Westminster Hall

Tuesday 15th November 2011 Westminster Hall

Tuesday 15 November 2011

[Martin Caton in the Chair]

Eurozone Crisis

Tuesday 15th November 2011 Westminster Hall

Motion made, and Question proposed, That the sitting be now adjourned.—(Greg Hands.)

09:30

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

Good morning to you, Mr Caton. In raising concerns about the UK’s liability to the eurozone bail-out via its contributions to the International Monetary Fund, I will ask various questions of the Minister. I will question the assumption that we always get our money back, whether the IMF’s policy will work and why the IMF should be getting involved at all.

That we are talking about large sums of money cannot be denied. Our liability through the European financial stabilisation mechanism totals some £6.5 billion. Our liability through the bilateral loan to Ireland exceeds £3 billion. Despite Government assurances to the contrary, it does not stop there. Our IMF liability to the Greek, Portuguese and Irish bail-out packages announced before May 2011 totals some £3.5 billion, and that does not include the latest Greek bail-out. Adding in our additional contributions, which are almost doubling—from some £10 billion to nearly £20 billion—it is obvious to all that we are soon talking some big figures. I do not think the Minister can deny—I shall welcome his intervention if he thinks otherwise—that some of the additional IMF money will be routed through to the eurozone crisis. Therefore, the Government’s claim that our liability stops with the EFSM and our bilateral loan to Ireland simply does not wash.

Let me be clear: I support the IMF’s work. IMF programmes can and do work under certain conditions. However, there are real risks to those IMF contributions routed through to the eurozone crisis.

The Government take great comfort from the fact that no country that has lent money to the IMF has ever lost that money. However, this recession is very different. Having been a fund manager in the City of London, running pension funds, charity money and funds for private clients, I know that it is always dangerous to say, “This time it is different,” but economic history makes that clear. Recessions since the great depression have always been de-stocking events, where the problem has been a fall in demand. In response to that, the Keynesian approach of stimulating the economy through additional demand—if necessary, by borrowing—has by and large done the trick. This recession, however, is a deleveraging recession, which has been built on excessive debt. Governments and consumers have taken on too much debt. Demand is not the issue; excessive debt is. The only remedies for this recession are to pare down the debt and attain greater growth through increased competitiveness.

I worry that the Government are underestimating the scale of the debt. There is £300 billion-worth of Italian debt to be rolled over in the coming 12 to 18 months. The eurozone went to the Chinese, who have massive reserves, but the Chinese did not want to know. The fact that the IMF wants an additional £10 billion from us clearly suggests that it does not have our original £10 billion. The Government would be foolish to ignore the omens. Does the Minister accept that there is at least some risk that the UK could lose some of the money routed through the IMF to the eurozone crisis? Again, he is welcome to intervene if he so wishes.

[Mark Reckless (Rochester and Strood) (Con)]

My hon. Friend refers to £10 billion and another £10 billion. I understand that when the issue was discussed in the Joint Committee on Statutory Instruments, the Minister said that, broadly speaking, our liability to the IMF would be £20 billion. However, I understand that another funding source exists that may mean that our liability is already £40 billion. Can my hon. Friend enlighten us?

[Mr Baron]

My hon. Friend is right to raise that issue. There is an additional liability that we know relatively little about, because the Government have not come to the House to explain it. I hope the Minister will take the opportunity in this debate to address that concern. Is that true? What is the extent of the liability? How would it be called upon in the event of certain contingencies?

[Mark Field (Cities of London and Westminster) (Con)]

My hon. Friend referred to the idea that we have never—hitherto, at least—lost money to the IMF. Does he recognise that there is potentially a huge opportunity cost in lending money, often at low interest rates, to the IMF? As he will know, Parliament was told at the time that the bilateral deal struck with Ireland had tremendously advantageous interest rates. There has been a haircut on that interest rate across Europe, which could well happen to any future IMF contributions that we make.

[Mr Baron]

My hon. Friend is absolutely right. There is a real danger that we underestimate the extent of the debt and the defaults that could happen. One is not joining the bandwagon of warning signals. The debt that has to be rolled over is quite clear for all to see, but I do not think the Government are acknowledging that. Simply to fall complacently back on the fact that no money ever loaned to the IMF has been lost is to miss the point completely.

[Ian Paisley (North Antrim) (DUP)]

I congratulate the hon. Gentleman on securing the debate. He mentioned a number of times the bilateral loan, which is of significant interest to my colleagues and me. He may be interested to know that last December, I wrote to the Chancellor to suggest that Her Majesty’s Government should hold the deeds of all properties in the United Kingdom that are in the possession of the National Asset Management Agency, the Irish state bank, so that it cannot disproportionately influence our market by the unilateral sale of those properties. Does the hon. Gentleman agree that that is one way of protecting ourselves and our own local market against NAMA?

[Mr Baron]

That is certainly one option that should be explored more thoroughly. I referred to the Irish loans because the Government line to date has been that our liability to the eurozone crisis stops at the bilateral loan to Ireland and at our existing £6.5 billion contingency liabilities to the EFSM. That is simply untrue, given the additional contributions through the IMF.

Will additional IMF funding work? That will simply reinforce existing eurozone policy, which is itself fundamentally flawed. The existing policy simply does not address the core causes of the crisis, which are a lack of competitiveness and Governments spending too much. Debt is the problem, as I have said, not demand. We have had 14 or perhaps even 15 gatherings, conferences and summits to save the euro, but each has failed to address the core reason for the problem, which is a fundamental lack of competitiveness. Where are the swathes of cuts to regulation? Where is the introduction of measures to improve competitiveness? They simply have not been there. All that has happened, and all the concern there has been, is to put together more debt to solve an existing debt crisis.

[Mr Douglas Carswell (Clacton) (Con)]

The Government say that no one has ever lost money by lending to the IMF. Can my hon. Friend tell me whether the IMF previously lent money to make a debt crisis worse, as it is now doing? Previous IMF bail-outs involved a debt default or restructuring and devaluation, not more bail-outs and borrowing. Surely, putting the IMF in charge in that way is making things worse. Putting Christine Lagarde at the helm is a bit like putting a debtor in charge of a bank.

[Mr Baron]

My hon. Friend nearly stole one of the lines I was about to come out with. Fundamentally, I agree with him. The problem is caused by excessive debt: that is what makes this recession different from previous ones, yet the solution the eurozone leaders have come up with is to pile on more debt. That is not the solution. All it is doing is reinforcing failure and failed policies.

There are further reasons why this policy will not work. I cannot think of a monetary union in the economic history of this planet that has succeeded without fiscal union also being in place. Again, I call on the Minister to intervene if he can correct me. To pursue monetary union without fiscal union is a doomed policy. Can the Minister come up with one example of successful monetary union in a country where fiscal union has not also been present? As I say, I would welcome his intervention, but I doubt that he will have such an example.

As my hon. Friend the Member for Clacton (Mr Carswell) has suggested, another reason why this policy will fail is that it fundamentally ignores the importance of devaluation to recovering economies. Usually, there are three elements in an IMF package: reduced spending, increased revenue and the ability to allow the currency to devalue. That last bit is important because a currency that devalues helps to take the strain off the economy. If an economy is deemed to be, say, 25% uncompetitive compared with its neighbours, allowing its currency to depreciate to about the same extent will go a long way towards taking the strain. If we cut off that option, that 25% gain in competitiveness can really be brought about only by cuts to public services, salaries and pension funds. That is simply not an option, and for that reason it makes those austerity packages so much worse.

To my knowledge, the IMF has never lent to a country or put in place a programme in a country that cannot devalue, which is why the Government line that only three of the 53 IMF packages go to the eurozone is disingenuous. Can the Minister name one country, one package in those 50, where devaluation is not an option? That is the fundamental difference. In the three packages in the eurozone, devaluation is off the table, which will make the austerity packages worse.

Having asked the Minister several questions, I was hoping that a number of notes would have been passed to him so that we could get some answers. I am sure he has pre-empted my questions and has the answers in his brief. Again, I would welcome him intervening to name one of those packages outside the eurozone in which devaluation is not an option. They do not exist. Devaluation is terribly important when it comes to an IMF package, but we are not allowing that option in the eurozone. That is another reason why these IMF packages will fail.

[Neil Carmichael (Stroud) (Con)]

When the IMF intervened in our economy in 1976, when Denis Healey was fighting to save the pound, that intervention arrested the devaluation of the pound.

[Mr Baron]

I agree to a certain extent, but my hon. Friend cannot deny that we had the ability to devalue. The currency markets could take the strain and, to a certain extent, they did. If we look at the strength of the pound since the second world war, we see that it has been a sorry tale of devaluation. Had that devaluation not taken place and had we been locked into a system that did not allow devaluation, my goodness me, the austerity packages introduced to compensate for that lack of competitiveness would have been very severe indeed.

[Mr Christopher Chope (Christchurch) (Con)]

I share my hon. Friend’s scepticism about the role of the IMF in the treaty that establishes the European stability mechanism. Does he recognise that that treaty is littered with references to the IMF, even to the extent of including a provision that says that no application can be made for a loan unless a similar application has been made to the IMF first?

[Mr Baron]

My hon. Friend is absolutely right. The IMF is an integral part of the rescue package for the eurozone, but that is something that the Government are, at least publicly, not willing to acknowledge, which is very wrong indeed.

I question why the IMF is getting involved in these bail-outs. The eurozone is a currency union. If a state within the United States got into trouble, the IMF would not be expected to ride to the rescue. The same should be true of the eurozone. I contend that Greece is not economically sovereign: it has no central bank, it cannot set interest rates, it has no currency, and it cannot devalue. I would go so far as to question whether Greece is even politically sovereign. At least in the United States, the people can elect the governor of individual states. That is not happening in Greece and Italy. In some cases, we do not even have a Government.

[Mr David Nuttall (Bury North) (Con)]

My hon. Friend refers to the possibility of an American state finding itself in financial difficulties. Of course that has already happened in California. Can he confirm that, in those circumstances, the IMF was not involved and was not able to contribute?

[Mr Baron]

That is absolutely right. My hon. Friend reinforces my point. The US is a currency union and the IMF is not expected to ride to the rescue there, yet it is expected to ride to the rescue of countries in the eurozone, which is also a currency union. That is completely wrong.

[Glyn Davies (Montgomeryshire) (Con)]

Let me ask my hon. Friend about the wider context. We are dealing with the financial aspects here, but I have always had a greater interest in the constitutional aspects. It seems that the euro is destroying democracy as we know it. Should we not consider that issue, especially as we are seeing the end of democracy in Greece and Italy? Europe has always been my concern, which is why I opposed the whole thing in 1975. We are now seeing the creation of a single country in Europe, to which the British people have not signed up, and that will eventually lead to trouble.

[Mr Baron]

My hon. Friend is absolutely right. If he needs confirmation, I suggest that he look at the front page of City A.M., where he will see what Angela Merkel has said about political union. There is a political deficit in the eurozone at the moment, which is why Governments are being appointed and not elected in Greece and Italy. That is a consequence of the fact that the eurozone and the EU are hellbent on political union at the cost of democracy and getting the people’s consent.

[Mr David Davis (Haltemprice and Howden) (Con)]

I congratulate my hon. Friend on a formidably cogent speech. Sadly, I will not be here to hear the Minister’s attempt to answer it. The democratic deficit that I am worried about is the one in this country. We are having this debate in Westminster Hall. Whatever its outcome, it will not change what happens in the IMF. Is there any way that Parliament can have a say on British taxpayers’ money being used in pursuit of an end that is against their interests?

[Mr Baron]

My right hon. Friend makes a good point. By raising such issues in Parliament and in collaboration with other like-minded individuals, we can hope that we can force the Government to think again and to look at the various mechanisms at our disposal in the House. If we do not raise these points in our Chambers, the Government will not answer the questions that need to be put to them. My right hon. Friend is right; we will not change anything today. The hope is that together we can force the Government to think again.

Let me go back to why the IMF is getting involved at all. What makes the situation even worse is that the eurozone has resources that could do much more to help. For example, the Bundesbank has reserves of £180 billion, £130 billion of which is in gold, and gold is going up in price. That is in stark contrast to our country and the action of the previous Government, who sold gold at near the bottom of the market.

I agree with the point made by my hon. Friend the Member for Clacton about why we supported Christine Lagarde, the former French Finance Minister, being put in charge of the IMF. It is like putting the debtor in charge of the debtors’ prison. Christine Lagarde has admitted on record that the bail-out arrangements broke the rules, but she said that that could be justified because we all had to rally round to save the euro, which itself is a political objective. That is complete nonsense and it does not augur well for the future, and the Government taking confidence in the fact that the IMF has signed off the packages does not augur well either. The IMF signed off the initial Greek package and look at what happened then: the situation went from bad to worse. I suggest that it will get worse still. Having some sort of blind confidence in the IMF signing off the packages is basically abdicating one’s responsibilities of Government to question what is going on. I do not see that detailed questioning happening at the moment.

I suggest that the Government’s line on this issue—their approach to the eurozone crisis—is symptomatic of their flawed approach generally to the euro. The Government seem to have fallen in behind the French and Germans in this cry that somehow we must save the euro. I suggest to the Minister that that is economic clap-trap. Binding divergent economies into a single currency without full fiscal union was, and remains, a massive mistake. Similar thinking warned us of the perils of exiting the exchange rate mechanism, yet look what happened then: almost to the day that we exited the ERM, our recovery started and it was a very strong recovery.

I suggest to the Minister that the sky will not fall in if the euro breaks up. We will still have, by and large, a free market, although I think that it could be improved, and we will still have consumers demanding goods. If anything, by not trying to save the euro, we could help to stimulate demand, because by trying to save the euro we are cutting off one of the key ways to improve competitiveness—devaluation. By cutting off that option, we are making the austerity packages worse; we have to add to the austerity packages because the countries in need do not have the option of devaluation.

Saving the euro is making matters worse, yet the Government are silent on this issue. They have shown no leadership. They have fallen behind the line that saving the euro is everything—it is not. I suggest that the Minister and the Government look at the experiences of Norway and Switzerland, which have their own currencies and free trade agreements with the EU. Those countries are doing very well. Saving the euro should not be the ultimate goal, because it is making the austerity packages worse.

[Mr Stewart Jackson (Peterborough) (Con)]

My hon. Friend is making a powerful and convincing speech, but is the situation not even worse than he suggests, in that the Government are effectively adopting a de facto policy of support for a tighter fiscal union, which in the long term will inevitably militate against this country’s strategic political and economic interests as a sovereign state?

[Mr Baron]

My hon. Friend makes a good point. By joining in the chorus that we must save the euro, we are implicitly supporting fiscal union within the eurozone, which is the wrong approach to take, certainly for this country’s interests. But, no doubt, the Minister will be able to clarify the Government’s position on that issue.

The same flawed approach by the Government has denied the people of this country a referendum on the EU and our future relationship with it, while allowing massive budget transfers to Brussels. Our budget increase totals about £21 billion or £22 billion. It will increase from £19 billion for the last seven years to about £41 billion in the next seven years. What could we get for that additional £21 billion or £22 billion? We could get 100,000 police officers on the streets for each of those seven years, 100,000 nurses in our hospitals or 100,000 teachers in our schools. How could we stimulate growth with that money? We could cut basic rate income tax by 1p in the pound for each of the seven years. We could cut small business corporation tax by 6p in the pound. My goodness me—would that not be a concrete measure to stimulate growth and encourage competitiveness in this country?

I am afraid that the Government’s thinking on this issue is intellectually incoherent, economically flawed and, perhaps worst of all, flies in the face of what the majority of people in this country want. What we want is leadership—strong leadership. We hear noises such as, “Oh, regulation from the EU hurts growth.” There is nothing new in that; saying it is just making noise for the sake of making noise. We have known that about EU regulation for years. What we want is strong leadership that repatriates powers to this country, stops the salami-slicing of our political sovereignty, encourages the establishment of a genuine free market in Europe and guards against our liabilities to the eurozone crisis. But I do not see that strong leadership in front of me today, which worries me and a number of my colleagues and right hon. and hon. Friends greatly. Meanwhile, we stumble on.

I suggest to the Minister that this country will wake up about this issue one day and that we will renegotiate with the EU. My hope is that we will renegotiate a free trade arrangement, similar to the arrangements that Norway and Switzerland have, and that we have a constructive businesslike arrangement with the EU, without sacrificing political sovereignty and without going down the road of political union. My concern is about the damage that will be caused to this country between now and then and the cost that we and our children will have to bear.

I hope that the Minister, as he has refused my invitation to intervene on the questions that I have put to him, will come up with some answers when he winds up this debate. I hope that he answers the questions that I have put, because they are the questions that people in this country are asking.

[Several hon. Members]

rose—

[Martin Caton (in the Chair)]

Order. I want to start the winding-up speeches at 10.40 am. At least seven hon. Members are indicating that they would like to speak, so greater brevity of speeches will mean a greater number of them.

09:57

[Jim Shannon (Strangford) (DUP)]

I am grateful to you, Mr Caton, for allowing me to speak. I commend the hon. Member for Basildon and Billericay (Mr Baron) for bringing this matter to the House today and giving us all a chance to express ourselves in the way that our constituents have expressed themselves to us.

I want to make it clear from the outset where my opinion lies—we need to look at the signs in front of us and then take action. Iceland was not prepared to pay back a bail-out; the Greeks were not willing, or perhaps they were not able, to make the cuts necessary to meet their payments; and now we are looking towards Italy and all the chaos that seems to be enveloping that country. For too long, we have watched other countries prosper with bail-out funding while we cut funding to schools, hospitals and infrastructure to remain solvent and to claw our way back to a sound financial footing, which are the very things that the hon. Gentleman discussed.

For too long, we have paid into the EU while watching our farmers and fishermen flounder under the weight of EU dictates. We watched other nations flaunt the rules even as we were fined £60 million in Northern Ireland for mistakes in filling in some forms. Just last week in Portavogie, which is in my constituency, I had an opportunity to speak to some fishermen. They told me that they are weighed down by bureaucracy, such as new rules on mesh sizes for nets and types of net by red tape and by monitoring, which they have to pay for themselves because the cost of policing fishing falls on the heads of fishermen.

I believe that the people want out. They see the crisis and that the house of cards is no longer simply swaying but precariously quivering with the wind of change blowing through Europe. We stood in this House last month and advocated allowing the people to have a referendum on Europe. We were denied the opportunity to have a referendum by the strong whip of the three major parties. At least my party, the Democratic Unionist party, stood strong and united in our call for a referendum. We feel that that is what the people want us to do. People must be given the opportunity to have their voices heard.

My mother had a wee statement; she had lots of wee statements, as mums always do. She said, “Don’t throw good money after bad,” but that is what is happening in Europe. How long will it continue? When will it end? Is this not the chance to leave Europe, or to change it so that it no longer resembles the red-tape-loving, common-sense-ignoring, self-serving, life-sucking drain of money that it has been for so long? Angela Merkel, the German Chancellor, has said that she wants substantial treaty change to strengthen it and to give the European Commission the chance to impose fiscal discipline on excessively indebted states in the single currency area. I am concerned that other European countries have a clear policy—a strategy—about what they want, and that they want us to be a subservient part of it. We want, and need, more. We need to be free to fish our seas and farm our lands responsibly, as we have done in the past, and we need not to be bound by restrictions placed upon us by those who are self-serving in Europe. As we struggle in this financial mire, China sits back and laughs. It is time to take control.

I have spoken before on the IMF, and I say again that the money is not for bailing out the euro, because the eurozone countries should and must bear the brunt. I stated in the House earlier this year:

“It is clear that the European financial stabilisation mechanism is not fit for purpose…On 9 May 2010, the European financial stability facility was created, and it is a special purpose vehicle agreed by 16 members of the eurozone and aimed at preserving financial stability in Europe by providing financial assistance to eurozone states in economic difficulty.”

That is very commendable, but perhaps unworkable. Furthermore:

“Thus far, we are not at all involved, but no to the euro meant no to the EFSF. The tricky part came with the notion that the facility may be combined with loans of up to €60 billion from the European financial stabilisation mechanism, which is again reliant on funds raised by the European Commission using the EU budget as collateral, and up to €250 billion from the IMF, all to secure a safety net of €750 billion.

If there is no financial operation in activity, the EFSF would close down after three years, on 30 June 2013. If there is a financial operation in activity—which of course there is—the facility would exist until its last obligation had been fully repaid. There has indeed been activity, and a good deal of it involving the EFSM, despite the fact that it should not have been involved to the extent that it had an equal if not greater share of the bail-outs. The purpose of the European financial stabilisation mechanism is to provide an emergency funding programme that is reliant on funds raised on the financial markets and guaranteed by the European Commission using the European Union budget as collateral.”—[Official Report, 24 May 2011; Vol. 528, c. 813.]

In my opinion, that has not changed, and as we look at Greece and Italy and wait to hear of the next country to fail, it is clear that despite the Prime Minister’s claim that there is no risk to the taxpayer, there is a danger that the money will not be used for the good of the United Kingdom. That is a huge risk, and it cannot be allowed.

I sincerely urge the Minister to think clearly before any more money goes into the IMF. We have been hoodwinked before to our detriment and to the financial cost of everyone in this country, and it cannot happen again. Let us not forget that we are fighting to reduce the deficit here and that we must prioritise. I commend the Prime Minister on his idea of the big society. Regardless of whether it is workable, I support the thrust of it, but it will be difficult for it ever to happen and for the benefits to be seen in the UK, never mind Europe-wide. As I stand here today representing my constituents, I state very clearly that we should not put any more of our funds into the IMF without first being certain of where the money will go, to the penny. We cannot afford to do otherwise, because the people do not want us to, and it is their money that the Government are toying with. For the first time since joining the EU, it is time to work things out to our advantage. We need to take that chance, and we need to take it now.

I support the thrust of what other hon. Members have said today, and I hope that the Minister will respond positively to our concerns as MPs and elected representatives. The concerns are genuine. The people I represent, who have put me here, are very clear: they want us out of Europe, and they want us out now.

09:59

[Mark Field (Cities of London and Westminster) (Con)]

I thank my hon. Friend the Member for Basildon and Billericay (Mr Baron)—my very old parliamentary friend—for securing this debate. He talks with immense sense and, as a man who had a job outside politics before entering this place, immense experience. After 20 years in the financial markets, I suspect he has forgotten more about finance than many people who talk on these matters on all our behalves know.

Conventional wisdom dictates that high noon for the euro is imminent. The assumption is that the single currency will collapse or that the eurozone will be forced into a headlong rush towards full fiscal union. Nevertheless, despite all the euphoria of the past week about Italy, I suspect that we shall experience many more months of tottering along from market crisis to emergency meeting, to fully fledged conference and half-hearted bail-outs—the sort of disaster to which my hon. Friend has referred. Indeed, if—it is a very big “if” and no one seems to be focusing on it at governmental level—the global bond market remains relatively stable, the cheap price of Government debt provides little incentive to create a viable long-term structure for our ailing continent’s economies. There is a massive bubble in the bond market that no one is really talking about. The Chancellor prides himself on Britain being a safe haven; America, with its $13 trillion debt, is an even safer haven with rather lower interest rates, as is Germany. It is absolute madness when we are receiving 2.2% for getting our debt away and have inflation of 5.6%, and I am afraid that the bubble will burst at some point with, I suspect, disastrous effects.

Many purists will rightly bemoan that politics is being allowed to outweigh the economic realities, and that cannot go on for ever. What is so dangerous about the utter lack of leadership and vision among Europe’s leading politicians is that the longer this crisis continues, the more private sector confidence drains away and global markets begin to discount the entirety of Europe. More crucial still is that the two distinct problems that face many struggling European economies, solvency and liquidity, are becoming conflated in the minds of markets. The Greek issue is simply one of solvency, or rather insolvency. Greece must be allowed to default, from within the eurozone, I suspect. I support its creditors, who are predominantly EU banks, taking a substantial haircut. They lent the money at attractive interest rates, implicitly recognising the risks, and they must now take the consequences.

[Mr Carswell]

My hon. Friend talks about allowing Greece to default within the eurozone. Surely that is the worst of all possible worlds. Surely the way to handle the problem is not just to default but to decouple and set Greece free. Default within the eurozone is the worst possible option.

[Mark Field]

The only difficulty is how on earth it would ever borrow money again. Greece has been living in Alice in Wonderland economics for the past 20 years. We need to look at what happened in Argentina. That economy has struggled massively for the past decade, because it has not been able to borrow money in the international markets.

[Mr Carswell]

Does my hon. Friend not agree that today Argentina has a better bond rating than many eurozone countries and that that shows the way?

[Mark Field]

I suspect that that says more about eurozone countries than about the fundamental health of the Argentinean economy, but if my hon. Friend will excuse me, I will continue.

With the failure of European leaders and Finance Ministers truly to grasp the nettle, the liquidity problems faced by Portugal, Ireland, Spain and Italy are becoming ever more deep-seated. It is very difficult for Angela Merkel in Germany—as someone who has German blood running through his veins, I accept that. I appreciate that her domestic political position appears ever more precarious, because the EU’s economic powerhouse should have ceded control of the deepening crisis to the European Central Bank. The ECB’s mandate could, and perhaps should, be to provide market intervention to restore and maintain confidence on behalf of all solvent eurozone economies, but in her actions to date, Mrs Merkel has indicated that the politics are just too difficult for her nation, which remembers the days of hyperinflation during the early part of the Weimar Republic. Furthermore, all this requires, as ever within the EU, bypassing democratic safeguards, and it potentially involves unfathomably vast quantities of central bank support, with potentially hazardous medium-term economic consequences.

[Ian Paisley]

Will the hon. Gentleman give way?

[Mark Field]

I hope that the hon. Gentleman will excuse me; I know that others want to speak.

The twin lessons of the economic depression in the 1930s are that avoiding catastrophe requires swift action and that once a process is under way we should not worry unduly about overkill. It is better to pump too much liquidity into the system, rather than inadequate amounts. A financial system in free fall requires active central bank intervention, however irrational the collapse of market confidence. Nevertheless, in the absence of a central bank for the 17-nation eurozone that has real political clout or, more important still, sufficient funds to provide comprehensive cover in a liquidity crisis, it is regrettable that the UK is now expected to stand ready to bolster the IMF. The IMF seems to be the only institution that can bail out countries that are close to default—Italy and Spain, for example. My hon. Friend the Member for Basildon and Billericay is absolutely right that there is disingenuous thinking and talking within the eurozone. The reality is that if Italy or Spain has a problem, the European Central Bank and the European financial stability facility cannot address it. Clearly, such a problem must be addressed by the IMF.

Without stable financial markets, there is little hope of the sustained growth essential to economic recovery. The UK economy is a global leader in the financial services sector, but it is especially prone as a consequence to the adverse impact of uncertainty on worldwide financial markets. No UK taxpayer will stand by and watch with any sense of satisfaction as unimaginably large sums of money or guarantees are given to bail out the banking system.

As has been pointed out, our Prime Minister and the Chancellor have repeatedly vowed that there will be no further bail-outs of the eurozone. However, in the event of a collapse in market confidence for Italy or Spain, the UK, as a founding member of the IMF, will almost certainly be expected to increase both its absolute funding and its guarantee facilities to the fund, which is an extremely unpalatable prospect. However, I also accept that a UK failure to act would not only have immediate, serious consequences for the global financial services sector, but amount to an abdication of our responsibilities as a mercantile nation in the international field of trade and commerce.

As MP for the City of London, I reluctantly accept that I have no choice but broadly to support the UK Government’s proposal to underwrite further funds to the IMF. Nevertheless, I regard that as a matter that must be addressed not by the Executive alone but also here in Parliament. If the UK taxpayer is to be further exposed to IMF loans and guarantees, that must happen only after a statement from the Prime Minister outlining why such a course of action is in the national interest, after a full parliamentary debate and as the consequence of an affirmative vote in Parliament. In my view, nothing less will do.

I know that many other Members want to speak. There is much more that I would like to say, but I will touch on a point that my hon. Friend the Member for Basildon and Billericay made regarding the wisdom behind the UK Government’s enthusiastic promotion of a headlong move towards fiscal union in the eurozone. I say to the Minister that we should be extremely careful what we wish for. Such a development would embolden the eurozone, even in its apparent weakness, to embark on a rapid and radical political power grab throughout the EU. Alarm bells would ring in the City of London. It would be very bad news for this country, and we should not stand by and let it happen without ensuring that our national interests are properly served.

10:12

[Mr Christopher Chope (Christchurch) (Con)]

It is a pleasure to participate in this debate. I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on his good sense in calling for it. It is fantastically well attended, and it is a pity that it is not longer.

At business questions on Thursday, I raised with the Leader of the House the issue of the loan to Ireland. He said that he would tell the Financial Secretary to the Treasury of my interest in the subject, and that my hon. Friend would come to this debate with the answers to my questions. I hope that he has had due warning.

The loan to Ireland goes to the heart of the issue of trust, to which my hon. Friends have referred. The people in this country do not understand what is happening in their name. The Chancellor announced that we would give a £3 billion loan to Ireland. That is £50 a head for every member of the UK population. He announced that the rate of interest would be about 6%, in round figures, and that that would give the British taxpayer a healthy profit.

It then emerged in late July that the interest rate was likely to be lower, but had not yet been decided. The first tranche of the loan was paid to Ireland on 14 October. Even as we speak, the rate of interest on that loan has not been agreed. It is still being negotiated downwards. At the same time, the Irish bond rate has remained pretty constant, at more than 8%. Why are we negotiating the rate downwards? Why, indeed, are we lending all that money to Ireland when our own small businesses are crying out for money?

[Mark Reckless]

Is my hon. Friend aware that it is not just the interest rate that is uncertain but the priority of the loan? When addressing the Committee considering the Ireland and Portugal bail-outs and loans, the Financial Secretary stated that the loan to Ireland ranked broadly the same as those of the IMF and other international institutions, when actually it ranks below the IMF and the EFSF.

[Mr Chope]

My hon. Friend makes a good point. We were told that the IMF would help Ireland and that we could help Ireland and influence its economic policy through the IMF. We were also told that we needed to give Ireland a £3 billion loan so that we could have even more influence, but I do not think that it is written in any agreement that to have yet more influence we need to reduce the interest below the rate agreed at the outset. The fact that the Irish have drawn down on the loan shows that they do not look a gift horse in the mouth. They realise that this is a great opportunity.

Let us consider the opportunities in Ireland. I got my assistant to research the interest rates available to small businesses in Ireland at the moment, so this information is from yesterday. Allied Irish Banks is offering loans of up to €100,000 to small businesses at a “competitive rate” of 4.4% variable. New and early-stage businesses under three years old can get that money. Now, I do not know what it is like for my hon. Friends, but in my constituency it is almost impossible for businesses to get a loan from the bank at a rate of 4.4%, if they can get one at all. We know that Allied Irish Banks is the beneficiary of a £3.5 billion bail-out. We are giving Ireland money that it is using to subsidise its banks, which in turn are subsidising its small businesses to compete unfavourably against ours.

[Ian Paisley]

I agree with the thrust of what the hon. Gentleman is saying. Does he agree that it is actually far worse? The Irish state bank, the National Asset Management Agency, holds £14 billion of property in this city, which it can dispose of any time it wants and put the money back into its own national coffers. Is it not time that we had a Select Committee inquiry into NAMA’s activities in the United Kingdom jurisdiction?

[Mr Chope]

That sounds to me like a good point. People should start selling their assets. That is what families must do if they get into difficulties. We have to think about selling assets, which is what countries in debt should be doing.

Another example is the Bank of Ireland, which received €5.2 billion in the banking bail-out, and which is offering interest rates of 5.24%. More than half of all loan decisions are made on the spot and 87% of applications are approved. Would that we had similar arrangements in the United Kingdom. By comparison, HSBC was offering small business loans yesterday with a starting interest rate of 7.9%, which is obviously only for the most favoured customers.

Can the Government explain why we are reducing the rate of interest on the Irish loan? When the Bill went through the House, I voted against it, but it passed on the basis that we would make a significant profit on the interest. Now that the Irish are drawing down on the loan, surely we should know what the interest rate is. Is there any other organisation that can go to the bank and get a loan while the bank manager says, “Don’t worry, we’ll agree the interest rate later”? It seems reckless in the extreme.

My final point deals with the treaty establishing the European stability mechanism. Most people do not realise that the European stability mechanism is a new international financial institution that will have international immunity, and that it will be funded by the 17 members of the European Union. What will Ireland pay? Its subscription will be €11.145 billion, which is about £10 billion. Another way of putting it is that we are lending money to Ireland so that Ireland can, in turn, pay its subscription to the European stability mechanism. It is a farce.

10:19

[Glyn Davies (Montgomeryshire) (Con)]

Thank you, Mr Caton, for giving me the opportunity to contribute to what is probably the most important subject of debate that we will have during this Parliament. I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing the debate and on presenting his arguments in a challenging and clear way. I look forward to the Minister’s response to the points he has raised.

Most of my hon. Friend’s speech dealt with the financial aspects of the issue. My view, however, is that it is not possible to consider the issue without also looking at the wider context. Indeed, I raised that point when I intervened on him. The key concern for me and many others is that the euro is destroying democracy as we know it in western Europe. That was my main reason for opposing Britain’s entry to the euro when it was established.

I am not sure how many of the hon. Members present were involved, like me, in the 1975 campaign to leave the European Economic Community, but I think that some of us might have been—I can see one or two. At the beginning, we thought there was a chance that we would be successful, but in the end the argument that I supported was well beaten. I was not trained as an economist—or as anything really; I left school when I was 16 to be a farmer—but my argument was that the public’s gut instinct in those days was that we were creating a huge bureaucracy whereby the ability to influence decisions in our country was to be transferred somewhere where we would not have influence. That was the fundamental gut instinct that drove us to the “no” side.

When the eurozone was being established, I became involved in the opposition to it, which was unusual, because I was the chairman of the Agriculture and Rural Development Committee in the National Assembly for Wales and the agricultural community was fairly supportive of Britain joining the euro. I remember being dismissed on platforms as an extremist, but I was simply not in favour of Britain joining the euro. My argument was exactly the same as that which many people are making today—to create a successful eurozone almost certainly means financial union. Nobody has hidden that. In 1975, the purpose of many people who were behind the establishment of the EEC was that we would eventually move to political union in Europe. That was the small print. Today, I hear people saying that they thought we were joining an economic community, but that is not what I or a lot of other people thought.

[Mr William Cash (Stone) (Con)]

My hon. Friend is making an important point. Last night, the Prime Minister made a speech at the Guildhall in which he called for fundamental reform in the European Union, but it is not really just a question of fundamental reform in the EU, is it? What we have to have is a fundamental change in the relationship between the United Kingdom and the European Union, because it is a failed project. We have been enmeshed in it and it is increasingly causing damage to our own economy.

[Glyn Davies]

My hon. Friend has anticipated my next point, although I shall not use precisely the same language that he uses and has used for a long time—probably about 30 years. The Government’s policy, which I support, is that we should seek to repatriate powers from the European Union. That is easy to say, but for the Government to deliver that objective, the Prime Minister, Chancellor and Foreign Secretary have to have a way to do so. As Members of Parliament, we have a responsibility to think about exactly how we are going to do that. Which parts of European policy, precisely, do we wish to repatriate—whole blocks or just specific parts? The issue is hugely complex and a tremendous amount of work will have to be put in to enable it to be addressed.

We could speak for hours on the issue—I am sure that I could. A lot of Members want to speak. I have raised the points that I wanted to make and look forward to the Minister’s response.

10:25

[Stephen Hammond (Wimbledon) (Con)]

I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing this debate. Like him, I spent some years in the City of London, in various institutions. I want to address three things. First, I want to look at the theoretical construction of the euro as it was set up. My hon. Friend talked about the various eurozone summits and why they failed to find a solution. The reality, of course, is that a theoretically implausible project means that any eurozone solution will not be practical. I also want to talk about some of the reactions, and conditions the International Monetary Fund might want to attach to its bail-out, and our interest in it.

The single market was much welcomed in terms of the encouragement of free trade, which then drove some people to the aspiration for a single currency. It was clear that those countries that were going to join would lose the basic levers of economic policy, namely taxation—that is, fiscal policy—as well as interest rates, exchange rates, protectionism and, indeed, unemployment. It was also clear to any undergraduate, or even A-level economist, that the reality was that a fudge might be possible in good times, but not in a recession. The opponents of that view pointed to optimal currency area theory, which showed that the transaction costs would be lessened and that everything would, therefore, be fine. In practical terms, however, we have seen a theoretical misconstruct. The euro was a misconstruct because it failed to recognise exactly what that theory says: for optimal currency area theory to work, the economies have to be homogeneous in nature or flexible in their arrangements, so that they can move to homogeneity, or a currency union needs to be established alongside a fiscal union at the same time; otherwise, the overwhelming point is that whatever is set up in terms of a single currency will fail.

On the economies that were in the eurozone when it began—the wealth of Germany, the emergence of Ireland and the agrarian underdevelopment of Portugal— surely the appropriate description is diverse rather than homogeneous. Moreover, if we look at the policy formulation since the currency has been in existence, we see that there has been no flexibility that would allow movement to a homogeneous economy. Unless we recognise that the project is flawed in theory and do something about the theoretical basis, we will never find a practical solution. It is not surprising that we have had 15 eurozone summits that have provided no solution whatever.

The absurd reactions of Europe’s senior eurocrats are also of extreme concern. They are preventing any serious discussion of a resolution. The basic premise at the moment is, “The euro must be saved, the euro must be saved, the euro must be saved.” Only last week, President Barroso said yet again that the euro should be the norm for Europe. He even denied the UK’s permanent right to opt out. The President of the European Council, Mr Rompuy, also made an extraordinary remark over the weekend when he suggested that, if the eurozone’s integrity was not preserved, the functionality of the internal market could not be taken for granted. That is an absurd proposition. First, we need only look at the history of how the single market functioned before the euro came into being. Secondly, a single market does not need a single currency, but I will not bother to go into the theoretical construct for that.

[Mr Cash]

Does my hon. Friend remember Madame Lagarde saying on 17 December 2010, when she was Finance Minister for France, that they broke all the rules because they wanted to save the euro at all costs? The rules have been broken, and that relates to the stability and growth pact and every single aspect of this.

[Stephen Hammond]

My hon. Friend is right, and my hon. Friend the Member for Basildon and Billericay made exactly that point. I will not go on, but it seems simply ridiculous. If the eurocrats of Europe think that saving the euro is more important than working out the solution to the economic crisis, progress will be, at best, tortuous.

From a UK perspective we must be interested. The idea that we are not interested in what the IMF bail-out is—or, indeed, in the fact there is a eurozone crisis—is clearly wrong. The impact on the UK is extraordinary. We trade with the eurozone, and therefore have a significant interest. My hon. Friend the Member for Cities of London and Westminster (Mark Field) referred to the possibility of a default of Greek banks. It may or may not be true that we have little or no exposure to Greek banks—I think it is broadly true—but we have great exposure to banks that lend to Greece within the eurozone. That contraction of balance sheets will affect lending to small and medium-sized enterprises in the UK. Therefore, we must have that interest.

A basic and necessary precondition of what the IMF must say to the leaders of Europe is that they must recognise their wider international responsibilities. My hon. Friend also made the point about the Germans effectively wanting to control the eurozone, but not being prepared to accept the economic leadership that that implies by allowing the ECB to attempt to solve the liquidity crisis. We should extend money to the IMF, but I am realistic in accepting that, overall, that means the IMF would extend extra money to the eurozone. Any money that the IMF extends to the eurozone should be met with the precondition that the ECB becomes entirely independent and able to print money for the eurozone, or else it is bound to fail.

The IMF also needs, and almost certainly will accept, a necessary theoretical construction that provides a solution. The most likely solution is that we see a number of countries leave the eurozone—leave the euro—and some perhaps form a tighter unit. That being so, the IMF must stand up and say that it is prepared to fund the cost of dislocation for those leaving the eurozone, so that they have a chance to devalue, make the necessary adjustment to living standards and the necessary lowering of labour costs to allow a competitive solution.

[Mr Carswell]

Is my hon. Friend saying that he wants the IMF to fund the cost of eurozone members’ dislocation from the euro?

[Stephen Hammond]

I am saying that I accept that the IMF will make a bail-out to the eurozone. On that basis, one of the best solutions for the eurozone is for a number of countries to be allowed to leave the euro. The IMF will therefore need to fund the cost of the dislocation of those countries leaving the euro to give them any hope, attendant with their devaluation, of an economically sustainable future.

[Mark Reckless]

Will my hon. Friend give way?

[Stephen Hammond]

I notice that I have gone on rather longer than my five and a half minutes. I had a number of other points, but thank you for the opportunity to speak this morning, Mr Caton.

10:29

[Neil Carmichael (Stroud) (Con)]

I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing this crucial debate. A large number of important matters have been raised, and it is a good opportunity to discuss them in this Chamber.

I take issue with the assumption that devaluation is a good thing. We have formally devalued twice since the second world war, and we are in a slowly-emerging devaluation. Post-departure from Bretton Woods, we effectively devalued over time. I see no evidence that any of those devaluations ever led to long-term improvements in productivity or competitiveness, so although the IMF, as it has in the past, has perhaps lent to countries that can and have devalued, it is not necessarily a good thing.

[Mr Carswell]

Does my hon. Friend accept that Argentina’s decision to decouple from the dollar and default on its debts helped it to achieve economic growth? Does he think that that was a good thing or a bad thing?

[Neil Carmichael]

I am a great believer in all countries growing. Argentina is doing reasonably well, but that has more to do with the neighbouring countries that it trades with in Latin America than with decoupling from the dollar. However, I take the point that some countries will take the opportunity for a quick leap forward.

[Mr Carswell]

Does my hon. Friend agree that the IMF’s decision to allow the Ugandan shilling to devalue helped to stimulate growth in Uganda in the 1990s and that, without that devaluation, it would not have enjoyed 15 years of prosperity?

[Neil Carmichael]

If my hon. Friend thinks that the devaluations of 1949 and 1967 in this country led to a period of improved productivity and competitiveness, I would dispute that. I want to pursue that argument, because that is what I think is important.

[Mr Baron]

My hon. Friend is being generous in giving way. Devaluation is not necessarily the best thing going, but it helps to take the strain for a currency that is weakening and therefore allows austerity measures to be perhaps less harsh than they would otherwise be. That is the point. There is no economic evidence to suggest that, if we did not allow devaluation to take effect, austerity packages would be worse and make the economic downturn much worse.

[Neil Carmichael]

I can certainly understand my hon. Friend’s argument, but it is worth pointing out that devaluation is not a panacea and should not be used frequently.

[Mr Philip Hollobone (Kettering) (Con)]

rose—

[Neil Carmichael]

I will take one more intervention on devaluation, or this discussion will be devalued.

[Mr Hollobone]

This country has devalued on a trade-weighted basis by 25% since the peak in 2008. If we had not had that devaluation, this country would now be inflicting on itself a far harsher austerity package and unemployment would be far higher. Without the devaluation mechanism, countries face far starker choices.

[Neil Carmichael]

This Government’s real achievement is to address the deficit. They have set out a plan that is effective and encouraging markets to understand that we are taking the appropriate action. That is one of the benefits of being outside the euro, and we should focus more on that, rather than worrying about the benefits or otherwise of devaluation. I repeat for the last time that I do not think that devaluation is a panacea that we should be pursuing.

[Mr Cash]

What is my hon. Friend’s evidence for the success of the reduction of the deficit? Growth is running at almost zero, and much of that comes surely from the fact that we cannot trade with a completely stagnant Europe.

[Neil Carmichael]

One of the obvious pieces of evidence is that we are not talking about the IMF coming to bail us out—a huge achievement by the Government that should be recognised. We will have to move on from devaluation, but I think that I have made my point and others have attempted to make theirs.

Inflation would certainly help debt reduction, because it does in the long run. As I said in an intervention, when Denis Healey borrowed money from the IMF, that did arrest devaluation. We were more easily able to pay the IMF back quite quickly because of the impact of inflation. I do not support inflating the economy in that way either, as a remedy.

[Mark Field]

In the late 1970s, inflation was coming down quite rapidly from a height of 26% in 1975. One could argue that there has been a deliberate policy by the Bank of England, perhaps in cahoots with the Treasury, to allow a little bit of inflation to go into the system. That is exactly what is happening here in the UK, where historically we have had high real inflation, which is having a major impact on all our constituents’ living standards.

[Neil Carmichael]

Inflation did go down, but after the IMF loan was made. It reached a peak in 1976, which I think was 26%. That happened to coincide with the time of the IMF loan, so that is the position that we should discuss.

[Mr Edward Leigh (Gainsborough) (Con)]

My hon. Friend has been very generous in giving way. He will accept—will he not?—that we should not have stayed in the exchange rate mechanism.

[Neil Carmichael]

Well, we were blasted out of the ERM. We do not want to repeat that fiasco, and we should all recognise that.

We talked briefly about the United States. Gerald Ford, President of the United States in the mid-1970s, refused to bail-out New York, and quite right, too. He was a fiscal conservative. That was the right decision in the long run, and, of course, a decision that did not affect New York’s membership of the dollar. I just wanted to put that on the record.

We must focus on two things, and the Prime Minister identified them both in his speech yesterday. I want to ram home the importance of reforming the European Union, because that is what it needs. In particular, we have to drill down on the single market, to ensure that it is a single market and that competitiveness in goods and services is enhanced. We can really do that.

On euro measures, this country would be making a big mistake if we assumed that the euro will not affect us significantly, because it certainly will. [Interruption.] I shall wind up. I have been so generous with interventions that I do not have the time to point out that we need fiscal union in the eurozone, the ECB to be enhanced—as my hon. Friend the Member for Cities of London and Westminster (Mark Field) rightly said—and much more rigorous auditing of what is going on.

Last but not least, there is a democratic deficit, although the IMF extension was discussed in the House and we voted on 11 July. I have noticed two things. First, Germany and France are effectively bypassing the Commission in a lot of their decisions—

[Martin Caton (in the Chair)]

Order. The hon. Gentleman has gone on beyond the time at which I said that I wanted to start the winding-up speeches. Many Members have asked the Minister questions to which they want to hear the answers. I should be grateful to the hon. Gentleman if he stayed seated now.

10:41

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

I was interested to hear the comments of the hon. Member for Stroud (Neil Carmichael). I have learnt a lot, including Gerald Ford’s attitude to New York city and the history of the Ugandan shilling. At one point in the debate, I was almost feeling sorry for the Minister, given the heat that he is falling under and that he is simply following orders—it is not entirely his fault—but in the short time available, he needs to explain not only the answers to the questions asked, in particular by the hon. Member for Basildon and Billericay (Mr Baron), who gave a thorough and refreshing contribution, but an area of policy that has not been touched on as much as it should have been and that is central to the debate, which is growth. How will we rejuvenate growth, not only in the UK but throughout the eurozone, as a way to solve the crisis?

The Office for Budget Responsibility continues its relentless drive to downgrade economic prospects, and the European Commission has forecast a massive change in our fortunes. Last year, gross domestic product growth was supposed to be 2.2% in 2011, but a couple of weeks ago, that prediction was downgraded to only 0.7%. We are now forecast to have the slowest growth in Europe, with only Greece, Italy, Portugal and Cyprus growing more slowly in 2011. The Office for National Statistics, however, shows that exports to the euro area were rising by 17.3% in the third quarter, so the eurozone alone cannot be an excuse for the UK’s lack of growth.

Given the fragility of our economy and our vulnerability, I accept that prolonged uncertainty in the eurozone could worsen our position, but it would be disingenuous of the Treasury to suggest that our woes are caused by the eurozone situation. I would be worried if it genuinely thought that to be the case.

[Stephen Hammond]

Will the hon. Gentleman give way?

[Chris Leslie]

Not in the short time that I have available. I prefer to hear the Minister and to deal with particular issues, some of them raised by a number of hon. Members. For example, the hon. Member for Cities of London and Westminster (Mark Field) discussed bond yields and the dangers of the Government giving the impression that we are a safe haven relative to the rest of the world. I am worried about the complacency shown by the Government. Bond yields are as much a function of our relative independence from the euro and the flexibility of having our own central bank. The director of the National Institute of Economic and Social Research, Jonathan Portes, made it clear recently that our gilt yields declining to an all-time low was partly a result of the economy’s weakness, because safe-haven flows are typically accompanied by a rise in the value of the pound or rising stock prices. He could not have been more concise or clear:

“The reason people are marking down gilt yields is because the economy is weak”.

We should not see that entirely as the be-all and end-all of economic policy. The hon. Gentleman is right that we should see it not merely as a safe-haven function, but as a bubble that may burst at any point.

What should the Government be doing? The crisis is far from over, even though the markets have calmed somewhat this week. My right hon. Friend the Leader of the Opposition rightly pointed out that the European summit—the G20 summit—finished prematurely, without adequately solving the difficulties with the EFSF and the permanent bail-out arrangements, and that a further European summit might be necessary to thrash out the issues properly. We also need a proper strategy for jobs and growth throughout Europe and concrete steps to support demand immediately. We have to end the prevarication about the role of the European Central Bank as lender of last resort and to give proper attention to what it takes to make that EFSF firewall stand behind eurozone members.

Hon. Members mentioned the IMF in some detail. In the summer, before the details of the permanent eurozone bail-out fund had been agreed, the Labour party urged the Government to pause before granting additional funding to the IMF. We called for the commencement of the larger eurozone-only bail-out fund to be brought forward and for the Government to negotiate an end to our liabilities via the temporary EFSM. The Minister at the time did not explain what the UK Government were doing to help to ensure that an adequate and permanent EFSF was put in place and, as I said, the European summits came and went, despite the Prime Minister’s attendance.

Ministers, including the Prime Minister, have repeatedly misrepresented our view of the IMF’s role. Today’s debate shows that our concerns are shared across the party divide. Tim Geithner in the United States and people in many other countries have also voiced their reservations. In principle, because of the IMF’s generally vital role in the global economy, we support an increase in its subscription, but I make no apologies for questioning the Government’s stewardship of our public funds. We have a duty to protect the best interests of the UK taxpayer.

We have consistently said that the IMF’s job is to support individual countries with solvency crises and not to solve a structural problem caused by eurozone countries unable to agree the necessary steps to support and maintain their own monetary union. The IMF does have a role around the world and should have the necessary resources, but there should be no IMF funding to plug the gap in the eurozone’s bail-out fund and to do the job that the ECB should be doing. The only way to ensure market confidence in the eurozone is for the ECB, alongside that permanent bail-out fund, to be given the political support that it needs to act as lender of last resort when liquidity problems arise. That is the logic of monetary union that the 17 eurozone countries are signed up to.

I want to hear the Minister’s answers, so I will curtail my remarks. It is vital for the Government to wake up and realise the role that a growth strategy must play in Europe and in the UK. Without that, there could be serious ramifications for the UK and our economy. If the Government fail to act as an honest broker, stepping up to show the leadership that many hon. Members have urged in today’s debate and so that the ECB becomes lender of last resort and that the EFSF has enough weight to become an effective firewall, the eurozone crisis may well deepen further. The Chancellor continuing to talk about Britain as a safe haven betrays a relaxed complacency in the Treasury that is not warranted. Such an approach is misinformed, neglectful and very dangerous in the situation that we face.

10:39

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

I congratulate my hon. Friend the Member for Basildon and Billericay (Mr Baron) on securing the debate.

Let me be absolutely clear: it is in our vital national interest that eurozone states reach a coherent, comprehensive and lasting solution. First and foremost, they must implement the agreement reached towards the end of October, which involves a three-pronged strategy to recapitalise the European banks, resolve the situation regarding Greek debt and reinforce the EFSF to create a firewall between Greece and other vulnerable euro area countries. The new Governments in Greece and Italy need to show that they can implement the tough measures required to deal with their debts and make their economies more competitive. Uncertainty in the eurozone is undermining not just their economies, but ours. A return to stability in the eurozone will benefit our economy, whereas continued uncertainty will harm it. My hon. Friends the Members for Cities of London and Westminster (Mark Field) and for Wimbledon (Stephen Hammond) made that point.

We have a clear interest in greater certainty in the eurozone, but at no point have we committed, or will we commit, any British taxpayers’ money to a special purpose vehicle, or through the EFSF or the ESM, either directly or through the EU budget.

[Mr Baron]

If I may be so bold, the Financial Secretary is coming up with the economic clap-trap that we must all save the euro. Does he accept that binding divergent economies into a single currency without fiscal union was and remains a massive mistake? It is as simple as that. The world will not fall apart if the euro breaks up, and countries such as Norway and Switzerland have proved that by trading with the eurozone using their own currencies.

[Mr Hoban]

My hon. Friend is absolutely right, which is why we did not join the euro in the first place. The remorseless logic of monetary union, as he said in his speech, is fiscal union. Fiscal union is necessary for monetary union to work. That is what we are seeing throughout the globe, and that is why we said that eurozone members must make greater progress towards fiscal union.

[Mr Baron]

If the Financial Secretary accepts the logic about the deficiency of the euro, are the Government joining in the chorus that we must all come together and save the euro?

[Mr Hoban]

As I have said, uncertainty and problems in the eurozone have a damaging impact on the UK economy and have a chain effect on what is happening here in the UK. It is not in our economic interest for that to continue. Just last week, John Cridland, director-general of the CBI, commented on the negative impact that the problems in the eurozone are having on the UK economy. We are an open economy and our European partners are our largest trading partner, so it is in our interest to ensure that the eurozone works. That will be of huge benefit to the UK economy.

[Mr Baron]

rose—

[Graham Stringer]

(Blackley and Broughton) (Lab) rose—

[Mr Hoban]

I would like to make some progress. Let me address UK commitments through the IMF, which is the centrepiece of this debate. In a carefully worded statement, the hon. Member for Nottingham East (Chris Leslie) covered Labour’s retreat on its IMF policy. He was bravely leading his troops through the No Lobby in July without the support of the architects of the G20 London deal. The former Prime Minister and the former Chancellor were not there. What has happened? Last week, his boss, the shadow Chancellor, cut his legs from under him by saying that

“the Labour party supports an increase in the UK’s International Monetary Fund subscription”.

I do not think the hon. Gentleman is in a position to lecture anyone about consistency and principle.

As a founding and permanent member of the IMF, and as one of its largest shareholders, we continue to be a strong supporter of its role as a global backstop to the world economy. Currently, 53 countries are being supported by the IMF, of which only three—Greece, Ireland and Portugal—are in the euro area.

[Mr Baron]

Will the Financial Secretary give way?

[Mr Hoban]

Let me continue. As a founding member of the IMF, we recognise its important role in stabilising the global economy in times such as this. That is why we participated on the nine previous occasions when its quota was increased. In these turbulent times, it is essential for confidence and economic stability that the IMF has the necessary resources, and there may well be a case for further increases. At the G20 two weekends ago, Britain, the US, China and all the other countries round the table made it clear that in principle we are willing to have an increase in IMF resources to boost global confidence. We stand ready to contribute within limits agreed by the House and set out in the International Monetary Fund Act 1979. That limit, denominated in the IMF’s units of account—special drawing rights—stands at 38.8 billion SDRs, or about £38.3 billion pounds.

Let me remind the House that no one who has lent money to the IMF has ever lost that money. The money goes directly to the IMF and not to individual countries. It is one of the most creditworthy institutions in the world, and its loans are afforded preferred creditor status, which means that they are first in line to be repaid, even if not all other creditors are paid. Consequently, no country has ever lost money as a consequence of lending to it.

There has been no agreement about the timing, extent or exact method through which IMF resources will be increased, but an immediate need is to implement existing plans to increase its resources. Let me make clear how IMF resources will be used. Any increase must be available to all its members and not reserved for use only by the euro area. There can be no hypothecation, and money is lent to the IMF, not to specific countries.

The use of IMF resources is linked to the question of the need for economic reform. All hon. Members recognise the need for the euro area to reach a comprehensive resolution to the crisis, and clearly it is for the euro area to resolve that crisis. That resolution cannot be simply through recapitalisation of banks, the creation of a euro area bail-out fund or resolving the problems in Greece.

[Mr Baron]

Will the Financial Secretary give way?

[Mr Hoban]

Perhaps my hon. Friend will be patient. There are areas where the eurozone needs to tackle its competitiveness to respond to those issues. There is the question whether IMF money is conditional on structural reform to improve competitiveness. The answer is yes, because conditions are built into IMF programmes to ensure that competitiveness changes take place. Portugal, for example, has an extensive programme of privatisation, and the Portuguese Government’s right to be involved in private companies must be abolished. In Ireland, legislation has been passed to increase the state pension age to provide a significant boost to long-term fiscal stability. In Greece, the Government are discussing breaking the link between the national minimum wage and the annual inflation rate, and market reform is being promoted to allow businesses to set wages independently of collective agreements.

[Mr Carswell]

Will the Financial Secretary give way?

[Mr Hoban]

Let me continue. I have only three minutes left, and I want to ensure that I address as many of my hon. Friends’ questions as possible.

We are seeing structural reform to improve the competitiveness of economies hand in hand with IMF programmes. I hope that that will reassure my hon. Friends that reform is taking place in those countries to ensure that they meet their international obligations.

[Mr Baron]

Returning to a previous point, I suggest that the reason why the eurozone crisis is causing a bit of a problem over here is that existing policy is making the situation worse. Denying devaluation is forcing greater austerity packages on populations that are already trying to pare down their debt. That is the problem that the Government do not see.

May I take my hon. Friend back to devaluation? The Government make great play of the fact that only three of the 53 packages go to the eurozone. Can he name one programme outside the eurozone where a country cannot devalue?

[Martin Caton (in the Chair)]

Order. That was a long intervention.

[Mr Hoban]

My hon. Friend seems to believe that devaluation is necessary to restore economic growth. That is not the case. Ireland is a country that cannot devalue, but a consequence of how it implemented its reform programmes is that in quarter 2 growth increased by 1.6%, with a 2.3% increase year on year. That demonstrates that devaluation is not necessary to improve a country’s competitive position, for it to earn its way out of problems or for it to grow. Devaluation may make life easier, but it is not impossible for an economy to grow, even if currency devaluation is not possible. In September, the troika concluded that the programme is on track and remains well financed. In Ireland, the authorities are implementing a programme policy.

In the euro area, we are seeing programmes to restore competitiveness, but those reforms must be made throughout the eurozone, if the eurozone is to strengthen and help to underpin economic growth in the UK. No request has been received as yet for additional resources from the IMF, but the role that it can play in underpinning global economic stability is important, and this is an opportunity that the UK should consider if we are to resolve some of the problems in the wider global economy, tackle the fragility and, by definition, improve stability in the UK.

Bletchley-Oxford Rail Link

Tuesday 15th November 2011 Westminster Hall

11:00

[Iain Stewart (Milton Keynes South) (Con)]

It is a pleasure to serve under your chairmanship for what I believe is the first time, Mr Caton. I am delighted to have this opportunity to help to promote the case for reopening the east-west railway line, which would link Reading, High Wycombe and the rest of the Thames valley with Oxford, Bicester, Aylesbury, Bletchley, Milton Keynes, Bedford and destinations further east.

The campaign is run by the East-West Rail Consortium, which is a partnership of local authorities, the South East Midlands local enterprise partnership, rail operators and Network Rail. The ambition is to have the western section included in the next control period—CP5—and HLOS, the high-level output specification, from 2014. I am in the process of establishing an all-party group to help to promote this campaign.

The east-west railway has the informal and slightly romantic name of the Varsity line, linking as it does Oxford and Cambridge, although the extent of the route is much greater than that, particularly the link to Aylesbury. My comments today will primarily focus on the western end of the east-west rail link. I should make it clear that many, including my hon. Friend the Member for Cambridge (Dr Huppert), regard this section as a vital first step to opening the eastern end of the line between Bedford and Cambridge, and from there linking into the existing rail network serving Cambridgeshire, Norfolk and Suffolk.

[Mr Andrew Smith (Oxford East) (Lab)]

I congratulate the hon. Gentleman on securing this important debate and on his establishment of the all-party group. As he has mentioned the other place, I want to get in early and mention Oxford and how strong the support is for this initiative across political parties, both in Oxford and in the wider Oxfordshire county. The cost-benefit ratio is, of course, particularly good.

[Iain Stewart]

There is indeed widespread support along the line of the route and across parties. I was about to mention that this is not a new campaign. A former constituent of mine, a Mr Chris Wright, e-mailed me at the weekend to say that this year marks the silver anniversary of his involvement in the campaign to reopen the line.

By way of background, the line was built in phases between 1846 and 1862. The first attempt to close the line was made in 1959, but a local campaign opposed the closure. It did not even feature in the Beeching plans in the 1960s. It was only when fast trains were introduced between London and Cambridge and London and Oxford in the ’60s that patronage fell away to such an extent that it was quicker for people to travel into London and back out again rather than make the cross-country journey. British Rail withdrew passenger services, except of course for the section between Bletchley and Bedford, which remains in operation today. Even though passenger services were withdrawn, the line remained in operation for many years and was used for a variety of purposes, including freight services and for diversionary passenger services when the main line was undergoing engineering work.

In 1993, the section between Bletchley and Calvert Junction was mothballed, although much of the track bed remains and, thankfully, none of the line has been built on. Much of the route is already back in use. In 1987, British Rail reopened the Oxford to Bicester Town section. The Chiltern Railways Evergreen 3 project, subject to the Secretary of State’s decision on the recent public inquiry, plans to upgrade the line and build a new chord, which would see fast passenger trains from London to Oxford via Bicester and High Wycombe.

Chiltern Railways services have also been extended north of Aylesbury to the new Aylesbury Vale Parkway station, which has been built to service new housing development in the north of that town. The section between Aylesbury and Bicester remains open for freight purposes, so the line needs to be upgraded only for passenger services. My right hon. Friend the Member for Aylesbury (Mr Lidington) is a strong champion of the restoration of this passenger service.

[John Howell (Henley) (Con)]

The historical perspective is useful and my hon. Friend is setting it out clearly. There is enormous support for this project including from, for example, Oxfordshire county council. A wide spectrum of organisations now supports it, and it will bring enormous benefits for people in my constituency who are within striking distance of Islip station.

[Iain Stewart]

I am grateful to my hon. Friend who illustrates the widespread support for this project. It cuts across both the public and private sector. I will come on to some of the benefits that I believe restoring this link will provide.

[Ian Paisley (North Antrim) (DUP)]

The hon. Gentleman has outlined a history of the railway being in and out of fashion, and then back in again because demand renews as population shifts. That is very telling, because it seems to be the history of our rail system. Indeed, it is similar to what has happened in Northern Ireland. Does he believe that one of the benefits of rail is to stimulate the local economy and that that is the best way to get the economic growth that we so desire?

[Iain Stewart]

I am relieved that the hon. Gentleman is not calling for the line to be extended via a new tunnel under the Irish sea to Ballymena, which might be a little too ambitious. Nevertheless, he has made an important point. The country made a strategic mistake by closing so many railway lines in the ’60s, which we are now painfully and expensively trying to rectify. I will come on to the economic benefits that he has mentioned.

[George Freeman (Mid Norfolk) (Con)]

I congratulate my hon. Friend on raising this topic. On the role of rail in promoting economic growth, I want to put a word in for extending the innovation corridor across East Anglia to Norwich. I speak partly on behalf of the Economic Secretary, who cannot be here today. If we look at the story of the Cambridge phenomenon, one of the single biggest contributors was investment in the Norwich-Cambridge railway line and the non-stop connection. If we want to rebalance the economy, we should consider the eastern region’s strengths in cleantech, biotech and life sciences. Extending the Oxford-Cambridge-Norwich corridor would play a key part in unlocking our global potential.

[Iain Stewart]

My hon. Friend makes an excellent point. I see this line as creating an arc of technology and new industry, which would be hugely beneficial to the economy. As I have said, I will come on to that in a moment.

There is another piece of the jigsaw. In 2008, Milton Keynes Central station was remodelled to enable it to incorporate east-west trains. This project is not about a new railway line; it is about reinstating, upgrading and integrating sections of railway line that already exist. As I shall come on to in a moment, that can be done for a comparatively small capital investment, and the project enjoys a benefit-cost ratio of more than 6:1.

Turning to the benefits, the east-west rail link is good for business and economic growth, good for the environment and good for the nation’s wider strategic transport aspirations. At a time when everyone is shouting for more growth in the economy, this project would provide a rail link to an economic corridor that is at the cutting edge of the UK’s economy. It would, for example, link Reading at the heart of the Thames valley, Science Vale UK with its world-leading research and development facilities, Oxford with its academic and tourism economy, Eco Bicester, which is one of the four eco-towns in the country, and my home area of Milton Keynes, which is a fast-growing new city with a dynamic economy. As my hon. Friend the Member for Mid Norfolk (George Freeman) has just pointed out, it would link with Cambridge, East Anglia and all the important economic sectors.

[Peter Aldous (Waveney) (Con)]

Does my hon. Friend agree that the proposal would play a valuable role in getting freight from the east coast ports across the country without needing to go into London? It would also provide another way for passengers to travel without using the over-congested Great Eastern line from Norwich to Liverpool street.

[Iain Stewart]

My hon. Friend makes an important point. My comments are primarily about passenger services, but the freight side is equally valuable in putting together the strategic network for the country.

This area’s economic strengths lie in key growth sectors for the future, such as high-value-added, science-based research and development, precision engineering and, especially, automotive engineering—Red Bull Formula 1 is located in my constituency and won this year’s constructors’ championship—pharmaceutical and life science research and development, green technology and low-carbon services and products. All those things are attractive to inward investment, and I believe that a fast, reliable public transport corridor that links them together and to the rest of the United Kingdom, as well as to the population centres from which they will draw their work force, will help to generate up to 12,000 new jobs.

[Ben Gummer (Ipswich) (Con)]

I congratulate my hon. Friend on bringing this important matter before the House and the Minister. The largest software development centre in Europe is just outside Ipswich, and it would be a great help to link that to other centres of excellence at Cambridge and Oxford. The line between Felixstowe, Ipswich and Cambridge has already been built, and it will be improved thanks to this Government’s investment.

[Iain Stewart]

I am grateful for that intervention, which again illustrates the arc of economic growth that runs from east to west. The western section of the line will be instrumental in opening up the second phase of development eastwards.

[Richard Fuller (Bedford) (Con)]

I, too, congratulate my hon. Friend on securing the debate; the Minister must be impressed to see a rail project that has such widespread, extensive and popular support, let alone with the economic benefits that have been outlined. Does my hon. Friend believe that such a project would also help with areas of economic deprivation? My constituency has seen levels of unemployment that are above the national average. Too often such issues are thought to affect other parts of the country and are sometimes overlooked in the eastern area.

[Iain Stewart]

My hon. Friend makes a valuable point. The south-east is assumed to be uniformly wealthy, but that is not the case. My constituency also contains pockets of deprivation, and this project will stimulate overall economic activity and benefit all areas.

A key benefit of this project would be a reduction in journey times, leading to a modal shift in our methods of transportation. The proposed rail link would result in a significant reduction in journey times from east to west. Road transport is a nightmare along that corridor, particularly in the key middle section of the line. I often have to drive west from Milton Keynes along the A421 trunk road between Bletchley and Buckingham and the A4421 from Buckingham to Bicester. Both roads are single carriageways, and they are so congested that it is difficult to predict journey times with any accuracy.

The time savings will be transformational. For example, a car journey between Milton Keynes and Oxford, which can take up to an hour and a half, would be replaced by a 40-minute train journey. The journey from Oxford to Bedford would reduce from over two hours by car to one hour by train. The east-west rail line would also open up a new direct rail link from Milton Keynes to Aylesbury and the rest of the Chiltern Railways network to and from London Marylebone. It would help to achieve a modal shift from car to rail, with all the environmental benefits that that entails.

Hon. Friends have raised the issue of wider connectivity and freight, and the east-west rail line would provide much better links with the UK national rail network. It would join up the Great Western line, the west coast main line and the midland main line, which in time would be followed by the east coast main line and the network in East Anglia.

The potential for wider rail services—passenger and freight—to use that corridor is significant, both for scheduling new longer distance services in the future, and for providing a north-south relief route should engineering work be planned on one of the main lines. Such a link would be a valuable piece of the UK’s strategic railway jigsaw, and indirectly it would also relieve some of the pressure on London, which is a point raised by my hon. Friend the Member for Waveney (Peter Aldous). Many people find it easier and quicker to travel into London and go back out, rather than travel across country.

I hesitate to raise this issue, given its controversial nature in the rest of Buckinghamshire, but the east-west rail link would intersect with the proposed route of High Speed 2—the Minister and her colleagues will be glad to hear that I do not intend to enter into the pros and cons of HS2, because there will be plenty of time for that in the weeks and months ahead. Nevertheless, such an intersection would open up the possibility of a parkway station. If HS2 proceeds along the planned route, I would like to see the business case for a parkway station properly assessed in the context of the Y-network, and connections to Heathrow and High Speed 1. More than 500,000 people would live within 30 or 40 minutes’ rail journey from a parkway station, which might significantly augment the business case for HS2. It would also go some way to answering the justifiable objections of people in Buckinghamshire who claim that they will endure the pain of HS2 but receive no gain. That, however, is a side issue, and the case for the east-west rail link stands independently from that for HS2.

All in all, the east-west rail project could generate an additional 2.5 million rail trips annually, and result in nearly 1.5 million fewer car journeys. It has the potential for an annual uplift in regional gross domestic product of £38.1 million and could generate additional annual tax revenues of £17.1 million. All those benefits could be secured for a relatively modest capital investment of £250 million, which, when put in the context of the £33 billion needed for HS2, seems a comparatively small sum. If 100% publicly funded, the project has a benefit-cost ratio of 6.3:l, and the ratio is 11.2:1 if there is a private sector contribution. Again, that compares favourably with the benefit-cost ratio for HS2 of about 2.6:1.

Much work is being undertaken by the consortium to realise private sector investment in the east-west rail project. After five and a half years, a positive income stream would be generated through the fare box and no ongoing public subsidy would be required. Last July, Oxford Economics was commissioned by the consortium to provide an independent assessment and review of the east-west rail link, and it concluded that there is a strong business case for the project to go ahead.

Through local enterprise partnerships, the consortium is developing a funding package to enable the delivery of the scheme via both the public and the private sectors. One key source of funding will be the HLOS for CP5, which is unique in that it is being promoted by a non-rail-industry entity. Consequently, it has not yet appeared in the initial industry plan for CP5, but nobody should take that as a sign that it is not a viable project. I believe that the east-west rail project is a no-brainer and that with a fair wind trains could be running by 2017. If the Government are looking to fast-track infrastructure projects that will deliver growth and jobs, may I gently suggest that the east-west rail project could easily be brought forward and that trains could be running by the end of this Parliament?

I conclude by paying tribute to Patrick O’Sullivan, the consortium’s project manager from Jacobs Engineering UK, and all those involved with the East West Rail Consortium, together with those who have campaigned to restore the rail link for many years. I am extremely grateful to have had this opportunity to present the case for the east-west rail link, and I hope that I have persuaded my right hon. Friend the Minister of its merits.

11:17

[The Minister of State, Department for Transport (Mrs Theresa Villiers)]

It is a pleasure to serve under your chairmanship, Mr Caton, and I congratulate my hon. Friend the Member for Milton Keynes South (Iain Stewart) on securing the debate. I welcome the opportunity to consider the merits of the east-west rail proposal, and I welcome the strong attendance from MPs who support the project.

Like those of my hon. Friend, my remarks will focus on the western section of the project—the part most developed—although I may touch briefly on the central section if time permits. He has outlined with great clarity the potential benefits of reopening the line along the western section, and described the boost to economic growth that he believes it would bring, as well as the improvements in journey times, the potential for a modal shift in transportation and, not least, the potential boost to high-tech industries.

I was very impressed by my hon. Friend’s contribution, and I was equally impressed by the presentation I received on this project last year, when my hon. Friend, together with my hon. Friend the Member for Milton Keynes North (Mark Lancaster), brought the chairman of the East West Rail Consortium to see me. At that useful meeting I agreed that the Department for Transport would work with the consortium in developing its plans, and that work has since progressed.

The Department has started evaluating the consortium’s plans and forecasts as we prepare the high-level output specification that will set out the Government’s requirements for rail control period 5 from 2014 to 2019. We will consider seriously whether we can provide funding to support the east-west rail project as part of CP5. We have heard today from hon. Members on both sides of the Chamber about the impressive value-for-money case that it seems can be established for the project. However, value for money on its own is not enough. We also need to consider affordability. There is no doubt that this is a very substantial scheme. Whether it proves affordable depends on the extent of alternative sources of funding available to support the project. It also depends on how the benefits of delivering the project compare with competing priorities for CP5—for example, the northern hub or other proposals to improve connections between our northern cities.

As my hon. Friend the Member for Milton Keynes South said, east-west rail is not in the initial industry plan put forward by the rail industry for CP5, but I can assure him that this project will be considered just as seriously as the proposals that are in the industry plan. It is worth noting that the industry plan does make provision for east-west rail, notably in relation to Network Rail’s proposals for Oxford station. I can also happily inform my hon. Friend that the Association of Train Operating Companies is providing expert advice to the Department on the best-value long-distance passenger services that might use the route if it goes ahead. That is assisting our evaluation of the project and could enhance the value-for-money case for east-west rail.

I have been very impressed by the work of the consortium as well as the supportive MPs. The collaboration of the 20-plus local authorities in the consortium provides a good example for others to follow in building a broad local consensus for an ambitious vision of new rail infrastructure to support economic growth and, potentially, housing growth.

[Richard Fuller]

Will my right hon. Friend deal with an issue that is gaining currency for some of us who represent constituencies in the eastern area and in the south-east? Government investment priorities sometimes overlook the fact that there are significant areas of deprivation in the south-east. There is a tendency to favour projects in other parts of the country. This project is not only vital to economic growth, as has been mentioned. It is also of value in restoring opportunities for job creation in areas and pockets of significant deprivation. Will she deal with that issue?

[Mrs Villiers]

Certainly I will. My hon. Friend the Member for Pudsey (Stuart Andrew), who is sitting beside my hon. Friend the Member for Bedford (Richard Fuller), often berates me for not committing sufficient funding to rail infrastructure outside the south-east. The reality is that the Government must consider carefully where taxpayer funding will deliver the greatest economic benefits. Whether we are talking about deprivation in the south-east or in the north, that is a crucial issue that we need to consider to take the difficult decisions on where to prioritise funding. We do not at all assume that everywhere in the south-east is prosperous. We know that improving our transport infrastructure in both the south and the north can deliver major benefits in quality of life, jobs and growth. That is why we are seeking to roll out a major programme of investment that helps the whole country.

The consortium has funded much of the cost of its work on the project to date, steadily developing its plans so that they stand on an equal footing with projects being proposed by the rail industry nationally in the IIP. The consortium has also explored ways for local authorities to use the forecast economic growth to fund part of the building costs if the project gets the go-ahead. That could make the project much more affordable, as we have heard. If we can agree to provide some funding for east-west rail as part of CP5, we may look to the consortium to make good on those local contributions on which it has been working so hard.

[Ben Gummer]

Certainly many of us will welcome the tone of the Minister’s statement, which is exciting. In the mix is the Greater Anglia franchise, which I know she is working on and which will start in 2014. A component of that will be infrastructure improvements. As much of this line falls within that franchise area, I wonder whether it would be possible to draw within the franchise a need for the new holder to invest in it as part of the franchise.

[Mrs Villiers]

Time constraints prevent me from going into the detail of what might be included in CP5 for the Greater Anglia area, but I am well aware of my hon. Friend’s campaign to improve the infrastructure there. That will be considered very seriously as part of both the HLOS process and the refranchising process.

Different ways of delivering the project have been carefully assessed by the consortium, with each one being tested for efficiency. I welcome, for example, its work on finding a lower-cost approach to planning consents, with a mix of permitted development rights and local authority planning permission.

The Government are already working on projects that could benefit the east-west rail corridor. As my hon. Friend the Member for Milton Keynes South said, the route between Oxford and Bicester Town, as well as being part of the east-west rail project, is being upgraded under the Chiltern Evergreen 3 programme. That will deliver new train services between Oxford and London Marylebone by 2014. Our agreement with Chiltern Railways includes funding the cost of strengthening the bridges and improving the tunnel, which will ensure that that section is capable of accommodating possible traffic resulting from east-west rail. Chiltern has planned its improvements so that the section is ready for a further upgrade of track and signals. Again, if east-west rail happens, that will be necessary.

My hon. Friend was brave enough to mention HS2. If HS2 goes ahead along the preferred route put forward for consultation, that could co-exist with east-west rail; there would be some synergies, potentially. The preferred route for HS2 would run parallel to east-west rail, between Quainton and Claydon. The operation of HS2 could free up busy parts of the west coast main line, including Milton Keynes, enabling new regional and local services to be run. That could improve the business case for east-west rail by providing space for more long-distance connecting journeys.

On my hon. Friend’s proposal for an HS2 station, I can assure him that we are considering with great care all the consultation responses, including all those that have proposed new stations. He proposed that we should fast-track east-west rail and deliver it by the end of the Parliament. I see that as quite an ambitious goal, but I will take it on board in discussions in the run-up to the growth review.

I think that the consortium is right to concentrate on the western section of the route. The case for reinstating the central section between Bedford and Cambridge is less developed. However, it is generally accepted that if the western section gets the go-ahead, that will be the time for more substantial work to see whether we cannot take forward the rest of the project at some future point.

The railways are experiencing a renaissance in 21st-century Britain. More people are travelling by train than at any time since the 1920s. Despite a deficit as serious as any in our peacetime history, we are undertaking the biggest programme of rail upgrades since the Victorian era. In the days before privatisation, projects on the scale of east-west rail to reopen lines closed years previously would have been scarcely conceivable. Now, they are not just conceivable, but credible and even realistic. However, despite—

[Mr Andrew Smith]

Will the Minister give way?

[Mrs Villiers]

I am about to run out of time. Despite the strength of the business case, there is no doubt that a very large amount of investment—about £250 million—is required to rebuild the route, and the expanded train services would probably require extra subsidy in the early years of operation. Ultimate success will therefore depend on a continued focus on getting costs down and bringing in additional funding sources. It will also depend on what is affordable, taking on board competing priorities for CP5. This debate has provided a very welcome opportunity to consider those issues and is a valuable contribution to the preparation for the HLOS statement and the Government’s decisions on what it will be possible to fund in the CP5 period.

[Mr Andrew Smith]

Before the Minister concludes, will she give way? There is still time remaining.

[Mrs Villiers]

I will.

[Mr Smith]

The Minister has referred several times to CP5, and like others present, I welcome the tone of her statement. When might we expect a further statement on the prospects for this important project?

[Mrs Villiers]

We are continuing to assess this. The HLOS statement will be published in the summer. I think that the latest deadline for that is July, but we have not set a specific date for publication. In the meantime, we will continue to work on this project, alongside the consortium, and as and when there is an announcement to be made or progress to be announced, I will ensure that the right hon. Gentleman is the first to hear about it.

11:29

Sitting suspended.

Aviation Industry

Tuesday 15th November 2011 Westminster Hall

[Mr Roger Gale in the Chair]

14:30

[Mr Brian H. Donohoe (Central Ayrshire) (Lab)]

It is good to see you, Mr Gale, in the Chair. You and I, of course, have something in common, in that you used to serve, while I still do, in the British Transport police as a special constable. You will know something about transport, and I presume that I, too, know something about it.

It is good to have secured a debate on an important matter this afternoon and to see so many Members, under a one-line Whip, here to support me, presumably, on the importance of aviation. It is also good to see the Minister in her place, and the shadow Secretary of State, my hon. Friend the Member for Garston and Halewood (Maria Eagle), in hers this afternoon—unusual, it has to be said, for an Adjournment debate. I think that that shows the importance of this afternoon’s subject.

My mind was taken away from the subject at the weekend because young Rosie Donohoe, my first grandchild, was brought into this world at 2.45 pm on Saturday. Rosie and her mother Lisa, and her father Graeme, are well.

[Hon. Members]

Hear, hear!

[Mr Donohoe]

I thank hon. Members.

I return to this afternoon’s important subject, which is the future of the UK aviation industry. The aviation sector is vital for the economy, bringing financial benefits both to the UK and to those who serve the airline business. It is also important for the skills and the high-skilled employment that it brings and because of the important growing marketplace that the airline industry is within.

Coupled with that is the importance of the aerospace industry, which is connected to the airline industry in every respect. I have such an interest in the subject because a fairly sizeable chunk of employment in my constituency is based on those two industries. Spirit, which employs more than 1,000 people, is based in my constituency. Goodrich, GE Caledonian and BAE Systems are just a few of the companies that my constituency has within the sector. All are major stakeholders in the future of the aviation industry.

The aviation industry requires the Government to step up their responsibilities to provide a political framework to allow the sector to grow sustainably, integrated with other transport modes, which are equally important. We were involved in a few discussions just a number of weeks ago, and I see the hon. Member for Blackpool South—

[Paul Maynard (Blackpool North and Cleveleys) (Con)]

North.

[Mr Donohoe]

Sorry; I will always get that wrong. I see the hon. Member for Blackpool North and Cleveleys (Paul Maynard) in his place this afternoon. He has taken the lead on the case regarding High Speed 2, which is part of the overall package that we have to consider today.

More than any other industry, aviation operates in a global marketplace and needs global solutions to avoid market distortions that would prejudice against UK industry. In that respect, it would be dangerous for the UK to add or continue with unilateral actions that would serve only further to drive UK industries abroad, along with the financial and skills benefits they are associated with.

About 15,000 jobs a year are at stake unless the UK finds way to increase aviation capacity in the south-east. The management at Gatwick airport has argued in a submission to the Department for Transport that that is of great importance to its airport, as well as to the whole country. The UK stands to lose between £20 billion and £47 billion of benefits over 30 to 50 years unless the Government reconsider the current stance of no expansion.

[Iain Stewart (Milton Keynes South) (Con)]

I congratulate the hon. Gentleman and his family on the safe arrival of Rosie. He mentions airport capacity in the south-east. With the advent of a high-speed rail network, which he also mentioned, what is termed the south-east could be expanded to include airports such as Birmingham, which has considerable spare capacity. Should we not look at the whole of the southern part of the United Kingdom, rather than just what is narrowly defined as the south-east?

[Mr Donohoe]

I will return to that point, because I have included in my speech the effect of that and the question of the whole package.

[Mary Macleod (Brentford and Isleworth) (Con)]

The hon. Gentleman talked about the need for additional capacity. Does he agree that London—he is talking about the south-east—remains the best connected city in the world, with more than 130 million passengers, which is more than many other great cities?

[Mr Donohoe]

I will come on to that as well; I have a speech that I would like to continue with. Last month, another runway was opened in Frankfurt, which will impact more and more on the position of the UK aviation industry.

The lack of hub capacity could cost the economy right now some £1.2 billion a year in lost trade. The CBI and other organisations, such as the Institute of Directors, say that that must be tackled if the UK is to maintain its global competitiveness, and I support them.

The coalition reversed the previous Government’s plans to build a third runway at Heathrow and, as I understand it, oppose the building of new runways at Stansted or Gatwick, which runs at 78% capacity. The coalition has said that it will produce a new aviation framework by 2013, but we need to bring that forward. It is clear that unless we do so, we will lose business.

As a reminder, the UK is the sixth biggest economy in the world. The world is becoming increasingly interconnected, and its centre of economic gravity is moving further east, but the UK does not have a cohesive aviation policy. The coalition has allowed us to fall far behind. Frankfurt opened its fourth runway just last month. France’s Charles de Gaulle already has four runways, and Schiphol, which is becoming more and more of a direct competition, now has six. We therefore have to think about where we are going in the future. Is it important for us to continue having a hub airport in the first place? One wonders whether that should be the way forward.

[The Minister of State, Department for Transport (Mrs Theresa Villiers)]

I hope I can reassure the hon. Gentleman. Will he welcome the fact that passenger numbers at Heathrow have reached record levels over recent months? I recognise the crucial importance of Heathrow airport, which is why the Government have arranged a programme to ensure that Heathrow is improved and works better, with reforms to security and other measures, which I will talk about in my speech.

[Mr Donohoe]

It would be wrong not to. Indeed, there is the possibility of further expanding the number of take-offs and landings by increasing the number of mixed-mode operations, which I understand are still being operated at Heathrow. That will allow it to expand further. The problem with that is all the environmental issues will start to create a real problem, because the noise in the air would become far greater than the noise today. Given the size of Heathrow, there is a clear argument, as the industry and all whom I know have been making for some considerable time, for further expansion through a third runway.

[Mrs Villiers]

I am afraid that in this instance I may have to disappoint the hon. Gentleman. The trial that is under way at Heathrow is not mixed mode, but a series of operational freedoms geared at improving resilience and tackling and mitigating delays. Those freedoms are substantially different from mixed mode because we are great supporters of runway alternation.

[Mr Donohoe]

I will always be corrected by the Minister in that respect. Under the previous Government, there was a trial period of mixed mode. I understood that the only way we could increase the number of passengers going through the airport was if we brought mixed mode into operation. I do not think I will be proven wrong in that respect.

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

Does my hon. Friend not agree that the number of passengers going through Heathrow is only one measure of its economic importance? If we look at the destinations served by Heathrow in its constrained state, we see that it is losing out in many of the emerging economies such as China, Brazil, Malaysia, India and Russia, and that is where the damage to the UK economy is being done.

[Mr Donohoe]

I could not have put it better. My hon. Friend will be speaking in this debate and will no doubt reinforce that point. It is clear that that is the situation.

[Mary Macleod]

Will the hon. Gentleman give way?

[Mr Donohoe]

I want to make some progress because I know that there are a number of hon. Members who wish to speak. To give way again will impact on that wish, so I will, if I may, move on.

The London Mayor believes that London will become a destination on the end of a branch line unless a new international airport in the Thames Estuary is built. Quite a lot of work would have to be done for me and many in the industry to be convinced of the practicality of such an airport. It is fine putting concrete on the ground, but difficulties emerge when it comes to airspace. The situation in the south-east is among the most complex in the world. Such consideration is vital in assessing the needs of an estuary airport, as there are major structural airspace implications. Of course, we could carry out such work; we have never argued that we could not. However, the scale of the airspace structural change necessary to accommodate the proposal would be enormous and should never be underestimated.

In NATS’ expert view, a four-runway estuary airport could not operate in tandem with Heathrow if Heathrow were to remain the same size as it is today. Such an airport would need to be a replacement for Heathrow. There would be significant implications for other airports in the region, most notably for City airport, which I use weekly, Southend, Stansted and Biggin Hill. It is not simply a matter of shifting current traffic patterns to the east. The eastern boundary of UK airspace is an important factor. Belgian and Dutch airspace and the proximity of airports such as Schiphol and Brussels mean that climb and descent profiles would be affected, so international co-operation would be required.

With westerly winds in the UK prevailing for 70% of the time, westerly operations may increase departures over central London itself. Refining existing flight paths provides more certainty for people already living below them and would be better than blighting new areas, which is what could happen if Boris’s idea goes forward.

Airspace is a critical pillar of national transport infrastructure, yet it is too often the forgotten factor in the consideration of aviation expansion, particularly airport development. The UK has 11% of Europe’s airspace and 25% of its traffic. We are Europe’s transatlantic gateway, which is a strategically important industry underpinning economic growth.

Airports do not work without the airspace to feed them. The Civil Aviation Authority has set out a blueprint for future airspace strategy, and NATS and BAA are co-chairing a cross-industry group over the next 12 months to work out an implementation plan. A major review of airspace has already been started. It has to assume that the current infrastructure will be in place. This is a once-in-a-generation opportunity, so the Government’s policy framework needs to be able to stand the test of time. Fundamentally, if this opportunity is not to be lost, we need cross-party support, which the shadow Secretary of State has argued for for some time.

We face the possibility of being stacked in the air—it happened to me only yesterday. I believe that that is an inefficient way to operate, but some say that it is an extremely efficient means of maximising limited runway space. None the less, it is not very good for the passenger who is trying to get into London. NATS supports the provision of additional runway capacity in the south-east because that is where the demand is. That sounds like common sense.

Taxation is another important area. When I applied for this debate, I felt that somebody from the Treasury should be here with the Transport Minister. The industry is charged some £7.9 billion in tax. Tax is paid by aviation firms, and employees contribute around £6 billion. There is also the evil air passenger duty, which was introduced by a Labour Government. When it started, we had to pay £5 for short-haul flights and £10 for long-haul flights. Now, if a family of four want to go to Australia, they have to pay more than £700 in duty. I know families who now travel from Glasgow to Frankfurt, Charles de Gaulle or Schiphol. They then take their bags off the plane and get on to another plane to reach their destination just so that they can save themselves that exorbitant tax. We are one of very few countries in Europe to apply such a tax, and the Treasury needs to look at the matter. Without a doubt, we are haemorrhaging passengers who travel, connect and interconnect through Heathrow.

[Ian Paisley (North Antrim) (DUP)]

I welcome what the hon. Gentleman says about airport duty. Northern Ireland has successfully campaigned for a reduction in its duty and we thank the Government for recognising that. The other issue that I want him to address is the connectivity between the peoples of these islands. Does he agree that we must not sacrifice our internal links for the sake of the more lucrative external links out of the United Kingdom? I am particularly concerned about the potential sale of British Midland International. If it goes ahead, will we see a reduction in internal flights between Northern Ireland and London and between Scotland and London? That is a concern.

[Mr Donohoe]

I am grateful to the hon. Gentleman for that; I will come on to that matter. Suffice it to say that, only last week, there was an announcement that British Airways was to buy the BMI routes. I predict that those will be the ones that operate between Scotland and England. We have already lost the service from Glasgow. Ryanair’s winter programme is being implemented and there are no flights from Glasgow Prestwick to Stansted. Already we are seeing problems.

As the hon. Gentleman travels in planes as often as I do, he may have experienced similar problems. Any plane that I get on from Glasgow is always full, which shows that there needs to be further expansion in the number of domestic landings in central London. I will come back to that argument a little later.

Returning to APD itself, there is no doubt that that tax was introduced, like most taxes, at a minimal level, but it has become a significant factor in how, and from where, people travel long haul.

In the future, we need to have a joined-up approach on aviation policy and taxation, which of course would involve the Department for Transport and Her Majesty’s Treasury. Such an approach is required to ensure that the tax system and aviation policy are aligned and consistent. Unless they are, we will lose out; of that, there is no doubt. A joined-up approach is absolutely imperative to ensure a sustainable and competitive aviation sector.

Returning to infrastructure development, the Government have adopted an aviation policy that states that there will be no new runway capacity in the south-east, potentially up to 2050. That approach is flawed. As demand increases, there will be a need for new capacity.

[Mrs Villiers]

Just to reassure the hon. Gentleman, the Government have never said that we have ruled out any capacity expansion in the south-east over that period. What we have said is that the coalition will not give permission for new runways at Heathrow, Gatwick or Stansted. That is not the same as saying that there will be no expansion in the south-east ever, under any circumstances.

[Mr Donohoe]

I take that point on board, but the Minister is drawing a very fine line in that sense, because I would argue that unless there is an increase in the number of runways, the potential for increasing the service all that much is very limited. I think I would be proven correct by asking the views of those in the industry itself. That is the clear answer I get to the point she is making.

There is no doubt that capacity in the south-east is restricted. As I argued earlier, the south-east is where the need for more air transport services is greatest, yet there is less ability to extract more capacity from the existing infrastructure. Heathrow and Gatwick continue to operate at nearly 100% capacity, even with continuing reductions in domestic services.

Looking to the future, in a global and highly competitive industry such as aviation, any demand management measures implemented by the UK Government would have far-reaching consequences for the economy, jobs and our connectivity with the rest of the world.

[Karen Lumley (Redditch) (Con)]

Birmingham International airport, which is near my constituency of Redditch, is running at 40% capacity. With High Speed 2 hopefully coming on-stream soon, does the hon. Gentleman agree that that airport could be used to enhance passenger travel?

[Mr Donohoe]

The difficulty is that passengers will not travel out of London to Birmingham to fly to Schiphol and then fly long haul; the hon. Lady might think that they will, but they will not. The idea that they will do that is just nonsense. What they will do is fly short haul from wherever they happen to be to one of the connections that are readily available in mainland Europe and, it is argued, beyond, rather than doing what she is suggesting. Her suggestion is just not feasible as far as the aviation industry is concerned. In the short term, therefore, methods of leveraging capacity into existing airports need to be agreed, and in the medium term, capacity expansion at regional airports and in the south-east, including a second runway at Gatwick, should be considered.

That brings me to the point made by a Member from over the water in Northern Ireland: the hon. Member for North Antrim (Ian Paisley), who has now left the Chamber. There is the possibility of a further solution to the problem of internal connections within the UK, which is the use of a runway that is already in existence. That runway, of course, is at Northolt, which is only 4 miles from Heathrow. With a bit of realignment, that runway could take on board most of the domestic air traffic that flows into the south-east. That would allow the slots at Heathrow for long-haul flights, which come at a premium, to be relieved and it would allow passengers from the other regions in the UK to connect at Heathrow itself.

I have looked at this idea in some detail. The CAA has argued that it would be difficult to employ Northolt as an airport, but the difficulty is not insurmountable. Indeed, there are those within the industry who argue that Northolt is part of the solution to the capacity problem. I do not know whether the Government have looked at Northolt at all; if they have, it would be very interesting to know the Minister’s view. For me, at almost a stroke the use of Northolt would mean that a third runway at Heathrow could become available, and it could be connected very simply to the main complex at Heathrow. That is a solution that should perhaps be given more thought.

In the long term, of course, the Government themselves have to decide whether the UK needs a hub airport. If they do and they decide that it will not be Heathrow, significant questions need to be asked, including where the hub airport will be located and when, and what criteria will be used to decide its location.

The current situation is unsustainable. The regions will be deprived. We have already heard about what is going on to the routes between Scotland and Heathrow, and between Northern Ireland and Heathrow. That problem will not go away, because airlines will be more inclined to go from Heathrow long haul, allowing for a far greater payload than would ever be the case with any domestic flight. That issue must be looked at.

In the future, we need to look more seriously at what the competition are doing. I have already said that Frankfurt airport has opened another runway, Schiphol airport has six runways and Charles de Gaulle four. Those airports are catching up quickly with Heathrow and their passenger numbers are growing at enormous rates. Their owners must laugh with glee at the stupid situation that we in the UK find ourselves in regarding our own aviation future.

Aviation is a significant contributor to the UK economy and nobody can argue against that. It is a driver of the wider economy, and it has been a great server of the public and a benefit to society. Although aviation can have an adverse impact on the lives of people living around airports and under flight paths, it can also bring many benefits to local and regional economies in inward investment and jobs. The aviation industry is committed to reducing its local and global environmental impact, but airport expansion—where it is required—is an essential tool for the growth of the UK economy.

A successful UK aviation policy requires a joined-up approach by Government that addresses taxation, infrastructure development and sustainability, to ensure that the aviation industry continues to stimulate economic growth and helps to rebalance the UK economy.

As a footnote, I predict that, if there is not an early indication of a change in policy by this Government, British Airways will be off to Madrid airport, which by that time will be run by the owners of BAA, and UK plc will be left miles behind.

14:58

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

It is a pleasure to serve under your chairmanship, Mr Gale. I congratulate the hon. Member for Central Ayrshire (Mr Donohoe) on securing today’s debate and, of course, on the new addition to his family.

As we have heard, the UK aviation and aerospace industries are vital to the UK’s economic success. Moreover, based on the criteria set out by the Government to rebalance the economy, they have a vital role to play in delivering growth through manufacturing and exports. That will be the broad thrust of my remarks.

Our country’s aviation endeavours are quite rightly a huge source of pride to many people. Aviation is a sector in which the UK is undoubtedly a world leader. In aviation, British engineering and manufacturing set the standard and still pull in big international orders.

Filton is in my constituency, and is where I live. Most people would agree that it is at the very heart of the UK aviation industry on the manufacturing side. We are fortunate to have an outstanding cluster of aviation and aerospace companies on our doorstep. Airbus, GKN, Rolls-Royce, Boeing and BAE Systems, to name a few of those companies, all have a significant presence in the constituency of Filton and Bradley Stoke and employ thousands of people.

This debate is about the future of the UK aviation industry, but I want to start by recognising the aviation heritage in my local area and how we reached the world-leading standards of today, because only by appreciating and understanding our past will we be able to maximise opportunities, develop a vision for the future and, crucially, inspire the next generation of engineers, scientists and other people who will work in the aviation industry.

Aircraft have been built and flown at Filton since their inception, and we are proud that our aviation roots are well over a century in the making—last year, we commemorated and celebrated 100 years of aviation in Filton. The pioneer and entrepreneur Sir George White, the humbly born son of a Bristol painter and decorator, was the founder of our local industry and, it could be said, the founder and father of British aviation. In 1910, Sir George founded the Bristol Aeroplane Company, and we should all honour and celebrate his legacy, because what he achieved was truly remarkable. He was a pioneer of aviation, a great philanthropist and a completely self-made man. This great Bristolian was the embodiment of social mobility and enterprise, and his example and legacy should be used to inspire the next generation of aviation and aerospace engineers and scientists. Without his vision, we would not have the home of British aviation in Filton, or the thriving UK aviation industry that we have today.

Sadly, BAE Systems has decided to close the airfield in Filton at the end of next year, but that provides us with many opportunities, with room to expand the existing aviation and aerospace industries locally, and plans are close to fruition for an aviation heritage centre, which will house the last complete aircraft built at Filton, Concorde 216, which was the last Concorde ever to fly. The plans importantly include a science, technology, engineering and mathematics learning centre, which will help to inspire children to go to college and university locally.

Perhaps unsurprisingly, there is a concern in the UK aviation industry that the Department for Transport is anti-aviation. I do not subscribe to that view, and I know that the industry appreciates that the concern is more down to airport expansion issues than to anything else, but the fact remains that it is important for our aviation industry’s airline customers that there is an efficient air transportation system in the UK.

Passenger numbers are set to continue to grow, which will help to fuel further growth in the aviation industry. Department for Transport figures show UK terminal passenger numbers increasing to 520 million per annum by 2050, from roughly 210 million in 2010 according to the Civil Aviation Authority. That increase is modest in comparison with that which will be seen globally, not least as a result of the rise of the BRIC economies—those of Brazil, Russia, India and China—and other emerging markets. Airbus’s most recent global market forecast, published in September 2011 and covering 2011-30, foresees the need for more than 26,900 passenger airliners with seating capacities of at least 100, along with more than 900 new factory-built freighter aircraft. In the same time frame, the world’s passenger aircraft inventory will more than double from today’s 15,000 to 31,500 plus.

We should continue to push for further technological improvements and ensure maximum social and economic value for each tonne of CO₂ emitted, but the future growth of the aviation industry presents a major opportunity for the UK economy, and it would be unwise to start playing productive sectors of the economy off against each other as we seek solutions to climate change. In a highly competitive global market, adverse regulations that limit a particular sector’s ability to grow domestically are more likely to increase the possibility of a competitor based elsewhere in the world gaining commercial advantage, than effectively to reduce greenhouse gas emissions. I encourage the Government to work through bodies such as the International Civil Aviation Organisation to promote solid and economically sound solutions.

That said, the overwhelming feeling I have picked up from the local aviation companies that I speak to regularly is that the Government are doing a lot of good work to ensure that the UK maintains its position as the world’s second largest aerospace industry, which is an incredible national achievement given the economic conditions and the global competition.

[Mary Macleod]

Does my hon. Friend agree that this debate should be largely about not how we expand airports such as Heathrow—I do not subscribe to the need to expand them—but about transport across the whole UK, and about looking for creative solutions? The Eurostar is a perfect example, because most of us who travel to Paris or Brussels take it.

[Jack Lopresti]

My hon. Friend makes a good point. She has worked very hard in campaigning against the expansion of Heathrow airport. I agree that there has to be a more regional dimension to our transport challenges.

I have been asked by the companies that I talk to regularly to pass on their thanks and compliments to the Minister of State, Department for Business, Innovation and Skills, my hon. Friend the Member for Hertford and Stortford (Mr Prisk), on his commitment to the aerospace growth partnership, which he co-chairs. The AGP is an industry and Government partnership aimed at addressing the future needs of the UK aerospace industry, and it will prepare a strategy that embraces technology, manufacturing and supply chain. Such initiatives give the sector confidence in economically uncertain times. By nurturing such relationships and demonstrating the UK Government’s commitment to the sector, we are ensuring that Britain is one of the best places in the world for aviation companies to do business.

The Government sent another strong signal to my local industry by confirming in the strategic defence and security review announcement last year a major order for 22 of the fantastic A400M aircraft, whose wings are manufactured at the Airbus site in Filton. Not only is it a fantastic bit of kit that will provide a much-needed enhanced lift capability for our armed forces, but it will provide us with many export orders. The SDSR also gave us the good news that 14 specially converted Airbus A330 strategic transport and tanker aircraft will replace the ageing TriStar fleets, which will benefit our armed forces and the local and national aviation industry.

The aviation industry holds one of the keys to the economic growth that the UK desperately needs, and the Government are working hard to support the sector and its highly skilled employees. It is the UK’s highly skilled aviation and aerospace work force who contribute so much to the industry’s success, and I ask the Government to continue to do all that they can to support the industry’s employees, especially in these tough economic times. I was very pleased to hear about the Government-backed talent retention solution from the Business Secretary’s skills and jobs retention group. The TRS is designed to help engineers facing redundancy link up with companies with vacancies for highly skilled engineering and aerospace staff, and it is backed by top companies such as BAE Systems, Airbus, Rolls-Royce and GKN.

The aviation industry is an engine of growth for the UK, and we must do all we can to ensure that it is nurtured and protected. From progress on biofuel and research and development programmes to sustainable aviation projects, the UK is a world leader in aviation. As the industry confronts the challenges of operating in an ever-growing and increasingly competitive global marketplace, we must do all we can to help aviation and aerospace companies make the most of the fantastic opportunities that present themselves.

15:07

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

The future of the aviation industry has been hobbled by Government policy, but that future is important, and I hope to explain why in the few minutes available. I congratulate my hon. Friend the Member for Central Ayrshire (Mr Donohoe) on securing this debate, which is vital not just to aviation but to the whole UK economy.

Historically, the United Kingdom’s aviation business has been the second largest market in the world, not just in the production of aeroplanes but in the flying of them. We are in danger of losing that position; we almost certainly will. The arguments for constraining runway and airport capacity in the south-east fall down when looked at in detail, as do the solutions, and I will try quickly to go through the reasons why.

Aviation is vital to the economy, not just because airports and aeroplanes—the production of them and the flying of people in them—produce jobs, but because reducing the connections that aviation gives us to the rest of the world is, in essence, like switching off the internet. If someone in the House stood up and said, “We’re going to stop the growth of the internet and communications with the rest of the world,” people would think that that Member had gone off his or her rocker. Effectively, however, that is what we are doing by constraining air capacity in the south-east.

There is only one hub airport in this country, and that is Heathrow. By constraining its runway capacity, we will not necessarily reduce any increase in the number of passengers using it, because operators can use larger aeroplanes on the same runways. However, we will certainly reduce its importance to the economy, because we will reduce the number of destinations it serves. Already, the number of short-haul destinations served by scheduled services from Heathrow is 46, while Amsterdam has 67, Frankfurt 74, Paris 78 and Madrid 63. Heathrow still has more long-haul destinations than those airports, but there is an ecology of short-haul and long-haul routes, and as the number of routes diminishes, so Heathrow’s importance also diminishes. Heathrow already has fewer connections to some of the growing cities in China. As I said in an intervention on my hon. Friend, it has fewer connections to Malaysia and to the BRIC—Brazil, Russia, India, China—economies than its competitor hubs in the rest of Europe, so it is already losing out, and it will lose out further.

It is often said that the regional airports can take the strain, and the hon. Member for Redditch (Karen Lumley), who is no longer in her place, said that people will go to Birmingham. However, all the evidence is that the airlines have no levers to help them to get extra capacity at regional airports, and they have not had any for 20 years. We are going through a recession and economically difficult times, and the loss of traffic at regional airports is about twice the rate at Heathrow. Indeed, the Government’s policies—this also applied to the previous Government—are having a perverse impact, because of the nature of the economies involved. Air passenger duty has a really negative effect on regional airports, and some airlines are choosing to use hubs outside a region because of it. The most recent example that I have come across—there are others—is AirAsia, which was more or less signed up to using Manchester airport, but which is now flying from Kuala Lumpur to Charles de Gaulle. The reason that it gave was simply air passenger duty.

What is true for regional airports, where air passenger duty has a differential impact, is also true for the whole United Kingdom economy—we can do the sums and see the transfers. It is not just that flights are not happening at regional airports, but that operators of flights—particularly tourist flights—from Japan, south-east Asia and the emerging economies are choosing to go to Charles de Gaulle, Frankfurt, Schiphol, Copenhagen and Madrid, rather than Heathrow, because of the extra cost of air passenger duty. As a result, air passenger duty is damaging not only regional airports, but Heathrow itself.

I was pleased by the decision to reduce air passenger duty at Belfast airport. However, if we want to use the capacity at our regional airports, there needs to be a differential between them and the south-east airports. Any differential must help our regional airports, rather than being less than helpful to them, as it is at present. The other way that regional airports could be helped is by building infrastructure. Very few airports in this country have direct links to high-speed trains or good public transport connections. Improving public transport to our regional airports at a cost to the public purse would therefore help in some way.

The biggest push that could be given to our major regional airports, such as Birmingham, Manchester and Glasgow—I do not think this really applies to other regional airports—would come from completely opening up the skies. The previous Government gave regional airports the ability to take flights, with their permission, with fifth freedoms, which meant that those flights could pick up passengers at those airports. That is an advantage, but it would be a much bigger advantage —I imagine this would appeal to a Conservative Government—if we completely opened up the skies around those airports, so that any aeroplane could fly in and out, pick up passengers and take them wherever they wanted. Historically, the only reason why that has not happened is the Government’s over-protectionist position towards British Airways and BAA.

Things can be done to help regional airports that go beyond what is being done at the moment, which is counter-productive. Incidentally, if air passenger duty is such a good idea, why do so few other countries in Europe have it? Only four other countries—Denmark, Norway, Malta and Holland—have it; some have tried it and got rid of it because it is so economically damaging. We have to test these things against what our competitors are doing to find out whether we should have them, and I do not think we should.

It is often said that there are environmental reasons for constraining traffic in the south-east. As my hon. Friend explained, however, when we look at the detail of what happens, it becomes clear that people do not stop flying because of constraints in the south-east system; they use other hubs, and the constraints imposed by air passenger duty reinforce that. Rather than taking a direct flight or using Heathrow, people from Manchester will fly to Schiphol, Copenhagen or wherever and fly onwards because it is cheaper. That saves them air passenger duty and it saves them going into the constrained south-east hub. As a result, there is at least twice the environmental damage, because aeroplanes produce most pollutants—carbon dioxide and other pollutants—when they take off. Someone going to, say, Tokyo may go via Copenhagen. There are not, therefore, good environmental reasons for such a view.

Regional airports are not an alternative, for the reasons that I have given. The former Labour Secretary of State, Lord Adonis, said Boris island was bonkers, and within five minutes of looking at it, we can see that it will never happen—for environmental and planning reasons, and because of the sheer cost and financing involved. When there were fewer environmental issues, it took Munich 25 years to develop a new airport, which opened in 1992. Something as huge as Boris island will simply not happen as an alternative.

I should like to make a number of other points, but other hon. Members want to speak, so I will sit down. There is, however, no real alternative to expanding Heathrow; we certainly cannot use Heathrow and Gatwick as one airport. The Government’s policies are hugely damaging to the aviation industry and the UK economy.

15:19

[Paul Maynard (Blackpool North and Cleveleys) (Con)]

I congratulate the hon. Member for Central Ayrshire (Mr Donohoe) on securing the debate. I shall try to be quick, because I know other hon. Members want to speak, so this will be high speed, if not on high rail, which will make a nice change.

I welcome the progress that the Government are making on aviation policy. They are taking steps in the right direction. It is not fast enough for me or many in the industry, but perhaps we need to learn patience. Good, evidence-based policy is not one of Jamie’s five-minute meals. It needs good-quality evidence, and if we do not form policy based on evidence, rather than on prejudice, it is plain stupid. I am not here to boost Blackpool airport, although it is a wonderful airport to fly into and see the wonders of the Fylde coast. I do not even want to waffle on about air passenger duty. I do not want to tempt the Minister down a route that she probably does not want to go down, given that she is not a Treasury Minister. I do not even want to bang on about a third runway at Heathrow, because I think that is a stable door that was shut long ago, unfortunately.

We must discuss a more fundamental question: what does UK plc need from our aviation industry? What do we actually need? Hidden, buried away like a nugget of gold within the scoping document, are two fundamental questions that the Government must consider. What are the benefits of maintaining a hub airport in the UK? And how important are transit and transfer passengers to the UK economy? Those things may seem self-evident. How could anyone dispute them? Yet a fortnight ago I met a commercial director for a regional airport, who said, “There is no such thing as a hub airport. There is no Government definition of one, so they don’t exist. So we don’t need a hub airport any more.” That struck me as the most illogical and ludicrous thing one could possibly argue, but none the less he tried. I would prefer to focus on not Boris island but Boryspil airport, which, for those who do not know, is the main airport for the city of Kiev, the capital of Ukraine. That is a classic example of an emerging market destination, which is economically crucial, and to which services from the UK are not sufficiently good. Yet all the aviation policy that we seem to be able to focus on is some future airport in the Thames estuary. We need to focus on the needs of the UK economy—of UK plc—here and now.

I welcome the work that I know the Minister is doing to make Heathrow and the other south-east airports function better, so that we get bang for our buck and extract the maximum from the capacity that we already have. I want London to be surrounded by a string of pearls in the form of excellent, functioning airports. One of them, however, cannot be a pearl but must be a diamond—the hub airport. To understand why, we must understand the definition of a hub airport, and why it matters to the economy. Transfer passengers do not exist merely for the benefit of Starbucks. The Frontier Economics foundation recently issued a report showing that there are at least 13 flights to emerging market destinations in which more than half the passengers are transfer passengers, who did not start their journeys at Heathrow. The more that we squeeze the short-haul flights that the hon. Member for Blackley and Broughton (Graham Stringer) referred to, the harder it will be to sustain flights to emerging market economies, because we will not have the transfer passengers, which is a grave concern.

I confess that a few months ago I wondered whether the UK really needed a hub airport. The Japanese Transport Minister once famously said that Incheon in South Korea was now Japan’s hub. I know that for many of my constituents Schiphol or Charles de Gaulle is essentially their hub airport. I began to think, “Can the UK survive without a hub airport? Can’t we just fly to Paris or Amsterdam?” However, the Frontier Economics report makes the fundamental case why we cannot do that. It is explicit about the amount of trade that we are losing as a consequence of having poorer connectivity with the emerging market economies. It is a question of not only the number of people flying through Heathrow, but where they are going. The hon. Member for Blackley and Broughton rightly made the point that Heathrow’s number of destinations is gradually dropping. In the past five years, it has decreased from, I think, 227 to 180. Over the same five years, the number of destinations reached from the main competitor hubs in Europe has increased.

There is clearly a case to be made that Heathrow is entering a period of consolidation. It may be getting more passengers, but they are going to fewer places, and, in the cycle, that is usually the beginning of the end of an airport’s hub status. That is what happened to New York about 20 years ago, when the destinations started to drop off and it lost its hub status. While I fully expect that in the coming 20 years Heathrow will remain England’s major international gateway, I have concerns whether it will retain its hub status. Hon. Members may ask whether that matters. New York no longer has a hub airport, but it remains a world city. I question whether we—UK plc—can afford to sacrifice the economic benefits that come from a vibrant, well-connected hub airport, which I think is fundamental.

[Mary Macleod]

Does my hon. Friend realise that London has 92 flights a week to China, whereas Paris has 73 and Frankfurt 69? We have good connectivity with China, one of the most important growing economies. Surely the issue is about working with businesses in China and elsewhere to find out their requirements. Has he had any correspondence with businesses there to find out whether they require additional flights to Heathrow and London?

[Paul Maynard]

I thank my hon. Friend for that useful intervention. Of course the main reason, historically, for our having far more flights to China is our historic tie to Hong Kong. The destinations that we serve are Beijing and Shanghai, and there are more than 3,000 seats a week going to Hong Kong. I think that Frankfurt serves five destinations and Paris four. We dominate on the Hong Kong routes, but we underperform in relation to all the other top 10 Chinese cities. Of course, economic growth in China is happening not in Hong Kong but in cities that most of us have probably never heard of—the likes of Chengdu and Dongguan, which no one is yet serving. Far more than focusing just on the number of people who are flying and the routes they are flying on, we must think about connectivity. Are we serving the places where the economic growth is?

I make a plea to the Government. I welcome what they are doing to make the airports around London and the south-east more suited to improvements in the passenger experience, but I ask that we should not overlook the benefits that can be provided by an active, well-maintained and well-funded hub airport, which works well and connects to the places that UK plc needs to be connected to for growth. That needs to be a fundamental part of our aviation strategy.

15:27

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

I shall be as quick as I can, because others want to speak. This will be the first debate in perhaps two decades when our colleague Alan Keen has not been with us, and I pay tribute to everything that Alan did over the years. On a happier note, I, too, welcome Rosie. Given the interest in aviation shown by my hon. Friend the Member for Central Ayrshire (Mr Donohue) she clearly arrived by stork.

I obviously have an interest in Heathrow, which is in my constituency, because of my constituents who work there, fly out of there and live around it. With reference to those who live around Heathrow, I want to tell BAA and colleagues who are present that the third runway is dead: that is it; it is over; it is finished. All major political parties have made it clear now that it will not be built. As to my hon. Friend’s novel idea about Northolt, this is almost becoming personal now—they are coming at me from all ways. Northolt was ruled out a long time ago because of its impracticality. It would cause just as many problems as expanding Heathrow. I understand the Government’s interest in making Heathrow more efficient, but experimentation around the Cranford agreement, moves towards mixed mode and, certainly, any attempt to increase the number of night flights would be resisted, because of noise and pollution. Nevertheless it is worth examining how we can make Heathrow much more efficient.

Despite everything that has been said by all the major parties, the blight in my constituency continues because of BAA’s continuing angst and lobbying for the third runway. It needs to be made even more explicit now to BAA that that is not going to happen. I say that—people may have seen the television programme last night—because BAA has bought up nearly two thirds of Sipson and refuses to sell the properties to families. It has made them available to families on short-term licences of up to two years and no more, although it now tells us that those licences are possibly renewable. It is destabilising the village. In addition, the threat of the third runway that BAA keeps mooting is still blighting the villages of Harmondsworth, Longford, Harlington and Cranford Cross.

One solution—I say this to the Government on a cross-party basis—is to agree to put in place a similar covenant to the one at Gatwick that will ensure for generations that there is no further threat of a third runway in the area and that is legally enforceable and binding.

We have discussed the role that High Speed 2 could play in alleviating the pressure on Heathrow. I support High Speed 2, but we need a consultation on the routes into Heathrow as soon as possible. Not consulting on the overall route has caused further blight, particularly within the London borough of Hillingdon.

An issue has come up this week involving my constituents who work at Heathrow. The European Transport Workers Federation, the union representing aviation workers across Europe, held a demonstration on Monday about the deregulation of ground handling services such as baggage handling, ticketing and general passenger facilities. They are concerned that deregulation might not only put security operations at risk at airports across Europe, but affect staff health and safety.

On another staff issue, Heathrow is still a wonderful area of employment opportunity for all west London constituencies. It is still recruiting staff, yet the Government are consulting on closing the Heathrow jobcentre, a reduction of six staff members. Employers and unions alike have urged the Government to rethink, as it is one of the best recruitment facilities at the airport for ensuring that local people are attracted into employment and that the skills base in the area is developed.

Both staff at the airport and those flying out of Heathrow are affected by an issue that the British Airline Pilots Association raised with its members recently. The European Union is seeking to relax the flight time limitations on pilots. Britain has the gold standard, which ensures that we have the best safety standards in the world, but the European Union is seeking to undermine that gold standard and bring us into a system that reduces protections and weakens regulations. BALPA, the trade union for pilots, has made it explicitly clear that it is extremely anxious about the safety implications of the moves within Europe.

Those are the issues that I wished to raise in this debate. On the expansion of Heathrow, there comes a time when my hon. Friends must recognise that they are no longer in the majority but in a small minority. Continuing to harp on about the need for a third runway not only destabilises the population around Heathrow, but prevents our getting on with developing a proper aviation policy that is integrated with transport overall.

15:33

[Mr Rob Wilson (Reading East) (Con)]

I congratulate the hon. Member for Central Ayrshire (Mr Donohoe) on securing this debate and on the birth of his new family member, Rosie.

I want specifically to discuss my strong support for much-needed improved ground access to Heathrow. In my view, there is a specific and strong case for improving railway connectivity to London Heathrow via a western extension of services. The case is not based solely on improved accessibility for passengers, because it is also driven by a strong national economic imperative.

This is a debate about the future of the industry. Often, when talking about the future, we try to be optimistic. Optimism is definitely required when discussing aviation, due to the financial challenges facing the nation. Given the financial crisis and the need for economic growth to stimulate recovery, we must be mindful of the contribution made by the industry. Simply put, we all acknowledge that a strong aviation industry is good for the British economy.

In that light, I am keen to secure the multiple benefits of improved rail access to Heathrow airport for my constituency of Reading East. However, it is worth noting that the benefits of access reach far wider than individual constituencies. I have been working closely with key figures in government and the railway and aviation industries to make extended western access to Heathrow a reality. As we debate the future of this important industry, I am pleased to report that the project is making progress, which is important.

Estimates from the Treasury put the aviation industry’s contribution to the UK economy at £18 billion, which cannot be ignored in the current economic climate. The aviation sector employs 250,000 people directly and an estimated 200,000 more in the supply chain. Again, that contribution should not be taken lightly. Heathrow airport has 65.7 million terminal passengers each year, and Department for Transport forecasts estimate that that figure will have risen to 85 million by 2030.

Looking to the future, as air travel grows, so will the industry’s contribution to the wider economy. We cannot afford to ignore it or fail to make the right investment to exploit it. After all, there are plenty of other airports across Europe willing to challenge Heathrow’s position. We must defend Heathrow’s pre-eminence on the European and worldwide stage. There is, of course, a balance to be struck between aviation expansion and its negative impacts, such as the environmental considerations that hon. Members have discussed.

[Mary Macleod]

Does my hon. Friend agree that we must also take account of local residents? What we really want is to make Heathrow better, not bigger, and to ensure that the noise impact on local residents is minimised.

[Mr Wilson]

Of course. I think that the hon. Member for Hayes and Harlington (John McDonnell) would totally agree. The Government have said that expansion should not come at any price. As we know, they have cancelled the planned third runway at Heathrow. There is, by and large, cross-party consensus on the issue. However, that is not to say that we cannot make improvements to the system that we already have, as my hon. Friend has said, and Heathrow is a prime example. Improved western railway access to Heathrow would help to maximise the benefits that the airport provides.

For my constituency, that means strengthening Reading’s standing as the commercial centre of the Thames valley. Direct railway access to Heathrow would entrench and extend Reading’s position as a place to do business. Leading technology companies such as Microsoft and Oracle have established headquarters in Reading East, along with many other companies too numerous to name with a global outlook and an international reach.

The lack of direct rail access has rightly been described by the president of the Reading chamber of commerce as bringing “huge frustrations”. Big businesses based in Reading pay an estimated £10 million a year in taxi fares to send executives and business people to and from Heathrow, which is not particularly business-friendly. Money is not the only cost to businesses resulting from inadequate connectivity to the airport. The absence of a link also costs them precious time that could be spent with clients and customers. Lengthy journeys on the M4 to Heathrow, with their inherent risk of traffic jams and other delays, are not acceptable for international businesses.

The easier transport to an airport is, the more people and businesses will use it, in which case the economic benefit will then flow into the wider economy. I have been working with key figures at BAA, Network Rail and First Great Western and officials from the Department for Transport. All have come together to breathe new life into the project. As a result, £119,000 in funds was recently allocated to Network Rail, and design consultants have been appointed. A feasibility study is under way and is due to be completed in December. I look forward to the report’s publication.

As I have outlined, the exciting benefits for Reading East are clear, but the project also has the potential to open up direct rail access to parts of the country that are poorly served. For the first time, Heathrow would become directly accessible to Wales, Herefordshire, Devon, Dorset, Cornwall and many other areas by means other than car or coach. I have no doubt that hon. Members representing constituencies in those areas would also benefit, and that they look forward to the report’s publication. Additionally, I hope that they will attend a parliamentary reception that I am hosting on Thursday 24 November to give the project further traction. I am delighted that my right hon. Friend the Transport Secretary will speak at the event.

I am passionate and serious when I say that this project is part of the future of the aviation industry. The implications of this important expansion in accessibility are vast, as millions of people would find themselves with a new route to Europe’s busiest airport. As the world shrinks and our outlook becomes ever more global, why should some parts of Britain be disjointed in their access to our premier airport?

I am optimistic about the future, despite the gloomy economic outlook. Aviation will play an important role in delivering growth for the UK economy. We cannot afford to endanger that future prosperity by not constantly seeking improvements to the industry—in this case, through better connectivity to Heathrow airport.

15:40

[Jim Sheridan (Paisley and Renfrewshire North) (Lab)]

I will be brief, Mr Gale, because I am conscious of the time. Siren voices in Scotland are already arguing that air passenger duty should be devolved to the Scottish Parliament. I do not share that view, because it would create more problems than it would solve, so I hope that the Minister and her colleagues will resist any temptation to do that.

On Scottish airports, increased competition for slots at Heathrow is already causing a problem, as my hon. Friend the Member for Central Ayrshire (Mr Donohoe) suggested by highlighting BMI’s withdrawal of its flights from Glasgow to Heathrow. The net result is that we have only one airline that flies from Glasgow to London Heathrow, namely British Airways, which has a monopoly where the prices are already soaring. That has given us many problems.

Finally—I am grateful for this opportunity to speak, Mr Gale—Scotland is located on the periphery of Europe and, as such, travelling by air is not a luxury, but an essential element of business and family life. I sincerely hope that the Minister takes that into account.

15:41

[Maria Eagle (Garston and Halewood) (Lab)]

I congratulate my hon. Friend the Member for Central Ayrshire (Mr Donohoe), first, on securing this debate on the future of aviation, which has clearly been in demand from other Members—we have had an excellent debate—and, secondly, on the birth of his granddaughter, Rosie, who will think that she is the centre of the universe by the time she is old enough to read Hansard. I also welcome you, Mr Gale; it is a pleasure to serve under your chairmanship.

Our aviation industry is central to our economic prosperity and should be a key driver of the growth without which we have no prospect of emerging from the dangerous economic situation in which we find ourselves. The industry contributes more than £11 billion to the UK’s gross domestic product—more than 1% of the total—and supports up to 200,000 jobs directly and 600,000 indirectly across the UK.

I regret, however, that just as the Government do not have a credible strategy for growth, neither have they yet managed to set out a credible strategy for aviation, let alone set out the role that aviation could play in improving our economic situation. For a crucial sector on which our economy depends, the reaction from business to the Government’s decision not to set out an aviation strategy until the latter part of this Parliament has ranged from incredulity to plain bemusement.

I would much rather that we were not in opposition—it is a deeply frustrating place to be, as the Minister may recall—but the one thing that it provides is the time and space to develop ideas for the future, as well as some detailed plans. However, after 13 years in opposition, it is clear to the industry and to the wider business world that this Government came to office without such plans.

We have had lots of consultations, relentless industry engagement, scoping documents and taskforces. That is all very laudable, yet none of it makes up for the lack of a policy, let alone a strategy. With the economy on the brink, holding out the prospect of a policy late in the latter part of a five-year Parliament is, frankly, not good enough. It represents a total failure to prepare for government, and Members do not have to take my word for that. The chairman of the Airport Operators Association, Ed Anderson, has said that, while the industry knows what the Government are against,

“we are not sure yet what it is in favour of”,

and he went on to describe “better not bigger” as an “election slogan”, saying:

“Better not bigger doesn’t constitute a strategy.”

The Government also face international criticism. The chief executive of the International Air Transport Association, Giovanni Bisignani, has been quoted as saying that the Government seem

“intent on destroying its competitiveness with a policy agenda focused on increasing costs and limiting capacity growth.”

Sir David Rowlands, a former permanent secretary at the Department for Transport, has described the Government’s policy as “mildly extraordinary”, which is damning criticism from somebody from the higher reaches of the mandarinate.

Baroness Valentine, speaking for London First, said in another place earlier this year that

“government seems content for aviation policy to drift.”—[Official Report, House of Lords, 24 March 2011; Vol. 726, c. 872.]

She has also said, most damningly, that

“the Government’s aviation strategy is damaging our economy and enhancing that of our EU rivals.”

We have heard that criticism echoed by some Members who have contributed to today’s debate.

[Henry Smith (Crawley) (Con)]

Will the hon. Lady give way?

[Maria Eagle]

In a moment.

I am sure that the Minister saw the letter in The Times earlier this year signed by 74 senior business leaders. Setting a long-term strategic direction for aviation in London, the wider south-east and across the country is a vital part of delivering the growth and jobs that the country needs, and the letter concluded:

“All options must be considered, short term and long term, to address growing demand.”

We agree with them, which is why earlier this month, in a speech to the Airport Operators Association, I made an offer to the Government, which I am happy to repeat today. We are willing to take the politics out of aviation, put aside party differences and work together on a joint aviation policy for the good of the nation. As I have said, this is a clear, unambiguous offer, with no catch.

Aviation matters to our country—every Member who has spoken in this debate has said so—and to businesses and families throughout the country. It is an industry that needs stability for the long term, and a long-term plan that straddles Parliaments and Governments and that is capable of surviving after fruition.

In addition to the Government’s more immediate work that they must conclude—that is fine—I believe that the best way forward is the establishment of a cross-party commission to set out our long-term aviation strategy for a generation or more. We should not have rows from one Parliament to the next about an element of the strategy, but set out a long-term plan. We must not repeat the party political wrangling that turned the proposed third runway at Heathrow into a political football. We must also agree that we will then stick to that agreed strategy, whatever the outcome of the next election.

Any terms of reference for such a cross-party examination of capacity will inevitably start with an understanding that the answer for the south-east will not be to fall back on the proposed third runway at Heathrow. We have accepted that the local environmental impact means that that is off the agenda. The cross-party body must have the freedom to look at all options for growth, including in the south-east, while prioritising making the best use of existing runways and airports. A bigger prize is available for us all if we put political battles to one side and develop a long-term strategy for aviation to which everybody can sign up. It is time to move on and find an alternative way forward.

I should like the Minister to clarify the Government’s position on two further issues: first, the link between high-speed rail and aviation; and secondly, emissions from aviation. We have offered Ministers our clear, cross-party support for the high-speed rail line that we proposed when in government. I have been clear that we will work with the rest of the House to deliver the legislation needed to take forward that vital project. We fully accept that there is simply no other credible way to tackle the growing capacity issues on our existing main rail lines. We have, however, argued that there is a clear case for connecting the new high-speed rail line directly to Heathrow from the start. The Opposition and the Government agree that the line should connect to Heathrow; the only debate is over whether that happens from the start, or via a costly, multi-billion pound spur, tacked on at a later date.

As we have argued, taking the line via our major hub airport opens up the prospect of private sector funding, potentially saving the taxpayer billions. It would lead to a new route that made better use of existing transport corridors and better protected the area of outstanding natural beauty that the current proposal crosses. It would also open up the opportunity to connect to the Great Western main line, thus bringing the benefits of the high-speed line to the south-west and Wales and increasing connectivity for the south-west to Heathrow.

Creating a major new transport hub to the west of London at Heathrow—rather than several miles away at a site with other, inadequate transport connections—that mirrors the hub in the east at Stratford represents the joined-up thinking that is too often lacking in our transport infrastructure planning. I hope that the Minister will confirm that the Government are looking at that alternative proposal.

Our proposal is one that the Minister herself supported when she was the shadow Secretary of State for Transport, and I suspect that she still sees its merit. I hope that she will indicate a willingness to look again at it. She has our support as she seeks to do better at persuading her new Secretary of State of the merits of the case than was possible with the previous Secretary of State.

On carbon emissions, I hope the Minister agrees that we will simply not achieve the goal set out in the Climate Change Act 2008 to reduce emissions by at least 80% by 2050, compared with 1990 levels, unless aviation does more. That is why we believe that future aviation growth must go hand in hand with a greater cut in aviation emissions than we agreed when we were in government.

The Government have failed even to re-affirm their commitment to the existing emissions target for aviation that we set in government. I hope that the Minister will take the opportunity to do that today and that she will support our call for the Energy and Climate Change Committee to set out what it would mean for aviation to go further and ask it to update accordingly the carbon budgets that have been set.

I hope that the Minister will agree with us that, in principle, international aviation should be included as well, once the Committee produces its advice on accounting methodology. As the Minister will know, the industry’s sustainable aviation road map makes it clear that, by 2050, it is possible to get absolute emissions down to levels seen at the turn of the century, even as passenger numbers are projected to grow by a factor of three, so we all agree that it is possible to do more. Therefore, this should be seen not as a threat but as an opportunity. Fuel efficiency improvements in aircraft engines and air frames, improvements in air operations, both in more fuel-efficient practices and air traffic management, and the use of alternative fuels produced sustainably—all those things can make a contribution. The UK should be at the forefront of developing the new technologies that enable the aviation industry to thrive, while reducing emissions.

I again thank my hon. Friend for securing the debate. I hope that the Minister will feel able to respond positively and make up for the Government’s failure to date to provide an aviation strategy, which this country so badly needs.

15:49

[The Minister of State, Department for Transport (Mrs Theresa Villiers)]

I congratulate the hon. Member for Central Ayrshire (Mr Donohoe) on securing the debate, and on Rosie’s arrival. I would also like to associate myself with the comments made about the late Alan Keen and his sad, recent death. He had a long and distinguished record on aviation matters.

I agree wholeheartedly with the importance that hon. Members have attributed to the aviation industry as a strong part of our economy and a vital gateway to the global marketplace for business. Many hon. Members made that point, including the hon. Members for Blackley and Broughton (Graham Stringer) and for Central Ayrshire. I also welcome the emphatic support for the aerospace industry provided by my hon. Friend the Member for Filton and Bradley Stoke (Jack Lopresti). Supporting and providing the right economic climate for manufacturing to flourish is a hugely important part of the Government’s overall economic strategy. It is crucial that aviation in the UK is able to grow and prosper in the future, but I think we are agreed that a dash for major aviation growth regardless of cost is not the right approach. That is why we are developing a new aviation strategy to set out the way forward that will allow the British air transport industry to grow in the years and decades ahead, as well as addressing its environmental and quality of life impacts. No one underestimates the scale of the challenge, because reducing harmful emissions through greener technologies is more complex in aviation than in other transport sectors and will take longer to deliver.

In response to the points made on air passenger duty, we have listened with care to industry concerns, which is why we have made it clear that switching to a flight tax is not viable without wider international support for such a move. We have postponed this year’s inflation-based increase in APD, and proposals for further reform of the tax will be published soon.

In response to the hon. Members for Central Ayrshire and for Blackley and Broughton on the issue of the Thames estuary airport, as the Prime Minister has said, the Government have no plans to build a new airport in the estuary, or in Medway or elsewhere in Kent. The hon. Member for Central Ayrshire outlined some of the practical issues that would have to be surmounted before such a programme could go ahead, including, of course, the very significant airspace capacity issues. Nor do we have plans to redevelop Northolt as a third runway for Heathrow.

I agree with my hon. Friend the Member for Reading East (Mr Wilson) that surface access to airports is a crucial part of making them successful. That is why Crossrail and Thameslink are going ahead—both will improve access. We continue to consider other options for western access to Heathrow, including work that could be co-ordinated with the proposed HS2 spur to Heathrow.

We have made it clear that a key plank of the Government’s approach to aviation is the cancellation of Labour’s misguided plans for a third runway at Heathrow. I find it ironic that the shadow Secretary of State, the hon. Member for Garston and Halewood (Maria Eagle), accuses us of having no policy, when the previous Government spent 13 years on an aviation White Paper that everyone agrees is no longer fit for purpose, and on pursuing a runway that is universally agreed to be absolutely the wrong approach for the UK economy. One of the coalition Government’s first acts was to cancel the third runway at Heathrow. I continue to believe that the price in terms of the environmental impact would have been far too high, given that noise already has a significant impact for thousands of people living with a plane overhead every 90 seconds. At the time, Labour described our position as

“politically opportunistic and economically illiterate”.

It seems that those on the shadow Front Bench have learned the error of their ways—but not all on their Back Benches.

We are clear that we need to protect and enhance the connectivity that is vital for our economy, which is why Heathrow’s success as one of the world’s busiest and most successful international airports is so vital. Our aviation strategy is designed to ensure that the UK maintains and improves the success of this leading international gateway. There is no evidence that Heathrow is about to lose its hub status. It remains an immensely successful airport, with more services to China than any of its European rivals, and a particularly strong connection with Hong Kong as China’s main hub airport. Our immediate priority is to make our airports work better within their existing capacity limits.

[Henry Smith]

I was delighted to welcome the Minister to Gatwick airport last month for the opening of new security gates. Will she congratulate Gatwick airport on the more than £1 billion of investment that it is making in enhancing capacity? Indeed, Sir John Major will open the renewed north terminal on Thursday.

[Mrs Villiers]

I am happy to offer my congratulations on that. Contrary to the allegation that the Government have created a policy vacuum, we have a range of initiatives designed to make our airports better—our priority is to make them better, rather than bigger. We are legislating for a much more passenger-focused system of regulation. We are improving air space management through the Future Airspace Strategy in the Single European Sky programme, which is already delivering real benefits in the UK and Ireland. We are changing the way aviation security is regulated to enable the industry to deliver the same high standards in security, but in a more passenger-focused and more hassle-free way.

Our south-east airport taskforce also included proposals to improve resilience and address delays. As a result, we are trialling the tactical use of greater operational freedoms at Heathrow. This is very sensitive, because those freedoms mean that occasionally there will be some incursions into the respite period, with occasional use of both runways for departures, or, occasionally, use of both runways for arrivals. However, I emphasise that that is not mixed mode and the Government remain committed to runway alternation and the benefits it brings. Very careful consideration will be given to the impact of the trial on local communities. I emphasise that the measures being trialled are to be used only to improve resilience, and prevent or recover from disruption, and not to increase capacity, which remains capped at current levels.

We have published our scoping document, setting out the issues to consider for the future of aviation. We know how crucial it is to have a successful regional airport sector, as hon. Members have highlighted today. We will look at ways to harness spare capacity to support economic growth and help to relieve crowding in the south-east. High-speed rail has strong potential to provide an alternative to thousands of domestic and short-haul flights. HS2 to Manchester and Leeds will deliver a three and a half hour journey time between London and Scottish destinations, providing a viable alternative to thousands of Scottish flights.

[Maria Eagle]

Will the Minister give way?

[Mrs Villiers]

I am sorry, but I really do not have the time. We accept that the international nature of aviation, as has been said, means solutions are often best delivered at a multilateral level. That is why we are working with the International Civil Aviation Organisation towards agreement on emissions and on noise issues. That is why we have worked very hard on the inclusion of aviation in the emissions trading scheme. We will publish our draft strategy in spring next year for public consultation, with a final strategy due in 2013. We want to see Britain, and British companies, spearheading the global debate on greener air travel and shaping a low-emission aviation sector of the future. We need to work with the industry to find new ways of decarbonising air travel, boosting investment in low-carbon technologies and fuels, and enabling the aviation sector to generate the headroom it needs to grow in a sustainable and successful way. Our world-beating aerospace sector will play a vital role in that. The challenge creates great opportunities for that world-beating sector.

We want to open a new chapter on the aviation debate. We are interested in working on a cross-party basis, as has been discussed today. Our goal is to move away from the polarised opinions that have dominated the discussion in the past. We want to develop a broader consensus for the change we need to deliver a flourishing air transport sector that can support economic growth, while addressing its local environmental impacts and playing its full part in combating climate change.

[Mr Roger Gale (in the Chair)]

Order. I owe an apology to the Minister and to the Opposition Front-Bench spokesperson. It does not happen all that often, but I am afraid that, so captivated was I by the quality of the Back-Bench debate, I misread the clock. I apologise to both Front Benchers.

I am also sorry that I was unable to call the hon. Member for Crawley (Henry Smith), but his constituents will have noticed from his intervention that he was assiduously present throughout the debate.

Finally, while I am on my feet, I express my pleasure at the birth of the granddaughter of the hon. Member for Central Ayrshire (Mr Donohoe).

Bank Account Fraud

Tuesday 15th November 2011 Westminster Hall

16:01

[Stephen Timms (East Ham) (Lab)]

I am grateful to Mr Speaker for selecting this debate, and I am delighted to see the Exchequer Secretary to the Treasury in his place, upholding as always the high standards set by previous occupants of his office.

The debate arises from troubling recent constituency cases, in which constituents who have been the victims of fraud have found themselves seriously disadvantaged by actions taken by the banking industry in response. They have suffered what seems to be arbitrary and draconian punishment without even an explanation, still less any opportunity to challenge what had been done to them. No one can object to the banking industry taking every step it can to protect itself and its customers from fraud. It is absolutely right that it should do so, but those measures need to be taken in a way that treats customers fairly, and such a requirement has not been met in the cases to which I shall refer. I hope the Minister will agree that we need a better way of protecting against fraud, which does not cause its victims such hardship.

I will put to the Minister a series of points, to which he is likely to be sympathetic and to which I will be grateful for his response. First, if customers are to be denied the opportunity to have a bank account, they should be told and not, as in my constituency cases, be left to find out for themselves, submit numerous applications to different banks and be rebuffed each time for reasons that have not been made known to them. They should be told for how long they are likely to be unable to open an account. They should be given accurate information about what alternative courses of action might be available to them. If the only account they will be able to open is with a credit union, they should be told so. My constituents have been provided with no such information and been left completely in the dark.

Secondly, there should surely be at least some allegation of wrongdoing before someone is deprived of a bank account. In the case of my constituents, as I am about to explain, no such allegation was made, but the inter-bank machinery of the financial services industry organisation, the Credit industry fraud avoidance system, was triggered anyway. Thirdly, someone who is to be denied the opportunity to have a bank account should be provided with a reason. Such people should have someone in their own bank, in CIFAS or somewhere with whom they can discuss the matter—someone who understands what is going on. Fourthly, they should be given the opportunity to challenge the refusal of an account. Being unable to hold a bank account is too serious a handicap for there to be no practical way at all to challenge what is being done.

I will set out the experiences of my constituents, which have given rise to my concerns. I first became concerned when my constituent Miss Josephine Dolor came to see me in July. She had a Halifax bank account, with a bank card, which she had last used in early November last year; she was 17 at the time. When she next tried to find the card, she could not do so. At that point, as she accepts, she made a mistake. Thinking that the card would turn up, she did not report its loss and took no action for some weeks. She recognised that the card had really been lost only when she could not find it after Christmas. She then reported its loss at the East Ham branch of Halifax on 29 December last year, some six weeks after it first went missing.

By that time, all Miss Dolor’s education maintenance allowance payments, amounting to about £100, had been withdrawn from the account. In addition, in late November, £1,000 was transferred into her account from somewhere else, and another £600 was transferred in on 9 December. By 18 December, those funds had all been withdrawn. The transfers in have since been confirmed as fraudulent and remain the subject of a fraud investigation by the bank. On 7 February, Miss Dolor was interviewed by a Halifax officer, and she explained what had happened and that she had no knowledge of how anyone else could possibly have known the personal identification number for her card—although they clearly did—and the officer said that she believed Miss Dolor’s explanation.

At that point, it would be difficult to criticise Halifax. Miss Dolor had had the opportunity to explain what had happened, and her version of events had been accepted. However, at that point things started to go badly wrong. In response to an inquiry about the closure of the account from Miss Dolor’s mother, she received a letter from Halifax customer relations dated 29 March. The letter was rather unclear. It included an apology to Miss Dolor, a reimbursement of the £100 that had been taken out of her account and a £50 payment

“for any distress our process has caused”.

It appeared that, as the Halifax officer had stated, the bank accepted that Miss Dolor was innocent of any wrongdoing. But the letter also said:

“No explanation has been provided as to how a third party may have access to your PIN. Regrettably we are not going to offer you any more accounts as a result of the fraud. This is a business decision.”

That blunt termination of the account was only the start of Miss Dolor’s problems. She subsequently found out the hard way that it was impossible for her to open an account with any other bank, because Halifax has registered her with CIFAS. Lloyds Banking Group, the parent of Halifax, tells me that that is a requirement of its membership of CIFAS. CIFAS, though, says that it is not a requirement and that it is up to the bank how the case is registered. Lloyds certainly did not warn Miss Dolor of the consequences of the “misuse of facility” registration that it had made of her. In my view, Lloyds should certainly have explained that to her. I understand why Lloyds registered my constituent: because the withdrawal from the account was carried out using her card—that is not in dispute—and her PIN. Miss Dolor told me that she has no idea how anyone could have known her PIN. It is not written down anywhere, she has not told anyone what it is, not even her mother, and she is not aware of anyone ever watching her use it, although of course fraudsters have some clever techniques for obtaining such information. There is certainly no dispute that someone had the PIN. On one occasion, a fraudulent withdrawal was apparently made in a branch using a signature that did not to me look very much like Miss Dolor’s.

CIFAS told me yesterday, however:

“If Halifax had considered that Miss Dolor was a victim of fraud they would have filed her case as such. If she had been filed as a victim, Miss Dolor’s ability to hold bank accounts, or indeed open new ones, would have remained unhindered...Halifax chose to register this case as a ‘misuse of facility’ which identified Ms Dolor as being a fraudster”.

At the same time as apologising to Ms Dolor and issuing her with compensation, Halifax was registering her with CIFAS as a fraudster, and that registration was subsequently supported by the Financial Ombudsman Service. As a member of CIFAS, Halifax is required to register the details of all proven fraud cases, but I understand that that is not a legal obligation, simply a condition of CIFAS membership. Being the subject of a misuse-of-facility registration with CIFAS has had disastrous consequences for Miss Dolor. Her account with Halifax was summarily closed, and she has since been unable to open an account with any other bank or the Post Office.

One of the most disturbing aspects of the matter for me is that no one explained to Miss Dolor that that was going to happen. Halifax gave the impression that it accepted that she was the victim, and it gave her compensation. It did not inform her that she would no longer be able to have a bank account. She had to find out the hard way. The other banks told her not that that was because of her registration with CIFAS, but simply that she did not meet their criteria for opening an account. There was a real danger in the summer that, because Miss Dolor had no account into which to pay her student loan cheque, she was going to have to give up her university place. In the end, she was able to open an account with a local credit union. She cannot access that account from her university home, so it is awkward for her, but it meant that it was at least possible for her to commence her course in September.

One letter from Halifax suggested that she should open a basic account somewhere. She has tried but has been rejected twice, because that is not possible given her registration. Surely her bank should understand the consequences of its action against her, and inform her of those consequences. That did not happen, and when I pressed Lloyds, its response was:

“Our letter of 29 March 2011 went into detail about CIFAS.”

That was simply untrue. The letter of 29 March should have explained that the misuse-of-facility registration with CIFAS would make it impossible for Ms Dolor to obtain a bank account anywhere. What it actually said was that

“extra checks will be made for you when you are applying for financial products...your credit file has not been updated to hold negative information”.

It reads as though Lloyds was doing her a favour. In fact, Lloyds almost prevented her from starting her university course. Surely customers are entitled to expect their bank to be straight with them.

When a person applies to open a bank account, each bank runs that person’s details through the CIFAS database. If they are found to have a misuse-of-facility registration on CIFAS, it seems that they are told that

“further checks have shown you do not meet the bank’s criteria for an account”,

and that is the end of the story. There is no appeal and no further recourse. Miss Dolor inquired at just about every High street bank, and at the Post Office. She has never had the opportunity to discuss the position with anyone. She has simply received the same automated response every time. My constituent, who is an enthusiastic, intelligent, young woman who aspires to a career in law, has been placed in limbo. As far as one can tell, she has not even been accused of any wrongdoing, let alone found guilty of anything. She is the victim of a fraud, yet she is still, one year after her card was stolen, unable to open a bank account anywhere.

Another constituent, Mr Ravi Borra, contacted me last month on finding himself in a similar situation. He is an MBA student at Coventry university’s London campus. To support himself he has worked full time as a waiter at St Pancras station during his vacation. For that he received just over £1,000 for a month’s work, and he was paid by cheque. After paying that cheque into his bank account in good faith, he was contacted by his bank—again, it is Lloyds—which informed him that the cheque had been flagged as being fraudulent, his account had been suspended, and he had been registered on CIFAS. Like Miss Dolor, he cannot open an account elsewhere, and when he attempted to do so, he was told repeatedly that his application did not pass the qualifying tests. He filed a complaint with Lloyds in September, and was contacted by the fraud department a few days later and was told that, although it could not reopen his old account, it could set up a new account for him. Mr Borra was happy with that compromise. He received his PIN number and debit card for his new account, but the very next day he received a letter from Lloyds saying that

“recent risk assessment on your accounts has highlighted concerns and as a result we have taken the decision to close all the accounts you currently hold with us in two months time...in the meantime, I have placed a block on all your accounts which stop all transactions”.

Mr Borra finds himself in a complete nightmare. He did a month’s work for which he has received no payment. He cannot open a bank account. No one will tell him what is going on. He cannot even apply to extend his student visa and it seems that he may be unable to finish his studies.

Late yesterday, CIFAS told me that Mr Borra’s registration with it was cancelled by Lloyds last month, but no one has told Mr Borra that, and the new block on his new account was imposed after the deletion. He has told me today that he still cannot open an account anywhere, for reasons that are at the moment unknown. Lloyds says that it is simply complying with its obligation as a CIFAS member, but CIFAS says that when someone is registered with it, it cannot delete that data. The prerogative for doing so lies with its members—the banks—and the registration remains on the database for a minimum of one year. One year without a bank account seriously disrupts a person’s life. There seems to be nothing my constituents, who have not been accused of anything, can do to open a bank account and resume their lives.

The Minister will recognise that being without a bank account is a serious disadvantage and may mean not being able to start a university course or take up a job. People should not lightly or accidentally be deprived of the chance to have an account, but that is what seems to have happened in these cases. As far as I can tell, no one decided that my constituents should be denied the chance of having a bank account. Rather, actions by their bank triggered a response from the machinery that has been put in place, with the effect that they cannot have a bank account for at least a year. Surely that is too serious a sanction to allow it to happen by accident. Being denied a bank account is appalling for anyone, and contrary to Government policy. As we move towards the introduction of universal credit, this Government, like the previous one, are encouraging people to have bank accounts, but in arbitrarily closing accounts the banks are undermining Government policy as well as causing hardship to their customers.

I hope the Minister agrees that people such as those I referred to should not be treated in that way. Perhaps he can offer some hope that those who find themselves in that nightmarish situation may be offered a means of finding a way out.

16:17

[The Exchequer Secretary to the Treasury (Mr David Gauke)]

It is a pleasure to serve under your chairmanship, Mr Gale. I congratulate the right hon. Member for East Ham (Stephen Timms) on securing the debate.

I sympathise with the right hon. Gentleman’s constituents, whose experiences he described so vividly. He knows that it is difficult for the Government to comment on specific cases, but it is clearly unacceptable that individuals who have been victims of fraud—that seems to be the case that he set out—should be systematically denied access to a bank account. As far as I am aware, there is no legal or regulatory reason for this to happen.

As the right hon. Gentleman said, the consequences in this day and age of someone being denied a bank account are considerable, and I entirely agree with him that that should not lightly or accidentally be denied. It is worth making the wider point that the Government want to ensure that we improve levels of financial inclusion, as indeed did the Government in which he served with such distinction. We believe that banks should serve the economy, and we are committed to improving access to banking and the transparency of financial products for consumers.

Having access to appropriate banking services is an important element of modern life, and it can help to alleviate some of the problems faced by low-income families. A bank account enables individuals to make and receive payments through a variety of channels, have a more secure place to keep money and reduce the cost of household bills. The number of individuals without bank accounts has fallen in recent years, but the Government remain keen to see the situation improve further, and in particular to identify groups who may have specific difficulties in accessing a bank account.

While the situations described by the right hon. Gentleman are clearly invidious, it is not clear how many individuals are affected by this sort of difficulty. This is the first time that I have personally been made aware of this issue. As far as the Treasury is aware, it is not widespread. The right hon. Gentleman may have identified a growing problem that we need to look at. His industry and dedication as a constituency MP have highlighted not one but two cases that happen to have occurred among his constituents.

The issue falls within the remit of the Financial Secretary to the Treasury. He is not available to attend the debate, but he will be asking officials to investigate how this matter may have arisen and how many consumers may be affected. We will write to the right hon. Gentleman to explain the findings, and I am grateful to him for highlighting this particular issue. Clearly, we need to understand whether the problem is widespread.

The right hon. Gentleman set out four points, and I shall try to respond as best I can. I will take his first and third points together. He asked whether individuals should be informed if they are going to be denied a bank account and, if so, whether they should be provided with a reason. Those are eminently sensible and reasonable points. Consumers have the right to ask for a reason if they are denied a bank account, as set out in the Money Advice Service’s guide to bank accounts, which is available on its website. Consumers may also complain to the specific firm if they are unhappy with the outcome, and they can take their complaint to the Financial Ombudsman Service.

The decision to offer a bank account is ultimately a commercial decision. Current account providers are not obliged to provide a specific reason for not offering an account. However, it is worth highlighting the Financial Services Authority’s principle that financial institutions are required to treat their customers fairly, which is relevant in these circumstances.

The right hon. Gentleman questioned whether consumers should be denied a bank account where there has been no allegation of wrongdoing. Again, decisions as to whether to offer a bank account are a commercial matter for the financial institution concerned, and the Government do not intervene in such decisions. However, there is no legal or regulatory reason for victims of fraud to be denied a bank account. The circumstances that he set out appear to be of some concern.

The fourth question asked by the right hon. Gentleman was whether consumers should be given the opportunity to challenge the refusal of an account. If consumers are unhappy with the decision taken, they may complain to the specific firm concerned, and if they are unhappy with the outcome, they can take their complaint to the Financial Ombudsman Service. I reiterate the point that if a financial institution, or more specifically a bank, has been in breach of the FSA principle of treating customers fairly, the individual customer can raise that with the bank and with the Financial Ombudsman Service. If the explanation that is given to a customer is wrong—for example, if there is misleading information about how CIFAS works and its impacts—without wanting to be drawn too much into specific cases, it seems there is a case that the customer is not being treated fairly.

[Stephen Timms]

Part of the difficulty arose when the banks to which an application was made simply said to Miss Dolor, “You do not meet the criteria for an account.” I do not know whether that meets the terms of providing an explanation, but it clearly did not shed any light on the matter for her. If she had been told that she had been registered in such and such a way with CIFAS, she would have understood what was happening. The whole process was opaque. Does the Minister agree that some effort should be made to provide some illuminating information rather than a kind of stonewall response? It might meet the letter of the requirement, but in practice it does not help the customer at all.

[Mr Gauke]

I have considerable sympathy with the point that the right hon. Gentleman makes. Again, I do not want to be drawn into an individual case, but clearly it is not terribly helpful when the response may be technically accurate, but does not get to the heart of the matter. As he has set out, the individual customer, a member of the public, will be concerned if they find themselves in that most difficult of situations where they are being denied a bank account, but without any real understanding as to why. As in the cases that he has highlighted, an individual may go from bank to bank without being given any real indication as to why they are in that difficult position. In such circumstances, I sympathise with him and his constituents.

The Government want to ensure that everyone can access the financial services that they need to play a full part in society. I am grateful to the right hon. Gentleman for raising this issue in today’s debate. I assure him that we will consider the matter and investigate whether it is widespread. I want to assure him that it will be taken into account as part of the Government’s ongoing work to improve financial inclusion and access to bank accounts. He has rightly set out some of the difficulties that exist for individuals if they are not able to access a bank account. If the attempt to tackle fraud is working in such a way that the innocent are being punished, we need to address that by working with the FSA and the high street banks.

I reiterate my thanks to the right hon. Gentleman for raising the matter. My colleague, the Financial Secretary, will reply to him with further details after we have had an opportunity further to investigate the extent of the problem. If there is anything that we can do to address this matter, we are certainly keen to do so.

Planning Guidance (Northumberland)

Tuesday 15th November 2011 Westminster Hall

16:28

[Sir Alan Beith (Berwick-upon-Tweed) (LD)]

Thank you, Mr Gale, for chairing this debate. I am glad that the Minister is taking part. He and I have worked together on other issues over quite a long period. I am glad to have the opportunity to discuss the potential impact of the draft planning guidelines in Northumberland. My hon. Friend the Member for Hexham (Guy Opperman) would like to have taken part, but he is still taking part in the constituency boundary inquiry in Newcastle, at which I spoke yesterday.

I want to address three main questions in this short debate. First, does the guidance enable planning authorities to combine the protection of the countryside with the encouragement of those forms of development that local people need if they are to have affordable homes and jobs? Secondly, how does the guidance affect the strategic housing land assessment that councils have been required to carry out? Thirdly, how will it be applied to wind farms and wind turbines?

Quite a lot of my constituents have involved themselves through e-mail in the debate about the planning proposals, and some have clearly been concerned by fears that they will unleash a torrent of development in the countryside or strip away the protections that the countryside enjoys. Ministers have made it clear that the guidance does not reduce or dismantle the protection given to national parks, areas of outstanding natural beauty or the green belt—my constituency contains the first two of those. Instead, it embodies a principle that has always been part of the planning system: a person has the freedom to make use of his or her land unless there is good reason for the community to deny that right, such as the protection of landscapes, the conservation of historic buildings and areas, or the promotion of sustainability. I sometimes wonder, however, whether man-made landmarks that we know and love—Stonehenge, Blackpool tower, Kielder water, Lindisfarne castle, for example—would have received planning permission from some authorities.

The Government are right to get rid of much of the top-down structure and guidance that has grown up over the years. Regional spatial strategies have ludicrously restricted the number of houses that can be built in Northumberland’s rural villages, and regional strategy has created a presumption in favour of wind farms in many of the most attractive parts of my constituency. The objective of having a much shorter guidance manual is correct, but the Government must develop clearer wording around the concept of a

“presumption in favour of sustainable development.”

If they do not, Ministers and planning authorities will waste a lot of time and money in the law courts over the next few years, and the planning process will be subject to even more delays. People may feel that the dice are being loaded against them—I will return to that point.

When an organisation with such a distinguished record as the National Trust rings the alarm bell, Governments need to take notice. The trust is a major land and property owner in my constituency; it owns most of the village of Cambo, and much of Low Newton-by-the-Sea, as well as historic buildings that are great tourist attractions. The trust’s initial comments and those of the Campaign to Protect Rural England might have given the impression that people who live in and care about the countryside are against all development, but that has never been so. Indeed, the National Trust sometimes applies for planning permission for developments that it considers necessary to make the country houses it owns sustainable. Country people know that the countryside cannot be run as a museum. If they are to provide local services, local people need homes at prices that they can afford. Shops, pubs, churches and local transport need a resident population to sustain them; they cannot survive on weekend-cottage owners alone. Jobs are needed to stop rural depopulation.

During my time as a Member of Parliament—which, admittedly, is getting quite long; 38 years last week—I have seen a huge reduction in the number of houses inhabited full time by people who work locally. House prices, inflated by scarcity and the demand for second homes, are far beyond the reach of local people in rural Northumberland. I therefore welcome the wording in the guidance that, in rural areas, local councils should plan to meet the need for affordable housing and that some market housing should be allowed if it will provide more affordable housing for local people. Although I welcome the debate about protecting the countryside, I do not want it to lead to the Government adopting wording that would make it even more difficult to secure the housing and small business development that are essential to a sustainable countryside. Equally, I would not want anything to add to the feeling shared by some of my constituents that, even under the current system, the balance of power is in favour of large developers.

[James Wharton (Stockton South) (Con)]

I congratulate the right hon. Gentleman on securing this important debate; it refers specifically to a part of the world that is not too far from my own. He pointed out that many communities feel that they do not have enough control over developments. Does he agree that that is the case all too often? Many communities in my constituency are opposed to local developments—whether housing developments, wind turbines or any other sort of development—and feel that they have no power or voice under the old system.

[Sir Alan Beith]

Indeed, and I welcome the various ways in which the Government are trying to empower local people—for example, through local neighbourhood planning. Alnwick in my constituency is one pilot area for such a development. I genuinely welcome the Government’s attempt to bring more of the planning decision process to local people. Of course, some things in the planning guidance might work the other way, and I will address some of those issues.

As I have said, some people in my constituency feel that the dice are loaded against them in favour of big developers. In my area, there is the added issue of large, landed estates that are in a relatively powerful position and can consider their actions for the long term. They have many levers in their power, which people feel can sometimes make it difficult effectively to oppose developments that they do not like, or even to secure the appropriate balance of social housing in a development.

The Minister will know that I have experienced difficulty in getting a satisfactory answer to constituents’ concerns about the strategic housing land availability assessment and how it will relate to the presumption in favour of sustainable development—what a jargon-filled world we live in, between the SHLAA and the presumption, but that is what we must examine. If the SHLAA is just a developer’s wish list and does not change the designation of land or the way that planning considerations are applied, it will not be a problem.

Experience of a recent case in Berwick, however, has created the fear that the SHLAA listing, which the planning authority agreed to without first consulting English Heritage, could override important archaeological and landscape considerations in future planning decisions. An extremely sensitive site close to the Royal Border bridge and castle was included in the draft SHLAA, although the heritage and landscape factors were not listed in the assessment. That has left local people feeling that, should the area ever be the subject of a planning application, the dice would already be loaded because relevant factors had been set aside by the site’s original inclusion in the land assessment.

There is also concern that, in many places, local development plans do not exist, have not been finally agreed to, or have not been updated. That could lead to a disregard of relevant planning considerations for sites included in the SHLAA list, or to the presumption in favour of sustainable development overruling conservation, landscape or other considerations. What assurance can the Minister give to localities that do not have an approved up-to-date local plan?

Finally, I will consider wind turbines and wind farms. Large parts of my constituency, which is characterised by beautiful countryside and stunning views, have been designated as suitable for onshore wind generation. Some parts, such as the national park, although not the adjoining areas, have been excluded. The result is an avalanche of applications for the rest of the area, some of which encircle communities such as Wingates, a hilltop village near Rothbury. In the borders region, 250 turbines have been erected and 600 are in the planning process. Northumberland has granted permission for three wind farms, and a further 10 have been approved by inspectors on appeal. The planning authority needs to be confident that it is free to make sensible, careful and robust decisions about which sites to approve and which to reject. Opinions are, of course, divided over individual wind farm sites and about the general policy of wind-farm development.

[James Wharton]

The right hon. Gentleman refers to the need for local councils to have a genuine framework of accountability through which they can influence applications for wind farms. In Northumberland, the Conservatives have called on the county council a number of times to look at the introduction of a policy that will make it clearer, for both applicants and residents who are concerned about potential developments on their doorsteps, what the framework in that area should be and what is, or is not, permissible. Does he believe that to be a possible way forward, and would he support such a position?

[Sir Alan Beith]

I will go on develop the case in my own way, and the hon. Gentleman will see how I think that we should handle it. His intervention is relevant to my point because, although there are many divided opinions, they do not divide along party political lines. He mentioned the Conservative party, and in Northumberland there are applications to place a turbine on a site belonging to the Conservative leader of Northumberland county council and for a wind farm to be put on land owned by the hon. Member for Stroud (Neil Carmichael). Enthusiasm for renewable energy and wind farms, and concern about them, stretches across the parties.

In such a highly-charged debate, we must know what the new planning guidance will mean. It could be argued that a wind farm or wind turbine is, by definition, a sustainable development because it produces sustainable energy without carbon or non-renewable resources. If that is combined with the existing designation of some larger areas as suitable for wind farms, does the presumption in favour automatically come into play? We need to clear that up, because if it were so, the planning process would break down. The planning authority would be left powerless to make sensible decisions about the suitability of a site, its cumulative impact in the light of other approvals, landscape issues, wildlife protection or proximity to residential developments. The planning authority would fear losing every appeal against refusal, at considerable cost. Therein lies one of the problems with the suggestion made by the hon. Member for Stockton South (James Wharton). If the planning authority devises a framework that is more restrictive than the regional framework to which it is already subject and then loses its cases on appeal, we are no further forward.

Let me consider, as I have referred to it, the proximity to residential properties. The planning guidance is a missed opportunity to write in a national presumption against close proximity to residential properties for large or multiple turbines. The Government have not looked favourably on the relevant private Member’s Bill promoted by the hon. Member for South Northamptonshire (Andrea Leadsom). They should reconsider the issue to give people some reassurance, not about small turbines designed to provide electricity for a house or farm, but about large installations built very close to residential property.

The Minister must make it clear that what I have described in respect of the presumption in favour of sustainable development will not have the effect that I have suggested—that that is not the Government’s intention. Even within areas designated as suitable for wind farms, there should be no non-rebuttable presumption. Planning authorities will be seen as a waste of space if they do not have the freedom to control the rush to find and develop wind-farm sites in which so many developers are competing. My constituents will rightly be angry if the planning authority is unable to take into account historic views of Holy island, Bamburgh and the Cheviots, or any of the other factors that I have mentioned, including wildlife protection and closeness to residential property.

There are a great many applications in my constituency, and that has introduced a new and rather worrying element, to which I want to direct the Minister’s attention. One developer, which has applications in relation to the Elsdon area and the area north of Belford—two separate applications relating to different parts of my constituency—somehow managed to give residents in Elsdon the impression that, although there would be some funds for community benefit if the scheme went ahead, there would be a lot more if they did not oppose it and there was no need for an appeal or an inquiry. It would not be acceptable for the planning process to be distorted by people being pressured to forego their right to express their point of view. Needless to say, it did not have that effect. When the people affected thought that that was what they were being told, they reacted in a pretty hostile way. It certainly did not bring them round in favour of the proposal. However, that would be a very unwelcome development in planning matters.

Some people do not like community benefit at all. I accept that if a scheme—whatever the development—goes ahead and has potentially detrimental effects on an area, or if it would be more acceptable if other things were done at the same time, developers should be encouraged to provide those benefits to the community. However, their scale should never be conditional on whether the planning process has been allowed to go ahead in the normal way or has been curtailed by people feeling that somehow they would lose out if they pursued their objection.

We want to protect the very special beauty of our countryside from the threat of inappropriate or badly sited developments, whether wind farms or other kinds of development. We need the power to make local decisions. We want to maintain a living countryside that welcomes the homes and jobs that are needed if the countryside is to be sustainable. The result of the debate about planning policy needs to be a system in which local people play a crucial part not only in helping to shape their area, but in keeping it as one of living communities whose beauty and grandeur are protected for future generations.

16:44

[The Parliamentary Under-Secretary of State for Communities and Local Government (Robert Neill)]

It is a pleasure to speak under your chairmanship, Mr Gale. I congratulate my right hon. Friend the Member for Berwick-upon-Tweed (Sir Alan Beith) on securing the debate, which I know is important both to his constituents and more generally. I am delighted to be doing business with him again in a Committee Room of sorts. Our roles today are slightly different from our previous incarnations in the Select Committee on Justice.

I shall try to deal with the important points raised by my right hon. Friend. He has made powerful points in the context of his constituency and its surrounding county. In a wider context, there has been a positive and constructive debate on matters of planning policy in relation to the Localism Bill and in other debates in both Houses. I welcome the opportunity to debate those matters further.

I am pleased that my right hon. Friend recognises, fairly, that there is a pressing need for reform of national planning policy. The system has grown unworkably complex, with more than 1,000 pages of national planning policy and at least a further 6,000 pages of guidance. The complexity of that system slows down decision making and frustrates the sustainable growth that the country needs, such as new homes for young families struggling to put together a deposit and new jobs to breathe fresh life into local economies. He correctly recognises that that applies in rural areas as much as in towns and cities.

A streamlined framework focusing on key priorities will be more accessible and transparent. In the future, anyone who wants to understand the principles informing how decisions are made will be able to do so. That is important, as polling evidence suggests that many people feel cut off from the planning system because it is too complex. They do not feel able to find their way through it. They feel that they are unable to understand or to influence. If the system is not intelligible to the intelligent and well-informed citizen, it is not delivering on one of its key purposes.

It is important to get this right, because planning is a very important tool. It is how we create communities that work and, as my right hon. Friend said, places that we are proud of, and it is how we lay the foundations for business. Also, and very importantly, it exists not only to protect, but to enhance our green spaces, parks and countryside for our enjoyment today and for generations to come.

Let me make some remarks on the specific issues that my right hon. Friend helpfully raised. I am sure that you, Mr Gale, and other hon. Members will understand that I am constrained in what I can say today, given that we are engaged in considering the large number of responses—some 14,000, as I recall it—that we have received to the consultation. Of course, we need to give all the responses careful attention and avoid any impression of pre-empting the outcome of the consultation.

We have heard concerns expressed about the effect of the proposed presumption in favour of sustainable development on local areas, whether that is my right hon. Friend’s rural Northumberland or urban areas. Some of those concerns—I exempt my right hon. Friend’s observations from this entirely—have been very wide of the mark. Joseph Harper, QC, editor of the “Encyclopedia of Planning Law and Practice”, has said that much of the criticism is ill informed. However, that does not mean that there are not genuine concerns, which I hope that the Government will be able to allay.

We want to ensure that planning is a positive process that reflects the needs of each area and to emphasise the central and critical role of the local plan in decision making. We want local authorities to be responsible for deciding what housing and other development they need and where it should go without the sort of top-down, unpopular targets that were imposed on them under the previous Government’s regional strategies. We want that development to be plan-led. Indeed, the proposed new system does not undermine the concept of the plan and enhances its importance.

What the presumption says, in layman’s terms, is quite simple: locally prepared plans should set out what is needed in each area, development in line with those plans should be approved without delay, and in the absence of an up-to-date plan, the policies in the draft national planning policy framework, including its requirement for development to be sustainable, should guide decisions.

My right hon. Friend raised a concern about irrebuttable presumptions. I assure him that that is not the case. Like any legal presumption, the presumption is rebuttable by evidence, which is a basic legal tenet. In this context, the best evidence to rebut a presumption will be the existence of an up-to-date local plan that deals with the issues raised by the development in question.

[Sir Alan Beith]

I want the Minister to take into account the situation in Northumberland, where the county planning department took over from six district councils, some of which contained significant areas that were not the subject of a developed or agreed local plan. In these times of straitened resources, getting the structure of local plans fully completed and agreed in every place will take some time. We may need some kind of transition period before the principle can operate in quite the way that he has suggested. Will we not have a situation where some factors are not properly examined, because there is no local plan governing the situation?

[Robert Neill]

I take my right hon. Friend’s point. I am sure that he will have noticed that the Minister with responsibility for decentralisation, my right hon. Friend the Member for Tunbridge Wells (Greg Clark), recognised that point in the debate that we had in the House recently. I cannot pre-empt our response to the consultation, but I reassure my right hon. Friend the Member for Berwick-upon-Tweed that his point is particularly well heard by the Government. The Minister with responsibility for decentralisation has indicated that we will look to provide suitable transitional arrangements for local authorities in such circumstances, including the local authority of my right hon. Friend the Member for Berwick-upon-Tweed.

Against the background of the importance of a local plan, the onus is put on democratically produced local plans to identify and provide for the needs of each area. Plans must be based on evidence and be deliverable, or they will not have the confidence of the community or of investors, who might need to be brought into the area.

On housing, plans must, as is the case now, reflect the local housing based on a strategic housing market assessment and the availability of suitable land, which is set out in strategic housing land availability assessments. SHLAA, as they are often referred to, do not allocate land for development, but inform decisions on land allocations to be taken through a local plan. They form part of the evidence base. Policy restrictions such as landscape designations and the potential impacts of development on the landscape are identified through the assessment. Sites are chosen for development in the local plan and are subject to full consultation with statutory consultees and the public through the local plan process. None of that is undermined in the new system.

[Sir Alan Beith]

That is a key point on which I want to press the Minister. If the assessment has been carried out in a way that fails to address some issues, such as landscape, is there any proper mechanism by which it can be reintroduced when a planning decision has to be taken?

[Robert Neill]

Ultimately, each planning application has to be addressed on its merits and the relevant material considerations and policy. The plan is one of the principal material considerations in a case, but the existence of, for example, designations that are consistent with national policy or other impacts can always be taken into account. There is a classic dictum by Lord Clyde in the House of Lords on such matters, which states that the weight to be placed on any material consideration is a matter for the decision maker. Again, that has not changed. Obviously, the weight that each material consideration carries will vary from case to case, but that is the whole point of the system. I assure my right hon. Friend that such issues are not shut out by the process.

The natural environment is an important part of the process. We pay great attention to the safeguarding of the natural and historic environment. Under local plans, communities can shape development in an area to reflect what is important locally, which includes special landscapes or the character of villages. Again, the best protection, making allowances for the transitional arrangements that I have referred to, is to get a plan in place, which can reflect precisely the points raised by my right hon. Friend.

Although we recognise that we need jobs and homes for young people and opportunities for businesses to expand, that will not be at the expense of our natural and historic environment. The draft framework sets out the Government’s thinking on how the planning system should safeguard the environment while providing for sustainable growth. The national planning policy framework maintains designations for the green belt, areas of outstanding natural beauty, national parks, sites of special scientific interest and other designations that protect the character of our country’s landscape, stop unsustainable urban sprawl and preserve wildlife. We are going further on that, because we will introduce a new local green space designation through the NPPF. It will enable communities to identify green areas of particular importance to them for special protection. That might be a key green in a village or a market town, as well as in a major city.

If we are going to protect the environment, it is important that we use land effectively. That is why the draft framework clearly states that

“plans should allocate land with the least environmental or amenity value.”

That means using derelict land when considering where to develop. We want developers to reuse derelict land, if that is the most appropriate course of action.

We also want to respect the historic environment. It is a non-renewable resource, and its conservation is integral to sustainable development. I reassure my right hon. Friend that we are committed to ensuring that the framework will maintain the existing protection, as set out in planning policy statement 5 for the historic environment, and we are looking carefully at the specific wording in the NPPF.

My right hon. Friend mentioned wind farms. Residents will have greater choice than ever in that regard through their local and neighbourhood plans—neighbourhood plans are a key part of the system, too. The plans will enable them to decide the look and feel of the places that they live in and love, while making sure that genuine larger-than-local objectives are met, such as protecting the natural environment, supporting sustainable local growth and combating climate change. I appreciate that proposals for wind farms can be controversial, but onshore wind, along with other renewables, has an important contribution to make to our energy mix and to reduce the pressure on consumer bills. However, that is not and should not be any excuse for building wind farms in the wrong place. The draft framework does not give a green light to all development proposals.

Whatever the class of development, decisions will continue to be plan-led. Plans will continue to set out what would be unacceptable, and they will be underpinned by the environmental safeguards in national planning policy. I believe that our new planning policies will ensure that communities and their environment are protected from unacceptable developments.

The consultation is closed, and I have indicated the steps that we are taking to consider it. As well as the written consultation, we held 11 regional workshops, including in the north-east. We have had wide engagement with organisations across the spectrum, including those referred to by my right hon. Friend, and I am glad to say that there has been good progress. We are finding unlikely bedfellows—property developers and environmental groups—sitting down and talking together to find common ground on how we go forward.

I hope that I have given my right hon. Friend and his constituents a renewed assurance on the transitional arrangements and the importance of historic and other environmental protections, and reassured them that the new planning policy framework is an opportunity, not a threat. I look forward to working with him again to see how we can take the framework forward as it is translated into a final document.

Question put and agreed to.

16:59

Sitting adjourned.