil and the equivalent amount of gas could be left in the North sea, untaxed and unused. Derek Leith from Ernst and Young has warned of projects being delayed and cancelled, saying that the Statoil decision was

“only the tip of the iceberg…There are a lot of companies that will not pursue projects but will not go public about it.”

[Mr Kevan Jones]

Does the hon. Gentleman agree with the point made by my right hon. Friend the Member for Croydon North (Malcolm Wicks) about the national security implications of this? At a time when other mature oilfields around the world have investment going in to extract the last bits of oil, leaving large reserves of untapped oil in mature fields is not only financially incompetent but dangerous in terms of national security.

[Stewart Hosie]

In terms of energy security it is very foolish indeed.

This is about not only the increase in the supplementary charge but restricting access to decommissioning tax relief, and that could accelerate the decommissioning of essential infrastructure. Had these ludicrous plans been in place in the past, the Forties field might not have been passed on to provide a decade or more of additional oil. Had the infrastructure which will now be decommissioned more quickly been decommissioned at that speed in the past, the new entrants, the new technology, the sideways drilling and the ability not to take 30%, 40% or 50% of a well would not exist. Once the wells are capped and the infrastructure is gone, it is gone for good.

As well as energy security, there is the question of the future of carbon capture and storage. The last Government failed to make a decision quickly enough on the Peterhead CCS scheme, which was going to use the decommissioned Miller plumbing to pump the carbon dioxide into holes in the ground. If we restrict access to decommissioning relief, we risk being unable to use that plumbing and infrastructure not only for oil extraction but for other purposes.

The hon. Member for Bristol East (Kerry McCarthy) referred to investments in the UK continental shelf falling by 24% overnight at the time of the decision. The scale of the impact was also explained in the recent research by Professor Alex Kemp in which he revealed that the tax increase could reduce UK oil and gas investment by up to £30 billion and production by up to a quarter over the next three decades. For last week’s Second Reading debate, we had additional information from Centrica that provided a detailed assessment of the problem in relation to gas. It said that the annual cost to the UK economy could be up to £8 billion per annum by 2013, that the decision could influence investor sentiment in other sectors, and that up to £100 billion of energy investments and associated jobs could be put at risk. That would be catastrophic if even a fraction of it came true. The UK needs sustained and sustainable above-trend growth, and we will not get it if we undermine the main investing industry in the UK. That would be incredibly stupid.

As I said on Second Reading, we should listen to Oil & Gas UK, Statoil, Valiant, EnCore, Chevron, Hannon Westwood, Professor Kemp, Ernst and Young, and Centrica. Those warnings did not start the day after the Budget and then stop; they kept on coming. It is inconceivable that all those major players and analysts in the sector are wrong, and that the Chancellor and the Chief Secretary, uniquely, are right. That is almost impossible to believe. Of course the warnings have not stopped.

01:15

Members have mentioned Centrica and the Morecambe bay possibilities. Let us look at the short statement from Centrica:

“Following the increase in the Budget, UK oil and gas producing fields are subject to some of the highest levels of tax in the world—our South Morecambe field is now taxed at 81 per cent. At these higher tax rates, Morecambe’s profitability can be marginal.”

That is particularly true if gas falls below 60p a therm. The statement continues:

“Accordingly, we may choose to buy gas for our customers in the wholesale markets in preference to restarting the field”.

It is extraordinary that we have decisions in a Budget that will lead to the importing of oil, possibly from insecure sources and at greater cost, and will also undermine investment and jobs here when it is not necessary to do so.

[Andrew Gwynne]

The hon. Gentleman has made a superb point about the Morecambe Bay gas field. Is it not crazy economics that that investment will be lost to north-west England, which has some of the most deprived communities in the United Kingdom? We need to nurture the investment in the Morecambe bay gas field, not drive it away and import gas from abroad.

[Stewart Hosie]

I could not agree more. This is not just about Scotland, but about the entire UK continental shelf and the 440,000 people who are employed throughout the UK, including in East Anglia, off the north-west coast and elsewhere.

As I said—this is important—the warnings did not end a day or two after the Budget; they kept on coming. The most comprehensive analysis of the problem is in the 2011 international annual energy survey, which will be launched at the offshore technology conference in Houston, Texas this weekend. It is conducted by Maxwell Drummond, the industry employment specialist, which covers 100 international directors from all energy sectors. It says:

“the Coalition Government’s ‘supplementary charge’ on oil and gas production, projected to add an extra £2 billion to Treasury coffers, significantly and immediately impacted on global perceptions of the already challenging North Sea environment.”

If the international energy markets are warning of significant and immediate impacts, if there is a threat to tens of thousands of jobs, and if there is a threat to tens of billions of pounds of investment, the decision is clearly wrong.

[Dame Anne Begg]

Does the hon. Gentleman agree that because the UK continental shelf is now a mature province, many of the decisions on investment in the province are no longer taken in Scotland or London, but in Houston, Calgary or elsewhere in the world, and that the international perception of the tax regime is therefore crucial when such decisions are being made?

[Stewart Hosie]

That is absolutely right. I said when I intervened on the right hon. Member for Gordon that of course taxation needs to be sensitive to profitability, but that Ministers also need to understand that investment decisions are sensitive to tax and other costs. Although the field is mature, some of it is unexplored. If the perception is that it is expensive and that there is tax instability—which has been said—we will lose the ability not only to continue work in some of the mature fields, but to explore as yet untapped reserves, albeit in a mature sector.

As I have said, this is the most damaging measure in the Budget for economic growth. Although I respect the attempts to amend it and the tabling of amendments for the Government to discuss, we think that it is so damaging that we hope Mr Hoyle will be able to call on hon. Members from across the Committee to resist clause 7 very vigorously indeed.

[Sir Robert Smith (West Aberdeenshire and Kincardine) (LD)]

I remind the Committee of my entry in the Register of Members’ Financial Interests as a shareholder in Shell, and of my wider interests in the oil and gas industry.

The oil and gas in the North sea belongs to the nation, but unless we have a regime that attracts experts with the finance and knowledge we need, we will not benefit from it. One of the amendments before us would restrict the tax raid to a year, to ensure that the Government and industry can engage in constructive dialogue that will encourage investment. It is important to restore confidence in the tax regime. Following previous supplemental changes, Governments had to work very hard to restore confidence and bring back investment, with field allowances and other incentives. They engaged with the industry and provided assurances that once the tax change had been made at the beginning of a Parliament, it would not be revisited until the next election. There is scope for restoring confidence, but some hard work will have to be done.

The Government need to address some of the arguments that are being made, particularly the one advanced by my right hon. Friend the Member for Gordon (Malcolm Bruce) about what individual investors are getting for their investment. It has been put to me that people made a decision to invest last June, but now the price of oil is $125 a barrel. If they decided to invest and then hedged for this year at $88, they are not getting $125, because the hedge fund is getting the profit. I do not see a tax being brought in on hedge funds; instead, it is being imposed on the people on the ground doing the hard work, on the skilled labour and on the knowledge and risk-taking.

When we talk about windfalls, we have to be slightly careful in the case of an industry with a fluctuating commodity price. When the price goes up it makes more profit and when the price goes down it makes less, but Governments tend not to say, “We’re a bit concerned that the price has fallen, so we’re going to cut the tax.” If there is a one-way ratchet, that causes uncertainty and concern in the minds of investors.

Amendment 13 suggests that if there is a desire to have a profit-related tax that varies with the price of oil, there should be some predictability to it. The hon. Member for Aberdeen South (Dame Anne Begg) said that it would cause complication, but that complication could be factored into new financial modelling. If there were a variable rate of profits tax, any company making an investment decision could factor that in and know where they stood in the fiscal regime.

It has been put to us that other countries, such as Norway, have different fiscal regimes for investment. However, Norway has had a stable long-term fiscal regime with very little change, and it has also had the attraction of less mature, bigger finds with more upside for investors. It is important to understand the confidence element.

The Energy and Climate Change Committee has seen evidence on the wider future of our electricity and gas network. This country wants to attract £200 billion of investment in its energy infrastructure, but if investors are being asked to build a massive offshore wind farm that will bring in more profits if the price of carbon goes the way they are betting, they will look across and see what has happened to the oil industry. They will not want the Treasury to come along and say, “Electricity bills are rising, so we’re going to put a windfall tax on the offshore wind farm,” which would undermine that investment decision. There is a read-across from gas and oil to wider investment in energy and big infrastructure projects in this country.

This is not just a constituency matter for my right hon. Friend the Member for Gordon and myself, who have many constituents who work in the industry, have jobs related to it or are economically affected by it. As has been said, it also affects East Anglia, Morecambe bay and other areas. The supply chain permeates the whole of the UK economy.

[Mr Kevan Jones]

I congratulate the hon. Gentleman on standing up for his constituents; he is doing the right thing. Does he not find it remarkable that there are no Conservative Members in the Chamber from Morecambe bay or other areas that rely on the oil and gas industry, to speak up for that industry tonight?

[Sir Robert Smith]

Those hon. Members may have chosen to speak in other ways; they can raise matters with Ministers directly or in correspondence. There are all sorts of ways of trying to influence Ministers. I am using probing amendments and this debate to try to do so. If I may say so, it is rather sad that the Committee has chosen to focus on such a major industry for the UK economy at 1.30 am, but—[Interruption.] Well, the House collectively chose that time.

I want to make two final points on the instability and uncertainty caused by such upheavals. Statoil is reviewing its investment. That does not mean that it will not go ahead at all or that some of the investment might be done differently, but in the reviewing time, Statoil’s supply chain will no longer have the ability to deliver. The supply chain does not have the cash flow to sit around waiting for Statoil’s review without affecting its employment, recruitment and subcontracting. The skills base that has built up has huge export potential and earns a lot of money for the country through exports to other oil and gas provinces, but the Government need to understand that that base needs a stable home environment to ensure that we anchor as much of those profits in the UK as possible.

Finally, I want to reinforce how crucial the mature fields are in unlocking future investment. Many of the investments being attracted today are much smaller than before, and they would not stand up if they did not tie back to one of the big platforms that still operate in the North sea. That is why I was somewhat concerned by some of the Treasury’s evidence to the Energy and Climate Change Committee. The Treasury said that petroleum revenue tax fields were now just cash-making fields, so they did not need any more investment—but the very age of those fields means that they do need investment. The Health and Safety Executive is very keen to keep a close eye on those fields: because of their age, the safety of their infrastructure is crucial. Moreover, investment could be vital in ensuring that that hub remains to unlock any smaller fields around the North sea.

Another uncertainty is introduced by clause 7 because of its relationship with the clause on decommissioning. In the Public Bill Committee the Government must address that new uncertainty, which builds on the uncertainty caused by clause 7.

I urge the Government to respond constructively and positively to the industry’s desire for an investment climate in which it can take all the risks on geology, weather, technology and the future of the commodity market, in the knowledge that a Government who see its long-term importance to the economy, and who therefore recognise the need to restore confidence in a stable fiscal regime, are behind it.

[Helen Goodman]

It is a great pleasure to take part in this debate and to follow the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), who made such a reasonable, well informed speech.

One question that has remained unanswered tonight is why the Government chose such a complex route rather than a much simpler windfall tax. Everyone understands that when the Government are looking for sources of funds, they will look at particularly profitable industries. However, the structure they have chosen means that investment in, and the future of, the industry have been brought into question. A far simpler structure would have raised the money without risking future work in the North sea oil and gas sector.

The Red Book is peculiarly unclear. The supplementary charge was raised from 20% to 32%, but the Red Book states:

“As part of the fair fuel stabiliser, if in future years the oil price falls below a set trigger price on a sustained basis, the Government commits to reduce the Supplementary Charge back towards 20 per cent on a staged and affordable basis while prices remain low.”

However, the meaning of a “sustained basis” for a fall in prices and of a “staged and affordable basis” is not set out in the Bill.

01:30

It is particularly important that Ministers explain why they chose an oil price of $75 per barrel. It would really help the Committee to know what the Government’s forecast is for oil prices. They say in the Red Book that oil prices are extremely volatile, which of course is true, but what model are they using for forecasting? Twenty eight years ago, I was a junior official in Her Majesty’s Treasury, and I worked on something called the POP forecast. The POP forecast was not about lemonade, but about the prospects for oil prices in the long term. This model looked at the back-stop price for oil—in other words, the cost of making oil from coal—and at the time we estimated it would be $60 per barrel. What underlying model do the Government use for forecasting oil prices now? Are they looking at the cost of getting oil from shale? Are they looking at the cost of getting good-quality oil from, for example, Orimulsion? What is their model for forecasting oil prices?

As is evident to everybody who has attended debates in the Chamber for the past six months, the situation in the middle east and north Africa is particularly unstable, yet despite the current instability in the oil price the forecasts for revenue in the Red Book show a pretty constant level of revenue over the five-year period. Are the Government assuming that the level of oil prices will be constant over this five-year period? That seems to be an incredible assumption.

[Andrew Gwynne]

It is excellent that my hon. Friend is bringing her Treasury expertise to this debate. She is adding greatly to the discussion. Does she agree that one of the motives for the Government’s tax raid on the oil and gas industry is that they view it as the goose that laid the golden egg?

[Helen Goodman]

I defer to my hon. Friend’s knowledge of poultry-keeping. However, I agree that that is the problem that we face with the Government at the moment. Their approach simply is not serious; it is trivial.

[Mr Kevan Jones]

Does my hon. Friend not think it incredible that the Treasury officials whom she worked alongside for many years did not work out that there was a difference between oil and gas prices? Does she also not think it remarkable that the Minister, who is a former employee of Centrica and British Gas, did not highlight that problem either?

[Helen Goodman]

That is absolutely right. It is extremely worrying for the gas industry that the tax is being linked to fluctuations in oil prices, yet gas prices might not only vary from oil prices, but possibly even be going in a different direction. This is an extraordinary approach to take to the taxation of one of our major industries. I hope to hear from Ministers about how they are forecasting oil prices over the period in the Red Book.

Returning to the issue of complexity and why the Government chose such a complex structure, we have to ask ourselves whether they completely misunderstood the debates in the previous Parliament on stabilisers. The Scottish National party and the Liberal Democrats proposed stabilisers on petrol taxation, but that seems to have been translated into the wholesale market. The situation now is not that stability is being provided for the consumer, which was the original objective of a stabiliser, but that the Government are able to hedge their tax revenues, which is a completely different proposition altogether. I hope that in responding to the debate the Minister will be able to explain what a sustainable oil price reduction means, because it is certainly not clear from what we have seen so far.

The other thing that was said at the time of the Budget was that the detail would be agreed with the industry and motoring organisations. I hope that we will get a report from the Minister on what discussions and agreements have been achieved. The initial press reports of her meetings with the industry were very alarming indeed. It sounded as though the industry was furious with what had happened and that Ministers did not have a proper answer to its serious concerns. It would be nice to know whether the negotiations have developed, although it seems from what we have read even today in the newspapers and on the web that they have so far not been fruitful. It would also seem that the Government, in their headlong rush, are not taking account of the fact that further evidence has yet to be given to the Select Committee on Energy and Climate Change. Indeed, that evidence is to be given only tomorrow, yet the Government are ploughing ahead, mindless of what the industry is telling them.

It is particularly worrying that, as my hon. Friend the Member for Denton and Reddish (Andrew Gwynne) has pointed out, Centrica is saying that it might not open up the Morecambe Bay field after the annual shutdown to perform the usual maintenance functions this year. The Morecambe Bay field has been in operation for, I suppose, some 40 years—I think it was the first gas field from which we got natural gas in this country. The Minister is too young to remember the huge investments made in the 1960s to move from town gas to natural gas. Huge investments were made in this country to secure those gas supplies, and yet at the stroke of a pen, this Government are putting them at risk.

When the Government say that they want to rebalance the economy, we have to ask whether they even know that means. I understood rebalancing the economy to mean having fewer resources in financial services and more resources in other sectors.

[Mr Kevan Jones]

The argument made strongly by the Government is that the north-east economy should rebalance itself away from the public sector and towards the private sector. Does my hon. Friend share the alarm felt by the 380 firms that directly rely on the oil and gas industry in the region about the effect that the Government’s proposals will have on employment in those companies?

[Helen Goodman]

Of course. I am extremely concerned, as my hon. Friend and neighbour is, about the impact that the proposals will have on the economy of the north-east, and it will not be just a short-term impact, but a long-term impact. When we get investment in the oil and gas industry, we are getting investment in an industry at the cutting edge of technology. There have been many other positive spin-offs from the investments that the oil and gas sector has made.

[Andrew Gwynne]

That is precisely the point. The jobs in a lot of the support industries for the gas and oil industry are high-skill, high-tech and pretty well-paid jobs. Once we lose those skills in areas such as the north-west and north-east of England, they are gone for good. We need to support those industries, as well as the wider oil and gas industry.

[Helen Goodman]

That is absolutely right. The investment that the Labour Government tried to encourage in completely new energy industries such as the offshore wind industry used very similar skills. It is important to have a critical mass in these industries, and the achievement of that is now being put at risk.

It is not at all clear what the Government mean by rebalancing the economy. Our debate earlier this evening revealed a bizarre situation in which taxes on the financial sector are not tough enough, while taxes on the primary sector are over-strong. That is simply not going to take us down the route that we all want to go down.

[Dr Thérèse Coffey (Suffolk Coastal) (Con)]

I do not know when the hon. Lady first came to the House, but she will recall that when the Labour Government first came to power, they imposed a windfall tax that punished the utility companies for their success. Now, this Government are trying to redress the balance, while recognising that oil prices are at an all-time high and that profits are being made simply through speculation. I am afraid that the hon. Lady is simply talking to the Westminster bubble. She should be thinking about how we can make a real difference to this country, rather than continuing to talk through the night.

[Helen Goodman]

I do not accept the hon. Lady’s analysis. Unnecessary complexity is one of the problems. A positive aspect of the amendments tabled by the right hon. Member for Gordon (Malcolm Bruce) is the improvement in transparency, stability and predictability that would ensue from them. Those things would simply not ensue from the Chancellor of the Exchequer’s proposals.

[Mr Anderson]

Does my hon. Friend agree that one of the differences between what is happening now and what happened in 1997 is that, in 1997, the Labour party went to the country to ask for a mandate to put in place a windfall tax on the energy companies, and that the people of this country voted for that?

[Helen Goodman]

That is a powerful point. What happened then contrasts with the total lack of consultation by this Government.

[Mr Graham Stuart]

The hon. Lady mentioned the Government’s policy on rebalancing the economy. One of the most important elements is to reverse the disastrous loss of employment in manufacturing under the Labour Government. More than 1.5 million jobs were lost and—

[The Chairman of Ways and Means]

Order. We are straying from the amendments if we start talking about job losses. Let us try to keep as close as we can to the amendments before us.

[Helen Goodman]

I entirely accept your guidance, Mr Hoyle.

There is obviously a supply chain for the oil and gas sector. Equally obviously, if we damage the financial viability of the oil and gas companies, there will be an impact further down the supply chain. It is worrying that the industry is predicting that 40,000 jobs will be lost. Those are 40,000 jobs that we can ill afford to lose at this time. This is absolutely typical of the measures being taken by the Government that, across the board, are not being thought through. The statement by Statoil that it is going to put on hold a $10 billion investment is very worrying.

We also need to pay attention to the fact that the North sea province is different. It is not only a mature province—we all understand what that means—but it is in a very competitive arena. The Government do not appear to understand what being in a competitive arena means, or that those companies have a choice about where they invest.

[David Mowat (Warrington South) (Con)]

At the current price of $120 a barrel, the average return on capital employed for a medium-sized field is roughly 40%. Do Labour Members think it right that oil companies should be making 40%?

[Helen Goodman]

I do not have the precise figure at the back of my mind and I am not going to pluck out of the air a particular number, which would be to behave as foolishly as Ministers. It is obviously necessary to look at the returns across similar fields in other countries and to consult the industry on the implications. I am sure that that will not have satisfied the hon. Gentleman, but I am afraid that it is my view.

01:45

What we are talking about here is a broken promise. We have had broken promises on taxes and broken promises on the North sea. A further question for Ministers is whether they can be confident that when they impose these taxes, they will not simply be passed back to consumers through higher petrol prices. It would be interesting to hear Ministers’ analysis of that.

[David Mowat]

The point about petrol prices has often been raised. The hon. Lady has mentioned both Centrica and Statoil. Does she believe that these are major petrol suppliers in the UK?

[Helen Goodman]

No, Centrica is a gas company. Oil companies, even if they do not have petrol companies within them in the UK, are selling their oil and gas to people who are delivering in the retail market. I would have thought that the hon. Gentleman understood that if something is being done with prices and taxes in one part of the market, it could have an impact on the prices charged in another part of the market. That was my point.

Let me deal now with the drafting of the Bill. Will the Minister explain why the $75 a barrel limit is not specifically mentioned in clause 7? As already mentioned, if we are to make any sense of what is going on here, we will need to look at clauses 61 through to 64 and at schedule 15 alongside clause 7. I would like to pay tribute to Rob Marris, the former Member for Wolverhampton, South West who always enjoined us to read the explanatory notes. The explanatory notes on clause 61, which deals with decommissioning, are particularly interesting. Has the Treasury or Revenue done any analysis of the impact on the environment of the changes to the rate of decommissioning relief?

The amendments in the group are also interesting. As I have said, the amendments tabled by Liberal Democrat Members are clearly aimed at improving stability, predictability and transparency. The amendments tabled by my hon. Friend the Member for Bristol East (Kerry McCarthy) are designed to review and understand the situation better. The most interesting amendment before us, however, is amendment 11, tabled by the Chancellor of the Exchequer. It is designed to insert the following provision into clause 7:

“But if the basis of apportionment in subsection (4)(b) would work unjustly or unreasonably in the company’s case, the company may elect for its profits to be apportioned on another basis that is just and reasonable and specified in the election.”

This is the most extraordinary amendment that I have seen in six years as a Member of Parliament. It seems that every company can say to Her Majesty’s Revenue and Customs, “The impact on another company might be ABC, but in our case it would be XYZ.” Every company will be allowed to negotiate not simply the interpretation of the tax code, but its own tax code.

[Mr Kevan Jones]

Obviously many other taxpayers would like to be able to negotiate their tax codes with the Inland Revenue, but I am sure that the opportunity will not be open to them. Where will this leave the amount of revenue that the Government will supposedly raise to pay for the reduction in petrol duty?

[Helen Goodman]

My hon. Friend has hit the nail on the head. This opens a huge hole in front of the Minister’s revenue forecast. There is total uncertainty. Every company will be able to turn up and renegotiate its own tax regime, which is ludicrous. How far will this be taken? Will it be a general principle established in the tax code for the purposes of all corporation tax, or personal tax? I hope that the Minister has a very good explanation for what is going on.

Let me return to the underlying worry that has been exposed in tonight’s debate—that the Government simply have not taken account of the importance of energy security. Everyone knows that the energy market is under a number of different pressures. On the one hand, we must have a market that is environmentally sensitive and reduces our carbon footprint; on the other hand, we must have prices that are affordable for people in this country and that tackle fuel poverty. We must also have security of supply in a world that is particularly uncertain at this time. Wars are taking place in north Africa and there is conflict in the middle east, and it is at this moment that the Government have chosen to impose taxes that are so insensitive that they put the North sea oil and gas regime at risk.

[Mr Anderson]

I want to speak in support of amendment 10, but first I want to say something about the speech of the right hon. Member for Gordon (Malcolm Bruce). I am pleased that he has returned to the Chamber, because I was very interested in what he had to say. Most of those who have spoken in the debate on these amendments have done so on the basis of a degree of experience, which was not the case in earlier debates.

I wonder whether the case made by the right hon. Gentleman was made to the Government before the Budget. It appears from what was said by him and by the hon. Member for Dundee East (Stewart Hosie) that the industry has been saying to the Government for some time, “If you are going to do this, please talk to us and please make sure that we get it right.” The industry does not want to end up with the circumstances described by my hon. Friend the Member for Bishop Auckland (Helen Goodman), in which anyone could do whatever they want whenever they want.

If that information was shared with the Chancellor before he made his statement on 23 March, it would seem from what was said by the hon. Member for Dundee East (Stewart Hosie) about why he had ignored the voices of experienced people such as the right hon. Member for Gordon and those in the industry that the only thing that matches the Chancellor’s arrogance is his ignorance. Clearly he has decided to say, “I know better. I will impose this on the industry and on this country.”

This is not just about places such as Aberdeen and the north-west, because a huge amount of work is going on across the whole of Tyneside and the north-east of England. Some of the most advanced technical work anywhere in this country is being done there in very small factory units by very skilled men and women who are doing a great job. Shipyards have reinvented themselves after the closure programme of the 1980s and are building exploratory rigs and doing work that is vital to maintaining the skills base and developing the new work that we want to do. That will be development for not only the oil industry, but the offshore wind industry.

[Mr Kevan Jones]

A large number of individuals, many of whom live in my constituency and that of my hon. Friend, worked in former shipyards and heavy engineering firms in the north-east and now travel to Scotland and other areas where the UK oil and gas industry is based. They have very good jobs and choose still to live in the north-east. Does he agree that they are an important part of the wages that go into the north-east economy?

[Mr Anderson]

My hon. Friend is absolutely right. These people are rightly still among the most well-paid people in this country—why on earth should they not be, given the work they are involved in and the risks they take in their daily lives?

I worked underneath the North sea bed as a coal miner, so I have some experience of working in the energy industry. I am not the person to feel sorry for multinational oil companies, but if the Government take crass decisions that will have a massive impact on not only the industry, but the people who are dependent on it right across the board, we should surely question that. I have no problem with saying to the oil companies that we want them to play their part in trying to help us to get this country back on an even keel. Clearly, when companies such as Shell and BP are making huge profits, that discussion should take place, but it should happen before decisions as serious as this are imposed on people.

Some 450,000 people work in the industry. Our subsea industry is at the cutting edge and leading the world. People talk about what happened in the gulf of Mexico only a year ago, but the probability is that that will never happen in the North sea because of the experience we have gained over many decades of working up there. We lead the world and we should be proud of that, but this taxation surprise has made the industry question whether it should carry on being there, and clearly the oil industry can go to lots of other places in the world.

[Helen Goodman]

Does my hon. Friend agree that the expertise, research undertaken and skills gained on the UK continental shelf in the North sea enable British-based companies to explore successfully in the gulf of Mexico and the south China sea, and that from that exploration we also gain in income and investment from dividends overseas?

[Mr Anderson]

My hon. Friend is absolutely right about that. There is no doubt that as we move further forward and the exploration starts to take place west of the Shetland Islands, presenting new challenges, our people working in these industries will again lead the way. But that may not happen if companies are frightened away by a tax regime that is going to punish them. It will particularly punish them when it is a rabbit pulled out of a hat at the end of a Chancellor’s Budget, when it has not been discussed with the industry and when the industry has not been able to prepare, consider what it is doing and talk things through in a sensible and adult way in a genuine partnership to make these things work. As has been pointed out a number of times, Centrica has said this week that it is considering not reopening its gas fields off our north-west coast. That is a hugely important area of development and if Centrica decides not to reopen the fields they will just become sterile, like so many other of our energy reserves in this country over the past 30 years as a direct result of Government failures and inaction. It is clear that the Government have not thought this measure through, and the plea by the right hon. Member for Gordon is absolutely the right one, because they should think it through.

What will happen to the tax revenue in the meantime? That point was raised by my hon. Friend the Member for North Durham (Mr Jones). Clearly, the decision made on 23 March was that a certain amount of money would be raised by this attack on the North sea. If that money is not raised, either because of the discussions that go on or because the decision has changed, what will the Chancellor come back with? How will he fill the hole that will be left, at least temporarily, if we do not go ahead with the measure?

02:00

This decision has clearly been made for political gain. The Chancellor was on the back foot—he was on the run—because he had been knocked all over the place by the shadow Chancellor’s attacks about the impact that oil prices, petrol prices and, in particular, VAT on fuel were having on ordinary people and businesses in this country. As the Chancellor would not reverse the VAT on the petrol price at the pump, it was clear that he would have to find another way to fill that hole, and he did it through the rise in the North sea oil tax. It was clearly a huge mistake, made to cover up another political mistake. The mistake was not just the act of putting up VAT, but that of introducing a measure that was not supported and was in neither Government party manifestos nor the coalition agreement. Again, the proposal was sprung on the British people as well as the industry. There was no consultation with the industry, and when one says to a body such as Oil & Gas UK which represents a group of companies, that the effective tax rate on its profits will be 81%, it will go and look elsewhere in the world. If it can get a better return, that is where it will go. We should have been discussing that with the companies before they went.

It is plain to see that this measure has been a huge mistake—but I would say that. The criticism does not just come from me, however. I understand that the Treasury Committee is going to hear from a group that has been asked to report to it on the impact of the change in tax on offshore drilling to 32% from 20%—I was going to say that it would do that tomorrow, but it is probably today by now. One body, the Institute of Chartered Accountants in England and Wales, was critical of the North sea policy because it could deter investment in the area. It said:

“We understand the policy rationale for this decision but imposing unexpected tax charges with immediate effect is likely to cause damage to the UK’s competitiveness.”

The Association of Chartered Certified Accountants adds its disproval, saying:

“The increase in the rate of tax on ring fenced profits…was unexpected, and is understood not to have been subject to any consultation”.

It goes on to say:

“While the measure is clear, simple and targeted”—

clearly it is, as the Government just need to say to somebody that they will pay 20% today and 32% tomorrow—

“it fails on the principles of stability and supporting growth”.

The Conservatives lecture us constantly in the House on the idea that they are all about developing growth, but ACCA clearly does not think so.

[Andrew Gwynne]

Is that not exactly the difference between this measure and the example raised in an earlier intervention about the effect of the windfall tax on the privatised utilities? When Labour was in opposition before 1997, the party was in full discussions with the privatised utilities, which might not have been 100% happy with the proposal but were altogether certain that if the Labour party came to office, it would invest in our young people and get them back to work.

[Mr Anderson]

My hon. Friend is correct. That debate went on in the Labour party for a long time long before that election. It was quite clear to the industry and to the people of this country that if they voted Labour on 1 May 1997, we would impose a windfall tax. Discussions had been going on and the companies were able to absorb the idea and plan for that.

As ACCA says further:

“The sudden change in rate came as a shock to those involved in the North Sea oil industry”—

the change was not a shock in 1997, because companies had been able to prepare for it—

“and has been widely condemned as reducing the competitiveness of the UK as a target for investment”.

[Mr Kevan Jones]

Does my hon. Friend agree that the windfall tax, which was a one-off tax and quite clearly understood, was different from what we are facing today with this tax increase, which is a potentially fluctuating tax that gives uncertainty to oil and gas producers about the level of profit they will make long term on their investment in the North sea or anywhere else?

[Mr Anderson]

In the learned advice that she gave, my hon. Friend the Member for Bishop Auckland spelt out more clearly than anyone else in this debate that nobody seems to know what people will be paying in tax. Nobody knows whether they will be paying anything or whether they will be able to say, “I want to get away with this while you get away with that.” That is absolutely ludicrous; even if we accept that the tax should be imposed, people at least need to know what the Government are going for.

[Hugh Bayley]

I wonder whether my hon. Friend has read the article in today’s edition of The Guardian entitled “Accountants attack Osborne’s North Sea oil levy”, which reports on the ACCA report that my hon. Friend has just mentioned. It also reports the Chairman of the Treasury Committee as saying:

“Every time we do the unexpected, future business is deterred. It’s crucial we construct a tax system around the principles of certainty, simplicity, stability as well as fairness. The only beneficiaries of complex changes are tax accountants and tax lawyers—the very people who are complaining.”

[Mr Anderson]

I have read that report. Whatever hon. Members’ views, we respect the Chair of the Treasury Committee as someone who has done a good job for the people of this country and for the House, and when he says such things, hon. Members should listen. He is not someone who should be ignored: he speaks not from arrogance or ignorance but from a lot of knowledge. His Committee has undertaken a rapid investigation of an issue that is of massive importance to the country.

We have been here before with Tory Governments, who have a long history of making crass policy decisions on energy. In the 1930s, the Tories presided over a coal industry that was in internal decline and had massive problems, with more than 1,000 men a year being killed in the industry and with no investment whatever. Those men were using 19th-century technology—life was cheap and people were not allowed to live decent lives. The situation was pushed back after the war when the Labour Government came in and nationalised the coal industry.

Then there was another repeat in the 1980s. My hon. Friend the Member for Bishop Auckland has mentioned the POP forecast and the pricing of oil according to how much it costs to get oil from coal. In the 1980s, we led the world in getting oil from coal, but that industry was destroyed at the whim of the then Government, who did that for political reasons. I can see that you are getting annoyed, Mr Hoyle, which is not like you, so I shall move on rapidly.

The truth is that Tory Governments, and not just in the past, have taken policy decisions that were to the detriment of the energy system in this country. That is being confirmed today, because this is not just about the oil industry. As has been discussed in debates on the solar power industry, Ministers have changed the rules halfway through a process. I have received a letter from a company in my constituency saying that it is involved in a number of projects in which clients want to build solar arrays that do not fulfil energy requirements. Funders and clients are now cautious because of the uncertainty caused by the policy change halfway through discussions. The industry had been told that it would be able to set targets at a certain level, but that level was later changed and the same thing is happening now. If the Government spring surprises on companies that are investing in energy policy, those companies will not know where they are and will look at other markets. As I have said before, I am not one to stick up for the oil companies, but I am one to stick up for this country and the workers of this country, and this part of the Bill, along with many others, is detrimental to the workers and the people of the country.

[Mr Kevan Jones]

Let me begin by congratulating the right hon. Member for Gordon (Malcolm Bruce) and the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith) on their amendment. They clearly care about the industry, know a lot about it and are arguing vociferously on behalf of their constituents. From the body language of the Economic Secretary and the Financial Secretary, it looks as though the right hon. Member for Gordon and the hon. Member for West Aberdeenshire and Kincardine are two unwelcome relatives at a wedding who had been forgotten about but turned up and started to argue about how this was not part of the wedding deal of the coalition.

The amendments raise serious concerns about the effect of the Budget not just on the constituencies of the right hon. Member for Gordon and the hon. Member for West Aberdeenshire and Kincardine, but on many others throughout the UK. I would have expected Members on the Government Benches who have oil and gas interests in their constituency—Morecambe bay has been mentioned, as well as the gas fields off the coast of East Anglia—to speak in the debate, yet we have not had a single contribution from the Conservative Benches. That should be noted by constituents who rely on the oil and gas industry for their livelihood. I am sure that if the former Member for Morecambe and Lunesdale were still a Member of the House, she would have been vociferous in making representations on behalf of her constituents. I hope she is watching the debate, even at this late hour.

The decision announced in the Budget to increase the supplementary charge on North sea oil was taken at the last minute, without any consultation with the industry. It led to the ludicrous situation mentioned by the right hon. Gentleman, with the profits of some of the mature fields being taxed at 80%. We are constantly told by the Conservative part of the coalition how important private sector growth is to the future of the UK economy.

There is no better example than the oil and gas industry. It is an economic engine for the UK economy. In 2010 alone it invested some £6 billion into the UK economy. It creates and supports more than 440,000 jobs, not just directly in the industry, but way down the supply chain and across the UK, as my hon. Friend the Member for Blaydon (Mr Anderson) noted. More importantly, it produced in 2010-11 some £8.8 billion in corporation tax for the Treasury, and it is estimated that for 2011-12, with the increase in the oil price, that revenue take will be about £13.4 billion. To treat such an important industry in the cavalier way that the Government have treated it is a disgrace.

I feel for the right hon. Member for Gordon. He said that the Government were listening, but I am not sure they are. I ask him to look at the report of the Treasury Committee’s meeting of 29 March, where the Treasury said:

“The 81% rate applies only to those mature fields where there is no further exploitation taking place that pay petroleum revenue tax. It is quite a high rate but, equally, there is not an issue with further investment needed there, and the oil is coming out of the ground. That is a pure”

profit.

Members asked whether that had been looked at in any detail. The Treasury went on to say that

“the Treasury does a lot of work on all the tax levers on an ongoing basis.”

It is clear from talking to the industry that investment in those mature fields is needed. For example, Total E&P UK says that production at mature fields will cease without further investment. The Alwyn area is a good example of why activity and investment need to continue. I accept that the industry requires a huge amount of start-up investment, but there is also an increasing need for investment over time. For example, Total has stated in its submission that investment is needed in the Alwyn field not only for ensuring that the field is secure and safe, but for living accommodation and other investments. It is absolute nonsense to suggest that such mature fields do not need continued investment, and to tax them at 81% or 82% is, frankly, ridiculous.

02:15

Another point, which has been mentioned by my right hon. Friend the Member for Croydon North (Malcolm Wicks) and the hon. Member for Dundee East (Stewart Hosie), is that as technology has improved we have been able to get more oil and gas out of what in the past would have seemed very mature fields. That is happening not just in the UK, but internationally. Through this short-term fix to try to sort out the issue of fuel prices, we will leave oil and gas in the ground. As my hon. Friend the Member for Blaydon mentioned in relation to the coal industry, after stepping away from such resources we cannot simply go back years later and recover them. It needs to be extracted now, which leads to the point about security of supply for oil and gas.

[Ian Mearns]

I must say that I am completely overcome by the power of my hon. Friend’s argument and wonder whether the right hon. Member for Gordon and his hon. Friends on the Liberal Democrat Benches really want to argue at this stage for a late codicil to the coalition agreement on the issue.

[Mr Jones]

I have known my hon. Friend for more than 25 years, and I think that this is the first time he has ever been overcome by something I have said—it might be the first time he has ever listened to anything I have said. The idea of leaving oil and gas in the ground and not extracting it is absolutely ludicrous. It makes no sense whatsoever with regard to the investment that has already been made, and it makes no economic sense with regard to security of supply in this country.

[Helen Goodman]

Does my hon. Friend agree that the problem is that the Government have no strategy? Just as they panicked when they realised that they had a fiscal hole to fill in the few days before the Budget, so they have now panicked with this ridiculous amendment 11.

[Mr Jones]

My hon. Friend has done the Committee a favour by drawing our attention to amendment 11, and that is something that we will all want to be argued for in the case of individual tax returns. The point of the matter is this: if the results are what has been suggested, how on earth will the Government be able to predict how much they will get from this tax?

[Helen Goodman]

Does my hon. Friend agree that it is also not clear, when a company negotiates its own tax regime, whether it will be a secret tax regime, or one that everyone will know? If it is secret, does that not open up the possibility of even more unfairness?

[Mr Jones]

It does, and that leads us to the point about how we would arbitrate in disputes between different companies. My hon. Friend the Member for Aberdeen South (Dame Anne Begg) mentioned the fact that decisions on investment in oil and gas are not taken in this country, but in Houston, Calgary and other parts of the globe, so the North sea and exploration in this country is competing for investment from around the world. If companies have to jump through hoops to negotiate their individual tax liabilities before trying to put an appraisal together, I am sure that decision makers will go for the easier options so that they know what the return on investment will be, rather than the uncertainty that this has left us with.

[Dame Anne Begg]

If it is necessary to bring in all sorts of complicated extra things to mitigate the effects of a tax and make it appear fairer, surely the original tax is fundamentally flawed and should never have been introduced in the first place.

[Mr Kevan Jones]

My hon. Friend makes a very good point, and her point about investment will increasingly be thought of when making such decisions.

That brings us to the question of what the decision-making process was when coming up with this tax. We have already had the ludicrous situation whereby even a Minister who practically used to work for a gas company did not recognise the difference between gas and oil prices. In my experience as a Minister dealing with Treasury officials, I always thought that they knew what they were talking about, so I am surprised that the Treasury allowed this measure to get through, because everyone knows the difference between the prices of the two.

We have already seen the effects of that this week, with the possibility that Centrica might turn off investment in Morecambe bay, and I am sure that the Minister will be off the company’s Christmas card list next year unless she does something radical to change what has been proposed. That decision will not only mothball a gas field that would have provided this country with gas for years to come, but write it off.

What will we do instead? We will import gas, which does not make sense economically or for energy security, especially when we look at where the large concentrations of gas are in the world—the former Soviet Union, parts of the middle east and, lo and behold, north Africa. Any idiot can work out that even Morecambe bay, and possibly Blackpool on a rowdy Saturday night, is more peaceful than north Africa or parts of the former Soviet Union, so it is important that we take seriously the comments of companies such as Centrica, which have invested over many years and not just in oil and gas fields but, as my hon. Friend the Member for Blaydon said, in new technologies.

It is a dirty industry, but it is also a leader in new technologies, such as robotics and drilling, and, owing to the difficulty of extracting oil and gas from parts of the North sea, we have been able to develop new techniques that are now used throughout the world. That is why many UK companies are leaders not only in this country, but throughout the world.

It has also become increasingly clear that the tax rate will have a real effect on the economy of north-east England. I accept that hon. Members who represent Scottish constituencies feel passionately about the issue, but the measure will have a dramatic effect in the north-east, too. The Conservative part of the coalition tells us that we in the north-east should grow the private sector, but the oil and gas industry is a very vibrant part of the private sector. Indeed, my hon. Friend has already mentioned the sub-sea sector, which supports 10,000 jobs and 380 firms in the north-east.

[Andrew Gwynne]

Like my hon. Friend, I feel passionately about those jobs in those cutting-edge industries. Is not the issue to protect jobs today and invest in future jobs in the north-east and the north-west, including in things such as apprenticeships?

[Mr Kevan Jones]

It is, and the north-east has been able to take advantage of the change in, for example, the River Tyne, which was heavily dependent on shipbuilding. Now we have facilities such as the Walker technology park, and the city council was far-sighted when it developed an offshore park for the North sea oil industry.

[Helen Goodman]

Does my hon. Friend agree, as the hon. Member for Dundee East (Stewart Hosie) said, that there is also—

[Christopher Pincher (Tamworth) (Con)]

Turn around.

[Helen Goodman]

There is also—

[The Chairman of Ways and Means (Mr Lindsay Hoyle)]

Order. Can you face the Chair, please? Thank you.

[Helen Goodman]

There is also a problem with partnerships between the private sector and the universities.

[Mr Jones]

There is indeed. There are also new technologies. For example, the development of mine ploughs for mining the North sea bed for the laying of oil pipes was generated from a company that spun out of Newcastle university. Places such as the Walker technology park sustain offshore supply jobs for the North sea, and two companies based there—Duco and Wellstream—produce 90% of the world’s capacity of sub-sea umbilical housing and cords. Those are well-paid jobs. Such companies chose to invest in the north-east of England not only because of the skills base but because of the access to the North sea, and they are now able to export from there across the world.

George Rafferty, the chief executive of NOF Energy, says:

“For the last six to nine months we have been talking about a renaissance in oil and gas especially from the North Sea and the benefit to our members in the North-East as a result of investment being put in. With this announcement by the Government, which was made without consultation with the industry, there is a serious risk those investment decisions will be reversed.”

The industry body Oil & Gas UK said that the tax would not be passed on to consumers after the Chancellor warned that the sector faced a “direct squeeze” from it. That is exactly the uncertainty that exists today. It does not affect only the jobs in the north-east region itself. We have a large travelling population of individuals who travel to work via the North sea; they go across to Morecambe bay to work in the gas fields, and to East Anglia and other parts of the UK. That shows that this is an industry that affects numerous parts of the UK economy as well as the north-east. We have to ensure that any decisions that are taken on taxation do not have a huge detrimental effect.

It is necessary to know what is going to be done when making decisions about where future oil and gas investment will go. Unfortunately, some companies have already invested in oil or gas fields on the basis of what the tax regime was going to be pre-Budget, and they now face a completely different set of circumstances. For example, Total E&P UK has established Laggan-Tormore—the west of Shetland gas development—and that investment of $4 billion is now at risk. Questions will be asked by the individuals who made the decision to invest there. What will be the future of that type of investment?

This is clearly short-termism for reasons of political expediency to do with the Chancellor. In the previous debate, we even got an admission from the Minister that the downturn in the petrol price was 0.8%—and we all know what we can do with 0.8 of a penny in our household budgets! Is it really worth making that type of fix, which will jeopardise not only the investment that has gone in to date but will go in in future? This is a world-class industry of which we should be proud in the UK. It sustains many jobs. Over the years, it has been a leader not only in technology but in safety, as my hon. Friend the Member for Blaydon mentioned.

I take no joy in what I am going to say now. I feel sorry for the right hon. Member for Gordon and the hon. Member for West Aberdeenshire and Kincardine, because I fear that they will feel the political consequences of this in the ballot box. I hope that with their expertise and continued lobbying, they can change the Government’s mind. A short-term decision based on the petrol price will have a huge economic impact on the UK, on the industry as a whole, and on the economy of the north-east. I urge the Government to think again. I do not know whether they will take silly decisions like this in the future, but please can they do a U-turn for the sake of the investment and jobs that they will put in jeopardy if they continue with this ludicrous policy?

02:30

[Justine Greening]

I will start by explaining why we introduced the increase in the supplementary charge rate. I will then cover the Opposition amendment and respond to the amendments tabled by my right hon. Friend the Member for Gordon (Malcolm Bruce) and my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) before explaining the two technical Government amendments.

I appreciate the constructive amendments tabled by my right hon. and hon. Friends. They have put a lot more thought into finding a way through the challenges than the Opposition, and I appreciate the points that they raised. I reassure them that we are working closely with the industry. We have met with its representatives on a number of occasions: I have met with them, as has the Chancellor of the Exchequer, and officials recently went to Centrica’s office to look through its calculations on field allowances and profitability. We are discussing with Oil & Gas UK and individual companies precisely the issues that have been raised in this debate.

The broad rationale for the increase is that the Government are abolishing the fuel duty escalator and replacing it with the fair fuel stabiliser. Clause 7 forms the second part of the stabiliser, which ensures that when oil prices are high, as they are now, and oil and gas production is more profitable, the companies that benefit more from that are asked to pay more. The hon. Member for Blaydon (Mr Anderson) fairly acknowledged that, and we are seeking to ensure that we do it in the right way, as he said we should.

[Mr Anderson]

Is not the point that this debate should have happened before the Chancellor made the decision, not afterwards?

[Justine Greening]

Realistically, it is not always possible to discuss rate changes with the industries concerned. It is not done as a matter of course, but the point about working with the industry to ensure that we understand the impact on more marginal investments is valid, and that is precisely what we are doing.

The clause increases the rate of the supplementary charge, which is a tax on the profits of oil and gas production, from 20% to 32% from 24 March this year. It is fair to point out that oil prices have increased from $77 a barrel at the time of the June 2010 Budget to about $125 a barrel today.

[Dame Anne Begg]

Plenty of other companies and industries deal in commodities whose prices go up, and plenty of other companies and industries make huge profits, but can the Economic Secretary name one other industry where the marginal rate of tax is 81%?

[Justine Greening]

The point is that we faced an increase in oil prices that had fed through pretty directly to pump prices. The increase in the cost of fuel was not just impacting on motorists, but having a huge impact on hauliers, on the cost of living and on businesses. We had to decide what was the right thing to do. I think that the right and fair thing to do was to share the burden by taking some of the additional profits that oil companies were making—profits at a level that far exceeded the projections of the companies when they made those investments. I will come on to answer the question from the hon. Member for Bishop Auckland (Helen Goodman) about projected future investment. I will give a telling statistic that makes my point very well.

We expect pre-tax profits from oil and gas production in the UK to be £24 billion in the current tax year, which is a 50% increase in just two years, primarily as a result of the increased oil price. Oil companies can afford to pay a bit more, but hard-pressed motorists, hauliers and businesses deserve to pay less.

[Dr Whiteford]

I am pleased that the Economic Secretary recognises the impact that fuel prices have been having on business and hauliers, particularly those in more remote and rural areas. It is precisely those areas, including the parts of north-east Scotland represented by myself and by the right hon. Member for Gordon (Malcolm Bruce) and the hon. Member for West Aberdeenshire and Kincardine (Sir Robert Smith), who tabled the amendment, that face a hugely disproportionate impact on jobs and investment in the oil and gas sector.

[Justine Greening]

We have just agreed to clause 19 without either the Scottish National party or the Labour party having divided the House. If we are willing to accept the cost of the motoring package in clause 19, which I think we all accept was badly needed to support motorists, hauliers and businesses, we also have to accept some responsibility for putting in place a way of funding it. Clause 7 is how we will do that.

[Dame Anne Begg]

Will the Economic Secretary give way?

[Justine Greening]

Let me make a bit more progress, because Members have raised some real concerns and I want to ensure that I respond.

The Government recognise that we need to act as a good custodian of the UK’s natural mineral wealth; at the same time, we need to manage a tax regime that tailors the level of tax to the level of profits available from the UK continental shelf. The UK’s oil and gas reserves are a finite resource that belongs to the nation. Current oil production was not sanctioned on the basis of the high prices from which the industry benefits today. Those unexpectedly high prices and profits have arisen due to geopolitical events in the middle east and north Africa, as we have heard, and the Government must ensure that they secure a fair return for the UK taxpayer, particularly given the impact that oil prices are having on the broader economy outside the oil and gas exploration industry.

[Stewart Hosie]

But the tax rate was 50% before. Although clause 19 has been agreed to, it ought to have been paid for by the windfall that the Government got because of last year’s rise in the barrel price and by the windfall over and above the 2010 forecast that the Government are going to get this year. The problem is that what the Government have done with this tax grab, this 60% hike in the supplementary charge, is likely to damage investment and jobs and weaken economic recovery. It is not necessary to pay for clause 19—the money was already banked.

[Justine Greening]

I only wish that the hon. Gentleman’s assertion was correct. The previous Parliament debated this very issue, and I think it was responsible of the new Government to get the independent Office for Budget Responsibility to examine it, given that there had been conflicting assessments from different industry watchers and think-tanks. The OBR was very clear that although we received some extra revenue from the North sea as a result of higher prices, the impact of higher oil prices is far more wide-ranging. We can see that from the debate that we have had over a number of weeks, which continues tonight, about the impact of oil prices as they feed through to high pump prices.

I remind the hon. Gentleman of his own words about how to pay for the stabiliser back in 2009. He said:

“That amount could come from the VAT windfall or the North sea windfall, because it would be directly related to the price of oil.”—[Official Report, 13 May 2009; Vol. 492, c. 908.]

I know that he was talking about the direct revenues that he has just mentioned, but I think he was also making the broader point that a more general windfall accrues to the North sea industry when oil prices are high. I will talk briefly about some of the steps that we want to take to ensure that we mitigate the risks involved in the more marginal investments, so that we manage the concerns that have been raised, particularly by Liberal Democrat Members.

Amendment 10, which was proposed by the Labour party and spoken to by the hon. Member for Bristol East (Kerry McCarthy), would require the Chancellor to

“produce, before 30 September 2011, an assessment of the impact of taxation of ring fence profits on business investment and growth including an assessment of the long-term sustainability of oil and gas exploration in the North sea”.

As I have said, I want to reassure hon. Members that we are engaged closely with the industry. In fact, we explicitly mention in the Budget document that we want to work with the industry on field allowances, particularly those on marginal gas fields. Since coming to power, we have engaged closely with the industry, as my hon. Friends are aware. We have introduced a change to the ultra-high-pressure, high-temperature field allowance to ensure that the fiscal regime was appropriate to those prevailing circumstances.

The Government are keen to continue working with the industry. I have personally met representatives of Statoil and Centrica and spoken directly with them about their individual concerns. As I am sure the right hon. Member for Gordon is aware, Wood Mackenzie explicitly pointed to the Mariner and Bressay oil fields as two of the few fields where there would be an uneconomical impact, but for a variety of reasons, a number of technical challenges associated with those fields already made them a challenging investment. Nevertheless, we are working directly with Statoil to look at whether field allowances can be developed to help to unlock that investment.

The Government published our assessment of the impact of the measure in a tax information and impact note at the time of the Budget. Although we do not expect the measure to have a significant impact on investment or production in the forecast period, as I have said, we are working closely with the industry. First, we want to look at field allowances to see how we can unlock those more marginal fields, and secondly, we want to look at the longer-term issues that the industry is keen to address, including, for example, achieving more certainty on decommissioning.

Of course, the Government expect that the average post-tax profits per barrel will be higher over the next five years than it was over the past five years because of the higher oil price. In its analysis of the Budget, industry analyst Wood Mackenzie stated:

“At current high oil prices, few new projects will become uneconomic as a result of the change”,

However, we want to do what we can to ensure that investment is unlocked for those projects that remain at risk, so that they go ahead.

[Helen Goodman]

I am just a little concerned about how the Minister expressed herself in her most recent remarks. My understanding is that Ministers are not supposed to be privy to the individual tax bills faced by individual taxpayers. From what she is saying, it sounds as if a line has been stepped over when it perhaps should not have been.

[Justine Greening]

I do not think that that is true. It is perfectly normal and reasonable for the Treasury to work with industry and individual companies to look at the particular problems that they face. That is exactly what the previous Government did, and they introduced field allowances. There is no substance at all to the hon. Lady’s claim. In fact, she would have more justification for complaint if we were not taking such action.

As I have said, the recent very high sterling oil price has resulted in unexpectedly high profits for oil and gas companies, although at the same time it has resulted in financial pain for motorists and the wider economy. The Government therefore decided that it was appropriate to increase the rate of supplementary charge, to redress that imbalance. The fact that we have acted in that way does not mean that we do not appreciate the impact of taxation. However, we believe that investment in an exploration of the UK continental shelf will continue, driven by the record high oil price.

The hon. Member for Bishop Auckland (Helen Goodman) asked about forecasting. Of course, there is a range of industry forecasts on future oil prices, but the Government use the OBR, which is entirely independent of us. The OBR forecasts an oil price for the forthcoming years of this Parliament in excess of $100 a barrel for every year of that period.

02:45

That brings me to the work of Professor Kemp, briefly mentioned by hon. Members. We are aware of his analysis of the impact of the increase in the supplementary charge. That analysis makes it clear that when considering the impact on investment, the tax increases are far less important than either oil and gas prices or the hurdle rate for investment adopted by individual companies. In fact, Professor Kemp’s analysis points to only a small impact on activity at the level of prices expected and using the level of screening hurdle most commonly employed by active investors. Of course, however, we need to ensure that on those marginal fields that are impacted, we work hard with the industry to ensure that investment can nevertheless take place.

[Mr Kevan Jones]

In response to my hon. Friend the Member for Bishop Auckland (Helen Goodman), the Minister talked about negotiations she is having with individual oil companies. Is the revenue from fields going down? If so, from where is she providing compensation to fill the gap, or is she not giving any money away at all in these negotiations?

[Justine Greening]

The hon. Gentleman is missing the point that because of the high oil price there is continued investment in the North sea. Interestingly, Professor Kemp’s optimistic scenario is $90 a barrel and 70p per therm, but as I just said, the OBR has projected independently that oil prices over the next five years could be more than $100. That is $10 higher than the most optimistic scenario in Professor Kemp’s analysis.

[Stewart Hosie]

It is worth pointing out the Professor Kemp states that his projections are all in real terms, so they increase yearly with general inflation, and he gives three different scenarios for a barrel-of-oil price plus the therm price. In each instance—I will be very accurate here—field investment is reduced by £19.2 billion, by £19.5 billion or by £29.1 billion. Those are 30-year forecasts. For the sake of accuracy and completeness, therefore, I am sure that the Minister will agree that Professor Kemp and Linda Stephen’s work points to reduced investment over all the scenarios investigated.

[Justine Greening]

I just said that we accept that there will be a marginal impact; however, Wood Mackenzie has said that it does not expect that marginal impact to be high. If we look at Professor Kemp’s optimistic scenario of $90, which is less optimistic than what the OBR is projecting, and then use the hurdle rate most commonly used by most companies, we see that in the high-price scenario, total future projects are expected to fall from 1,099 to 1,074—a 2% reduction. We are saying that we recognise that. We therefore believe that the challenge is now for us to work with the industry to ensure that we can mitigate the risk to that 2% of investment.

I turn briefly to the amendments in the names of my right hon. Friend the Member for Gordon and my hon. Friend the Member for West Aberdeenshire and Kincardine. Clearly, the amendments enabled them to make the points they wanted to make, but I think they would accept that the way in which their proposals would operate could mean that the supplementary charge rise started later and lasted potentially for a finite time. It might also have a staged approach. All those things would mean that the funding would not be in place to fund the package we want to introduce for motorists. I stress, however, that as my right hon. Friend the Member for Gordon said at the end of this comments, the way through this is to ensure that we work with the industry. I am pleased with the engagement we have now had with the industry. We have got through our first meeting with industry representatives after the Budget, which was a chance for them to set out their reaction to a tax rise we did not anticipate they would welcome.

The Government amendments demonstrate that we are engaged with the industry and are listening to its concerns. In fact, as a result of that engagement we wanted to address a technical issue that had arisen involving the basis proposed for the apportionment of profits. The Government’s amendments seek to address that. The legislation provides for how profits in an accounting period that straddles the date of the rate increase are to be split, so that the two tax rates can be applied to the appropriate amounts of profits. Government amendment 11 provides that a company may elect for a just and reasonable basis to be used where a time apportionment would give an unjust or unreasonable result.

We have proposed amendment 11 to take account of the concerns of industry. The amendment has an Exchequer cost of £40 million in 2011-12 only. We feel that the change is worth while because it ensures, for example, that the tax change does not affect the tax liability due in respect of transactions that were wholly completed before the Budget and that should not, therefore, have been affected by the rate change. The change follows an approach that the industry has suggested and shows that the Government are willing to change the detail of the delivery of their stated policy aims where evidence of unforeseen effects is presented by the industry. I urge hon. Members to accept the change.

This Government will carry on working with the industry on providing certainty in respect of decommissioning tax relief. Industry and officials will be engaging closely on that important piece of work in the coming months, and as previously mentioned, officials and Ministers are closely engaging with the industry in relation to the marginal field developments. We explicitly said that we would do that in the Budget, and we are now following up on that desire to ensure that investment continues to be unlocked. The concerns of gas producers are also being discussed with them. As I have mentioned, the Government are also seeking the views of oil companies and motoring groups about the level of the trigger price for the supplementary charge, and how the oil price for that purpose is to be determined. That informal consultation will be take place shortly, and we expect to be able to clarify the policy mechanism in the autumn.

We want to ensure that the Exchequer obtains a fair share of the value of our natural resource wealth while ensuring that the tax regime does not impede the development of the basin’s potential. The impacts of the measure are understood, so no further assessment is required, and I urge the Opposition not to press the amendment. It is impossible not to note that they voted—[Interruption.] I was actually referring to amendment 10, which I would have thought Labour Members would recognise, having proposed it—although I suppose that anyone who has voted for a tax cut on fuel duty, even though they have no way of paying for it because they have set out their stall against getting the funding mechanism from the oil companies, might be expected not to have followed the arguments that I have set out.

The amendments proposed by my right hon. Friend the Member for Gordon are well intentioned. Let me reassure him once again that we are listening to representations from the industry and acting to ameliorate unforeseen effects. I therefore urge hon. Members to accept the Government amendments. The clause puts in place a fair fuel stabiliser, ensuring that we can pay for much needed help for motorists up and down the country. The clause also ensures that motorists and businesses suffer less pain from high prices at the petrol pump as a result of higher oil prices that would otherwise simply increase the profits of oil companies.

[Malcolm Bruce]

We have had a very useful debate, in which Members from all parts of the Committee have had the opportunity to express some pretty forceful points of view about the industry, as well as present facts from well informed sources. It is perhaps unfortunate that it is so late, but this still stands on the record as a valuable debate.

I thank the Minister for her constructive response and for the information about the Government’s detailed engagement. It would be fair to say that the immediate situation after the Budget was that the Government mounted a robust defence of their line against an industry that was shocked at what it heard. Perhaps the first meeting was less than constructive, although it is clear that things are now moving in the right direction. The amendments in my name and that of my hon. Friend the Member for West Aberdeenshire and Kincardine (Sir Robert Smith) suggest how we might have liked the Government to proceed. We recognise that the die has been cast, although it is important that the Government should continue to engage with the industry to understand the issues of competitiveness, because the oil price is worldwide and the UK has to compete for that investment.

It is also important to take on board the fact that although the losses in production and investment might be considered marginal, we are talking about margins on huge sums of money and huge resources. In other words, we are talking about 1 billion to 2 billion barrels of oil-equivalent, which is worth £70 billion to £100 billion, and £20 billion-plus of potential lost investment. It is important that the engagement between the industry and the Government finds solutions that can deliver the revenue that the Government need and are entitled to accept, given the very high prices, as well as delivering to the country the investment in long-term production that it needs. I believe that this debate has made a substantial and useful contribution. I welcome the Minister’s response to it, and I beg to ask leave to withdraw the amendment.

Amendment, by leave, withdrawn.

Amendments made: 11, page 3, line 13, at end insert:

“(4A) But if the basis of apportionment in subsection (4)(b) would work unjustly or unreasonably in the company’s case, the company may elect for its profits to be apportioned on another basis that is just and reasonable and specified in the election.”

Amendment 12, page 3, line 16, leave out “subsection (4)” and insert “subsections (4) and (4A)”.

Amendment proposed: 10, page 4, line 7, at end add:

“ (11) The Chancellor shall produce, before 30 September 2011, an assessment of the impact of taxation of ring fence profits on business investment and growth including an assessment of the long-term sustainability of oil and gas exploration in the North Sea.”—(Kerry McCarthy.)

Question put, That the amendment be made.

02:55

Division 263

Ayes: 27

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Labour: 21
Scottish National Party: 6

Noes: 253

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Conservative: 225
Liberal Democrat: 27
Labour: 1

Question put, That the clause, as amended, stand part of the Bill.

03:07

Division 264

Ayes: 251

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Conservative: 226
Liberal Democrat: 25

Noes: 8

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Scottish National Party: 4
Labour: 2
Liberal Democrat: 2

Clause 7, as amended, ordered to stand part of the Bill.