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Backbench Business
British-Irish Parliamentary Assembly
(12 years, 6 months ago)
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Mr Speaker
Before I call Mr Laurence Robertson, let me point out that the debate is heavily subscribed and I have therefore imposed a five-minute limit on each Back-Bench contribution after that of Mr Robertson.
Mr Laurence Robertson (Tewkesbury) (Con)
I beg to move,
That this House has considered the matter of the work of the British-Irish Parliamentary Assembly.
I thank you, Mr Speaker, and the Backbench Business Committee for this opportunity to discuss the work of the British-Irish Parliamentary Assembly, which I shall refer to as BIPA. I also thank my right hon. Friend the Minister and other right hon. and hon. Members for attending the debate—the good turnout demonstrates that the work of this body is recognised.
BIPA was started in 1990 as the British-Irish Inter-Parliamentary Body to foster a common understanding between the bodies represented on it. It has 68 members, including 25 from both Houses of the UK Parliament, 25 from both Houses of the Irish Parliament, 15 from the United Kingdom’s devolved institutions, and one member from each of the Isle of Man, Jersey and Guernsey, so a wide area is well represented.
A parallel body at ministerial level, the British-Irish Council, was set up in 1998, and at this stage it is appropriate for me to say that BIPA seeks closer links with that body. BIPA holds two plenary sessions a year, one in the UK and one in Ireland. The 44th plenary session was held in Dublin between 13 and 15 May, and, not for the first time, it was attended by the Taoiseach. In addition, all members present were welcomed to the President’s official residence at Phoenix park by Mr Michael D. Higgins, the President of Ireland.
I would like to quote from a speech made by the Taoiseach to BIPA:
“I know from my own time as a member of the association the importance of the work of BIPA. Now that I am Taoiseach, I can see very clearly the contribution you continue to make in support of peace, prosperity, reconciliation and political friendships and understanding between these islands.”
A strong commendation indeed. The Taoiseach referred to the importance of British-Irish relations, and his sentiments are borne out by the facts, especially with regards to securing the peace in Northern Ireland and trade.
The UK is by far Ireland’s biggest export destination and, in turn, Ireland is the UK’s fifth largest export market. As the Prime Minister has said on many occasions, we export more to Ireland’s 4.5 million people than we do to the third of the world’s population in China, India, Russia and Brazil. That important statistic is rather worrying in some ways, and I suggest not that we reduce our trade with Ireland, but that perhaps we should try to increase it to further corners of the world. Even in recent times of economic difficulty in 2010-11, trade between Ireland and the United Kingdom actually increased.
Issues such as trade were discussed at the plenary session in May by a number of speakers, including senior executives from Glen Dimplex, Greencore and GlaxoSmithKline, and the importance of trade links was referred to by the Irish Finance Minister. The plenary session also heard from the Irish Minister for Transport, Tourism and Sport, who referred to the fact that 600 passenger and freight services and 60 air routes run between the UK and Ireland every week, resulting in 2.9 million British visitors to Ireland last year alone. Those are startling statistics.
The Irish Health Minister told the plenary session that Ireland is looking to learn from the UK’s experience of health care. We heard from Darina Allen from Ballymaloe cookery school about good healthy food, and from Dr Maurice Manning on the importance of correctly handling the decade of centenaries that we are now in.
Interestingly, the plenary session also approved a motion by the right hon. Member for Torfaen (Paul Murphy), a former co-chair of BIPA, which expressed concern about the proposal to close RTÉ’s offices in London. I hope he will raise that matter in a few minutes if he catches your eye, Mr Speaker. Finally, the work of the four sub-committees—on sovereignty matters, European affairs, economic affairs and environmental and social affairs—reported to the plenary session. I thank committee members for their work in preparing reports on important issues, not least one on flooding, which is an issue close to my heart, given that I represent Tewkesbury.
Chris Ruane (Vale of Clwyd) (Lab)
I thank the hon. Gentleman for giving way and for his assiduous activities as co-chair. Does he believe, like me, that we need to take the sub-committee reports further in Parliament and the devolved Assemblies? A lot of hard work has gone into them, but perhaps more action should sometimes come out of them.
Mr Robertson
I thank the hon. Gentleman for his very good intervention. Developing close relationships with the British-Irish Council would be a start, and we could report to that body about the assembly and sub-committee’s work. I wanted this debate to highlight the existence of BIPA and its work. There is a long way to go to get the Government to take on board what we are doing, but at least this is a start—the Minister is here and listening—and I certainly think the hon. Gentleman makes a very good point.
The plenary session was expertly arranged by the Irish members and secretaries. In particular, I pay tribute to my co-chairman, Joe McHugh TD, who is a skilled, dedicated and helpful co-chairman, for all his work and the support he gives me as a relatively new co-chairman. The legendary Irish hospitality was also on full display at the plenary session, as I am sure everybody can imagine, including at the President’s house. The Irish take BIPA very seriously, as was reflected in the Taoiseach’s speech that I read out earlier, but there has been suspicion and concern in the past—this is no reflection on the work done by my predecessors and previous BIPA members—that it is not taken quite as seriously on the British side. That is one reason I wanted this debate and why I am so pleased to have secured it. We are striving to match the enthusiasm and commitment of the Irish, and we will hold the 45th plenary session, from 21 to 23 October, in Glasgow. We look forward to going there. I said that there had been a trade or economic theme to the plenary in Dublin, and we hope to follow a similar line in Glasgow, when I am sure we will be treated to many interesting lectures and discussions about some of the products we might find in Scotland.
I would like to thank our staff on this side of the Irish sea, Robin James and Amanda Healy, for their hard work in putting all the meetings and everything else together. Without their help, we could not hold the meetings. We will be visiting Dublin next week for steering committee meetings, and on Monday we will discuss how we might move things forward, including how we might bring to the Governments’ attention the work of the steering committees, as was mentioned earlier.
Some people consider BIPA a talking shop, but, given the history between the two countries, particularly the terrible experiences in Northern Ireland, I would suggest that talking is extremely important for relations with Ireland and within Northern Ireland. Had we not had people talking in the past, we would not have achieved the relative peace we have in Northern Ireland—I say “relative”, because challenges still lie ahead. Just last night on “Newsnight”, there was a harrowing report about some activities in parts of Northern Ireland. There are people who want to wreck the peace process and return to the bad old days, so I would suggest that if BIPA is a talking shop, it is a very useful talking shop, because it enables us to get together with people who perhaps have different views and aspirations, but who all agree that democracy and talking to each other are the way forward.
As many people in Ireland said and continue to say, relations between our two countries are at an all-time high. I was greatly privileged last year to be in Ireland for part of Her Majesty’s visit, and I have to say it was an awesome visit. The success of the visit, of course, was down to Her Majesty’s enormous dedication and extraordinary talents, but it was also down to the extremely warm welcome and wonderful preparations on the Irish side. It really cemented relations to an extent that had not been seen before. We look forward to future relations with Ireland. If BIPA has made a contribution to the development of peace in Northern Ireland and the close relations between the UK and Ireland, I am pleased to be part of that, and I pledge to work as hard as I can to help steer the organisation in the right direction.
I do not want to speak for any longer, because several Members wish to speak, but I want again to thank you, Mr Speaker, and the Backbench Business Committee for allowing us the time to debate this issue and to bring to Parliament’s attention this body’s work and to report the news of its most recent activities.
Mr Speaker
The right hon. Member for Torfaen (Paul Murphy) will also have 10 minutes in which to speak.
Paul Murphy (Torfaen) (Lab)
I am grateful for this opportunity to speak and to follow the hon. Member for Tewkesbury (Mr Robertson), who is doing a very good job as the co-chair of this important assembly. The Backbench Business Committee should be congratulated, because this is the first time in 22 years that the assembly’s work has been debated on the Floor of the House of Commons. It is none too soon, because the assembly, formerly known as the British-Irish Inter-Parliamentary Body, has played an enormous role in the development of peace in Northern Ireland and in relations between Britain, Ireland and, in more recent years, the devolved Parliament and Assemblies.
My own involvement, first as co-chair of the body and then as a Northern Ireland Minister, goes back to 1998, when I addressed the body in Dublin not long after the Good Friday agreement was signed. The hon. Gentleman rightly pointed to the body’s work from 1990 to 1998, and he was right that it was a talking shop, but before 1990 there was no talking. The whole purpose of the body was to bring together parliamentarians from London and Dublin to break the ice in the hugely tense relations between Britain and Ireland at the time. If Members cast their minds back to the 1990s, they will remember some very difficult occasions, and harrowing and dreadful events, that had to be dealt with, but, in all those years, the body stuck it out, talked together and went to sessions in Britain and Ireland to deal with those enormous issues. The assembly, whose first chair was Peter Temple-Morris, certainly did a tremendous job in helping to bring about peace in Northern Ireland.
The assembly has taken on a unique new role in recent years. Although it is called the British-Irish Parliamentary Assembly, it brings together parliamentarians from the devolved Administrations—from Edinburgh, Cardiff and Belfast—and from Guernsey, Jersey and the Isle of Man. That is an important development, because no other body in these islands brings together parliamentarians from all those different Administrations and jurisdictions. And it has proved very successful. Best practice is shared between parliamentarians, and meetings are held between members of the assembly, whether formally or informally, right across all the islands represented.
A welcome feature over the past few years has been the involvement of the Democratic Unionist party. Over the last number of years its members, as well as members of the Ulster Unionist party, have played an enormous role in bringing forth the case for Unionism in the British-Irish Parliamentary Assembly. The Social Democratic and Labour party—and, indeed, Sinn Fein—have been members of the assembly for many years as well. It is that enormous wealth of experience of parliamentarians from right across the islands that has made the body completely different from any other.
Members may recall that the peace process in Northern Ireland was divided into three—just like Caesar’s Gaul. The third strand of it was east-west relations—the relations between Dublin and London. What was envisaged—and what is now in existence—was a parliamentary aspect to that, namely the British-Irish Parliamentary Assembly, but also, as the hon. Member for Tewkesbury has said, the British-Irish Council, which represents the Governments of Britain and Ireland and the devolved Administrations. There is, in my view, room for improvement in relations between the British-Irish Parliamentary Assembly and the British-Irish Council. They both deal with similar issues—relations between our different countries. I hope that the Government will look seriously at how the British-Irish Council will deal with BIPA in years to come—I also hope that the Minister will refer to that in the wind-up. When I was a member of the British-Irish Council, I addressed the assembly on the very issue of improved relations. I admitted then—and I still believe—that there is certainly room for improvement.
I wish to conclude on the issue of RTÉ and the presence of that important television and radio company here in Britain. For many years now it has had a significant presence in Westminster. RTÉ proposes to close down that presence because of the enormous financial pressures that it is under. I understand that, but members of the assembly have debated the issue in Dublin and an early-day motion has been tabled here in the House of Commons. It is our belief that RTÉ should still have a presence here in Great Britain, albeit not necessarily in its current form. It could be, for example, that RTÉ might share an office with another television or radio company, just as the BBC does in Dublin. However, given the continuing importance of British-Irish relations, the enormous significance of the Irish diaspora here in Great Britain, the fact that tens of thousands of British people work in Ireland and the political importance of the relationships between these islands, it is important that RTE should retain its presence here. I hope that the Minister and the shadow Minister will be able to comment on that important issue as well.
The British-Irish Parliamentary Assembly has been a tremendous force for good in the last 22 years. It has certainly helped to improve the peace in Northern Ireland. It has brought together politicians from wide and disparate backgrounds, which, more recently, has meant that it has become a forum for parliamentarians from the devolved Administrations as well. It has gone from strength to strength. I am delighted that we have had the opportunity to address this important issue today in our House of Commons.
Mr Robert Walter (North Dorset) (Con)
It is a privilege to follow the right hon. Member for Torfaen (Paul Murphy), who has served both as the British co-chairman and as the Secretary of State for Northern Ireland. I congratulate my hon. Friend the Member for Tewkesbury (Mr Robertson) on securing this debate. I say that for a number of reasons, one of which has no relation to British-Irish relations. This debate sets an important precedent for this House, because there are a number of parliamentary bodies on which Members are represented, but about which we hear very little in the Chamber, such as the Parliamentary Assembly of the Council of Europe, the Parliamentary Assembly of the Organisation for Security and Co-operation in Europe and the NATO Parliamentary Assembly, as well as the Inter-Parliamentary Union and the Commonwealth Parliamentary Association. I hope that we can perhaps prevail upon the Backbench Business Committee to consider those bodies as subjects for debates in this House as well.
I pay tribute to two former Members of this House for the work they have done on the British-Irish Parliamentary Assembly. We have already heard about Peter Temple-Morris—Lord Temple-Morris—who was the founding co-chairman on the British side. He is to be commended. I would also like to mention a former Conservative colleague, Michael Mates, who, through all the years of the Conservative party being in opposition, was the British co-vice-chairman—a post I now hold—on the Conservative side. He certainly made it his job to rally Conservative Members to participate fully in the assembly.
The interesting thing about those two, and about my hon. Friend the Member for Tewkesbury and me, is that our links with Ireland are very tenuous. We cannot claim family links, through grandparents or great-grandparents, but we share a belief that if British and Irish people talk together, many of the problems that have been seen to divide us can actually unite us. In these islands the British and Irish people share history, economic links, a language, a legal system and culture. All that was brought together in the recent visit by Her Majesty the Queen to Dublin. I hate—I always have, and I think everybody in this House would too—the IRA and what it brought about, but it had a view that was shared in Dublin and by most Irish people. Although I have the greatest of respect for nationalists, whether they are Irish nationalists, Scottish nationalists or Welsh nationalists, I think they are wrong. However, I admit that in a democracy they must be able to present their views, and that is absolutely right. However, there is more that unites us in these islands than divides us.
I chair the European affairs committee in the assembly. We have recently produced reports for the assembly on EU migrant workers, a problem that both jurisdictions have had to cope with in the economic downturn. We have looked at other European Union policies, in particular, some of the EU’s regional policies, whereby apparently disparate regions in different countries have come together to find economic solutions. We are currently looking at the implications of the European convention on human rights in all our various jurisdictions.
I think we do tremendous work, but I want finally to make a plea to the Minister. I feel that the east-west dimension, which includes the British-Irish Council and the British-Irish Parliamentary Assembly, should work much more closely together.
John Robertson (Glasgow North West) (Lab)
Let me say what an honour it is to follow the hon. Members for Tewkesbury (Mr Robertson) and for North Dorset (Mr Walter) and my right hon. Friend the Member for Torfaen (Paul Murphy). Let me also congratulate the hon. Member for Tewkesbury on securing this debate.
I am vice-chair of committee C in the assembly, which deals with the economy, a subject that is—if I said “popular”, that would probably not be the right word, but it has certainly had a lot of attention focused on it. I hope that both Governments will look at, and take on board, our recent report on small and medium-sized enterprises and the problems they are experiencing. It was an excellent report, and we are going to look at credit unions next.
As my right hon. Friend the Member for Torfaen said, the next plenary session will be in Glasgow. I can assure him and all those attending from this and other Houses that they will have an excellent time. I know that those who practised drinking Irish whiskey will be looking forward to the real thing, so I invite them to try it when they come to Glasgow.
One thing that has come out of what has been said so far is the fact that the United Kingdom and Ireland have never been so close. Her Majesty the Queen had a lot to do with that. I believe that her visit signalled a togetherness that was not there before and that a lot of hatreds were buried that day when she set foot on Irish soil. The people of Ireland took her to heart, and it has been said many times since how much they appreciated her going there. The visit will have a lasting effect on the relationship between this country and Ireland.
The Irish nation has had a great influence on the west of Scotland. More than a few people came over during the potato famine and other sad times in Ireland. My own grandmother came from Ireland, although, sadly, I never had the opportunity to meet her and find out her story. That is my loss, and I need to bear it. There are many people of Irish descent in the west of Scotland, and the rivalry is still there between those on either side of the divide, although not to the same extent that it once was. We live as one nation these days and get on together a lot better. I believe that that is because of the relationship between Ireland and the United Kingdom. The leadership that has been shown by both Parliaments has had a lasting and increasing effect, on both sides of the Irish sea.
The need for co-operation has never been so great, particularly in times such as these. I say that as one who is involved with the BIPA economic committee. Ireland is important to this country, and we are important to Ireland. It is only right, therefore, that we should have mutual respect for each other and a mutual desire to work with each other. I believe that that co-operation will become even greater in the years to come, and that, as we come out of recession, there will be opportunities on both sides of the Irish sea to build up those relationships even more.
I look forward to a time when BIPA is not only taken for granted but looked at and listened to in the same way as other such bodies throughout the world are looked at and listened to. We have brought forward a lot of good ideas and put many good reports to both Parliaments, and I look forward to seeing the Government’s response to our report on small and medium-sized enterprises. It is remarkable that the problems affecting those over the water in Ireland are so similar to the problems in this country. We are similar, we are the same people and we speak the same language. We in Scotland certainly hold Ireland very dear. We have more than a little respect for the country and many of us regularly take holidays there. It is important that the British-Irish Parliamentary Assembly should go forward, for the benefit not only of this House but of the Irish people.
The Minister of State, Northern Ireland Office (Mr Hugo Swire)
I congratulate my hon. Friend the Member for Tewkesbury (Mr Robertson) and the right hon. Member for Torfaen (Paul Murphy) on securing the debate. They are, of course, current and past co-chairs of the British-Irish Parliamentary Assembly, and I am pleased to recognise their individual contributions to that important institution.
My own history with the British-Irish Parliamentary Assembly—and the British-Irish Inter-Parliamentary Body, as it was—goes back some considerable time. I attended a plenary session in Cork as long ago as 2004, when I was a member of the Northern Ireland Affairs Committee under the chairmanship of the then right hon. Member for East Hampshire, Michael Mates—whom my hon. Friend the Member for North Dorset (Mr Walter) has mentioned—who also sounded out whether I would like to become an associate member of BIPA, which I subsequently did.
My hon. Friend the Member for North Dorset mentioned closer co-operation. I understand that the new British-Irish Council standing secretariat, established in January 2012 in Edinburgh, has met the BIPA secretariat to discuss the implementation of the various areas for improvement. I hope that my hon. Friend will welcome that as a constructive move forward. The right hon. Member for Torfaen asked about RTÉ, a matter that concerns us all. RTÉ is an independent broadcaster, and it must make its own decisions, so I cannot comment further on that.
Relations between the British and Irish Governments and the levels of political stability in Northern Ireland have greatly advanced since the time I attended that meeting in Cork. We are a world away from the situation in 1990 when the British-Irish Inter-Parliamentary Body was established to provide a forum for parliamentarians based in Westminster and Dublin to discuss areas of mutual concern. We can all reflect on those changes and welcome them wholeheartedly. At that Cork meeting in 2004, most of the proceedings were taken up by discussions on the prospects for arms decommissioning and the need for all the main Northern Ireland political parties to enter into talks.
BIPA played an important role in developing understanding between parliamentarians from the United Kingdom and our colleagues in Ireland in those years, as the right hon. Member for Torfaen reminded us. It was set up to get people to talk, when they were not doing so. It is worth remembering that, as we consider BIPA today. At a time when getting together to talk was a huge step for some of the Northern Ireland parties, members of BIPA talked and explored ways in which progress might be made. BIPA’s subsequent expansion in 2001 extended the desire to gain mutual understanding of each other’s positions to the Northern Irish and Welsh Assemblies and to the Parliaments of Scotland, Jersey, Guernsey and the Isle of Man.
It might be difficult or impossible to quantify properly, but none of us should doubt the value of BIPA. The Secretary of State has been an attendee at several plenaries now. I share his enthusiasm and look forward to attending again. Perhaps even more important are the opportunities for building relationships offered by talking long into the evenings at BIPA gatherings. As here at Westminster, having contact in—I shall use a euphemism—a relaxed environment with those whose views we think we oppose often reveals more shared insights than we realise. That was certainly my experience over several pints in Cork. I would not seek to emulate the record of my right hon. Friend the Member for Richmond (Yorks) (Mr Hague), but I remember drinking a fair few on that occasion. At that Cork meeting, our main concern was that the Northern Ireland Assembly should get up and running again. In 2004, it was two years into a five-year suspension. Many issues in Northern Ireland remain to be resolved, but we are much further on than we were.
It is instructive to note that the most recent BIPA plenary was taken up not by Northern Ireland politics but by consideration of the deepened understanding and co-operation between the British and Irish Governments, and of the commitment given by the Prime Minister and the Taoiseach in March to explore ways of enhancing that relationship even further.
I listened with interest to the hon. Member for Glasgow North West (John Robertson) when he talked about the recent BIPA reports that he had been involved in, and about the large number of people from Ireland who live on the west coast of Scotland. I can attest to that fact, as the former Conservative and Unionist candidate for Greenock and Inverclyde in the 1997 election. I fought Greenock and Inverclyde, and they fought back. They won. Among the many people of Irish descent associated with Scotland is that great actor, Sir Sean Connery, who resides in the Bahamas and supports Scottish independence from there. It is a nice warm place from which to do it. I believe that his grandparents came over to the west of Scotland from Ireland.
The activities of the recent BIPA plenary built on the historic visit by Her Majesty the Queen to Ireland last year. At BIPA in Dublin last month, the Taoiseach called that visit “ground-breaking”. That is only one of many superlatives used to describe the event when it is mentioned. When we discuss the current state of British-Irish relations, it is mentioned often. As we continue to celebrate Her Majesty’s diamond jubilee year, I want to acknowledge again her personal contribution to our relationship with our nearest neighbours.
I look forward, along with the Secretary of State, the First Minister and others, to welcoming Her Majesty to Northern Ireland next week. I know that that welcome will be extended by many thousands of people from across the community. Indeed, we heard earlier this week that the supply of 10,000 tickets being distributed to members of the public by Ticketmaster had been exhausted within six minutes. Those answering the telephones at the Northern Ireland Office, who have been more used to press inquiries over the years about one political development or another, have been besieged by people wanting to know how they too can join in the celebrations on the Stormont estate. That might not be entirely welcomed by my staff on the end of the phones but it is, I feel, a positive development and a clear indication of the high regard in which Her Majesty is held in that part of her realm.
The BIPA plenary in May discussed the commitment given by the Prime Minister and the Taoiseach to continued and increasing co-operation. That is essential as both countries face the economic challenges of which we are all, alas, so well aware. Details are already emerging of increased collaboration on making our businesses more globally competitive, on ensuring that we share progress in research and development that is to our mutual benefit whenever possible, on increasing trade between our countries and on generating sustainable employment as we both seek to grow our way out of these difficult economic times. We are committed, alongside our Irish friends, to ensuring this is more than a token gesture. The outcomes will be discussed at summit level annually, and I know that officials across Whitehall are already engaging with their Irish counterparts.
I have personal experience of the importance of sharing understanding with colleagues in the Irish Government. My discussions with Jimmy Deenihan, the Minister for Arts, Heritage and the Gaeltacht have, I hope, provided us with a useful basis on which to approach the forthcoming decade of anniversaries and commemorations. We know better now than ever before that a shared understanding of how we might remember and interpret the events of the past has an important impact on our future direction. We are committed to ensuring that such anniversaries are handled sensitively, and in a way that enhances understanding and cohesion rather than challenges those goals.
There is so much more I could say about this excellent institution if I had the time. I think that the British and Irish Governments, members of BIPA and its committees, and its attendees share an understanding of the challenges we all face. In particular, we can welcome much more progress over the years in relation to its work on Northern Ireland.
On Tuesday, I was pleased to be able to welcome the First and Deputy First Ministers and potential sponsors of high-profile events in the programme being developed for Derry/Londonderry’s year as UK city of culture in 2013—just one of the areas of co-operation. Also in Londonderry, the “Peace One Day” concert today marks the beginning of 12 weeks of celebrations around the London 2012 Olympic and Paralympic games. I am pleased to say that Londonderry is, quite rightly, playing its part tonight in the launch of the Cultural Olympiad. Next week, the Irish Open returns to Royal Portrush for the first time since 1947, and Northern Irish major winners Rory McIlroy, Graeme McDowell and Darren Clarke will be as big an attraction as any of the international stars taking part.
In conclusion, I know that colleagues here at Westminster and in Dublin, and Members from both places who attend the British-Irish Parliamentary Assembly, will share in the excitement and will welcome the opportunity that the coming months provide for Northern Ireland to showcase its many unique and varied attractions to the world.
Vernon Coaker (Gedling) (Lab)
I pay tribute to the work of the British-Irish Parliamentary Assembly, and to the hon. Member for Tewkesbury (Mr Robertson) for obtaining this important debate and for his work as co-chairman of the assembly. With his colleague from the Irish side, Joe McHugh TD, he has led BIPA with commitment and determination. I also pay tribute to my right hon. Friend the Member for Torfaen (Paul Murphy), whose association with BIPA, service to the people of Northern Ireland and involvement with the island of Ireland is well documented. Indeed, I acknowledge all of those involved in BIPA, many of whom are here this morning.
The relationship between the UK and Ireland is very special. Although it was once difficult and strained, it has been totally transformed by the peace process in Northern Ireland into a real friendship between close neighbours. Her Majesty the Queen’s visit last year showed just how much our bond has deepened and developed. This truly is a golden age for British-Irish relations, and while Her Majesty’s visit is the most prominent example, there are so many facets to our relationship that a range of sometimes small but often significant things are happening on all levels.
That is because the ties between the UK and Ireland are bonds of people, places and history. Our shared past is complicated, intense and has often been marred by conflict and division, but in this year, the 100th anniversary of the third Home Rule Bill and the Ulster covenant, the relationship is transformed. We stand shoulder to shoulder now as friends and neighbours, and the special link between our countries has deepened, widened and developed as we both strive for a fairer, more equal and more just society.
What the UK and Ireland also share are values. The values of Irish people and of the Irish in Britain are my values and those of the people of Britain, too—the importance of fairness, family, looking out for each other, working together, and taking pride in identity, pride in community, and pride at playing a part in doing our bit to make society better. The contribution of the Irish in Britain to society here is immense in every area of British life—whether it be business, civic society, the media, culture and arts, and, of course, politics. I see that in my own constituency in Gedling and in the city of Nottingham.
I thank my hon. Friend the Member for Vale of Clwyd (Chris Ruane), the chair of the all-party group on the Irish in Britain, whose work here in this place on behalf of that community has made such a significant contribution to enhancing the understanding of all of us. I know that he and others, as the Minister mentioned, are working hard at the minute to try to influence RTÉ, the Irish state broadcaster, to retain its London bureau, which is so valued by Irish people in Britain and by those in Ireland with family members living here or with an interest in British affairs.
I had the privilege of speaking to the Irish Labour party’s centenary conference in Galway earlier this year, and on a trip to Dublin recently I met TDs and senators from all parties in the Oireachtas. At each, I was struck by the interest in UK politics and the knowledge of the work of MPs and British parliamentarians, and was delighted to hear of their friendships with many in this House. While discussing a wide range of topics with them, it was clear to me that we have much in common on issues such as security, immigration, tourism, transport and health. It underlined to me the importance of working across boundaries as parliamentarians to face challenges together.
The fact that representatives from the administrations and institutions in Scotland, Wales, Northern Ireland, Guernsey, Jersey and the Isle of Man attend BIPA adds much to the work of the assembly. Alongside colleagues from the national Parliaments in Dublin and London, the willingness of BIPA members to encourage engagement and co-operation on matters of mutual interest and concern is of great benefit to us all. There are indeed many difficulties and challenges that face people across these islands. The harsh economic realities impact on families in London, Dublin, Belfast, Edinburgh and Cardiff, and sharing experiences and learning can help not just us as parliamentarians but, more importantly, the people we represent.
During that visit to Dublin, I went to the national war memorial in Islandbridge, which commemorates those Irishmen who died in the world wars. It was an incredibly moving experience, and I was very grateful to the Royal British Legion in Ireland for presenting me with a list of Irish soldiers who had served in a regiment closely connected with my own area of Nottinghamshire, the Sherwood Foresters. I also met the Gaelic Athletic Association in Croke park, and was very touched when its president presented me with a history of the organisation. I was also impressed with the work of the GAA in communities across Ireland, and its acknowledgement and efforts to reach out beyond its traditional base in Northern Ireland.
Both places are hugely symbolic for many people in Ireland, but they are also symbols of hope and of the outworking of the peace process, which has opened them up to those who might not previously have been comfortable with aspects of their history. I know that there are many differing perspectives on that history, but ultimately it is shared. In that sense, we can choose either to use the different perspectives of it to entrench division, or we can use them to learn about history, ourselves and each other, and bring communities together in a new understanding of what happened during that troubled past. I know that is the wish of the vast majority of people in all the islands and part of the mission of BIPA.
It is perhaps the peace process in Northern Ireland that has both transformed and is the greatest testament to the new era in British-Irish relations. Labour Members will speak up for peace and progress, as the Minister and we all do, but we do so particularly as the party in government that helped, with others, to bring about the Good Friday agreement and all that flowed from it. East-west relations and the forging of new alliances across all the devolved Administrations and between the UK and Irish Governments were an important part of that.
As the Opposition, we will hold the Government to the promises made to help to deliver a real peace dividend for Northern Ireland. We will also, of course, give our support to the Government in enhancing and developing relations between the UK and Ireland, particularly in relation to Northern Ireland. Although much progress has been made, we must make sure that the political focus does not prematurely move on. We need to continue to work together on Northern Ireland and, as I have said before, in recognising continuing progress, we still need to understand the threats that remain and recognise the special circumstances that exist.
As the Irish President, Michael D. Higgins, said at the reception he hosted for BIPA in Dublin last month,
“while it is only right that we celebrate how far we have come, and how close and strong the relationships across these islands remain, we must not allow any complacency to dislodge our work or deflect from our efforts.”
I know the President would be pleased to hear his words echo through the work of the embassy of Ireland here in London; the efforts and friendship of Ambassador Bobby McDonagh are valued by me and many others in this House. I know, too, that all Members will join me in thanking his deputy, Barbara Jones, for her work over the last number of years and wishing her all the very best as she takes up her new role in the joint secretariat of the British-Irish intergovernmental conference in Belfast—another example of the closeness of roles and relationships in these islands. Similarly, the UK’s ambassador to Ireland, Dominick Chilcott, his predecessor, Julian King, and the deputy head of mission, Andrew Staunton, have all made hugely significant contributions to British-Irish relations. I know that I speak for the Minister, and indeed for all Members, when I say that those individuals are worthy of mention on the Floor of the House in recognition of the vital work that they have done and are still doing.
We all know that the people of Northern Ireland and their representatives are still wrestling with the consequences of the past as they move forward, and this is no time for us to fail to give them the priority that they both demand and deserve. For our part, we will try our very best to meet the challenges of supporting the peace process, standing up for the people of Northern Ireland, and helping to build the prosperity that its people deserve.
The House recently debated some of the fantastic things that are happening in Northern Ireland in this year of 2012. As I said on that occasion, one of the privileges of my position is that it enables me to visit Northern Ireland regularly, and to see for myself the wonderful things that are taking place there. Only a fortnight ago, I was honoured to join the right hon. Member for Belfast North (Mr Dodds), Diane Dodds MEP and the Lord Mayor of Belfast at city hall to witness the culmination of the Olympic torch relay, which saw the famous flame travel throughout Northern Ireland and visit Dublin. Is there a better metaphor than the great symbol of the Olympic flame for the interconnectedness of all of us in these islands, the progress that we have made, and our hope for the future?
Next year Derry will become the first UK city of culture. I was delighted to visit it with my hon. Friend the Member for Foyle (Mark Durkan), and to meet some of those who were involved in preparing for what promises to be a fantastic 12 months. Indeed, only this week I joined the Minister of State at a celebration of the UK city of culture here in Parliament.
As shadow Secretary of State for Northern Ireland, in the short time available to me I have concentrated my remarks on the contribution that BIPA has made to the peace process and to British-Irish relations in that context. However, I know that its role goes far beyond that. It has the potential to develop and add to its work, and, by doing so, to enhance the work of those in the House of Commons and in all the other legislatures that make up its membership. I look forward to helping it to continue that great work, and I know that all Members on both sides of the House remain steadfast in their support of the British-Irish Parliamentary Assembly and committed to its mission.
Stephen Lloyd (Eastbourne) (LD)
I am grateful to the hon. Member for Tewkesbury (Mr Robertson) for securing this valuable debate. I made my first visit to BIPA in Dublin a couple of months ago as a new member, and the address from the Taoiseach was a tremendously important, satisfying and gratifying experience for me. I was interested and impressed by his and the Irish coalition Government’s approach to the very difficult economic climate, and the way in which the Government were dealing with the problems. The assembly’s discussion of a range of issues affecting both Ireland and the United Kingdom was also important and interesting.
I am half-Irish myself. I come from Northern Ireland and have spent most of my time in the north rather than the south, but have studied the history of both north and south over its many tumultuous years. When I was invited to join BIPA, my Irish side—my mother’s side of the family—felt proud to be involved in an assembly which, as others have said today, has achieved so much during the last 20 years.
As I listened to the Taoiseach’s speech, one thing in particular occurred to me. Let me echo a call that has come from a number of Members today. I value enormously the support that BIPA has received from the Minister and the Secretary State, and also from the last Government. However, I think that it would be a wonderful opportunity for our own Prime Minister to address a future assembly meeting and to afford us the same the courtesy that we were afforded by the Taoiseach in Dublin, and I shall be lobbying for that.
One of my colleagues referred to some of the security issues that still affect Northern Ireland, and in that context I believe that BIPA will have both an economic and a political role long into the future. The next BIPA conference will take place in Glasgow in a few months’ time. I look forward to attending it, and to hearing what the First Minister of Scotland will say when he addresses the assembly.
Given the long-standing links between both islands—the United Kingdom and Ireland—I believe that BIPA will have a strong and lengthy future. I know that some Irish people who have been in Britain for many years are concerned about some of the challenges posed to the British Government by the austerity programme, and I too am concerned about the possibility of cuts in the financial support that the Government provide for the Irish diaspora in Britain. I am sure the Minister would agree that we should protect that support irrespective of the financial challenges we face, because it demonstrates the strength of the bond between Britain and the Irish. I shall keep a close eye on the position.
I agree with my hon. Friend the Member for Tewkesbury that we must encourage the Irish Government to retain RTÉ in London and in the United Kingdom, where it plays an important role. I, too, think that RTÉ needs to come up with slightly more flexible working arrangements, which would cut costs while allowing a very important broadcasting service to continue.
It is a privilege to be a new member of BIPA, and I look forward to being a member for many years to come.
Mr Nigel Dodds (Belfast North) (DUP)
I am pleased to be able to take part in a debate that I am sure represents the highlight of today’s parliamentary business for you, Mr Speaker. I can think of no other occasion today that will outshine it. I congratulate the hon. Member for Tewkesbury (Mr Robertson) and the right hon. Member for Torfaen (Paul Murphy) on securing the debate.
It has already been pointed out that for many years the Democratic Unionist party did not participate in BIPA. I do not want to go over the history in too much detail, but I think it important to put the debate in context. The predecessor of the current assembly was seen by Unionists as being responsible for the Anglo-Irish agreement, whose legacy poisoned political relations in Northern Ireland for many years and led to many difficulties in the Province. Thankfully, however, we have come through those difficulties, and in 2001 BIPA was established.
During the DUP visit to BIPA in 2006, I met members of it along with our current leader, Peter Robinson, and a number of colleagues. We were not full participants, but expressed our belief that there was a role for a body that would improve east-west inter-parliamentary relations and would involve devolved parliamentarians as well as Members of the Irish Republic and United Kingdom Parliaments, and we made it clear that when devolution was restored on an appropriate basis, we would play a full role in BIPA as currently constituted.
When devolution was restored on terms that were acceptable to the people of Northern Ireland, we participated fully from that moment on, just as we have participated in the Northern Ireland Assembly and the Northern Ireland Executive. When our party says that we will enter arrangements and commit ourselves to them fully, we stick to our word. We believe that Northern Ireland is the better for the current stability in Northern Ireland, in the Assembly and the Executive, and in this inter-parliamentary body.
Mr Walter
I welcome the DUP’s participation, of course. The British-Irish Council and its relationship with the assembly was mentioned earlier. Is the right hon. Gentleman in favour of the assembly having a closer working relationship with the BIC and exercising some kind of parliamentary oversight of it?
Mr Dodds
The BIC is meeting today in Stirling, and our First Minister and other Ministers are taking part, dealing with important issues such as what is happening in the devolved regions in respect of youth unemployment, marine energy technology and other areas where regions and Governments can learn best practice from each other. I have no difficulty in that relationship between the assembly and the BIC developing further. I listened carefully to what the Minister said about the discussions that are taking place and I welcome that.
It is good that there is co-operation and communication at ministerial and parliamentary level, and I pay tribute to DUP Northern Ireland Assembly Member Jim Wells, who plays a very active role in that respect. I note in passing—I will make no further comment on this—that there are no representatives from the Northern Ireland parties in this House on BIPA. That is not necessarily a bad thing because we are trying to create a body that encompasses all the relationships. It is not focused primarily on north-south; it addresses east-west issues, too, as the former chairman of that assembly, Lord Cope, said in October 2011:
“The British-Irish parliamentary meeting has taken on a much wider dimension in recent years. It used to be all North-South but now it’s east west—that’s the main focus.”
I welcome that. It represents the appropriate way forward for addressing issues such as trade, as the co-chairman of BIPA, the hon. Member for Tewkesbury (Mr Robertson), mentioned. The hon. Member for Glasgow North West (John Robertson) talked about his work on small and medium-sized businesses. These are important matters that need to be discussed and taken forward at inter-parliamentary level. The primary focus of all our constituents now is economic concerns, such as trade, rather than political issues.
In this context, we should recognise that the Irish Republic recently received a massive bail-out, courtesy of British taxpayers. We supported that because we believe it is in our interests to ensure that the Irish economy recovers. Nevertheless, that serves as a reminder of the new context for relations between the United Kingdom and the Irish Republic.
We still face many challenges. The Minister and others referred to the dissident threat. The Opposition spokesman, the hon. Member for Gedling (Vernon Coaker), pointed out we must not be complacent and take for granted the progress we have made. We must remain focused on the important work that goes on in Northern Ireland in building peace and in moving the political process forward. Members of this House must not think everything in Northern Ireland is now settled; there are still many challenges. However, there is no doubt that forums such as BIPA, the BIC and others that bring together parliamentarians and Ministers make a major contribution to building peace and maintaining political stability.
Esther McVey (Wirral West) (Con)
The British-Irish Parliamentary Assembly’s mission is to promote co-operation between political representatives in Britain and Ireland. It is a much-needed group, promoting not only co-operation but an understanding of our cultural links and our broader interdependence. As has been mentioned, 42% of Irish exports are to the UK and Ireland is Britain’s fifth largest trading partner. That underlines our financial interdependence.
I come from Liverpool, where almost all of us have Irish roots—hence the city’s name, “the capital of Ireland.” We have deep family ties. In common with many other families, my ancestors will have landed at Liverpool port in the 1800s. Two brothers married two sisters and so the family journey began.
There are now new ties as a result of Liverpool, Dublin and Cork all having become the capital of culture—Liverpool became the capital of culture in 2008. This led to an explosion in construction in those cities. The consequent property boom was fuelled by massive lending by the banks. When the property market collapsed, the Irish banking system was plunged into crisis. There is much to learn from that.
The Irish Government carried out a sizeable fiscal consolidation, which they are continuing. Ireland’s success in cutting its deficit, shrinking its banks and returning to modest economic growth has distinguished it from other parts of the eurozone that were also built on a construction boom. Given our links with Ireland, it is important that we have constant dialogue so we can learn from each other.
What have the Irish done to get out of their economic crisis? They have developed their small and medium-sized enterprises, and they have been increasing exports. Ireland’s exports rose by 4% in 2011, and went on to grow strongly in the first months of 2012. Most of that has come from SMEs, but it also comes from the pharmaceutical and chemical sectors.
As I have an interest in the SME sector, I elected to serve on the economic affairs group, along with the hon. Member for Glasgow North West (John Robertson). We looked at how well the Irish are adapting. There are 198,500 SMEs in Ireland, employing 1.2 million people. Ireland’s central bank says SMEs face significantly tougher lending conditions than similar firms elsewhere in the eurozone. It also says that demand for credit is no different in Ireland from elsewhere in Europe, but the Irish SME sector faces challenges in paying back its borrowing, with problems in respect of 30% of loans. The latest research by central bank economists shows that while demand for credit among Irish firms is at, or above, the eurozone average, the lending conditions imposed by the banks are significantly tougher in terms of collateral requirements, interest rate charges, size of loans available and rejection rates. BIPA has been addressing those issues of late.
We are looking at the impending funding gaps, too. Between now and the end of 2016, banks will be unable to supply between £84 billion and £191 billion of the finance needed to support the growth in the UK economy.
John Robertson
The report that was produced was very good, but does the hon. Lady agree that the Irish side seemed to take it much more seriously than the British side, and that we would like the Minister and the British Government to be a wee bit more enthusiastic about what BIPA is trying to do?
Esther McVey
I am not sure that I agree that the Irish are looking at it more seriously, but they are ahead of the curve. They have been through the turmoil in advance of us, and there is much that we can learn from what has happened there. They also realise how tough it is for small companies to get money from the banks. I hear similar stories from small businesses in the UK, including locally in Wirral West.
Stephen Lloyd
Across the water, Labour is in coalition with Fine Gael, because Labour recognises that difficult decisions need to be made in respect of the economy. Does my hon. Friend agree that politicians in southern Ireland are being more inclusive and constructive in dealing with the serious problems they face?
Esther McVey
We will all deal with our economic difficulties in different ways, and we all have to agree about the difficulties, admit to them and see what is on the horizon. We are looking here at how we move forward and what we are going to do. There is no point putting our heads in the sand and thinking that conditions are easy for small and medium-sized enterprises, because they are very tough indeed. What is reported can sometimes be very different from the actual practicalities and realities of the situation, which some of us are probably hearing about from our small businesses. That was very much reflected in the conversations in BIPA’s economic committee, as well as in what we are hearing over here. People were looking forward, and that is what we have to do. We have heard the issues and we know the economic turmoil we are going through, but we need to work out the steps to take to move forward.
Oliver Colvile (Plymouth, Sutton and Devonport) (Con)
Does my hon. Friend agree that this is not just about trade, because a series of issues associated with our relationship with Europe, fishing and other such matters, are very important?
Esther McVey
I do agree with that, and I shall now discuss my recommendations. What we were looking for was: the aggregation platform to give SMEs access to the capital markets; an increase in the number of private placement investors in the UK market through an industry-led initiative; encouragement for more retail investment in corporate bonds issued by UK companies; and more private equity and support for all businesses, which we are in fact doing here in the UK with all the latest seed investment funds. So I think it is important for Ireland and the UK that we continue with our co-operation and continue learning from each other, because we are so interdependent and both countries need that for our continued growth and prosperity.
Mark Durkan (Foyle) (SDLP)
Hon. Members will not be surprised to learn that I have a different view of history from the right hon. Member for Belfast North (Mr Dodds), so I will quickly record that without long rehearsing it.
Many hon. Members, including the current chairman, the hon. Member for Tewkesbury (Mr Robertson), have rightly paid tribute to those who first established BIPA—in fact, it was a tier first, then it was a body and now it is an assembly. It should be remembered that all of them have made a huge contribution to changing the nature of relationships and attitudes between and within these islands, and they reinforced a dynamic that did spur the peace process in many positive ways. It should also be remembered that when John Hume first argued that there were three sets of relationships at the heart of our problem—those within Northern Ireland, within Ireland and between Ireland and Britain—which he said all needed to be accommodated and reflected in the solution, that was contested. It is now accepted by everybody, and those three sets of relationships are the three strands at the heart of the Good Friday agreement.
Mr David Winnick (Walsall North) (Lab)
I apologise for the fact that I was not here earlier. May I say to the hon. Gentleman that when we met for the first time in February 1990, when the troubles were continuing, and crimes and atrocities were being committed by the IRA and loyalist paramilitaries, we were not certain whether it would be the only meeting we would hold, as both sides were so apprehensive? I am so pleased—obviously, given that I later become a co-chairman—that we were highly successful in continuing the dialogue for the first time between parliamentarians from both countries.
Mark Durkan
I fully take the point that the hon. Gentleman has made. The point that I was about to make was that by creating a framework of British-Irish relationships, through the Anglo-Irish agreement, the inter-parliamentary tier and the British-Irish Inter-Parliamentary Body, space was opened up for dealing with the problems that were then vexing the narrow ground of Northern Ireland politics. By changing the relationship between Britain and Northern Ireland, we, in many ways, opened up possibilities for politics in Northern Ireland and indeed between north and south. That is why I want to pay tribute to all those who made a huge contribution to British-Irish relations in this context.
The right hon. Member for Belfast North mentioned the fact that, peculiarly, no Northern Ireland Members of this House are members of the assembly; we seem to be banned persons. Four Members of the House of Lords who live in Northern Ireland are members of the assembly, and a further one is an associate member. Apparently, if someone from Northern Ireland has a mandate, they are somehow subversive and are not accepted for the purposes of that assembly—I regret that. As the one party that was always on the body and that first advocated such a thing, we perhaps feel a wee bit peculiarly disadvantaged in this regard.
As has been pointed out, great work has been done in many of the reports. I also wish to endorse what the hon. Member for Tewkesbury and the right hon. Member for Torfaen (Paul Murphy) have said: we need to get the assembly better connected with the work of the British-Irish Council. I am talking about not just taking reports from BIC and tracking its work, but acting as more of a policy outrider at times for BIC, exploring some of the issues, and perhaps scoping some of the problems and making suggestions about how things might be looked at or advanced.
The marine environment is one of the areas we should look at, as that is one thing that all eight Administrations in these islands and their territories actually share. The different jurisdictions have made moves towards various marine legislation and have made different moves on marine management organisations. Surely we need to ensure that we have a coherent framework for marine management, where the regimes are at least compatible and comparable.
The issue of communications is another that should have been addressed more heavily at a British-Irish level. We are left with the situation in Ireland where we have two, rival digital platforms. I have a border constituency, where people have to buy one device if they want to get their Saorview digital TV and another if they want to get Freeview. That is nonsense and it has been a failure. The issue could have been addressed only at the British-Irish level, not at the north-south level.
The digital economy presents challenges and opportunities, some of which also extend to things such as minority languages. We need to think about how our digital platform is catering for the different minority languages and the Celtic regions within these islands. So there is more that we should be thinking about in these areas, and the assembly again provides an area where we can do that. In that context, I wish to share the concerns expressed by others about the RTÉ presence in London.
Human trafficking is a huge issue in the eyes of many people in this Parliament, and it has been discussed in different devolved Assemblies and in the Oireachtas. That issue needs to be examined at the British-Irish level, because we need to deal not only with the international trafficking into our common travel area, but with the internal trafficking both within the different jurisdictions in these islands and between them. We need to address those issues.
Organ donation may also be an issue that we need to examine, as the various legislatures in these islands are perhaps examining it differently. We need to examine not only whether we should have opt-out legislation, but whether we have the right infrastructure to ensure that where we do have donors, we are maximising the number of organs that become available. Is there the right sharing and transfer of the organs that are available throughout these islands? Many people suggest to me that there is not. That could be looked at, too.
There is also the issue of adoption apology to address. In the previous Parliament, the then Prime Minister told us that he wanted to make an apology in relation to what had happened to people who were forced into orphanages and then transported. There are serious issues between Ireland and Britain in that regard. The whole issue of adoption apology should not be an issue for just one Government; it is a common issue throughout these islands. It is a crying shame in our historical social relationship and it is one that should be addressed.
Oliver Colvile (Plymouth, Sutton and Devonport) (Con)
Thank you, Mr Speaker, for allowing me to speak in this debate. May I confess at the beginning that I am not only a member of BIPA, but a member of the Select Committee on Northern Ireland Affairs, serving under the excellent chairmanship of my hon. Friend the Member for Tewkesbury (Mr Robertson)? I congratulate him on obtaining this debate from the Backbench Business Committee.
I am not going to pretend for a moment that I am a great expert on Ireland or Northern Ireland. Indeed, it is only in the past two years that I have got to know the place at all, during the course of a trip. When I was first in southern Ireland, I was struck by seeing the horses run down the pavements too; I had not seen that in central London in my lifetime.
We have to remember that our relationship with Ireland is not just a close trading one; we have a common approach to how we look at law. Both the English and the Irish take a common law approach to law, whereas in continental Europe it is much more to do with civil law. So we have a series of interests that we need to make sure we work on together.
As others have said, there is the question of trade and how closely Britain and Ireland work together. As I understand it, we have more trade with the Republic of Ireland than with all the BRIC countries—Brazil, Russia, India and China. We should ensure that we work closely with southern Ireland because we have common trade interests, such as employment regulation. Last year, our exports to southern Ireland were worth about £15.9 billion, whereas our imports from southern Ireland were worth about £12.5 billion, so we made a profit—a rare commodity—from the relationship. That is incredibly good news.
On Monday, I was delighted to attend the reception for Derry city of culture, because we in Plymouth are considering trying to become the city of culture in, I believe, 2014. We hope to learn lessons from Derry.
We should be looking firmly and hard at how we can work with the southern Irish Government on our common interest in marine science. The hon. Member for Foyle (Mark Durkan) stated the case for that commonality of interest in marine matters. I hope we will continue to campaign to bring UK and Irish fishing waters back under national control, because that will be an important part of how we look after fish stocks.
Immigration has also been an issue. Yesterday, the Northern Ireland Affairs Committee had a long conversation with representatives of the UK Border Agency. Because there is no recognisable border between our country and Ireland, immigration has to be handled with care, and we have to make sure that happens.
I am delighted to have attended one or two BIPA meetings at which we have worked closely together on various matters. Close working by the two countries is a brilliant idea, because it puts us in the position where we can ensure that the British and the Irish points of view are expressed in no uncertain terms, so that the European Union understands that we will act in our national interests and will not simply do what the French or the Germans tell us to do. I am also keen for us to work closely with the Irish to sort out their economic problems, because I am convinced we will thereby be able to get out of the mess of our public finances.
Chris Ruane (Vale of Clwyd) (Lab)
I speak as a long-time member of BIPA. I have been a member for 10 years and I am proud to wear my BIPA tie here today, as many others are doing. I also speak as chair of the all-party Irish in Britain group. According to the last census, there are 600,000 first-generation Irish in Britain, and on her visit to Ireland the Queen said that 6 million people of Irish ancestry lived in the UK. We reformed the all-party group two years ago, and I pay tribute to its secretary, Martin Collins, who provided an excellent debate briefing for all hon. Members, on both sides of the House. I pay tribute, too, to the hon. Member for Tewkesbury (Mr Robertson), who is an assiduous co-chair of BIPA, with Joe McHugh.
Over the past 25 years, under Governments of both main parties, great progress has been made on Irish issues. I pay tribute to former Prime Ministers John Major, Tony Blair and my right hon. Friend the Member for Kirkcaldy and Cowdenbeath (Mr Brown) and to the present Prime Minister, who showed excellent leadership in relation to the Saville inquiry and welcomed the Irish Taoiseach earlier this year. We are not talking only about relations at the Executive level, however. Back-Bench relationships are also important, and BIPA acts in two ways by helping to cement those Back-Bench relationships across the Irish sea. I pay tribute again to the former Conservative Ministers, Michael Mates and Lord Peter Brooke, who were excellent members of BIPA, and to past chairs, including my right hon. Friends the Members for Torfaen (Paul Murphy) and for Neath (Mr Hain) and my hon. Friend the Member for Walsall North (Mr Winnick), who co-chaired BIPA. They helped to build those common bonds between Irish TDs, British MPs and representatives of the Assemblies across the UK.
Developing relationships and trust is an important function of BIPA, but it is also about developing policy. We have four committees; the one of which I am a member is chaired by Lord Alf Dubs and has done a fantastic job, over many years, looking at key issues such as migration, the Irish in Britain, on which we have had two inquiries, and renewable energy in the islands.
As I mentioned in an intervention on the hon. Member for Tewkesbury, a lot of time, effort and resources goes into the committees. They are staffed by representatives from the House of Commons and the Oireachtas, and we collect evidence and data and draw up policies, but quite often they are just filed. Last year, I sponsored a debate on the Irish in Britain, which had excellent coverage in the British and Irish press. I think it is incumbent on us, as members of BIPA, to ensure that every time we issue a report, there is at least an Adjournment debate in the House, so that we can discuss how the report’s recommendations can be implemented, or at least looked at.
Looking to the future of BIPA and the all-party Irish in Britain group, we want to make sure that RTÉ is not downgraded in the UK, as has been proposed. The decision is for the Irish Government and RTÉ itself, but we need to ensure that we have proper coverage of British events in Ireland and Irish events in Britain, and an RTÉ base in London is key to that. I look forward to cross-party co-operation on that and other issues that affect the Irish in Britain and in Ireland. I end by saying that I am very proud to be a member of BIPA.
Mr Laurence Robertson
With the leave of the House, Mr Speaker, I will make a few closing comments.
I thank all those who have taken part in the debate and made interesting and useful contributions. I pay tribute to the members of the Northern Ireland Affairs Committee who have attended. The hon. Member for North Antrim (Ian Paisley) has been present for most of it, and of course we heard from my hon. Friend the Member for Plymouth, Sutton and Devonport (Oliver Colvile), who raised a number of issues, but I thank everyone who participated.
A comment was made that no Northern Ireland Members of Parliament are members of BIPA. The hon. Member for Belfast South (Dr McDonnell) is a member of BIPA, but as a Member of the Northern Ireland Assembly. I shall certainly take up that point when we next meet.
My hon. Friend the Member for North Dorset (Mr Walter) pointed out that neither he nor I, nor many other Members, necessarily have a direct connection with either Northern Ireland or the Republic of Ireland. That is true, so why do we get involved? Well, we get involved because we care. We care about Northern Ireland, we care about the Republic of Ireland and we care about the relationships we have. The only reason we are involved is our commitment to the process in Northern Ireland and to forming closer links with the Republic.
The hon. Member for Glasgow North West (John Robertson), welcoming us to Glasgow, said that we will enjoy some “proper whisky”—I think that was his description. I look forward to that, but I think we will celebrate other Scottish products as well. We look forward to extending the discussions about trade and the economy to the next plenary session in Glasgow.
I join in the shadow Secretary of State’s tribute to Barbara Jones, the deputy ambassador to London. I thank her for the friendship she has shown to the cause and to me personally. I wish her well in her new role.
T he point was raised about whether the Prime Minister should attend in Glasgow. He has certainly been invited, as has the Deputy Prime Minister, so we hope that their busy schedules will allow them to afford to BIPA the same respect as has been afforded by the Taoiseach and many other Ministers in Ireland. I would like to thank all Members for taking part in the debate and the Backbench Business Committee for allowing us time to hold it.
Question put and agreed to.
Resolved,
That this House has considered the matter of the work of the British-Irish Parliamentary Assembly.
Proceedings interrupted (Order, 13 June)
Secondary Education
(12 years, 6 months ago)
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Kevin Brennan (Cardiff West) (Lab)
(Urgent Question): To ask the Secretary of State for Education to make a statement on reports that he plans to scrap GCSEs, end the secondary national curriculum and replace examination boards with single-subject bodies.
The Secretary of State for Education (Michael Gove)
The coalition Government’s education reforms are designed to raise standards in all our schools and give every child the opportunity to acquire the rigorous qualifications that will enable them to succeed in further and higher education and the world of work. We have already taken steps to make the curriculum in primary schools more rigorous, with a new emphasis on getting every child to read fluently and widely for pleasure, higher standards in essential arithmetic and new, more demanding expectations of the level of scientific knowledge each child will master. Draft programmes of study for our primary curriculum are out for consultation and we look forward to engaging with parents and teachers on how to help every child achieve more. We inherited a situation in which far too many children left primary school unable to read, write or add up properly. That was a crime against social justice and we are determined to put it right.
We are also taking steps to inject greater rigour into secondary education. The introduction of the English baccalaureate measure has resulted in the numbers studying physics, chemistry, biology, history, geography and foreign languages all rising. At the same time, we have already made GCSEs more rigorous by tackling the re-sit culture, ending modules and restoring marks for spelling, punctuation and grammar, but the evidence we have heard from parents, pupils, our best schools and our top universities shows that we need to consider going further.
Children are working harder than ever, but we have been told that the exam system is not working for them. Before Christmas The Daily Telegraph reported on the competition between exam boards to dumb down qualifications—[Laughter.] I do not regard falling standards in our schools as a laughing matter. Heads have told us that the current league table system incentivises weak schools to push students towards soft subjects and easier exams. Parents and students have told us that there are weaknesses with current GCSEs, which privilege bite-size learning over deep understanding and gobbets of knowledge over real learning. Academics have reported that headline improvements in exam results have not been matched by profound improvements in understanding, with researchers from King’s college London reporting today that teenagers’ maths skills have declined over the last 30 years.
We have been considering how to address these concerns and plan to issue a consultation paper shortly. We would like to see every student in this country able to take world-class qualifications, such as the rigorous and respected exams taken by Singapore’s students, for example. We want to tackle the culture of competitive dumbing down by ensuring that exam boards cannot compete with each other on the basis of how easy their exams are. We want a curriculum that prepares all students for success, at 16 and beyond, by broadening what is taught in our schools and then improving how it is assessed.
These are inevitably challenging ambitions that will require careful implementation. That is why we want the conversation on how we raise standards to be broad and inclusive. It is in all our interests that all our children do better than ever before. Although we want a broad conversation, we are also determined to reach a clear conclusion: a state school system in which every child is challenged to do much better, in which there are no excuses for failure and in which every child is introduced to the best that has been thought and written and given every opportunity to achieve their utmost.
Kevin Brennan
My hon. Friend the shadow Education Secretary has asked me to put on the record the reason for his absence today: he is attending a meeting in Edinburgh with two of his constituents and the Spanish consul-general about the murder of their son in Spain. He sends his apologies.
GCSEs may well need improving, but a two-tier exam system that divides children into winners and losers at 14 is not the answer. The Opposition believe in a modern education system that promotes high standards, rigorous exams and a broad curriculum that prepares young people for the world of work and to succeed in life, but it seems that Ministers are in favour of going back to the future. They have cut education spending by the largest amount since the 1950s. They believe that Victorian-style rote learning is the way to teach our children. They want to bring back a two-tier exam system, designed in the 1950s, that will separate children and close off opportunity.
We on the Opposition Benches believe in rigour and high standards for all, but we also believe in a broad curriculum that prepares young people for work, so we will set a series of tests to ensure that the changes meet both. First, Labour wants higher literacy and numeracy standards. The key is to raise teaching quality across the board. Is there any reason to expect these proposals to deliver that? At best, they are a distraction from the central challenges. Standards rose under Labour because we focused on literacy and numeracy. It was we who inherited a weak system for maths and English from the Tories. Only three in 10 pupils—that is 60%, because I know that the Secretary of State is not very good at maths—got a good GCSE in 1997, more than half—[Interruption.]
Mr Speaker
Order. Sir Tony, you are now officially a statesman, and a statesman should not yell across the Chamber. Calm yourself.
Mr Speaker
No point of order is required at this stage. I shall hear the hon. Gentleman on another occasion, with great anticipation.
Kevin Brennan
I was just testing their numeracy; the figure is, of course, 30%. We improved literacy and numeracy standards. More than half achieved five good grades at GCSE, including English and maths, in 2010. Secondly, the Government appear to be writing off a quarter of all young people at 14 with the return to the CSE. There is strong evidence that children’s performance—
Mr Speaker
Order. I feel sure that the hon. Gentleman is moving towards a conclusion—he certainly should be—and it might be useful if there was a question mark somewhere.
Kevin Brennan
Of course, Mr Speaker.
How will these measures improve and promote social mobility? How will a return to 1950s qualifications help to prepare young people for a 21st century world of work? Is not this nothing more than a softening-up exercise to disguise a fall in attainment as Tory cuts, disruption and teachers leaving have an effect on pupils’ ability to learn? Parents, pupils and employers will be asking today what evidence there is to suggest that a return, back to the future, to the CSE and O-levels will actually work.
Michael Gove
I am grateful to the hon. Gentleman for his questions and associate myself with his remarks about the hon. Member for Liverpool, West Derby (Stephen Twigg), who I know is unavoidably detained on constituency business. I hope that the whole House will note that he is doing his first and most important job: representing those who elected him.
The hon. Gentleman asked a series of questions—[Interruption.] He asked a series of rhetorical questions. He invited us to consider that what the Government are reported to be putting forward would lead to a two-tier system. The sad truth is that we already have a two-tier system in education in this country. Some of our most impressive schools have already left the GCSE behind and opted for the IGCSE or other more rigorous examinations. It is also the case, sadly, that 40% of children do not achieve five good GCSEs, including English and maths, in our system. He said that, under the proposals that are being reported, 25% of children would be left behind. The sad truth is that at least 40% of children have been left behind under the current system. There is no excuse not to act. [Interruption.] I note what the hon. Member for Westminster North (Ms Buck) says from a sedentary position, but given the questions the hon. Member for Cardiff West asked, I think that trading percentages across the Dispatch Box is not an area in which Labour Members can consider themselves strong.
The hon. Gentleman also alleged that the proposals were an attempt to move backwards. Far from it. They are an attempt to ensure that our education system stands comparison with the world’s most rigorous, because although there have undoubtedly been improvements in our schools and by our teachers over the past 20 years, they have not been sufficient to ensure that we keep pace with other jurisdictions. As Singapore, Hong Kong, Alberta and New Zealand, have improved their education systems, we have fallen behind them in relative terms, and we need to ensure that our young people have qualifications that are every bit as rigorous and a curriculum that is every bit as stretching.
The sad truth is that, if we look at the objective measure of how we have done over the past 15 years, we find that on international league tables our schools fell in reading from 523 to 494 points, in maths from 529 to 492 and in science from 528 to 514. Every objective academic study of what has happened in our education system has drawn attention to the weakness of our qualifications. We aim to address that in order to ensure that the next generation get what they deserve—a world-class education and world-class qualifications.
Mr Speaker
Order. I do not intend to allow this to run beyond 11.30 am, because there is very substantial pressure on time. I am sure that Members will draw their own conclusions as to the importance in these circumstances of brevity.
Mr Graham Stuart (Beverley and Holderness) (Con)
I welcome improved rigour, stretch and achievement for our most able pupils, but the central problem facing this country is not about its most able pupils but about the lowest-performing and, all too often, the poorest. How will these changes and proposals improve the outcomes for the lowest deciles of achievement in our population? Socially and economically, we cannot afford the tail that we have inherited from the Labour party.
Michael Gove
My hon. Friend makes a very good point. One of the principal problems with our education system is not only that it has fallen behind other nations, but that it is one of the most inequitable, stratified and segregated. The way in which we tackle that is not by dumbing down on qualifications, but by raising expectations at every level.
Mr David Blunkett (Sheffield, Brightside and Hillsborough) (Lab)
I appeal to the Secretary of State to stop rubbishing everything that happened before he came into office; BG—before Gove—is not a very attractive proposition. Will he tell the House why Margaret Thatcher introduced a common national curriculum and a common examination system in 1988?
Michael Gove
I am at pains, I hope, never to rubbish everything that preceded this Government, but I want to tell the truth, and the truth is that, although there were improvements, many as a direct result of the right hon. Gentleman’s stewardship of the Department for Education, wrong turnings were taken, one of which, I am afraid, was to allow a race to the bottom in examinations, which serves no one’s interests.
Elizabeth Truss (South West Norfolk) (Con)
I congratulate my right hon. Friend on his excellent statement and, in particular, the idea of a single examination board. Does he agree that we have not had a free market in exams; we have had a state-sponsored race to the bottom? Sweden has a single exam board and has had no grade inflation for the past 20 years.
Michael Gove
I am grateful to my hon. Friend for her point. Not only does the Swedish experience inform the case, but Mr Conor Ryan, a distinguished former special adviser to the right hon. Member for Sheffield, Brightside and Hillsborough (Mr Blunkett) and to the former Prime Minister, Tony Blair, said this morning:
“There are some…good ideas in what appears to be being considered”
by the Department for Education. He continues:
“It makes perfect sense to have a single exam board for each exam.”
That view weighs heavily with me.
Mr Frank Field (Birkenhead) (Lab)
Given that the Secretary of State is rightly concerned to ensure that no children fail, why is he so obsessed with schools? All the evidence points to the idea that perhaps at three years old, but certainly by the time they enter school, their life chances are determined. Might one invite him to be equally obsessive about the foundation years as he is about schools?
Michael Gove
I am very grateful to the right hon. Gentleman for the point that he makes. Absolutely: we believe in intervening as early as possible, which is why we have extended the number of hours of pre-school learning that we offer, particularly to disadvantaged children. More can be done, however, and we are reforming the early years foundation stage. The Minister of State, Department for Education, my hon. Friend the Member for Brent Central (Sarah Teather), who has responsibility for children and families, is doing fantastic work in that area, and I look forward to working with the right hon. Gentleman to do more.
Dan Rogerson (North Cornwall) (LD)
The coalition Government have been determined to raise aspiration, and the Secretary of State has set out some ideas about the qualifications system. Does he agree, however, that we must not create a system that, for the 40% of students to whom he has just referred, creates a concrete ceiling that prevents them from moving beyond that 40%? I am very concerned that a two-tier system will do just that.
Michael Gove
My hon. Friend, as ever, makes a very valid point. One thing we need to do is ensure that more students are capable of taking more rigorous examinations. If we look at other jurisdictions that are performing better than us, such as Singapore, we find that 80% of students there take their O-level examinations, some at 15, some at 16 and some at 17. I see no reason why we cannot have a similarly rigorous situation here. He is also right that there should be no cap on aspiration, and one of our deepest problems is that some schools and some local authorities are insufficiently ambitious for their young people.
Mr Pat McFadden (Wolverhampton South East) (Lab)
The Secretary of State is absolutely right to say that there is a close link between educational achievement, opportunity and social mobility, so the question is not “Change or no change?” but “What kind of change?”
What is his reaction to the analysis published in the Financial Times of his proposed reforms, suggesting that the new CSE will be a poorer person’s qualification and a northern qualification? Would it not be a tragedy if any such reform reinforced the educational divides that exist, instead of providing a bridge out of them?
Michael Gove
That is a typically acute point by the right hon. Gentleman; every time he speaks on education, I hear a voice of good sense. It is absolutely right to say that we need to tackle a culture low aspiration that has held students back in many northern cities and in places such as east Lancashire for far too long. Any reform of the examination system and curriculum needs to ensure that we do not place a cap on aspiration in those areas.
I have had a look at the Financial Times analysis and think that it suffers from one thing: it itself is a prisoner of the culture of low aspiration that we are tackling. I hope to work with the right hon. Gentleman and other fair-minded people to ensure that we do not fall into that trap.
Mr Andrew Turner (Isle of Wight) (Con)
Does the Minister welcome international GCSEs, which have always been legal outside the United Kingdom?
Michael Gove
We absolutely do, and one of our first reforms was to ensure that they would count in league tables in order to inject additional rigour.
Kate Hoey (Vauxhall) (Lab)
Most parents want more rigour in their schools, and I think that, on reflection, many families will welcome the changes that are being suggested and consulted on. Will the Secretary of State make it clear to schools that introducing additional maths is a great way forward? It has happened in Northern Ireland and has been terrific for future science graduates.
Michael Gove
Again, the hon. Lady talks good sense on education and is absolutely right. One strength of the Northern Ireland system is its emphasis on greater rigour and stretch in mathematics, and more and more students are achieving those qualifications. We have sought to pay mathematics graduates more to encourage them to consider teaching, and to create new centres of excellence, new 16-to-18 free schools in mathematics, but there is so much more to do, and I look forward to working with her on that.
Mr Peter Lilley (Hitchin and Harpenden) (Con)
Does my right hon. Friend agree that the weakness that has characterised the British education system for a century and a half has been a failure to produce enough people with technical and vocational qualifications, partly because of a presumption that they were for the less able and less academic? Can he reassure me that his reforms will tackle that weakness and ensure that technical and vocational qualifications that are of the utmost rigour and held in the highest esteem are available to all?
Michael Gove
My right hon. Friend makes a very good point. One weakness in the implementation of the Education Act 1944 was that the third strand, technical schools, did not receive the investment that they should have done, and as a result a weakness in technical education, which this country has had since 1851, was reinforced.
The advent of university technical colleges, an idea pioneered by Kenneth Baker and Andrew Adonis, is going some way to dealing with the problem, and Alison Wolf’s report, which has injected additional rigour into vocational qualifications, also helps to meet that challenge, but we need to do more, including reforming the funding of further education colleges in order to strengthen vocational subjects.
Julie Hilling (Bolton West) (Lab)
I do wonder whether the Secretary of State ever visits schools and speaks to pupils and teachers. Children’s progress and achievement can currently be judged by the children themselves and by employers within a common framework. CSEs had little value in the past, so how can he assure me that they will have any value in the future? I cannot see how they can.
Michael Gove
I do visit schools, and I am constantly inspired by the amazing job that so many brilliant teachers do. I am encouraged by the fact that more and more teachers are more and more enthusiastic about the changes that we are making, which will inject greater rigour into the system. One of the problems that we face, however, is that employers do not have faith in D and E passes at GCSE at the moment; they do not consider them an appropriate springboard for success at work. We need to work with employers and others to ensure that they have more faith in the qualifications that our young people achieve.
Philip Davies (Shipley) (Con)
As somebody who sat GCSEs in their first year, 1988, and saw the watering down of standards at the time and the knock-on watering down of standards that followed for A-levels, I welcome what my right hon. Friend has said today. Building on the point that he has just made, does he accept that whereas 30 or 40 years ago somebody could go to an employer with five O-levels and that would mean something, today the fact that a person has 10 GCSEs is becoming increasingly meaningless to many employers, despite that person’s hard work?
Michael Gove
My hon. Friend makes his point effectively and with typical pungency. Among employers there is a lack of confidence in many of the qualifications that exist at the moment. The people let down most by that are hard-working and intelligent students. I am convinced that we have the best generation of teachers ever in our schools and that students are working harder than ever. That is why we need to change the exam system—so that it works as hard as they do.
Nic Dakin (Scunthorpe) (Lab)
I know from personal experience, having prepared students for many different qualifications, of the inadequacy of O-levels and CSEs, compared with GCSEs, in setting and assessing standards. Will the Secretary of State reassure the House and those outside it that any changes to our examination system are strongly and rigorously evidence-based and not based on hunch and assumption, so that he does not make a wrong turning that damages the UK economy and young people’s lives?
Michael Gove
The hon. Gentleman, who was an outstanding principal of an outstanding further education college, makes a very good point. I emphasise again that it is natural, when we seek to reform our examination system, that people will look backwards and think that we are moving back to a situation that we inherited. We are not; we are moving forward to ensure that our qualifications are more rigorous, stand comparison with the best in the world and take account of precisely the point that the hon. Gentleman made about the need for evidence.
Amber Rudd (Hastings and Rye) (Con)
The multitude of examination boards is confusing for pupils, schools and, above all, universities. May I urge the Secretary of State to work closely with the Russell group, the leading group of universities, to make sure that we have an independent, rigorous examination board in which all universities can have confidence?
Michael Gove
My hon. Friend makes an absolutely vital point. In order to ensure that the new examinations and curriculum are properly rigorous, we need to listen to parents’ concerns, work with teachers and, above all, make sure that academics are engaged in the debate to ensure that the qualifications can become the world’s best.
David Wright (Telford) (Lab)
The introduction of GCSEs was a progressive Thatcherite policy; I am worried about the Secretary of State, who is ditching his Thatcherite credentials. My main concern about the proposal is that it is going to be divisive and that pupils who do not achieve the opportunity to go on and do an O-level equivalent at 14 will be left behind. Can he assure us that that is not his objective?
Michael Gove
Absolutely. I can also reassure the hon. Gentleman that in matters of ideology, I am a Blairite; I believe that what is right is what works. One of our problems at the moment is that the GCSE system is not working for all students. I absolutely agree that we need to ensure that our qualification system raises aspiration for all students, and ensures, as in Singapore, that 80%, and rising, of students can acquire the qualifications that enable them to go on to further and higher education.
Stuart Andrew (Pudsey) (Con)
It is well reported that the Yorkshire-based supermarket Morrisons found the standard of its school leavers so poor that it had to refer them for remedial job training. Does that not highlight the issues that we face? It beggars belief that we should not be looking at those issues.
Michael Gove
Yorkshire is a generous county that adopts children from whatever background and turns them into men.
It is not just Morrisons; in 2009, Sir Terry Leahy said that standards among the students that he was recruiting to Tesco were “woefully low”. We have to listen to employers. They demand a greater level of technical, mathematical and literacy skills from all their students and we need to improve our education to ensure that whatever route children follow, they receive a 21st century education—and that means additional rigour to compete with the world’s best.
Angela Smith (Penistone and Stocksbridge) (Lab)
Can the Secretary of State explain how going backwards to a 1950s qualification will help young people prepare for a 21st century world of work?
Michael Gove
The hon. Lady, whom I greatly respect, has fallen into the trap, perhaps taking her cue from those on her party’s Front Bench, of thinking that the measure is a move towards the 1950s. Let me take this opportunity, which she has kindly given me, to reassure her absolutely that we want not to look backwards but to look outwards. We want to ask ourselves why there are other countries that have stronger exam systems and also make opportunity more equal. Why do countries such as Singapore, Hong Kong, Canada, Australia and New Zealand manage to have both a higher level of absolute attainment and a more equal society, including a more equal education system? That is what we want to achieve and I hope that we can count on the hon. Lady’s support in that mission.
Mr Rob Wilson (Reading East) (Con)
My right hon. Friend is right to concentrate on raising standards, and employers will welcome what he has said today, but can he confirm whether he plans to abolish the national curriculum for secondary schools?
Michael Gove
We want to make sure that the national curriculum in secondary schools is properly aligned with qualifications. One of the problems is that, to my mind, there are many admirable aspects of the secondary curriculum that we inherited, but also some very weak aspects. One of the problems is that both what is admirable and what is weak in that curriculum is overshadowed by what people have to do to acquire qualifications. In that sense, our secondary school system is the wrong way around in that weak qualifications determine what is taught and the only things considered worth teaching are those that are assessed. I want to change that to make sure that our qualifications are rigorous and that much of what goes on in secondary schools that is not assessed is properly regarded as valuable.
Richard Burden (Birmingham, Northfield) (Lab)
The Secretary of State has sought to assure the House that he is not looking backwards, but he is being uncharacteristically coy about what he is actually proposing. Is it true that he is seeking to reintroduce something akin to the O-level? If so, how will he avoid the reintroduction of CSEs? The problem is not simply a cap on aspiration, but the stigmatisation of young people in their teens.
Michael Gove
The hon. Gentleman makes a fair point. I have not said more at this stage because at the Department for Education we are considering how to deal with a very real problem. I have laid out what I believe are the problems with the examination system that we have inherited. I am clear that certain points need to be addressed, but I want to ensure that in the collective national conversation about how we address these problems we are clear that we need to end dumbing down and the race to the bottom. To do that, we need to ensure that we look to what happens in the world’s best jurisdictions and learn from our best academics, teachers and the increasing number of parents who recognise that we need to change our education system to keep pace with the world’s best nations.
Tessa Munt (Wells) (LD)
Does the Secretary of State agree that one of the major advantages of a single exam board is that it will allow children in more difficult circumstances—looked-after children, those in military families or those whose parents separate or move for other reasons—to slot straight into the exam board and know exactly where they are going to be for their education?
Michael Gove
My hon. Friend makes a very good point. One of the advantages of avoiding that race to the bottom in single subject areas is precisely the degree of certainty that she alludes to.
Alison Seabeck (Plymouth, Moor View) (Lab)
The hon. Member for South West Norfolk (Elizabeth Truss) talked passionately about the use of the free market in education. In a free market, the weakest go to the wall. Does the Secretary of State support the view that children who need to be supported to aspire and achieve should simply go to the wall?
Michael Gove
I do not. I think that the hon. Lady is misrepresenting what my hon. Friend the Member for South West Norfolk (Elizabeth Truss) said. Forgive me; she would never misrepresent, but she misconstrued my hon. Friend. My hon. Friend was calling for a single exam board in each subject and for steps to be taken to deal with one of the adverse aspects of poorly regulated competition. That is a critical thing that I hope we can agree on across the House. Sometimes, competition can raise standards, but poorly designed competition can sometimes lead to a race to the bottom. We need to recognise when competition is right and when it needs to be dealt with.
Mr Robert Buckland (South Swindon) (Con)
Secondary head teachers in Swindon, some of whom have been meeting me only today, will welcome reforms to the examination board system. Can my right hon. Friend assure me that the terms of reference for setting up the new boards will explicitly refer to rigorous and high standards in future examinations?
Diana Johnson (Kingston upon Hull North) (Lab)
Has the Secretary of State looked at what is done in the country that leads the education achievement tables, Finland, which is very different from what he is proposing?
Michael Gove
I look very closely at what happens in Finland and other high-performing jurisdictions. Finland is in many respects an outlier, but one of the things that is common to it and to other high-performing jurisdictions is a great degree of rigour in the examinations that students take at the end of their studies. A recent report by Ofqual compares our A-levels with some of the qualifications and examinations that Finnish students sit in their final years at school, which are exceptionally rigorous. However, the most important thing about the Finnish education system is that it attracts and retains the very best people in teaching. That is why the changes that we have made to initial teacher training announced last week are so important.
Nicky Morgan (Loughborough) (Con)
The Secretary of State rightly paid tribute to the hard work being done by schools and pupils. Does he agree that it is a great shame that the Opposition have automatically assumed that these proposals are divisive and bad for schools and pupils, not recognising that they are a legitimate way of tackling the problems that employers and universities are telling the Department about?
Michael Gove
That is a typically fair point. I want to seek consensus on the correct way forward, because that is in the interests of all our children. Looking at what has gone wrong in the past, mistakes were made by previous Conservative and Labour Governments, and I hope that we can work together to put them right. I believe that behind the inevitable political commentary by the hon. Member for Cardiff West (Kevin Brennan) there was a recognition, as there certainly is among those on the Labour Back Benches, that we have suffered from a culture of low aspiration for too long and need to address that by raising standards for all.
Mr Speaker
Order. I am grateful to the Secretary of State. I am sorry to disappoint colleagues, but we must move on. I am sure that there will be many opportunities to air these matters in the weeks and months ahead.
Business of the House
(12 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Ms Angela Eagle (Wallasey) (Lab)
Will the Leader of the House please give us the business for next week?
The Leader of the House of Commons (Sir George Young)
The business for next week will be as follows:
Monday 25 June—Consideration in Committee of the Electoral Registration and Administration Bill (day 2).
Tuesday 26 June—Opposition Day [3rd allotted day]. There will be a debate on the national health service followed by a debate on defence. Both debates will arise on an Opposition motion.
Wednesday 27 June—Conclusion of consideration in Committee and remaining stages of the Electoral Registration and Administration Bill (day 3).
Thursday 28 June—Debate on a motion relating to fiscal measures to strengthen the green economy, followed by debate on a motion relating to the appointment of a Minister for older people. The subjects for these debates have been nominated by the Backbench Business Committee.
The provisional business for the week commencing 2 July will include:
Monday 2 July—Motion to approve ways and means resolutions relating to the Finance Bill, followed by remaining stages of the Finance Bill (day 1).
Tuesday 3 July—Conclusion of remaining stages of the Finance Bill (day 2).
Wednesday 4 July—Estimates Day [1st allotted day]. There will be a debate on UK-Turkey relations and Turkey’s regional role, followed by a debate on the work of the UK Border Agency.
Further details will be given in the Official Report.
[The details are as follows: There will be a debate on: UK-Turkey relations and Turkey’s regional role; 12th report from the Foreign Affair Committee of Session 2010-12, HC 1567, and the Government response thereto, CM 8370. Followed by a debate on the work of the UK Border Agency; 15th report from the Home Affairs Committee of Session 2010-12, The Work of the UK Border Agency (April-July 2011), HC 1497, and the Government response thereto, CM 8253, and the Committee’s 21st report of Session 2010-12, Work of the UK Border Agency (August-December 2011), HC 1722.]
At 7 pm the House will be asked to agree all outstanding estimates.
Thursday 5 July—Proceedings on the Supply and Appropriation (Main Estimates) Bill, followed by debate on a motion relating to VAT on air ambulance fuel payments, followed by a further debate to be nominated by the Backbench Business Committee.
Friday 6 July—Private Members’ Bills.
I should also like to inform the House of business in Westminster Hall:
Thursday 5 July—Debate on adoption.
Ms Eagle
I thank the Leader of the House for announcing the business for next week.
The visit to the UK by Aung San Suu Kyi is an opportunity for us to pay tribute to her enormous courage and determination in leading peaceful opposition to the Burmese dictatorship. The personal sacrifices that she has made in spending most of the last quarter of a century under house arrest have been enormous. Her bravery and fortitude have been an inspiration to many and deserve the deepest admiration. Members in all parts of the House will be looking forward to the speech she will deliver to both Houses later today. Because of the courage of Aung San Suu Kyi and others, Burma is finally taking the first tentative steps on the road to democracy. Does the Leader of the House agree that it is important for the UK to do all we can to help to ensure democratic reform in Burma?
If in Burma the signs are promising, in Egypt there are worrying signs that the military is reluctant to give up power, and in Syria the Government’s actions in massacring their own people are completely unacceptable. Will the Leader of the House give an undertaking that the Foreign Secretary will continue to keep the House aware of the efforts being made to ensure the transition to democracy in all these regions?
This week Members will have received a letter from the Culture Secretary announcing a U-turn on the planned draft Communications Data Bill Green Paper, which was to be published this summer. It was delayed until the autumn, and now we are told that it will not be published at all. Instead, we are promised a White Paper some time next year. In his letter, the Culture Secretary told Members that this would incorporate the Government’s response to the Leveson report. Is not the position of the Culture Secretary and the Government getting beyond parody? Does the Leader of the House really think that it is remotely credible for Lord Justice Leveson’s report to be sent to this Culture Secretary to consider, given that he has, to put it kindly, a strong personal interest in the conclusions?
The Prime Minister rushed to the TV studios to condemn the tax avoidance scheme used by Jimmy Carr. Oddly, he did not take the opportunity to condemn as “morally repugnant” the tax avoidance scheme used by Conservative supporter Gary Barlow, who has given a whole new meaning to the phrase “Take That”. If he is also “morally repugnant”, why has he just been given an OBE in the birthday honours? Why is the Prime Minister’s view of what is dodgy in the tax system so partial? Sir Philip Green has interesting tax arrangements, but far from being labelled “morally repugnant” in a Mexican TV studio, he got a Government review to head up.
While the Prime Minister talks the talk in the TV studios, the reality is that his Government are cutting Her Majesty’s Revenue and Customs’ resources, making it much harder to tackle tax avoidance schemes, while in the botched Budget his Government have given every millionaire a legal way to reduce their tax bill by cutting tax for the richest 1%. Will the Leader of the House arrange for the part-time Chancellor to make a statement to explain why the Government are cutting taxes for millionaires when hard-pressed families are struggling to make ends meet?
Another U-turn this week was the admission by the gaffe-laden Minister for the Cabinet Office and Paymaster General that the Government had recruited additional special advisers, breaking the spirit, if not the letter, of the Tory election manifesto and the coalition agreement. May I tell the Leader of the House that the difficulties that the Government are experiencing are not because they have too few special advisers but because they stand up for the wrong people? They make the wrong choices: the wrong choices on the economy, the wrong choices on tax cuts for the richest 1%, and the wrong choices on HMRC funding.
The U-turn on special advisers is the latest in a long line. Will the Leader of the House update Members on how many U-turns the Government have performed over the last month? We have had U-turns on the pasty tax, the skip tax, the caravan tax, aircraft carriers, and the special advisers cap. Have I missed any? [Interruption.] Oh yes, the charity tax. Given this record, and for the convenience of Members, will the Leader of the House, alongside announcing the forthcoming business, in future also announce the forthcoming Government U-turns?
Sir George Young
I suppose that there was a tangential connection with next week’s business in some of that.
May I, too, start on a consensual note and endorse what the hon. Lady said about the visit of Aung San Suu Kyi? We are all looking forward to her address in Westminster Hall. It is a sign of the progress that has been made in Burma that she feels able to leave Burma confident that she will be able to return. It is quite right that this iconic person should be given the opportunity to address both Houses in Westminster Hall later on. It is indeed our objective to play a key role in supporting genuine democratic change in Burma. Aung San Suu Kyi will be seeing the Prime Minister, the Deputy Prime Minister, the Leader of the Opposition, the Foreign Secretary and the Secretary of State for International Development, and that dialogue will take forward the agenda for change. There is a heavy weight of expectation on her shoulders, and I feel some sympathy with her for carrying that burden.
The Foreign Secretary will certainly want to keep the House up to date on the worrying events in Egypt and Syria, so I can give the hon. Lady that undertaking.
On the proceedings on the Leveson report and the way in which that gets reported back to the House, I think that the machinery we have set up is absolutely correct. We debated the position of the Culture Secretary last week, and his position was endorsed in a vote at the end of that debate.
On tax avoidance, we are introducing a number of measures that the Labour party failed to introduce, such as a general anti-avoidance rule and measures to ensure that at least some tax is paid by those on high incomes. Of course, the Chancellor will be at the Dispatch Box on Tuesday to answer questions.
The hon. Lady ended on U-turns and wrong choices. Today I read an article in The Times by the shadow Home Secretary, in which she conceded that Labour did not get it right on immigration:
“In government we didn’t do enough to address people’s concerns on immigration. By the election, we had lost the argument”.
That was one wrong choice, and I welcome that admission. I hope we can expect it to be the first in a series of articles by Opposition Front Benchers outlining their mistakes over the 13 years. When can we expect an article in The Times from the shadow Chancellor, confessing that Labour did not get it right on the economy either?
Mr Greg Knight (East Yorkshire) (Con)
I appreciate that the Procedure Committee published its report on our sitting hours only yesterday, but is the Leader of the House aware of the desirability of the Government’s responding to the report soon so that we can have a debate before the summer recess? Will he use his offices to see that a debate on sitting hours, whether in Government time or in Backbench Business Committee time, takes place sooner rather than later?
Sir George Young
The whole House is grateful to my right hon. Friend and his Committee for their report on sitting hours. I encourage all hon. Members to read it. The Government will of course seek to make an early response to facilitate the debate to which he has referred. I see an advantage in dealing with the section of the report on Monday to Thursday sitting hours at an early stage. I will report back to him and to the House if time for such a debate can be found before we rise for the summer recess.
Natascha Engel (North East Derbyshire) (Lab)
I, too, welcome the report on sitting hours by the Procedure Committee. As a Select Committee report, it almost certainly falls to the Backbench Business Committee to allocate the time. With this being a new Session, I have a new plea. So far, only Thursdays have been allocated for Back-Bench time. Will the Government allocate something other than Thursdays for Back-Bench time, so that not only important reports such as the sitting hours report by the Procedure Committee but other matters with votable motions can be debated not on a Thursday?
Sir George Young
I am grateful to the hon. Lady for that question. Of the 40 days in the Chamber that were allocated to the Backbench Business Committee in the Session that has just ended, 17 were not on Thursdays. It is therefore not the case that they are all Thursdays. None the less, I take to heart her plea for more non-Thursdays. There may be a non-Thursday before the recess. I take her point on board and, as always, we will seek to accommodate the hon. Lady and her Committee as much as we can.
Greg Mulholland (Leeds North West) (LD)
May we have a debate on extending the excellent provisions for councils to borrow to build social housing? Headingley in my constituency is now achieving a better balance between family houses and houses in multiple occupation. However, we want councils to be able to buy properties so that the mix can be extended and the balance improved further.
Sir George Young
I understand my hon. Friend’s keen interest in improving the quality and quantity of the social housing stock in his constituency. I welcome what he said about the freedoms that we have given local authorities recently. I will raise the point with my right hon. Friend the Secretary of State for Communities and Local Government. Apart from local authorities, there is the additional resource of housing associations, which already have the freedom, to which my hon. Friend referred, to buy houses on the open market if they want to. Because they can borrow and top up their allocation with private funds, routing money through housing associations often enables public money to go further than if it was routed through local authorities.
Alex Cunningham (Stockton North) (Lab)
I am sure that the right hon. Gentleman will agree that the Sustainable Communities Act 2007 could do much to protect and promote local public services, jobs and thriving places, and to empower people. We have, however, been waiting for more than a year for the associated regulations. Media reports suggest that the regulations have been signed off by the Minister of State, Department for Communities and Local Government, the right hon. Member for Tunbridge Wells (Greg Clark). May we have a statement from him about when he plans to publish the regulations, or should we just quietly forget the whole thing?
Sir George Young
There are questions to Ministers at the Department for Communities and Local Government on Monday week. In the meantime, I will ask my right hon. Friend to write to the hon. Gentleman to bring him up to date with our plans to publish the regulations to which he has referred.
Paul Uppal (Wolverhampton South West) (Con)
Will the Leader of the House facilitate a debate on the public perception of the politicians in this place and, more specifically and pertinently, now that the dust has settled, on whether that perception was enhanced by last week’s Opposition debate?
Sir George Young
As I said at the end of that debate, it was not a good debate. I would very much welcome a debate along the lines that my hon. Friend has suggested, in which Members from all parts of the House could outline the steps that we can take individually to drive up the public’s perception of and confidence in Members of the House. If such a debate took place, I very much hope that Members on all sides would listen to the repeated injunctions from Mr Speaker that we should use temperate language and have regard to the impact of what we say in this Chamber on those who are watching.
Chris Bryant (Rhondda) (Lab)
I am glad that you have a good sense of timing, Madam Deputy Speaker. I was sitting on the edge of my seat, waiting for news of the Lords reform Bill, but I heard nothing. Will the Leader of the House confirm that when the Bill is introduced, it will include provisions for the ending of the link between a peerage and sitting in the legislature, and that it will end peerages being given to anybody? While we are at it, should we not abolish baronetcies, because now that we have parliamentary knights, who have earned the right, and since a baronetcy can never be inherited by a woman, but only by a man, surely it is time, in an egalitarian era, to get rid of them?
Sir George Young
I think that was a wholly unnecessary and provocative remark! Some baronets were Labour MPs, such as Tam Dalyell. I am not sure what he would have thought about that comment. As the hon. Gentleman knows, we published a draft House of Lords Reform Bill, which proposed some of the measures to which he referred. There was then a report by the Joint Committee on the draft Bill, and the Government are reflecting on it. We will introduce a Bill to reform the House of Lords and plan to do so and to have a Second Reading debate on it before the summer recess.
Gavin Barwell (Croydon Central) (Con)
Will the Leader of the House find time for a debate on the private rail companies? One of my constituents bought a ticket with his young person’s railcard, but when he was inspected on the train he was found not to have the railcard with him. He was charged not only the mark-up to the adult fee, but the full adult fee plus a £60 administration charge by East Midlands Trains. May we have a debate on the practices of some of these companies?
Sir George Young
I am sorry to hear of the misfortune that happened to my hon. Friend’s constituent. I am sure that as his Member of Parliament my hon. Friend will take the matter up with the train operating company to see whether it might consider its actions. There will be Transport questions a week today, when there will be an opportunity to raise the matter with my right hon. Friend the Secretary of State for Transport.
Diana Johnson (Kingston upon Hull North) (Lab)
As the co-chairman of the Conservative party has been travelling abroad on official Government business with her business partner, who has involvement with the extremist Islamic group Hizb ut-Tahrir, may we have a statement from the Prime Minister on whether he will honour his pledge to ban that organisation, which he made before becoming Prime Minister?
Sir George Young
I will raise with the Home Secretary the question of banning that particular group. However, the hon. Lady should be careful about making accusations about who travels along with whom, because I am sure that that is an issue that could be raised by Members on both sides of the House.
Jason McCartney (Colne Valley) (Con)
I, too, would like a debate on anomalies in the rail fares pricing system. Constituents in Marsden and Slaithwaite in my patch are constantly baffled that it costs three times as much to travel just one stop in a direction that goes across different passenger transport executives as it does to go 20 miles in the other direction to Leeds.
Sir George Young
I understand the perplexity of my hon. Friend’s constituents. There is a consultation on ticketing that ends towards the end of the month. I encourage him and his constituents to make representations to that review of ticketing policy. There is a separate consultation exercise on devolving more autonomy to local organisations to resolve issues such as ticketing for local journeys. There are therefore two opportunities to influence the fares structure to which he has referred.
Mr Barry Sheerman (Huddersfield) (Lab/Co-op)
Will the Leader of the House consider having a debate on the quality of management in our country? A recent Chartered Management Institute report suggested that 38% of the managers in this country are not very good at all. That affects every aspect of our lives and ultimately leads to our country underperforming. Given the low morale of staff in this place, which I remarked on only two or three weeks ago, is he doing something about raising the standard of the management of this place so that the people who work here actually feel that we care about them?
Sir George Young
Responsibility for managing the House of Commons is an issue not for the Government but for the House of Commons Commission. As a member of that Commission, I take very seriously, as I know the hon. Member for Wallasey (Ms Eagle) does, our responsibility to the staff who work here, who give us a good quality of service. We are aware of some areas of concern and my door is open to representatives of the staff of this House to come and talk to me. On the broader issue, the Enterprise and Regulatory Reform Bill currently going through the House may offer an opportunity to debate the quality of management in this country.
Jackie Doyle-Price (Thurrock) (Con)
The nation’s corner shops rely heavily on tobacco sales to sustain their business. As the Government are pursuing a number of policies designed to reduce tobacco consumption, may we have a debate on how we can support our corner shops, which are a lifeline in so many communities?
Sir George Young
I note what my hon. Friend says about the importance of small shops. So far as standardised packaging is concerned, there is currently a consultation exercise, which I think ends on 10 July, on the case for and against standardised packaging of cigarettes. The Government have not made up their mind—we want to await the outcome of the representations that have been made—and I urge my hon. Friend and her constituents, if they have not already done so, to join members of relevant trade associations in making representations to the Department of Health on this important issue.
David Wright (Telford) (Lab)
The chief constable of West Mercia police has indicated that a strategic merger between the force and Warwickshire will result in a reduction in front-line officers and police community support officers. Will a Minister come to the House to explain why the promise that there would be no front-line reductions in police has been broken?
Sir George Young
I am not sure that there are active proposals to do what the previous Government proposed—they were persuaded not to do it—and merge some of the police forces in this country. So far as front-line services are concerned, the Home Secretary has repeatedly made it clear that although police authorities have to take difficult decisions, we believe that through having joint services and intelligent commissioning, by getting other people to carry out some of the services currently performed by police officers, the quality and integrity of front-line services can be maintained.
Mr Rob Wilson (Reading East) (Con)
Local Reading mum Rebecca Rye has raised concerns with me about the health effects on her son Edward of so-called energy drinks. Given the growing research evidence, including a paper from the university of Miami, there is significant cause for concern for vulnerable groups about effects such as seizures, strokes and even sudden death. As parents are very concerned, may we have a statement from a Health Minister or a debate in Government time about this very important subject?
Sir George Young
I understand my hon. Friend’s concern. There is concern about the impact on some people of high energy drinks. The UK Food Standards Agency considers that the effects of caffeine are transitory and without permanent health effects. It has published advice that children and other people who are sensitive to caffeine should consume such drinks only in moderation. If my hon. Friend has further evidence, the FSA and the Department of Health would very much like to have a look at it to see whether that advice needs revision in the light of the evidence.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
This week, the Welsh First Minister said on the Floor of the Senedd that he was actively canvassing for the relocation of Trident to Milford Haven. The reaction of the people of Wales to this news is one of horror. Will the Leader of the House ask the Secretary of State for Defence to make a statement on what progress there has been in the intergovernmental negotiations on this issue?
Sir George Young
We had Defence questions a few days ago, on Monday last week, and I do not think that the opportunity to ask Defence questions arises again until September.
Sir George Young
In the mean time, I will ask my right hon. Friend the Secretary of State for Defence to write to the hon. Member for Carmarthen East and Dinefwr (Jonathan Edwards) to bring him up to date with the discussion to which he has just referred.
Stephen Mosley (City of Chester) (Con)
My right hon. Friend may be surprised to hear that a city with the cultural history of Chester does not have its own permanent theatre. However, the local council has inspirational plans to build a new 800-seat theatre in the city centre. May we have a debate on funding for art facilities so that I could highlight and champion this exciting project?
Sir George Young
I am delighted to hear that the City of Chester is contemplating having a theatre and that it has the strong support of my hon. Friend. He will know that decisions on capital funding for projects like this are made by the Arts Council at arm’s length from central Government. If he has not already done so I encourage him and his local authority to contact the Arts Council to make sure that this is on its radar and that there is a constructive dialogue about how we might make progress. I am sure that my hon. Friend will be invited to the opening if and when it is built.
Ian Lucas (Wrexham) (Lab)
Project Merlin was announced to the House with great fanfare by the Chancellor of the Exchequer. Its catastrophic failure led the Chancellor to make a series of announcements in his Mansion House speech, but despite the fact that we had a Treasury statement last Thursday, the Chancellor still has not come to the House and given us an opportunity to question him on this matter. I know that the Leader of the House genuinely believes in the importance of this Chamber, but why have we not had an opportunity to speak to the Chancellor about this?
Sir George Young
The Chancellor of the Exchequer will be at the Dispatch Box next Tuesday.
Mr Gary Streeter (South West Devon) (Con)
For many businesses in South West Devon, overheads such as rent and staffing costs are fairly stable, but business rates seem to be escalating out of control, often for precious little in return. The situation is made worse by an appeal system that is completely clogged up and that takes months to navigate. What do the Government intend to do to clear this logjam and ensure that my constituents receive a swifter, fairer hearing?
Sir George Young
I am sorry to hear about any delay in hearing appeals from my hon. Friend’s constituents about the rateable value of their business premises. I will certainly pursue that with Ministers at Department for Communities and Local Government. It is worth putting it on the record that we have doubled small business rate relief, which helps roughly half a million small businesses. Also—this may be of relevance to my hon. Friend—we have scrapped Labour’s ports tax, thereby helping many businesses operating in areas such as Plymouth.
Mark Pawsey (Rugby) (Con)
The crossroads of the UK’s motorway network is the junction of the M1 and the M6 at Catthorpe, which is used daily by many businesses based in Rugby. The Government have rightly scheduled funds for an upgrade, but there have been two serious accidents in the past week, one of which involved yet another fatality. May we have a debate to consider what temporary measures could be taken immediately and how to make permanent changes to avoid further loss of life?
Sir George Young
I am sorry to hear about the loss of life. As my hon. Friend has said, we have committed funds to this project, but I think a public inquiry is needed first. The Highways Agency is aware of the recent accidents and, subject to the result of police investigations into their causes, will look at what measures might be possible to improve the safety of the junction in advance of the major improvements to which my hon. Friend has referred.
Tessa Munt (Wells) (LD)
Will the Leader of the House find time for us to debate last Thursday’s announcement by the Secretary of State for Work and Pensions on child poverty and the forthcoming consultation on how it is measured and on whether this means that the Government are opening up the Child Poverty Act 2010?
Sir George Young
My hon. Friend raises an important point and there will be a debate on social mobility in Westminster Hall on 28 June, in which it might be possible for her to raise this issue. We take seriously the commitment to tackle child poverty. As my right hon. Friend the Work and Pensions Secretary has said, we believe that the current measurements are wrong. Discussions are under way to see whether there are better measurements and whether we need to look beyond having a simple mathematical calculation of poverty and look at some of the root causes to make sure that they are tackled as well.
Mr Peter Bone (Wellingborough) (Con)
I know that the Leader of the House is extremely keen that Members should hear new Government policy first, or at the earliest opportunity. As Ministers cannot make statements here first—they seem addicted to going to television studios and newspapers—would it be possible each week to publish in which television studios, programmes and papers these statements are going to be made?
Sir George Young
I think that the first debate chosen by the Backbench Business Committee was one on ministerial statements. There was then a report by the Select Committee on Procedure, which we debated. I have consistently made it clear that Ministers take seriously their obligation, when the House of Commons is sitting, in the first instance to announce major changes of policy to the House. That is the policy of the Government, of which I constantly remind my Cabinet colleagues, and we intend to adhere to it.
Robert Halfon (Harlow) (Con)
May we have an urgent statement on the European Union and animal experiments? My constituent Louise Jackson is concerned about a new EU directive which will scrap the historic protection that Britain has granted to stray cats and dogs, stopping them being used in laboratory experiments. Losing a pet is distressing, but the idea that it could end up in someone’s lab is unacceptable. Will my right hon. Friend urge the Government to stand up to Europe on the issue?
Sir George Young
Like other hon. Members, I have had representations from constituents who share the concern referred to by my hon. Friend. I can give him a categorical assurance that the UK does not allow the use of stray dogs and cats in animal experiments. We do not envisage any circumstances in which the use of stray animals could be justified in future.
Nick de Bois (Enfield North) (Con)
May we have a statement from a Local Government Minister on the performance of councils with respect to revenue collection? The Leader of the House will be as shocked as I am that Labour Enfield council has failed to collect £4.9 million in unpaid penalty charge notices since 2010 and yet, despite that, it is putting up parking charges, which are harming our town centre and introducing new charges on a Sunday.
Sir George Young
I understand my hon. Friend’s concern, which he has expressed on several occasions at business questions. I understand that a meeting is taking place in Enfield on 4 July and I encourage residents who are opposed to what is planned to go along to that meeting. So far as the Government are concerned, we have removed the policy of setting charges to discourage the use of cars and we have introduced the policy that parking enforcement should be proportionate but, crucially, we expect local authorities to have regard to the impact of parking charges on businesses in the town centre. I commend my hon. Friend for the vigorous campaign that he has launched.
Philip Davies (Shipley) (Con)
May we have a debate on honesty in prison sentences? According to a parliamentary answer from the Ministry of Justice this week, someone who is sentenced to prison for six months can be released in six weeks, someone sent to prison for 12 months can be released after three months, and someone sent to prison for two years can be released after seven and a half months. A debate would allow the Government to explain to my constituents why that is a satisfactory state of affairs, and if they do not think it is a satisfactory state of affairs, perhaps they could explain what they will do about it.
Sir George Young
In the previous Session we had extensive discussions on the Legal Aid, Sentencing and Punishment of Offenders Act 2012. During the passage of the Bill, my hon. Friend raised many of those issues. Some of his suggestions were dealt with by my right hon. and learned Friend the Secretary of State for Justice in response. We have no plans for another debate on sentencing policy, but it is open to my hon. Friend, as a former member of the Backbench Business Committee, to seek a Back-Bench debate in Back-Bench time.
Interest Rate Swap Products
(12 years, 6 months ago)
Commons ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Guto Bebb (Aberconwy) (Con)
I beg to move,
That this House has considered the matter of the mis-selling of interest rate swap products to small and medium-sized businesses; notes the work undertaken by the Financial Services Authority in this respect; and calls for a prompt resolution of the matter.
I thank the Backbench Business Committee for awarding me the debate. It has received a number of fine applications for time in the main Chamber and I am grateful for the opportunity to raise the issue of the mis-selling of bank interest rate swap products. A number of colleagues have indicated their willingness and a desire to speak in the debate, so I shall try to be as concise as I can in my opening remarks.
The issue came to my attention in dealing as an MP with the hassles raised in constituency surgeries. It is a great advert for doing surgeries: we never know what will come through the door. Back in the autumn of last year, a constituent came in to talk about interest rate swaps, collars, caps and similar things. I was a self-employed business person for 15 years before I was elected to this place, and it crossed my mind that this business man who was talking about the loss of his business and his hotel and the potential loss of his house might be finding an excuse for his business failure. I am not a hard-hearted individual, but I have been in business for a long time and I have the view that there is the rule of buyer beware in transactions with banks and other financial institutions. I therefore listened to his case attentively but with a degree of scepticism, wondering whether he was looking for an excuse for what happened to him.
The more I listened, however, the more I thought that there was something that I should look into, and the crux for me came when I tried to get hold of the verbal agreement between my constituent, Mr Colin Jones, and his bank. It took us a long time to get the bank to allow us to see a transcript of the verbal agreement, and by that point I understood something about the nature of interest swap derivatives and what was meant by swaps, caps and collars. I had a degree of understanding that we were not considering a straightforward financial product.
My concern, which became apparent from the transcript, was that time and again—on four if not five occasions—during the telephone conversation that was the basis of the legal agreement the bank described the product as a fixed rate one. The bank even went so far as to say, in essence, “Mr Jones, it is basically a fixed rate product. It will protect you in the same way as a fixed rate product would protect your house.” His problems and the financial effect of his decision to sign up to that product have been extremely damaging. He was misled, given that the description of the product as akin to a fixed rate product was, to say the least, economical with the truth.
Alison Seabeck (Plymouth, Moor View) (Lab)
I congratulate the hon. Gentleman on securing this debate. I apologise for being a tad late in getting to the Chamber. I assume that the person his constituent was talking to was fully qualified under the Financial Services Authority to sell that product. I have some constituency business in which, clearly, there is a real issue about the competence and qualifications of the person doing the selling. Has the hon. Gentleman come across any similar problem either in his constituency or as a result of this debate being called?
Guto Bebb
There have been examples of such scenarios, which have come across my desk as a result of what has now become a campaign. One of the reasons for holding the debate is to ensure that more cases come forward, because the more information we have, the easier it will be for the FSA, for example, to bring the issue to a resolution and for the banks to acknowledge that there is a problem. The hon. Lady makes an important intervention.
Paul Uppal (Wolverhampton South West) (Con)
I have a slight confession to make. I spent a great deal of my 20 years in business dealing with swaps, collars, caps and all sorts of financial instruments. The case highlighted by my hon. Friend of its being a fixed rate product in a sense misses the point. In general, such products were hedges—they were there to mitigate risk. A lot of customers went awry because the bank would often present the products as a loan but would gear up much more if the risk could be mitigated. Such financial products were often sold on that basis.
Guto Bebb
That is an important point. My comments will state clearly that those products are not necessarily wrong. The question at stake is whether the products were sold appropriately, and whether there was a degree of mis-selling. Sophisticated investors, understanding what they are doing, should have the right to enter into such agreements. My question is whether the banks should be going after businesses with turnovers of less than £200,000 a year.
Nick de Bois (Enfield North) (Con)
I have a constituent, whom I will not name for understandable reasons, who has suffered a loss in excess of £1.5 million as a result of such a product. Does my hon. Friend not agree that the banks have an extra responsibility, because they are often dealing with inexperienced people who, nevertheless, place a massive trust in their long-term relationship with their banks?
Guto Bebb
That is a key point. Time and again, businesses have told me that their relationships with banks go back 15 or 20 years, and that they believed the banks had their best interests at heart. In some situations, however, they have clearly been sold products that they did not understand, but they trusted their bank manager because they had dealt with them for so long.
Having been persuaded by Mr Jones’s transcript to look into this issue, I started asking questions, and as a result I came across the Federation of Small Businesses working hard on this issue and the organisation Bully-Banks. We have identified literally thousands of businesses that have been affected, and debates such as this are necessary to show that the House understands and cares about the problem and wants to see a resolution.
John Healey (Wentworth and Dearne) (Lab)
I congratulate the hon. Gentleman on his leadership of this debate. He is looking for evidence and examples, but has he come across Guardian Care Homes, a firm with two care homes in my constituency? Its problem was that the term of the swaps that it was sold far exceeded the term of the loans to which they were linked.
Guto Bebb
That is a key issue. In many cases, the term of the swap is longer than that of the loan, which the Financial Services Authority believes to be evidence of mis-selling.
Evidence about the background to interest rate swaps suggests that banks started to target small businesses from about 2006 onwards. The practice was probably curtailed in 2008-09, although there are a few examples of such products being sold after that. In a number of cases, banks have settled with businesses out of court. My concern is that banks have placed significant gagging orders on those businesses, which stops them explaining the terms and conditions of the settlement.
Existing regulations should have been taken into account when these products were sold. Swaps are financial derivatives covered by section 85 of the Financial Services and Markets Act 2000. They are, therefore, a regulated product and any adviser who tries to sell them has a duty to understand the needs of their customer. That is a key point. A fair, clear and not misleading explanation of the product must be provided to the customer, yet in many of the cases I have seen the information provided was far from satisfactory.
Damian Collins (Folkestone and Hythe) (Con)
I, too, congratulate my hon. Friend on securing this debate. Does he share my concern about the experience of Castlewood Hotels in my constituency? It was sold such a product by the bank and told that if it did not accept it, its business could be in jeopardy in future.
Guto Bebb
Again, that is an important point. In significant numbers of cases a swap product has been sold to a business as a condition of a loan being made available, so that the future availability of credit was dependent on the acceptance of a swap product. Obviously, a business in need of finance would be persuaded of the need to take up that product in order to receive finance, and that is a key issue.
Mr Tyrie
I am grateful to my hon. Friend for securing this important debate. As he will know, the Committee is already looking into this matter and has written to the FSA and the Financial Ombudsman Service asking them to investigate fully and get back to us. He may not be aware, however, that we also raised this issue with the chairman of the FSA, who has promised to provide a progress report by the end of July. The Committee is extremely anxious, not least because a number of its members, including me, have seen constituents with exactly the sort of complaint my hon. Friend outlines.
Guto Bebb
I am aware that the FSA has promised to provide a progress report, and I sincerely hope that that will be with us before the end of July, if not sooner. My concern is that businesses are being put into administration as we speak—we have seen examples of that this week alone—and in the current economic climate we should not accept the loss of any businesses or jobs as a result of mis-selling.
Nicky Morgan (Loughborough) (Con)
Do we not also need to get on with it because lots of claims are time-limited? Some of my constituents have only until October this year to launch a claim, and they need to know the position of the FSA and the Financial Ombudsman Service so that they can decide whether to have recourse to the law.
Guto Bebb
That is an important point. As many of these products were sold from 2006 onwards, many affected businesses are now watching the clock run down on their opportunity to take action. That crucial point should resonate within the Chamber and outside.
In addition to the two duties I have mentioned, advisers must also take reasonable steps to show that the client understands the product and the risks involved. The bank must also take steps to ensure that the product is suitable. Mr Jones was sold a product by RBS. I wrote to RBS on his behalf, and was shocked that, in one transaction, I could highlight seven breaches of conduct of business sourcebook regulations. I cannot take the time to go through all seven examples, but I shall give a few. For one, RBS never sought to quantify the termination costs for the swap, which is a pretty severe piece of negligence, in my view. Neither did it take reasonable steps to ensure that it was in possession of sufficient personal financial information about Mr and Mrs Jones, which is also a big issue. It did not take reasonable steps to ensure that they understood the nature of the risks involved or provide a suitability letter. These are breaches of COBS rules and should be taken very seriously. To break seven such rules in one case raises the question: what were the banks doing?
I can highlight a number of general mis-selling examples. In some cases, businesses have been provided with a product not suitable for them and products have been described as similar to fixed rate mortgages, as I have already mentioned. There are also numerous examples of no opinion analysis being provided, meaning that a business was offered one product alone. I challenge the banks to state that that was not because of commission issues.
Mark Tami (Alyn and Deeside) (Lab)
That is the key. Many businesses have contacted me about that very point. It was a case of, “Take it or leave it.” Only one product was offered, and obviously people who needed finance for their businesses took it, with the dreadful consequences we have seen.
Tessa Munt (Wells) (LD)
That is a good point. I have a constituent, whom I will not name, who is a farmer and was offered such an arrangement completely inappropriately. He said specifically that he did not want it. None the less, his bank, Barclays, wrote to him on 6 June 2008 with a contract, which he read in detail, but on 10 June sent him the final contract, into which it had slipped two clauses that turned it into this sort of agreement. He accepts that he probably should have read the second document, but it did not indicate at all that it had changed the arrangement. That was very poor.
Guto Bebb
That is another example that should be taken on board in this debate.
Another example of general mis-selling already touched upon is where a swap is for a period longer than the loan. I have also seen examples of where the swap was for a sum in excess of the loan. Another crucial example is where the break cost for terminating the swap was described in one e-mail from a bank as being £9,000 but, three years later, when the customer approached the bank to break the swap, a figure of £135,000 was quoted to settle. I fail to understand how it could go from less than £10,000 to £135,000 in three years. That is another example of mis-selling. Another one worth mentioning is where the bank classified the client as a professional client and experienced derivative trader. I can assure the House that the business in question was blissfully unaware of the nature of the product it was buying, yet, for paperwork purposes, the bank had described it as a professional client rather than a retail client.
It is generally agreed that there is an issue here. The FSA accepts it is an issue. Bully-Banks, an organisation representing 350 victims, has done some work highlighting that 96% of businesses in its organisation were approached about such products by relationship managers. Businesses did not go looking for these products; they were approached with a solution to a problem that often they did not have. Some 87% of businesses surveyed by Bully-Banks were unaware that the adviser was not an adviser but a salesperson, and there was a general lack of understanding. In 95% of cases, businesses stated categorically that they entered into these agreements on the basis of advice and guidance given by their bank relationship managers.
Steve Baker (Wycombe) (Con)
I would like to offer my hon. Friend an explanation of why banks are doing this kind of mis-selling. In my private Member’s Bill last year on the regulation of derivatives, I explained how mark-to-market rules allowed banks to up-front unrealised cash flows to declare profit immediately on moneys that they have not received. I wonder whether the Treasury Committee will investigate whether that is a key factor in encouraging this bad business.
Madam Deputy Speaker (Dawn Primarolo)
Order. Before the hon. Gentleman rises to deal with that point, may I gently remind him that he was supposed to speak for about 10 minutes? He has been extremely generous in taking interventions, but there is a time limit for everyone else who wants to contribute, and it is getting shorter the longer he speaks.
Guto Bebb
Thank you for your guidance, Madam Deputy Speaker. I will refrain from taking any more interventions and finish my comments.
The figures from Bully-Banks illustrate the fact that businesses feel that they have been mis-sold such products. The final figure from Bully-Banks that is worth mentioning is that 75% of its members claim that the swap product was a condition of the loan agreement that they entered into. Some Members might say that the way forward is therefore for individual businesses to take legal action on that basis, but I have concerns about that. A solicitor said to me yesterday that the problem in England and Wales is that the law is far too bank-friendly. There is a concern that in many cases businesses that take legal action face costly cases before the banks finally settle and put in place a gagging order. It is also a concern that small businesses should be expected to fund their own cases when they are already in crisis
Glyn Davies (Montgomeryshire) (Con)
Will my hon. Friend take an intervention?
Guto Bebb
I will not take another intervention, due to the guidance from Madam Deputy Speaker.
Small businesses that have to take legal action also face the risk of losing the support of their banks. There are examples of loans being called in or overdraft facilities being taken away from businesses that are taking action. I therefore do not think that the way forward is necessarily to expect individual businesses to take action against the banks, unless we can have some certainty that the banks will not act in that way.
The scale of the problem is significantly greater than we have accepted to date. Today the Law Society Gazette gives the figure of about 4,000 businesses affected, with about £1 billion-worth of potential claims. In my view that figure is probably an underestimate, so the scale of the problem should be taken seriously.
Let me state what I am calling for from this debate. It is very easy to have a debate in which we all highlight our concerns about individual businesses and our belief that the banks have behaved badly, but this House has a responsibility to try to offer a solution. We need to encourage the Financial Services Authority to move more quickly to a resolution of this issue. It needs to inform the banks that, for example, they have an obligation and a responsibility to act fairly with their clients. We also need some transparency from the banks about the exact size of the problem. We know, for example, that between 2006 and 2010 the banks engaged in significant amounts of swaps. Some of them might have been completely legitimate, but quite a few were sold to small businesses.
Those small businesses are feeling under pressure from their banks, so my specific request today is for the Minister to call on the FSA to give written assurances that the banks will not adversely treat any business that makes a complaint. We live in a country governed by law. If a business wants to make a complaint, it should not be subject to undue pressure from its bank. In the same way, if a complaint has been made to a bank or the FSA, the bank should refrain from foreclosing on that business. Those are my short-term requests for the Minister. In the long term, I think it is crucial—
Madam Deputy Speaker
Order. The hon. Gentleman was allocated 10 minutes. He has now been speaking for 20 minutes. There are about 15 Members wishing to take part in this debate, which is due to conclude at 2.30 pm. Will he please now make one more, brief remark and then resume his seat?
Guto Bebb
I was coming on to my final request, which is that in the long term we must avoid a repeat of what happened with PPI—payment protection insurance—which has created an ambulance-chasing gift for solicitors of disreputable means. We should have a system that allows such cases to be settled in a constructive manner, in agreement between the FSA, the banks and their clients.
Madam Deputy Speaker
I remind Members that the time limit is eight minutes for Back Benchers. There are a large number who wish to participate in this important debate. It may therefore be necessary to reduce the time limit. We shall have to see how we proceed, but we shall start with eight minutes.
Emma Reynolds (Wolverhampton North East) (Lab)
I, too, would like to applaud the hon. Member for Aberconwy (Guto Bebb) for delivering such a fantastic speech. I want to tell the House about a similar case in my constituency. It is the case of Guardian Care Homes, and it has already been mentioned by my right hon. Friend the Member for Wentworth and Dearne (John Healey). The company’s headquarters are in my constituency, but it employs about 900 staff in 30 care homes across the country. Small and medium-sized enterprises such as these need to be supported, rather than exploited.
I recently met members of the senior management at Guardian Care Homes, and I was shocked by what they told me. In 2007, they were sold two interest rate swap products, which were taken out against existing loans that had been taken out to improve the business model and to improve the care homes. They also said that the bank that sold them the products told them that this was a condition of getting the original loans, and that the products would protect them against interest rate rises. They were not informed of the dangers and financial implications of interest rate falls, however. According to Guardian Care Homes, the bank did not at any point during the sale of those swaps fulfil its obligation to explain that such costs could be incurred.
Guardian Care Homes also discovered that the swaps that had been sold to them vastly exceeded the original terms of the loans, by 10 and 15 years respectively, which made things incredibly difficult for the company in the long term. An independent study of this specific case recently described the bank’s behaviour as reckless, and a complaint has been made against the bank. It beggars belief that banks were requiring SMEs to take these products alongside loans, and I look forward to hearing the Minister’s response to these points today.
Even if the case involving the company in my constituency had been a one-off, it would have been extremely worrying, but there appear to be hundreds, if not thousands, of SMEs in the same situation. I am sure that we shall hear of cases in other right hon. and hon. Members’ constituencies later. Anecdotal evidence from SMEs suggests that, in many cases, swaps were bought without the companies having received any legal advice on their nature. The banks have a duty when selling financial products to ensure that the products and the risks involved are identified to businesses, and that there should be no coercion involved. I have written to the bank in question and requested that no punitive measures be taken against the company in my constituency while the complaint is ongoing.
Glyn Davies
The scale of this problem is far greater than we are being told. I have two examples in which the people I have spoken to are not going to take action. They have other clients and they are afraid to take action because they fear that they will be punished and that future relationships could be damaged. This is a huge problem, and we are seeing only part of it.
Emma Reynolds
I totally agree with the hon. Gentleman. I would very much like to hear from the Minister today whether the Government have a grasp of the scale of the problem, as it is certainly significant.
John Healey
Like my hon. Friend, I have written to the head of Barclays, which was responsible for selling the two swaps that have cost Guardian Care Homes at least an extra £12 million so far. Does my hon. Friend agree with the point being made on both sides of the House that such small companies are often afraid to complain, for fear that their loans will be pulled? Does she also agree that a moratorium is needed following complaints, and that firms should be able to make collective challenges for redress?
Emma Reynolds
I thank my right hon. Friend for making those points, and I hope that the Minister will be able to respond to them in due course, if not today.
There seems to be an extremely worrying level of coercion involved in the banks’ selling these products to small businesses without making sufficient information available. I have no doubt that what happened to the company in my own constituency has been replicated across the country. That is regrettable at a time of such difficult economic uncertainty when small businesses are the backbone of the British economy. We need to make sure that they are supported, not systematically exploited.
Tessa Munt
I have a quick point. One of my constituents took his local bank manager to Bristol to talk to Barclays about what had happened, yet that local bank manager did not understand it. If bank staff do not understand what is going on, how is a farmer who has so many things to consider every day meant to understand it?
Emma Reynolds
The trust between the bank and SMEs certainly seems to have been exploited, as the hon. Member for Aberconwy demonstrated, although one would have hoped that the banks would support small, viable businesses rather than exploit them.
Emma Reynolds
I shall not speak for much longer, as I know others want to contribute.
Let me end by asking the Minister a few specific questions. Will she reassure us that the Government are taking this issue seriously? What are the Government doing to ensure that SMEs struggling with these swap agreements are supported in the short term and will not have punitive measures imposed on them by the banks if they complain? What steps are the Government taking to ensure that this practice will not happen in future? Do they have any idea of the time scale for the Financial Services Authority report?
Mr Dominic Raab (Esher and Walton) (Con)
The hon. Lady is making her case in a typically powerful way. One of my constituents sought legal recourse against Barclays and was subsequently threatened with foreclosure of his loan, which would result in him being forced to sell his house, even though he was not in arrears, unless he signed a waiver removing his right to take legal action. Does the hon. Lady agree that such punitive action is utterly unconscionable?
Emma Reynolds
I think it is utterly disgusting that this is happening. We are told that our banks are too big to fail. They have taken advantage of significant Government intervention, yet now we find that they are not even supporting viable small businesses across the country. Something needs to be done about this urgently, so I look forward to hearing what the Minister has to say.
Caroline Nokes (Romsey and Southampton North) (Con)
I start by adding my congratulations to my hon. Friend the Member for Aberconwy (Guto Bebb) not only on securing today’s debate, but on the immense work he has done on this subject over the past few months.
I do not pretend that the mis-selling of interest rate swap agreements is a huge issue in my constituency; in fact, it has been raised by only a very small number of constituents who are local business owners. For the individuals affected, however, it is a massive issue, and as they contribute to the local economy, provide jobs for local people and use local services to assist with their businesses in the region, the knock-on effect has the potential to be very significant indeed.
It has been reported that RBS and Barclays, two of the UK’s biggest high street lenders to small business, have sold roughly 7,000 of these products between them. I can certainly add Lloyds bank to the list, as one of my constituents has had significant difficulties with that bank, which sold him this product several years ago.
Interest rate swap agreements are highly complex. As one of my constituents pointed out, these are the territory of corporate bankers, but have been sold to chip shop owners, to care home providers, as we have heard, and indeed to landlords. A constituent who approached me is the owner of a company that rents out a significant number of properties in Southampton, largely to the student market. He pointed out that, should his company fail, 1,000 individuals could be turfed out on to the streets of Southampton in the middle of their studies. What redress do these businesses have should it all go wrong?
Fear of the bank calling in the debt has kept many quiet. Micro-businesses have the option of going to the Financial Ombudsman Service, but that is possible only for those with small turnovers employing fewer than 10 people. My affected constituents are not eligible for assistance from the ombudsman, having too high a turnover and too many employees. So they have been forced to consider court action. However, as one of them said:
“how can you sue a bank you need to support you?”
In any case, the maximum redress the Financial Ombudsman Service can award is limited to £150,000, which is scant compensation when one of my constituents assures me that he has been charged an additional £6.1 million on a £3 million loan and he has already made payments into the interest rate swap agreement of over £1 million.
Damian Collins
Does my hon. Friend agree that this looks like old-fashioned extortion? Were the banks not simply trying to obtain the maximum possible rate, with the threat that rates might rise even higher unless people took advantage of the product?
Caroline Nokes
Let me reply to my hon. Friend by quoting a constituent who said to me, quite seriously, “I would have been better off going to Wonga.”
I welcome the FSA’s decision to review these products, and sincerely hope that the outcome will be assistance for the thousands of small businesses that have been affected. We should not forget that they are the lifeblood of the British economy. As that same constituent said, he is paying £3 million on top of the interest on an £8 million loan. The loan was for only three years, but the swap product was for 10. As he said, if he had not been stuck in the product he would have expanded more, employed more people, and paid more tax to the Exchequer. He also came out with a fantastic remark which really hit home in describing precisely the sort of small business man to whom these products have been sold. He said, “I left school with no qualifications. I learned my maths by scoring darts at my father’s pub. Yet suddenly I am involved in interest rate future, caps, collars, derivatives, curves, flows. All I wanted was a loan.”
My constituent is in no doubt about the fact that the loan to expand his business was dependent on the swap product. He has been quite clear about the position. His bank has been threatening him, telling him not to raise the matter with his Member of Parliament or to pursue the complaint via the courts. Land sales over which the bank has had a charge have been delayed until he makes his intentions regarding court action known to the bank. All the while, his business has been saddled with a swap product which, against the odds, he has managed to service. It has cost him more than £1 million over the last four years, and his business, family and employees have faced uncertainty.
I commend the work of my hon. Friend in pursuing this issue. I have no doubt that, as the motion says, prompt action is needed to ensure that small businesses do not continue to suffer as my constituents have. Their banks must not be allowed to threaten them.
Sandra Osborne (Ayr, Carrick and Cumnock) (Lab)
I, too, congratulate the hon. Member for Aberconwy (Guto Bebb) on securing the debate, and on the work that he has done in encouraging Members in all parts of the House to become involved in local cases.
My constituents do not want their names to be used because they are embarrassed by their position—although they have no need to be, because, as we have already heard today, they are not the only ones to find themselves in such a position. In November 2007, they were invited to a meeting in Glasgow by the Bank of Scotland. There was a fancy PowerPoint presentation, but it did not explain adequately the downside of the product that my constituents were being offered. Indeed, this was described by the bank’s relationship manager—which is a laugh in itself—as a win-win situation. The Herald, which has taken up the cause, described it rather more accurately as a “heads they win, tails you lose” situation.
The contract was struck verbally in a tape-recorded conversation. My constituents had had a 20-year relationship with the bank, and it seemed reasonable to rely on verbal trust and good will, because that had been their experience over all those years. They believed that they could take the bank’s word, and that the bank would follow through what had been agreed. They are shocked by the scale of the impropriety that they have witnessed, and we know that they are not alone in that view.
The bank’s behaviour in derivative selling has been reprehensible. It has bottled out, in the words of my constituents, because the rate swing does not suit it, and it has no appetite to proceed with what was agreed although no risk is posed to it. My constituents feel that the bank should be compelled to implement its selling commitments, or at least to reverse the arrangements as far as the point of sale to remove the premium/penalty element, which it is working both ways to suit itself with no regard for what it agreed with its customers. It seems confident that it can get away with that because the structuring of the arrangements relied on verbal trust and good will.
To add insult to injury, the bank has destroyed the tape of the conversation, wiping out the evidence that proves the verbal side of the bargain. When they requested the tapes, they were first told the bank had them, then they were told they had been lost in the wake of the bank merger, and finally they were told the tapes had been destroyed as the bank keeps them for only one year. How convenient for the bank. That has left my constituents even more vulnerable, however—and, frankly, conned. The bank refuses to discuss the matter with them in any meaningful way, denying a meeting with anyone with any genuine decision-making power. This has been ongoing for months, and they received a response to their complaint only yesterday. It was a glib and bland response; the bank did not engage in any meaningful way with what was a very detailed complaint.
Mr Clive Adamson of the Financial Services Authority told me its rules require the firm to investigate the complaint and respond to the consumer within eight weeks. The bank is therefore breaching FSA rules in respect of the complaints procedure, in addition to its conduct in the original sale.
So far, these are the only constituents who have contacted me on this matter, but I feel sure many more of them have been affected. The Herald estimates hundreds of struggling Scottish businesses have been caught up in this, with the 83%-taxpayer owned Royal Bank of Scotland alone costing thousands of UK companies £3 billion in extra bank payments. Its investigation shows that UK small businesses—which, as we all know, are crucial to our economic recovery—may have paid at least £10 billion in extra interest costs for IRSPs, and face extra liabilities of over £20 billion, potentially impacting on 80,000 jobs.
This is not a trivial matter. It has consequences for economic growth as well as for the individual businesses concerned. The financial ombudsman has rejected 66 complaints relating to the sale of IRSPs against RBS, apparently because the banks have a disclaimer saying that they do not give advice. How do we define “advice”, however? There was certainly hard-sell, weighted towards the positive aspects of deals, and it appears that the banks did not abide by their responsibility to ensure that any product they sell is appropriate, in the customer’s best interests and fully understood.
I realise that these are complex financial instruments that take time to investigate. However, action must be taken as soon as possible. It is undoubtedly true that regulation has in the past been insufficiently robust, so I welcome the creation of the Financial Conduct Authority, especially as it will focus on early intervention.
Previous mis-selling situations have gone on and on, and have caused a great deal of distress to the victims. We know from experience that the worry these issues causes can lead to serious health problems and some people die before justice is done.
We already know that the banks are not being transparent over this matter, and in some cases are being downright obstructive and unco-operative. We should not allow stalling tactics to impede putting in place a remedy. It is our responsibility as elected representatives to take this up immediately and encourage those who have been affected to come forward. Experience shows that a collective response is more effective in getting things sorted out.
It is not in the interests of the banks to have another long-running mis-selling scandal unfolding in a very public way. That will do nothing to restore public confidence. I understand that there is a six-year time bar for claims as well. Speed is of the essence, therefore, and I urge the Government to do all they can to make sure this situation is dealt with quickly.
Mr Deputy Speaker (Mr Lindsay Hoyle)
Order. Because so many Members wish to speak, the time limit on contributions will now fall to seven minutes.
Ian Swales (Redcar) (LD)
I congratulate my hon. Friend the Member for Aberconwy (Guto Bebb) on securing this important debate and on his excellent work on the matter under discussion.
I am a former finance director of a £1 billion global business, so I am well aware of the benefits of bank services and financial products such as exchange rate hedging, but I am shocked that they are deemed appropriate for small businesses. Like other Members, I have received complaints, and I shall highlight two of them.
Stephen Lilley is a constituent of mine and I believe he is present in the Gallery now—probably. He has given me permission to raise his case. He owns a hardware company in Marske-by-the-Sea, and in late 2006 he bought an interest swap covering 15 years. I have read the telephone transcripts of the conversations between HSBC and the directors of his company whereby the swap was agreed, and they show a clear example of mis-selling.
The directors made it clear that this was their first ever business venture. They wanted loans for a maximum of 15 years and hoped to have them paid off before the end of that period. During a complex discourse on the products, one statement made was:
“The reason we do this rather than doing say an…inclusive fixed rate is that in the future if you want to renegotiate or look at your lending margin, obviously you can’t do that if it’s included as part of the fixed rate”.
Those were apparently warm words. A number of other inappropriate comments were made in the conversation, and no mention was made of the fees being earned by the seller.
The climate is tough for the hardware shop and, in a move that can be described only as bullying, it is now being charged £500 a month for a “relationship manager” who provides no service. I fail to understand the logic of charging a struggling business an extra fee for struggling. Mr Lilley is not a young man and he now faces the real prospect of losing his business and his house, and, as I understand it, still being locked into a financial product that was badly sold. It is difficult for him to fight the bank on which he depends so heavily, and I see it as our responsibility to fight for people in his position.
I would also like to highlight the case of another of my constituents. The case of Mr Roy Myers has been mentioned on the BBC, and it has features common to many of the other cases we are hearing about. Roy owns the outstanding O’Grady’s hotel in Redcar and the Victoria pub in Saltburn. He is not naive; he has owned other pubs and hotels, and formerly had a responsible job in Her Majesty’s Revenue and Customs. He had negotiated a loan and was presented with a base rate swap agreement to sign on the very day when he simply expected to sign for the loan. No proper selling took place and he was given no options. It was never properly explained to him that he was locked in for 10 years and that there could be huge exit costs. Mr Myers had previously bought and sold businesses and paid off loans, and he never expected to be locked in like this because of a financial product.
Damian Collins
My hon. Friend mentions that the exit costs had not been properly explained. Does he share my concern about this issue, as my constituent is in a situation where what were called “negligible” exit costs ended up being worth more than 50% of the value of the loan?
Ian Swales
I thank my hon. Friend for that comment. He raises an important point that is true of many of the cases we are talking about today.
To be fair to the banks—not a phrase I expect to hear a lot in this debate—I have pointed out to Mr Lilley and Mr Myers that people in their position may have considered a fixed rate term product had it been offered at the time. So some of the loss figures we are now talking about may be a bit misleading, as they can be calculated only with hindsight and, in effect, constitute a one-way bet. Mr Lilley did in fact make small gains through rate hedging in the very early months of his contract, but these products remain toxic. Clear discussions should have taken place at the time as to whether the borrowers wanted variable or fixed rates.
Many small businesses such as those I am discussing are reluctant to challenge their lenders on these specific issues, as they do not want to put their bank facilities at risk. The Financial Ombudsman Service rarely upholds complaints, so their only recourse is a litigation process, which, obviously, serves only to incur more costs. Bankers seem to be working for themselves first and for their clients second. We heard just a few weeks ago about Goldman Sachs referring to its clients as “muppets”. This world of over-complicated products and dodgy selling has to stop.
A small business person should be able to rely on a bank to work in their interests, and not be seen as a sales channel to another part of its organisation. We should not expect business people to be personally expert in these kinds of products, nor should they have to pay separately for a financial adviser. We should also remember that accountants—and I am one—may not be allowed to give advice on these kinds of products unless they are also registered as financial advisers. So these products have clearly been designed to make money for the banks, which, by definition, means extracting more money from the small and medium-sized business sector. Some of these products are no more appropriate for small businesses than they would be for a household mortgage. Banks are surely worried about their reputations, and I have been very happy to name and shame HSBC today. Banks can recover their reputation by dealing constructively and generously with those affected, rather than engaging in continuous and expensive litigation. Special consideration should be given to those such as Mr Lilley, whose arrangement, made in November 2006, would almost certainly have breached the FSA suitability regulations introduced in November 2007. I agree with the hon. Member for Wolverhampton North East (Emma Reynolds) on the urgency of dealing with this problem, given that Mr Lilley’s arrangement is six years old in five months’ time.
I salute my constituents’ bravery in coming forward and hope that more will do so. I hope also that right hon. and hon. Members will support the recently announced FSA investigation. Finally, I hope that the Minister will act swiftly on the FSA’s recommendations and take another step to stop such predatory activity by banks in our vital SME sector.
Jonathan Edwards (Carmarthen East and Dinefwr) (PC)
Diolch, Mr Deputy Speaker, I am grateful to you for the opportunity to speak. As others have done, I congratulate the hon. Member for Aberconwy (Guto Bebb) on his hard work and on securing this debate on the Floor of the House.
Two constituents have visited my surgeries to highlight the problems they have endured as a result of these complex products. I shall not pretend to understand how they work, but the end result has been devastating for my constituents’ businesses. I am therefore glad to learn today that the FSA is to investigate and the Treasury Committee has interest rate swap products on its radar.
What strikes me in the cases brought to my attention is the aggressive manner in which the products were sold to businesses, often by bank managers who had been dealing with the businesses for some years. It is clear to me that local bank managers were under orders to sell the products, without themselves understanding what they were selling. Relationships with local businesses are built up over a number of years, so those businesses would have trusted their local bank manager. After the initial meetings, specialist teams were brought in to process the deal. The business men who came to see me in my surgery said that they felt under enormous pressure to sign up to the deal. They were told that only a small window of time was open to them to take what was deemed to be the opportunity of a lifetime.
I suspect that what we are seeing is the unholy mix of retail and investment banking. The job of a local bank manager is to pursue boring banking, but it is clear that, in this instance, they were selling products they would not normally be associated with, resulting in disastrous consequences for the businesses that entered into the deals.
The products were sold as offering protection in the event of interest rate rises. In the pre-crash years, that would have been a concern to any household or business that was taking out a large loan, so it is easy to understand why the products would be attractive to many businesses. In his recent statement on banking reform, the Financial Secretary to the Treasury equated them to a fixed rate mortgage, but my understanding of a fixed rate mortgage—I hope I am right, because I have one myself—is that the loan repayment stays constant for the duration of the loan term, which certainly is not the case with these swap products. As interest rates fell following the financial crash, businesses’ repayments started to increase enormously.
Sad to say, after two years in this place I have morphed into an arch-cynic. It seems to me a huge coincidence that heavy selling of interest rate swap products started in 2006 and 2007. In the case of Barclays, it is clear that the investment arm was pushing the products on the retail bankers. I am interested to know whether the FSA or the Treasury Committee, as their work proceeds, will be able to find out whether local bank managers were working to commission to identify clients who could be targeted to sign up to the products.
Financial planners are clever people. They would have been more aware than anyone that their own recklessness was about to end in the bust of all busts in 2008. They would surely have been aware that the obvious policy response of the central bank to such a crisis would be to ease monetary policy so that interest rates fell; and that the loan repayments of anybody signed up to these products would increase significantly. For the bank, of course, its customers’ misfortune would be good news, as the extra repayments would enable it to recapitalise after the crash. Even better, as has been the case with my constituents, with businesses going bust the banks would have assets to sell for even greater profit. In my view, this makes the complete separation of retail and investment banking an imperative. The recent commitment in the White Paper to creating separate accounting units will not be enough. If my reading of the White Paper is correct, these products are actually exempted.
My constituents had initially agreed to a normal standard loan agreement with the bank. They did not understand the implications of signing up to these products, especially the exit fees. As the Monetary Policy Committee lowered interest rates, their repayments reached an unsustainable level at nearly double what they had been under the normal standard loan arrangements. On the invitation of their local bank manager, they met officers from Barclays Capital. They were completely unaware that their business was being transferred from the local bank to the investment arm. Every time they queried the terms of their loan with Barclays, they were hit with enormous fees, which furthered their business’s spiralling financial problems. They inform me that the local bank manager was unable to deal with their queries, despite charging the fees.
From the evidence I have received from constituents on these products, it is clear that profitable businesses have been mis-sold products by their banks. I look forward to reading the findings of the FSA and the Treasury Committee. I will finish by saying that I associate myself completely with the proposals put forward by the hon. Member for Aberconwy.
Mark Garnier (Wyre Forest) (Con)
I, too, would like to add my name to the long list of people who will be congratulating my hon. Friend the Member for Aberconwy (Guto Bebb) on securing not only the debate, but a great deal of support from the outside world and a community that has been badly affected by these events.
I suspect that we are now at the beginning of what will amount to yet another large mis-selling scandal. I completely endorse the comment of my hon. Friend the Member for Aberconwy that the last thing we need is the spectacle of bus loads of ambulance-chasing lawyers charging across the countryside looking for businesses that have been mis-sold these products. It is incredibly important that we try to resolve the problem before members of the legal profession take advantage of it as an opportunity to feather their nests. These events come at a time when small businesses are struggling to make sales and win orders and contracts. It is a time when the banking system is adding yet another problem to small businesses. It is something we need to try to resolve.
These products, which really amount to caps and collars, should have been relatively straightforward products. They should not be dissimilar to a fixed rate mortgage. Rather than being like a fixed rate mortgage stating that the customer will pay 3% or 5% for five years, for example, they should have stated that the customer would pay between no less than 3% and no more than 8% over a five-year period or whatever. In that respect, such a product would have been a very straightforward cap and collar.
The problem is that the products were written before this period of super-low interest rates. Of course, interest rates have since fallen well below the collar, so the products are not actually cap and collar products; they are cap and noose products. Rather than holding the interest rate at the lower level, the noose has the effect of bouncing the interest rate up, thereby creating a higher rate than the customer would otherwise have expected and, in some cases, than they would have paid at the rate of interest in the first place.
The result is that these products are far more complex than they would normally have been. I declare a history of serving as a compliance officer for an FSA-regulated firm before being elected to this place. We used to spend a huge amount of time ensuring that we classified our clients properly to make sure that the products that were sold were aligned with the abilities. I fear that what is happening here is that we have a misalignment of customer classification. There are salesmen who are not experts in the products and do not know a huge amount about them, and they are selling them to customers who are clearly not experts in the products at all. Under these circumstances, a huge problem is brewing.
The Chair of the Treasury Committee mentioned the fact that in yesterday’s Sub-Committee meeting we met Adair Turner, who assured us that he would go to great lengths to investigate the whole process. Subsequently, I asked Martin Wheatley, the other witness and director of the FSA’s conduct business unit, whether the authority will be looking into the whole business of misclassifying clients as well as salesmen, and he said that without a shadow of doubt it will be specifically doing so, so I sincerely hope that we will reach a speedy resolution on that issue.
Ian Swales
The hon. Gentleman makes the powerful point that we do not expect small business owners to be experts, but that their accountants are not often experts, either. The people whom they deal with who will most often be experts are their bankers, so where does he feel that small business owners should get their independent financial advice from?
Mark Garnier
That is an incredibly important point. We live in an ever-increasingly complex world, and banks are competing against each other to come up with more and more sophisticated products that appear to be user-friendly, such as simple fixed rate mortgages. But as products become more complex there are more hidden elements in the contracts that people sign, such as in the one under discussion, whereby in a completely unforeseen period of super-low interest rates, business owners have to pay what amounts to a fee to buy themselves out of the contract’s residual value.
People then get into very complex calculations to try to understand what is going on, and the economic value of, and internal rate of return on, the contract. That is when things go way above the pay grade of most people, apart from those specialists sitting in dealing rooms in Canary Wharf who really understand such stuff. So, as part of the banking review and the Financial Services Bill that is passing through Parliament, we need to look very carefully at the classification of customers and of salespersons in order to get back to the fundamental point that we have to match products to a customer’s ability to deal with them.
George Eustice (Camborne and Redruth) (Con)
I have seen cases in which, through a process of legal discovery, a very clear e-mail trail has shown banks wilfully deciding not to explain the disadvantages of such products and, sometimes, a complete mismatch between the length of their loans and the length of the product they were selling. Does my hon. Friend agree that this is not just about people not understanding the situation, but about an intention in many cases by people not to inform customers because they wanted the business for their own bank?
Mark Garnier
My hon. Friend has almost been reading my speech, because I am about to finish on that point.
There are mismatches of terms and objectives, and on this issue I have a fundamental problem with the banks. A bank manager used to be a customer’s friend, whom they could turn to for financial advice, who would look after them and who, much more importantly, had their interests at heart. The problem is that banks are now simply salesmen looking for another product to sell, and it does not quite matter to them what holistic package is being sold as long as an individual product is.
I simply do not understand why the banks are failing to get the message that they are breathtakingly unpopular. They have really made a pig’s ear of our economy and financial system, so why do they continue to do so—in the face of the public opinion? It does not make any sense, so I make this appeal to the banks: please take a look at this issue. If you have created what should be a collar and cap arrangement, but it turns out to be a cap and noose arrangement, negotiate with your customer, help them out, stop feeding solicitors lots of money and try to resolve it in order to get back to a situation where bank managers are people we can trust.
Mike Freer (Finchley and Golders Green) (Con)
I join the chorus of people congratulating my hon. Friend the Member for Aberconwy (Guto Bebb) on securing this debate.
I have to confess that I am a former banker—[Interruption.] At Barclays bank. I am not sure whether becoming a politician was a move up or down; I might try estate agency next. I worked for Barclays bank in both the corporate and personal sectors, where I had responsibility for a regulated sales force, and I still hold my financial planning certificate and certificate in mortgage advice and practice, so I, like my hon. Friend, have a healthy scepticism when customers complain about bank products, because often when things go well it is put down to their good fortune, but when things go badly it is put down to mis-selling.
I had a fairly healthy dose of scepticism when my constituents came to see me to complain about the products under discussion, but I was genuinely shocked and appalled when I found out what had been done to them. I want to raise the case of a widow who had a small buy-to-let property portfolio. She was interested in reducing her mortgage outgoings, or at least protecting herself from increases in interest rates. Technically, she falls outside the scope of the motion, Mr Deputy Speaker, but I hope that you will give me some latitude. HSBC, the bank that I want to name specifically, classified that widow with a small property portfolio as a business customer.
I expected my constituent to have been sold a capped or fixed rate mortgage product; I did not expect a high-risk interest rate swap, which I would normally have seen in the mid-market or large corporate sectors of the bank. I wrote to HSBC asking it please to send me the documentation that proved that it had established the process of knowing the customer and undertaken the required risk assessment that is absolutely necessary to prove that she was a knowledgeable customer or that her background and experience in other products matched the risk profile of the product that it was selling her.
I also asked the bank to show me the documentation, known as a “reason why” letter, showing why the product that it sold my constituent was the most suitable, rather than other products such as a fixed rate mortgage—or a capped mortgage, had one been available. I was absolutely, completely blown away when I received a telephone transcript. The customer was not sold the product in a face-to-face meeting at which the options were explained; she was sold it over the phone.
I want to read out a couple of snippets from the transcript. The bank manager—or the clerk—said:
“It’s actually…a reducing loan so that implies that it will be coming down over time.”
A bank manager should know that there is not an implication that the loan is reducing, but that it actually is reducing. The manager went on to say,
“and that’s at 1.75 as well and it says that’s reducing as well. So have you got a certain time period on interest only…?”
The bank manager clearly had no knowledge of the customer. I turn to a particularly juicy bit; the brains on the Treasury Front Bench might be able to elucidate it, but I certainly could not make head or tail of it. The client had asked about the ability to repay early, and the bank clerk said:
“How it works in real life, if you were locked in at the rate of 5.35 and after five years you’ve managed to clear all your debt but we’ve still got five years left to run, so you pay Carl”—
the relationship director—
“off all the debt which is fine but then we’ve got an agreement with the Treasury at 5.35.”
That is the treasury division of the bank, not Her Majesty’s Treasury. The clerk went on:
“What happens then is we would look at what the five year rate was, the last five years that you’ve got remaining, and if that five year rate was at six per cent, well then your rate of 5.35 would look good if you like so we would pay you something if you were going to unravel the fixed rate deal. But the converse could also be true, that if the five year rate was down at four per cent and your rate was 5.35 you’d have to pay to unravel it effectively. So the thing with a fixed rate you only fix the debt that you…the core debt you really think you’re going to have…if you thought you’d clear it you wouldn’t want to lock yourself in”.
I hope that hon. Members understood that, but even with my somewhat limited banking background, I was completely bemused. Having read that, I saw that there was no evidence at all that the bank had done its due diligence. There was no questioning to see what my constituent’s attitude to risk was and no evidence of the reason that product was the most suitable in the armoury of the bank.
In my opinion, HSBC had simply circumvented all the regulations and requirements to know the customer by treating my constituent as a business customer, although even business customers would expect better than what my widow constituent received at the hands of HSBC. I see no evidence in the paperwork that my constituent’s circumstances matched the product that was sold. I am appalled that a product as complex as an interest rate swap was sold over the phone—let alone to a customer with no knowledge of financial markets at all.
I have no doubt that all HSBC’s public affairs teams will be crawling all over this debate. I therefore call on the bank to put my constituent back where she was before she entered into this arrangement, or at least to put her into a product that is most suitable for her.
The banks are currently brushing off complaints and telling customers to go to court, but few customers have the reserves to do so. How can a widow living in Hampstead Garden Suburb take on the world’s local bank? I support this excellent motion.
Mr Gary Streeter (South West Devon) (Con)
I, too, congratulate my hon. Friend the Member for Aberconwy (Guto Bebb) on his very powerful opening of this debate.
I wish to raise the specific case of London and Westcountry Estates Ltd, a company that owns several business parks all over the south-west and is now in administration as a direct result, I believe, of the Royal Bank of Scotland imposing on it an interest swap arrangement that was never right for its business. In brief, the background is as follows. For many years, London and Westcountry had been a premier customer of RBS. Its directors were encouraged by the bank to expand. For example, in 2006 RBS approached London and Westcountry and encouraged it to add to its portfolio a large business park in Bridgwater, and it lent the company 100% of the finance required.
In July 2008, after the banks had caused the credit crunch, RBS insisted that if the company wished to have its borrowing facility renewed, it must enter into a swap arrangement on the basis of an alleged imminent threat of rising interest rates. In fact, independent analysis has demonstrated that even in July 2008 bank insiders did not really believe that to be true; it was simply a way of selling a product to make a profit on which huge bonuses were paid.
Neil Parish (Tiverton and Honiton) (Con)
Is it not time for the Financial Services Authority to use its teeth to put a lot of this right? Banks have abused people’s trust and forced them into these deals as a way of creating higher interest rates for their customers, whereas we want lower interest rates.
Mr Streeter
My hon. Friend makes an important point. Thousands of people in this country, dozens of whom are in the Gallery, are looking to the FSA to put right some of the terrible wrongs that have been done in the past few years.
It turned out that the company of which I speak had been persuaded to enter into a swap arrangement for 10 years at a fixed rate of 6.4%. Although it had been told that the deal contained a break clause after three years, it transpired that that enabled only the bank to withdraw and not the customer. The company later learned that breaking the swap arrangement would incur a penalty that seemed to fluctuate on a daily basis but would total millions of pounds. This was not known to it at the time of signing the agreement. The way in which the swap was sold patently breached the terms of the financial regulations surrounding such transactions, as other hon. Members have said.
Interest rates subsequently plummeted in a way that nobody had forecast. We all know that if companies enter into a bad bargain, that is something they have to accept, but this was not just a bad bargain: the company was mis-sold the hedging product to further the interests of the bank, not the customer, and the detailed and complex terms were never fully explained to or understood by the directors of the company.
Jake Berry (Rossendale and Darwen) (Con)
The case that my hon. Friend describes is extremely similar to one that I am involved in, which also involves RBS. The company concerned has now gone into administration and the directors have exited. Does he agree that the long-term implication of a company becoming impaired when the bank has taken a haircut, as it were, is that when those involved try to set up businesses subsequently they are unable to borrow from the banks, with or without an interest rate swap, so there is a generational effect on business?
Mr Streeter
I completely agree that the effects of this mis-selling scandal will ripple down through the generations.
Interestingly, on several occasions London and Westcountry tried to ascertain how much profit the treasury branch of RBS made on entering into the swap arrangement, but that has never been disclosed. Once the recession began to bite and values of commercial properties plummeted, companies such as London and Westcountry began to struggle. A significant variation in the company’s loan-to-value calculation meant that it was in technical default of its loan agreement. It was worse placed than many companies because its interest rate was pegged at 6.4%. When the borrowing facilities fell to be renewed in 2011, RBS insisted that the interest rate would rise still further to 7.5%—a figure that it knew to be unsustainable. Sadly, the story does not end there.
In 2011, I became involved in trying to negotiate with RBS to find a solution to the difficulties. Not once throughout that time did the company default on any interest payments to the bank. Indeed, the company got its act together, reduced its overheads and increased its profitability. However, because of the loan-to-value challenges and because the RBS board had made a strategic decision to withdraw from commercial property, the London and Westcountry loan was bundled up with other troubled loans and sold by RBS to a new company, Isobel Assetco Ltd, 25% of which is owned by Blackstone, the US venture capital company, and 75% by RBS. That removed the potential bad debt from the RBS balance sheet. However, that £1.36 billion deal was done at a 30% discount, meaning that it was funded to the amount of £550 million by RBS or, indeed, by the taxpayer.
It seemed to us that RBS was dragging its feet in trying to resolve matters with London and Westcountry, while we were negotiating in good faith. The company was seeking to refinance its business with another bank, but RBS insisted on full repayment of the loans, plus the swap penalty of about £13 million. It simply would not budge. We subsequently found out why: that debt had been earmarked for the Blackstone transaction, and RBS had no interest in resolving it sensibly with London and Westcountry. RBS would not give London and Westcountry any discount, but it gave Blackstone a 30% discount. For a bank that is owned by the taxpayer, that is an utter disgrace.
It was like going from the frying pan into the fire. The hard-nosed American venture capitalists were not remotely interested in the company’s welfare, nor in its strategic importance to the south-west. They were interested only in making as much money as possible from the deal. Within weeks, despite my protestations and those of other Members of Parliament from the region, London and Westcountry was placed into a completely unnecessary administration. Its business parks are now being flogged off one by one at a fraction of their true worth.
We have a credit crisis triggered by the corporate greed of our investment banks; we have inappropriate swap arrangements sold to companies simply to make a fat bonus for bankers; and, in the case of London and Westcountry, we have an off-balance sheet sale to a US loan shark, funded by the taxpayer, resulting in the almost immediate administration of a successful company and asset stripping on a breathtaking scale.
I think that swap mis-selling will become as big a scandal as the mis-selling of payment protection insurance. We all know that banks must make a profit, but this was not about profit; it was about greed, pure and simple. I hope that the family behind London and Westcountry will successfully sue RBS for many millions of pounds. I will do all that I can to help them. As a taxpayer, I hope that we will be able to sell RBS one day, but the bank should certainly be making provision on its balance sheet for many millions of pounds in future claims for swap mis-selling.
I hope that the FSA investigation concludes that in the mis-selling of swaps, our banks have once again behaved disgracefully, and that they should compensate all their victims. That is the important thing. I hope that the individual bankers—and in the case of London and Westcountry, senior members of Blackstone—feel thoroughly ashamed of their disgraceful conduct and unbridled greed. I also hope that Ministers will hold the directors of state-owned banks to account and recognise that although the Government are keen to sell the banks, issues of justice and compensation must be dealt with first.
Karen Bradley (Staffordshire Moorlands) (Con)
I join colleagues in congratulating my hon. Friend the Member for Aberconwy (Guto Bebb) on securing this important debate. The many case studies that we have heard this afternoon are very familiar to us and I am sure that other colleagues have faced similar situations. I have, which is why I am taking part in this debate.
Before I come on to my constituent’s circumstances, it is probably worth setting out why I think that swap arrangements are not suitable to be sold to unsophisticated small business men. I do not mean that small business men are unsophisticated, but that they do not have an army of lawyers and accountants to advise them. At a basic level, a swap agreement is a gamble. Mr Deputy Speaker, the two of us could enter into a swap agreement this afternoon. I will happily buy you a cup of tea on the condition that you will buy me a cup of tea in three months’ time. I am gambling that a cup of tea will go up in price so that when you buy me the cup of tea, it will cost you more than the cup of tea that I buy you today. However, we could have a glut of tea and the cost could go down significantly. If so, I will have lost in that gamble. That is ultimately what a swap arrangement is.
Swaps can be very useful to businesses. As Wimbledon is coming up, let us take the example of a strawberry grower. The strawberry grower needs sun at the right time and could probably take out an insurance policy that the sun will shine, or they could find someone who thinks the sun will shine and is willing to take out a bet with them that it will. If the sun does not shine, and it rains, that individual would pay the strawberry grower for the rain and the strawberry grower would have money although he would have no strawberries to sell at Wimbledon. Alternatively, if the sun did shine he would have his strawberries to sell and he would pay the bet because the sun had shone. That is what swap arrangements are. Because they are a gamble, it has to be made extremely clear to individuals that that is what they are entering into. What I and colleagues have seen is that it has not been explained to people that they are taking a gamble.
That brings me to the case of my constituent, Mr Doug Wardle. Mr Wardle is a very successful local businessman who runs a number of businesses in my constituency. He has a very successful coach transport business and his name will be very familiar to people in Staffordshire Moorlands who see Wardle Transport vehicles going around. He also has Wardle Property and a number of other businesses. Back in 2006, he understandably wanted to expand his businesses and wanted a loan. He therefore went to his bank and entered into a loan arrangement whereby he borrowed £2.2 million, secured, he thought, against £3.1 million-worth of property. But there was a condition on this loan to expand his business, the travel part of which at one point employed 120 people. The condition was that he would enter into two interest rate swap arrangements—one each against two of his businesses. He was told that this would guarantee him a fixed interest rate and that he would be safe from interest rate fluctuations.
Mr Wardle was told that he would be paying 1.57% over base, which he thought was a very good deal. Even back in July 2006, that seemed like a very good deal. However, circumstances change and the financial climate changed. Unfortunately, by 2010, although his businesses were successful, Mr Wardle was having difficulty negotiating with his bank. He got to the point at which he had repaid his loan down to £1.25 million, so he had significantly reduced it, but the bank was not willing to move on the interest rate swap arrangements. That has caused Mr Wardle an incredible amount of stress and anguish, and he faces losing his home. He told me today that it has cost him £300,000 just to deal with the fees to the bank.
I have here the figures for the interest rate swap arrangements. The cost of buying out the swap arrangement is £180,000. Mr Wardle has been told that he will be paying 3.25% over three-month LIBOR—London interbank offered rate—not the 1.57% over base he thought he had, on a £1.25 million loan. I apologise for all the numbers. The amount he has to pay in interest a year is £111,752 with an additional £71,780 just to service the interest rate swap arrangement. I calculate that to be an interest rate per year of 14.7%. I do not think that when Mr Wardle entered into this arrangement he thought he was going to be paying 14.7% when the base rate is 0.5%. That is the problem. Mr Wardle is a very successful small business man. He has built up a number of highly successful businesses and he employs a lot of people, but how was he expected to understand that under this arrangement he could lose his home, having paid hundreds of thousands of pounds in fees, all because he was told by his bank, which he trusted, that he would be safe from interest rate fluctuations?
Caroline Lucas (Brighton, Pavilion) (Green)
I am almost reluctant to interrupt the hon. Lady because she is making such an eloquent case and is giving a very useful economics lesson at the same time. I have been contacted by a number of my constituents who have been badly burned by these toxic products. Does she agree that the experience she describes of the small business person in her constituency, Mr Wardle, is being repeated right across the country? Indeed, there will be many cases that we do not know about because many people are loth to speak out against their bank for fear that they will have problems with their business reputation. Does she agree that the issues we are discussing are probably the tip of the iceberg, which makes action even more urgent?
Karen Bradley
I absolutely agree with the hon. Lady. I called Mr Wardle this morning, before mentioning his name. I was happy to speak about him anonymously, because I understand that he is in a difficult position. Hon. Members in all parts of the House have expressed concerns about their constituents, and I agree that there must be many other cases of small business people who do not want to come forward and might not even realise that they could approach their MP. They do not want to raise the topic, although they are, frankly, being bullied by the banks in such situations.
I again congratulate my hon. Friend the Member for Aberconwy. I support the motion and I hope that we shall see some action very soon.
Peter Aldous (Waveney) (Con)
I am grateful to my hon. Friend the Member for Aberconwy (Guto Bebb) for raising this important issue and for campaigning on it with such determination.
I wish to draw attention to a case study concerning a medium-sized business in my constituency, setting out its experiences and seeking to draw some lessons from them. At this stage, the business wants to remain anonymous, as it is seeking to resolve the matter with its bank without recourse to legal action and it does not wish to prejudice those negotiations.
In 2005 the business entered an interest rate hedging transaction that ran for five years. At the outset, taking into account the immediate outlook for the economy and for interest rates, there was some logic to such an arrangement. In May 2008 the bank contacted the business, recommending and urging it to renew the arrangement for another five years, even though the agreement was not due to expire until 2010, more than two years away. During the ensuing three to four months, the customer continued to receive correspondence and telephone calls from the bank encouraging renewal.
At a meeting on 15 August 2008, the matter was discussed more fully. Subsequently, on 29 October, more than two months later, my constituent sent an e-mail to the bank advising it that he did not wish to renew the agreement. On 4 November he received a contract from the bank for signature. The bank told him it was confirmation of the verbal agreement reached on 15 August. Under pressure, not wishing to upset a business arrangement with his bank that had been in place for many years and at a time when the economic outlook was uncertain and the customer was keen to keep on good terms with the bank, he signed the agreement.
Earlier this year, my constituent decided, having sold a property, to bring the agreement to an end, so he contacted the bank to establish the cost of doing so. He was advised that that would cost more than £72,000. Up to today, the whole arrangement has cost him £162,000 in interest charges, which are predicted to have risen to £200,000—40% of the value of the loan—by the end of the arrangement in September 2015.
I have three observations on that chain of events. First, in whose interests was the bank acting? Its own or its customer’s? Why did it put pressure on him to renew the agreement when there was no need to do so for another two years, until 2010? In 2008, taking into account the outlook for interest rates and their likely future movements, there was no incentive or reason for the customer to rush to renew. It would have been much better to see what would happen over the following two years. Any independent adviser acting in the company’s best interest would have advised it to do that. In my view, the bank’s actions were dictated purely by its own self-interest rather than the best interests of its customer.
Secondly, the bank appears to have been incompetent at best, and at worst to have adopted underhand tactics in putting pressure on the customer to renew the agreement. Obviously what happened at the meeting on 15 August is subject to disagreement, but I personally accept my constituent’s version of events. Surely the best practice for the bank to have pursued would have been to take its customer through the arrangement step by step at that meeting and, if there was a verbal agreement, to produce a contract immediately and not two months later. A further meeting should have taken place, to go through the contract line by line, until the customer was fully aware of the implications before signing. The fact that the bank did not send the contract for two months, and only did so because it received an e-mail from its customer indicating that he did not wish to proceed, shows it in a very poor light.
Thirdly, there is a clear failure by the bank to provide full, independent and impartial advice that sets out the pros and cons of the transaction, in particular the cost of breaking early. If my constituent had been aware of all those factors, he would not have renewed the arrangement.
I am keen to give other hon. Members the opportunity to state their case, so I will conclude with two points. First, this whole matter needs to be addressed straightaway and given high priority by the FSA, and a framework should be put in place for cases to be investigated quickly with proven claims settled immediately. We do not want this scandal to drag on for years, because that could undermine the very businesses on which the economic recovery needs to be built.
Secondly, we need a banking system that is regulated and run in a way that prevents such conflicts of interest. In the case I have described, the bank was clearly acting in its own interest rather than that of its customer.
George Eustice
Does my hon. Friend agree that if banks encourage their customers to take up such products, they should not then be allowed to provide them through one of their subsidiary companies? That would be one way of creating a division.
Peter Aldous
I agree entirely with my hon. Friend—a dog cannot serve two masters. The two acts of advising a customer and selling a financial product must be completely separate and provided by organisations that are independent of each other and not related parties.
I support the motion and look forward to hearing from the Minister about the Government’s proposals for achieving a prompt resolution to yet another bank selling scandal.
Heather Wheeler (South Derbyshire) (Con)
I thank my hon. Friend the Member for Aberconwy (Guto Bebb) for securing this debate. The mis-selling of interest rates has affected people in many of our constituencies, including mine. One of my constituents, the owner of a geo-environmental company, wanted to take out a long-term fixed rate product. He wanted a portion of that loan to be paid off as and when he had the capital to spare, with no penalties. He also wanted a period of low interest or interest-only repayments to assist with cash flow as the company embarked on a further phase of expansion. To me, that appears pretty reasonable.
NatWest—a bank that has newly entered this debate—offered my constituent what he thought he was looking for at the time and a product that fulfilled his core requirements. He was given the option of fixing the interest rate by entering into an interest rate swap agreement with the investment banking arm of RBS—that wonderful bank that we have again heard about today. He was given a complicated document but believed that it represented a mechanism for fixing the interest rates. He was given a loan of 1% above base rate but his agreement had no expiry date and, in conjunction with the interest rate swap agreement, provided an effective fixed rate of 6.19% for 10 years.
In January 2009, when interest rates were falling and looked as if they would remain low, my constituent was referred to RBS global restructuring group. He inquired whether he could break the fixed rate interest agreement because it was costing his company dearly. It became apparent, however, that he could do so only if his company incurred a large financial penalty, which at the time totalled £175,000—equivalent to 19.4% of the original loan. A break clause was written into his agreement, but it could be acted on only by NatWest, and the punitive break fee meant it was totally impossible for my constituent to refinance with another bank.
In September 2010 as part of a review of my constituent’s loan, RBS increased the lending margin by 1% to 2%. That increased the interest rate to 7.19%, which made a mockery of the fixed rate that had been promised back in 2007. Interest rates were at an historic low of 0.5%, but my constituent was effectively denied the opportunity of taking advantage because he was locked into his IRSA.
Damian Collins
Does my hon. Friend agree that the high cost of such exit arrangements means that the banks are profiteering from small businesses that operate on tight margins, and does not in any way reflect the true cost of the refinancing to the bank?
Heather Wheeler
Absolutely; that scandal has emerged from today’s debate.
In January 2012, my constituent was informed that, because his debt to RBS included the fee for breaking the IRSA agreement, the cost of the loan had increased further to a mind-boggling 23.8% of the loan—approximately £215,000. He was also informed that, even if he sold his property to repay the loan in full, the IRSA would still exist, because it was a separate product from the original loan, and that the agreement would last for 10 years. That clearly was not fully explained to my constituent, who runs a small business with a healthy turnover of £2.5 million and employing 30 people. He is not a financial expert; he trusted his banks, both NatWest and RBS, to provide him with advice on a flexible fixed rate product, as he requested.
Mr David Burrowes (Enfield, Southgate) (Con)
My hon. Friend mentions trust. In everything we have heard today, has there not been a complete absence of trust? I think, not least, of a constituent of mine and their RBS relationship manager. Our relationships are based on trust and clear communication, but there was none of that. A simple loan developed into 20 swaps, which led to his losing £5 million, and this once-proud business man has now lost his business, which has broken him. He is a broken man, because of the unaccountable lack of trust in banks such as RBS.
Heather Wheeler
That is a salutary lesson The banks have lost the trust of the country, and, having listened to all the stories today, we now understand why. I feel great compassion for my hon. Friend’s constituent.
The matter was not explained to my constituent, who feels strongly that if the IRSA had been explained properly, he would have understood the true cost of breaking the agreement, and instead would have opted for a variable rate or approached an alternative lender. Where was the bank’s duty of care?
It is not only a lack of clarity that makes these agreements so concerning. For another constituent of mine, the complaint is who is selling these products. Back in 2006, he wanted a loan to develop a garden business. He approached his bank manager and was advised to take out an IRSA to guard against rising interest rates to protect his business. His bank manager admitted, however, that he did not fully understand them himself, so arranged for a specialist to come from NatWest to advise my constituent.
Neil Parish
Does my hon. Friend think that, in many cases, bank head offices put huge pressure on local managers to sell these products, which local managers actually have no knowledge about?
Heather Wheeler
That is becoming clearer and clearer as this debate goes on and as more and more constituents come out and tell us their stories.
Two advisers visited my constituent and went through all the advantages of an IRSA, but they did not mention any possible downsides or advise him to take specialist independent advice about the IRSA. He was also told that he could not get a loan if he did not take out the IRSA, giving my constituent very little choice over the matter and putting him under considerable pressure to accept. It has since become apparent to him that the so-called advisers were just sales people from the bank set on selling him this product, regardless of any consequence to himself or his business.
To my constituent’s knowledge, he having researched the matter, only two companies in the UK at the time were qualified to give advice, but both belonged to large City firms that would have been beyond his budget. My constituent is now left with a product that will have cost him £200,000 by the end of this year alone. I think we would agree that this is a considerable sum for a garden centre. He has had to make several redundancies, as well as personal sacrifices, to remain solvent, and his business is clearly feeling the ramifications; the turnover, which was £2.2 million at the time, has dropped, with the marketplace as it is, to below £2 million.
Furthermore, it is evident that banks are not taking claims of mis-selling seriously. Another constituent of mine, the owner of a motorcycle company, has had a long banking relationship with Lloyds. In fact, they used to use Lloyds to buy stock rather than property, and had loans from it for many, many years. It was important that they had this strong relationship with their bank, yet, since they fell into the trap of buying an IRSA, incurring huge costs, the bank appears to have little interest in dealing with the matter satisfactorily. In February, my constituent’s solicitor sent a letter of claim to Lloyds; it is now June and he is still waiting for a reply.
The situation needs investigating further. Constituents have written to me on this issue about three of the top banks—NatWest, RBS and Lloyds TSB—so the situation is far-reaching and needs to be dealt with. These heavyweight banks are effectively taking advantage of small business owners’ lack of financial expertise, bombarding them with the idea that they must enter into such agreements to get a loan. Indeed, this could be one of the biggest financial scandals to come to light since PPI. The agreements need to be made more transparent, so that people are fully aware that such products have significant break costs and are viewed as separate from the loans that the individuals concerned originally wanted to take out.
I urge the Minister to take steps wherever possible to support small and medium-sized enterprises and to ensure that where there is widespread misconduct against them, as in my constituency of South Derbyshire, appropriate action is taken to support them. I look forward to hearing her concluding remarks and hope that she will take my constituents’ cases on board.
Mr Mark Williams (Ceredigion) (LD)
I congratulate, as everybody else has, my hon. Friend the Member for Aberconwy (Guto Bebb) on securing this debate through the Backbench Business Committee and on the way in which he has led the campaign in this House and outside.
Two of my constituents who have been affected by this issue have said that when they got involved in the Bully-Banks campaign they took some comfort from the fact that many others were in the same position. As I have sat listening to the debate, what I have found most striking is that whatever part of the country or countries in the United Kingdom we come from, there has been an alarming commonality in the message we have presented to the House.
It would be dishonest of me to say that I understand every aspect of these products or the conduct of the banks. I have sat in constituents’ houses as they have poured out the details of what has happened to them, but that in itself has become an issue. If I, as a humble Back-Bench constituency MP, have struggled, why on earth should they be put in that position, especially when the people selling the products seem to have as confused a picture? The scale of the problem is alarming. I think we have seen only the tip of the iceberg and that, as this debate galvanises public opinion, we will hear about many more cases.
I want to reflect, as others have, on a constituency case. One business affected in my constituency is involved in refurbishing flats and letting properties out to students in the tourist and student town of Aberystwyth. My constituents secured a loan from the local bank, the agreement for which specified interest rate protection for a minimum of £800,000. However, at no point was that term clarified—at least, not until after the money had been borrowed. My constituents described to me how a Barclays Capital salesman was introduced to them as a “colleague” by their relationship manager at the bank, with whom they had built up a trusted relationship. We have heard about such cases repeatedly. My constituents already trusted their bank manager to do nothing detrimental to their business, but they did not realise, at the point of initiation, that they were getting involved in a sales process, and at no point was it presented to them as such.
Mr Cox
The hon. Gentleman is reciting experiences that are exactly replicated by those of constituents of mine. Indeed, more concerning is the fact that some of my constituents were invited to hotel receptions, for potentially hundreds of businesses to attend, where they received a sales approach like that of a timeshare salesman. My constituents were never told that the salesmen were earning profits from what they were selling and they were never given appropriate advice. Does he agree that the whole flavour of what is coming out of this debate is such that the Minister must now tell the House what prompt and immediate action and inquiry will be undertaken into what is increasingly a very grave scandal?
Mr Williams
I completely agree with my hon. and learned Friend: it is indeed a grave scandal. My constituents were not invited to hotels, but they had three meetings in their home. They also had several phone calls and were presented with the choice—if it could be called that—of three essentially similar complex derivative products, which, by their own admission, they struggled to understand and the risks of which were never explained. On many occasions my constituents asked whether they could get out before the end of the term, as they expected that they would need to sell property—an integral part of their business. They were advised to go for a longer term, as Barclays Capital would probably pay them to exit. Having borrowed the money and being unable to pay it all back at short notice if the bank decided to call in the loan, my constituents were presented with no options and felt as though they had no choice but to enter into the swap agreement, involving a rate swap for £750,000 over a 10-year period, at a rate of 5.67%.
The product was finally sold to my constituents in a trade call, although at no point were they told that a trade call had even commenced, and they certainly did not realise that it was legally binding. Understandably, they envisaged that, at some point, they would sign a contract to agree to an interest rate swap, but because they had already signed a customer agreement for private customers, the bank apparently had permission to sell the product to them in that way. Following the phone call, there was a faxed unofficial confirmation, which stated that legal papers would follow, but they did not arrive for two months.
The worry, as we have heard, is that such cases are being replicated across the country. My constituents understandably feel aggrieved that they were sold a product that was completely inappropriate for their business, in that it restricts them from selling property, despite the fact that flexibility to sell property within a few years is a main requirement for their business. They feel aggrieved because the arrangement ties them to a longer-term debt on which they cannot afford to make full capital payments, and because the risks were not property explained. They also feel aggrieved at the enormous breakage costs and at the fact that no explanation was offered of how those costs were calculated. The value of the swap is too high, and since capital payments began to be taken prematurely it has created severe cash flow problems for the business.
I have been in touch with the Federation of Small Businesses about this, although I did not need to do so, as it was already aware of the numbers of alarming cases elsewhere, many of which we have heard about in the debate. My constituents inform me that, in the years following the sales of swaps, banks have been guilty of compounding the problems of the SMEs that have them—alarmingly, in some cases particularly of those that have had the bravery to complain. That is acutely worrying.
There are many further points that need consideration, not least the issue of redress. The most powerful message that we can send out today is that the Financial Services Authority should speedily produce its report into the extent of the practices involved. At that point, I am sure that the House will wish to take the matter further. I think it was the hon. Member for Ayr, Carrick and Cumnock (Sandra Osborne) who mentioned the need for urgency, especially in the light of the six-year time constraint. My constituents face the prospect of having to take action by February next year. Theirs is a functioning business, and this House is supposed to support functioning businesses in these dire economic times. There is a phrase in Welsh, chwarae teg, which means “fair play”, and that is what is now needed.
Chris Heaton-Harris (Daventry) (Con)
Thank you for calling me to speak in the debate, Mr Deputy Speaker. I appreciate the opportunity as I did arrive late. I have come directly from the Defamation Bill Committee, but I hope that I shall not defame the banks too much as I talk about this scandal that they have been perpetrating. I shall test the Enoch Powell theory of public speaking today; if it is true, this is going to be a blinder of a speech.
I congratulate my hon. Friend the Member for Aberconwy (Guto Bebb) on securing the debate. The quality of all the contributions, raising constituency cases as I intend to do, has shown me that this scam, which has been taking place for a long time, is a massive one of ginormous scale that requires firm action as soon as possible. I also congratulate the Backbench Business Committee, which has yet again come up trumps in calling a debate that our constituents would like to hear, and that probably would not have been heard in normal circumstances under previous mandates.
I will try not to repeat the points that other Members have made, but I want to give some details about a couple of cases in my constituency. I also want to press the Minister on the matter and issue a call for action. My hon. Friend the Member for Staffordshire Moorlands (Karen Bradley) gave the House a description of the swaps. I was a small business man before I entered politics, and I can understand how those businesses were caught by this scam. The relationship that they have with their bank manager—and perhaps with their relationship manager, as we have heard—is all important, or it certainly was until these products started to be sold. It was a relationship based on friendship and trust. It was understood that products were being bought and used, but it was always felt that independent advice was being offered and that the bank would put you right all the time. That has been completely lost with the sale of these interest rate swap agreements. Something really bad happened back in 2003-04 when all this started to happen.
Two of my constituency cases are happy to be named and others are not. My constituency is full of vibrant small businesses. In one case, Mr Benyon has two companies: Oastlodge Ltd and Hallway Estates Ltd. Oastlodge had been with Lloyds bank for over 35 years, and Hallway for just over 10. In 2004, Oastlodge was taking out a large loan and was advised to take out a swap. This would have increased overall borrowing costs—the right questions were asked of the person trying to sell the product—so the company requested not to enter. In 2005, Lloyds came back with an offer for a swap where the bank would halve interest margins on all existing loans. The offer was in writing. A business man confronted with having interest loan costs halved is likely to be interested in taking up the offer. In 2006, the company was sold a further swap, on the basis of reducing the overall cost of borrowing and saving even more money.
In 2008, Oastlodge and Hallway were offered several more swaps, and one in particular was highlighted. All the benefits were listed in great detail, but none of the downsides; neither was any information provided on potential breakdown costs. It was also explained in writing that
“there would be no risk to borrowing costs trailing higher”.
The previous swap had been for 10 years; the new ones were for 20 years—far longer than the duration of the loans at the time. The swap was signed up to, with the companies knowing full well—or, at least, thinking they did—that there was a ceiling on the borrowing costs.
In 2009, the companies were informed, when their loans were up for renewal, that their lending margin was going to double. They complained that the bank was reneging on a deal, but were told that there was nothing formally agreed. The bank could, however, sell them another swap to reduce borrowing costs until 2013. They now had no choice but to enter the new swap at a cost of about £200,000 a year.
While they were making their complaint, the companies discovered that the swap was not a relationship with the bank they thought they were dealing with, as it had been sold on in the financial markets. Other Members have highlighted this. The companies took legal and financial advice but, despite having a good case, were wary of risking the extra costs of taking the bank to court. In fact, my hon. Friend the Member for Aberconwy is their last best hope, and I suspect that that is so in many other cases, too.
George Eustice
One problem many businesses have is that when they decide they want to take legal action against a bank, they often find that many of the law firms that might appear to be the natural ones to turn to have effectively been bought off by the banks through things called permanent retainers and through the approved panels. Some of the best litigators in the country are thus often barred from acting against the banks.
Chris Heaton-Harris
I did not know that, and I thank my hon. Friend for raising it.
Lloyds bank has denied any wrongdoing whatever, claiming that the margin reduction was not necessary for the duration of the swap, and it hides behind the small print that says, as we heard earlier, that any advice given was not, in fact, “advice”.
Matthew Hancock (West Suffolk) (Con)
Does my hon. Friend agree that his constituency case is like that of many across the country in that the question of duration is the problem? A very successful business in my constituency was offered a loan of five years and a swap of 10 years; the mismatch between the two time periods is likely to cause a huge jump in costs as the loan runs out in a few months’ time, with five further years of swap, which the company did not need, remaining to match off the initial loan.
Chris Heaton-Harris
My hon. Friend is right. My constituents are in exactly the same position.
There is, at least, provision for my constituents to break the swap, but doing so would cost them a cool £1 million. They have complained to the financial services ombudsman, asking for compensation and asking for the original swap margin to be reinstated at its 2006 level or, alternatively, for the swap to be torn up so that they can keep their existing margin. They have been advised that the 2008 swap was mis-sold and inappropriate for their business, and they are discussing the details of that with the financial services ombudsman.
In 2008 Lloyds sold another of my constituents, Phillip Derbyshire, an enhanced collar—or, as it was described by my hon. Friend the Member for Wyre Forest (Mark Garnier), an enhanced noose. It has cost him £1.275 million, about 75% of his pension pool. He is 64 years old. Both the FSO and the Financial Services Authority are unable to assist him, and Lloyds claims that there has been no wrongdoing. My constituent claims that the circumstances of sale were
“tantamount to a sting operation under duress”,
and I completely believe him.
Richard Fuller (Bedford) (Con)
Does not the abuse of trust that my hon. Friend is describing give rise to another fear—that the FSA will roll over and talk about changing the rules while missing the critical issue of compensation for people who have suffered, which is what the House wants to see?
Chris Heaton-Harris
I entirely concur with my hon. Friend, and I shall end my speech by making the same point.
Lloyds repeatedly referred to the product that it was selling to my constituent as “a protection”, both orally and in writing. The downsides were simply not explained. My constituent was told that if he sold his business or died, the product would be an asset. All that was independently witnessed, because he is quite a savvy man. He was told by an independent banking consultant that the product was totally inappropriate to his needs, and that it was beyond the level of his financial sophistication to understand it. He is now looking into whether he can sue Lloyds.
Does the Minister agree that it is wrong for banks to make loans contingent on the purchase of other financial products such as IRSAs? Where are we with this issue now? What conclusion will be reached from the debate? We have seen the motion, and we have heard from many Members in all parts of the House who want to see forthright action by the Treasury and the FSA, and compensation for their constituents. Can the FSA be persuaded to move faster? As for compensation, there is an absolute need for it.
This is a scandal and a scam. It is finished now, but we need to ensure that it never happens again.
Mr Marcus Jones (Nuneaton) (Con)
It is a pleasure to follow my hon. Friend the Member for Daventry (Chris Heaton-Harris), and I congratulate my hon. Friend the Member for Aberconwy (Guto Bebb) on securing what is, for many of our constituents, a vital debate.
In the short time available to me, I want to explore the methods used by one bank to sell an interest rate swap product to a business in my constituency, explain the disadvantage that that subsequently caused to the business, and discuss what more can be done to help businesses that feel that such products have been mis-sold to them. I have been asked by the business involved not to divulge either its name or that of the bank, because the business fears that that would prejudice its position in relation to the bank.
Anecdotal evidence seems to indicate that the business was persuaded and cajoled into taking an interest rate swap product by high-pressure sales tactics. There was what could almost be described as a pincer movement between the small businesses relationship manager and the capital arm of the bank, which clearly set out to persuade the business that converting a loan to an interest rate swap product was absolutely the right thing to do. The relationship manager told the business that it was the best option, because interest rates would go in only one direction: up.
Members have mentioned fixed rates. The business feels that the product was sold to it in a similar way to the way in which a capped-rate mortgage is sold. However, when my constituents asked what would happen if interest rates fell, the question was not answered with a proper explanation and a warning. The employees of the bank simply said that there was no prospect or possibility of a reduction in interest rates, given their historic low at that point.
The capital arm of the bank pitched the product in what I can only describe as a Del Boy-esque fashion—as if Del Boy was selling saucepans to a housewife at the market. The capital arm contacted the business and persuaded it that the product in question was fantastic and was usually available only to far larger businesses, but that as this business was such a good customer of the bank it could have the same deal. The capital arm then continually contacted the business—it did so almost daily—to explain that day’s special interest rate and to tell it the time was now or never to pick up that special deal. To compound the situation, while this was never discussed, the business was under a lot of added pressure and believed it needed to keep the bank sweet. It was the time of the onset of the credit crunch and the business feared the other accounts and facilities it had with the bank would not be serviced if it did not take the bank’s advice.
Mark Menzies (Fylde) (Con)
My hon. Friend eloquently describes the same situation as that suffered by hoteliers, shopkeepers and restaurateurs in Fylde and Lytham St Annes. These are not naïve people, but they believed what they were told by their bank relationship manager and they were misled. We must urgently address this issue.
Mr Jones
My hon. Friend is absolutely right. We are talking here about small businesses that do not have experience of these banking products, and they should never have been led down this route without very strong warnings explaining what they were taking on. The business in my constituency that I have mentioned feels precisely that way, and the consequence of all this is that it is now paying double what it would have paid if it had kept to the more traditional lending arrangements it initially had with the bank.
This business estimates that it has spent between £150,000 and £200,000 in extra fees and extra interest—on the friendly advice of its bank. As a direct result of the interest swap loan, it has struggled to repay its loan as interest rates have fallen. The bank said there was nothing it could do to help. Eventually, after being contacted on a number of occasions, the bank finally allowed the business to convert to interest-only payments, but that comes with its own consequence, because the capital is not repaid, leaving a legacy that eventually has to be dealt with.
It can be argued that these are commercial business-to-business relationships, and that any small business should have taken further advice, and that would be my usual view. However, often these businesses were put under great pressure by their bank, which was aggressively selling the product in question and advising its customer to take it, and there was usually a wider business relationship as well, involving other banking facilities. There appears to me to be a clear conflict of interest, therefore. There is also the question of how suitable these products are for small businesses.
What action can businesses that find themselves in this situation take? As with any dispute of this nature, they can go to law, but as has been pointed out by many colleagues, the chances are that a business in this situation will not have the money needed up front to be able to take up a case against a bank, which is likely to be a huge multinational organisation. Also, as my hon. Friend the Member for Camborne and Redruth (George Eustice) rightly pointed out, there might be another conflict of interests in that some of the lawyers who might take on such litigation cases will have professional relationships with the bigger banks. That is also unhelpful.
George Freeman (Mid Norfolk) (Con)
I am grateful to my hon. Friend for giving way, not least as I now have the opportunity to add my name to those of the other Members supporting my hon. Friend the Member for Aberconwy (Guto Bebb) in raising this important issue. My hon. Friend has also given me the opportunity to highlight the case of Adcocks of Watton, a venerable old business in my constituency which has suffered terribly and whose case has recently featured on the BBC. Does he agree that whatever the whys and wherefores and the legal findings on the small print in the contracts, these wider cases are symptomatic of a deeper problem in our banking sector? The banks seem increasingly to have decided, in rural areas in particular, to make their money from charges and selling more glamorous derivative products, at the expense of backing small businesses and supporting growth on the high street, which is what we really want our traditional banking sector to do.
Mr Jones
I thank my hon. Friend for his comments. He is absolutely right to say that these products were not suitable for the type of business that he mentioned. As chair of the all-party group on town centres, I take a great interest in town centres and high streets. At this difficult time for them, the type of business that he mentioned can do without this type of additional pressure.
In the short time available to me, I wish to return to the recourse that businesses have and talk a little about the ombudsman and the Financial Services Authority route. Whether businesses take the ombudsman route, the FSA route or the route of going to law, one of the biggest problems small businesses face is that at the outset they have to divulge all the information about the particular case. They particularly have to divulge the information about the bank and a lot of information has to be gathered from the bank. As we have heard from hon. Members from across the Chamber, many small businesses feel that they are not in a position to do that because they feel that they will be prejudiced by that bank in relation to other loans and borrowing facilities that they hold with it. They find it difficult to move these things to other banks, because they may, for example, be in negative equity with property because of the economic situation.
So I wish to ask the Economic Secretary to the Treasury a number of questions. First, will she press the banks to give a clear and unambiguous commitment not to treat any complainant unfairly in other dealings between a business and a bank? Secondly, what steps will she take to persuade the banks to do the right thing at this point and support those small businesses that have been caught out by these products that have been inappropriately sold to them by the banks? Thirdly, will she write to the FSA to set out the concern of the House, to ask the FSA to expedite the work it is undertaking on this matter, to stress the importance of a thorough investigation with teeth and to ask it to look at the criteria that the ombudsman can use, because they are narrow at the moment for small businesses and the level of compensation is very low? I fear that if we do not do that at this point not only will the small businesses be disadvantaged, but we will also risk similar mis-selling scandals occurring in the future if the banks are not brought to account.
Chris Leslie (Nottingham East) (Lab/Co-op)
I congratulate the hon. Member for Nuneaton (Mr Jones) on the speech he just gave. We have heard some fine speeches from Members from across the Chamber, but I wish to pay tribute to the hon. Member for Aberconwy (Guto Bebb) for his speech, for which he definitely deserved the applause he received. This is one of those cross-party issues that shows that from time to time the House of Commons can come together to try its best to send a strong message to the Government and the regulators to try to get some action, in particular from the banks.
My hon. Friend the Member for Chesterfield (Toby Perkins) and I met people from more than 50 small and medium-sized enterprises a couple of weeks ago. We heard harrowing stories and felt that sense of injustice that so many hon. Members have expressed in their contributions. We heard about bankruptcies and the job losses that can follow, and about the human cost and the misery that have ensued. We are dealing with incredibly serious questions, and we deserve nothing less than a swift and serious response from the Government and from the financial services authorities.
Martin Horwood (Cheltenham) (LD)
I very much welcome the hon. Gentleman’s remarks and echo the sentiments of many hon. Members. I just wish to say that there may be more Members, like me, who have been prevented from speaking in detail by the sub judice rule today and that concern about this issue may be even more widespread than this debate has revealed so far.
Chris Leslie
That is a very good point, and, reading between the lines, we can see exactly the strength of feeling that the hon. Gentleman expresses.
Helen Goodman (Bishop Auckland) (Lab)
I do not know who my hon. Friend met, but I wonder whether the stories he heard were like that of my constituent Mr Les Wood. He borrowed £9,000 from HSBC and has since repaid £133,000 to HSBC—a totally disproportionate sum.
Chris Leslie
That story has been repeated time and again. For those of us who might have come across the problems in anecdotes related to us in our surgeries, today’s debate has revealed that they were not one-off cases; there was a pattern.
Let us remind ourselves of what the banks have been doing. They saw an opportunity in new firms ambitious to succeed and to grow, and in firms in need of loans to invest in new plant and processes. The banks sought to attach complex hedging products to the loans, allegedly giving the impression that that was a requirement of the loan—we have heard how many times businesses were told it was part of the package deal—and that credit could not be obtained otherwise. Small firms were told that the products were just insurance policies: the upside protections were emphasised, but the downside risks were hardly mentioned. Then, when the course of the economy took a turn—we will not go into that today—leading to interest rates plummeting over the past couple of years, the firms were forced to pick up the punitive costs of the downside risks of the hedges. The banks have profited significantly at the expense of small firms.
Today we have heard revelation after revelation of breathtaking abuse of the small firms that have been caught out—firms up and down the country, from chip shops to child care centres, builders to bed and breakfasts. I pay tribute to The Daily Telegraph business section, which has pursued this issue tenaciously. It highlighted the case of Adcock and Sons, a Norfolk electrical retailer that took out an interest rate swap on a £970,000 loan. The product, known as an asymmetric leverage collar, cost the business £2 for every £1 of benefit it offered. As The Daily Telegraph reported, what really rubbed salt into the wound was that the arrangement resulted in Barclays Capital profiting by £100,000.
This is not just a story of product asymmetry; it has many other facets. For example, as we have heard today, agreements are too often not made in parallel with the line of credit, but extend way beyond the end of the loan. Guardian Care Homes has been mentioned: it had two swaps whose term exceeded the loan by 10 and 15 years respectively—totally ridiculous. We have also heard about the punitive costs of servicing the swaps, and the back-breaking breakage fees—sometimes 50% of the total loan cost, averaging, we are told, about £1 million just to reverse out of the agreements.
Questions have been asked today about the competence of those selling these specialist products and the commissions that skewed their judgment. Banks were, at best, taking advantage of what we in the trade know as “information asymmetry”—in other words, unsuspecting customers and cunning banks—but at worst their behaviour was extortionate. Court action to try to obtain a remedy has not been easy: we have heard about gagging clauses in out-of-court settlements, where they have been made. Those problems are compounded by the fact that the clock is ticking on people’s right to complain and pursue redress.
In recent months, Opposition Members have done their best to raise these issues. In the Financial Services Public Bill Committee, we tabled amendments that would have given small firms better access via the FSA to the super-complaints power and stronger collective proceedings powers. The Financial Secretary, who is not here today—I think he is at a conference in Turkey—rejected the amendments, saying that he did not want to comment directly on interest rate hedges issues as they were a “matter for the FSA”. That response was not substantive, and I hope that the Economic Secretary can rise to the occasion today and respond seriously to the heartfelt concerns that have been raised in the debate.
The Government rejected other amendments we tabled to the Financial Services Bill on the need for a fiduciary duty of care for customers, both individuals and SMEs, when they are taking out these products. The Chancellor has rejected Vickers’ advice—it appears that the banking reform Bill will have nothing to improve customer protection. Vickers, of course, highlighted that in the ring-fenced retail arrangements we should be very careful about interest rate swaps, hedging and derivative products moving into what might be called the normal vanilla nature of banking. That is something all hon. Members might want to spend a little time considering when scrutinising the proposals set out in the White Paper that the Treasury has just produced.
I met FSA representatives yesterday and we talked about its supervisory investigation. I am told that it has been looking at a random sample of 50 or so cases in each of the banks. They have been listening to the tapes of some of the sales calls that took place and looking back at them. I am told that its target is to announce some action by the end of this month, which I sincerely hope it will do. Having listened to the debate and heard the strength of feeling on these questions, it occurs to me that any small businesses that have not yet complained or raised these issues with the FSA must do so as soon as possible. The FSA’s hotline number is 0845 606 1234. I hope that those firms will ring and let the FSA know, because it is our best hope at this juncture.
I am looking for four particular assurances from the Minister today at the very least. First, she and the regulators need to extract from the banks an assurance that no customer who complains will be treated adversely because of the complaint. There is potential for a sense of victimisation, and we need absolutely to get out of that space. Secondly, we should have a moratorium on foreclosures while the complaints of the customer concerned are being considered and their case is under review, because firms are going under and going into liquidation and bankruptcy every single day. We have to ensure that some backstop is put on the process.
Thirdly, we need agreement by the banks that customers who were sold hedges for longer than the term of the loan should have the right to cancel and move out of the breakage fee arrangement. Those are the minimum criteria we need. Also, banks should extend the statute of limitations, the sense that complaints have to be investigated within a particular time scale. The banks should show more grace in these circumstances.
Small businesses are the lifeblood of the British economy. They account for 48% of private sector turnover, employ 14 million people, have a turnover of £1.5 trillion, and of course they make up 99% of UK enterprises. They deserve to be treated better by our banks and to be supported more effectively by the Government. They certainly deserve the full backing of both sides of the House for an urgent solution to this serious problem.
The Economic Secretary to the Treasury (Miss Chloe Smith)
We have had a very fine debate this afternoon and I congratulate my hon. Friend the Member for Aberconwy (Guto Bebb) on securing it and moving the motion. He will be pleased to learn that I will leave him a few minutes at the end so that he can complete the job. My hon. Friend the Financial Secretary, who is in Istanbul on Government business, is disappointed to miss the debate, but I shall endeavour to do the best job I can in his stead.
I have listened to and considered carefully what hon. Members have said today and will try to respond to as many Back-Bench points as possible. I suggest that it is not really a day for a great political answer. Instead, I want to talk about some of the detail of what is happening in this instance. To name but a few of the contributions that have been made, we heard a passionate contribution from the hon. Member for Wolverhampton North East (Emma Reynolds) and we heard from my hon. Friend the Member for Staffordshire Moorlands (Karen Bradley), who explained the issue in terms of tea and strawberries—I wondered whether to intervene to ask her what would happen if someone liked tea and strawberries together, but today is a day for much more serious material.
My hon. Friends the Members for Finchley and Golders Green (Mike Freer), for South Derbyshire (Heather Wheeler) and for Ceredigion (Mr Williams) really underlined one of the main points. Through no fault of their own very fine brains, even they found some of these issues hard to comprehend in their constituency surgeries. I think that that is because of some of the complexity of the products available. Perhaps my hon. Friend the Member for Staffordshire Moorlands could explain it to them with the aid of tea to help it all go down well.
The House needs to be reassured that the Government have taken this issue extremely seriously. The FSA, as the independent regulator, is responsible for determining the appropriate regulatory response, but today I can update the House on what the FSA is doing and when it will be doing it by, and I will respond to a few further points that have been made today.
To return to the products, however, I should note that these interest rate products are designed to reduce a business’s vulnerability—in theory—to interest rate fluctuations, but they can be very complex products, ranging from relatively simple interest rate caps to interest rate swaps and, then, to both simple and structured collars. The bulk of those products were sold, alongside loans, to businesses between 2005 and 2008, the trouble being that since then interest rates have been very much lower and businesses that took out such products have found themselves paying much higher rates than the base rate. A growing number of small and medium-sized enterprises have come forward to claim that they have been mis-sold such products.
Another real telling point from today’s debate was the number of times that hon. Members repeated the call for anonymity on behalf of their constituents, and that really brings home the seriousness with which we need to take the subject and, of course, the serious consequences that businesses are facing.
Since the issue first came to light, the Government have been working closely with the FSA and have assisted it wherever possible. The authority, as some Members will know, began its initial survey of the issue back in March, and that initial work pointed to concerns, certainly about the suitability of some of these products for SMEs, and about some of the sales practices involved.
There was evidence in some cases of over-hedging—of the products lasting longer than the duration of the loan they were protecting, to which hon. Members have referred in examples; and in some cases there seemed to be incentives for staff to sell more of the more complex products.
As a result, the FSA agreed to carry out a more in-depth review into alleged mis-selling. That is now well under way, and I shall make the House aware of what I think is a positive point: the FSA will be able to report its findings at the end of this month—at the end of June. I wholeheartedly welcome the review, and the Government are awaiting its conclusions, but I think that hon. Members will welcome those results coming forth at the end of June—perhaps earlier than some had expected, given their comments today.
In taking forward the review, the FSA has gathered further information from banks and carried out more than 100 interviews with small businesses in order to establish for its findings the robust fact base that one would expect. It does require detailed analysis, and I will set out in a little more detail the issues that the FSA’s review is likely to cover.
Under the banking conduct of business sourcebook rules, banks simply cannot sell products that are not appropriate for a customer without warning them, so the FSA, in addition to exploring further the questions on over-hedging and on sales incentives which its initial work revealed, is seeking to establish whether the sales of those products were appropriate for small businesses, as they might not have understood how they would operate. I acknowledge the point, made by some hon. Members today, that we need to recognise, in their words, that some business customers are not sophisticated—and that is absolutely right. If such a situation has occurred, it is a concern.
The Financial Services and Markets Act 2000 already requires the FSA to have regard to the different degrees of risk in different investment, and to the differing degree of experience and expertise that consumers have. We are adding to that in the Financial Services Bill, and that is very important, as hon. Members have said today.
The FSA’s review is also going to establish a clear understanding of banks’ sales practices, including whether they were advised sales or non-advised sales, and whether the downside risks were clearly communicated orally as well as on paper.
The review will also look at break costs, which several businesses suggest were not disclosed to them when they purchased the product, and it will also attempt to establish whether the banks told customers explicitly or otherwise that the hedging product was a requirement of the loan, an issue that I know many hon. Members have raised today.
In answer to some of the key points that have been made today, the desire for banks not to treat adversely or to punish those who make complaints has come up repeatedly, and it is one of the hard-hitting points that will stay in the mind from today’s debate. I share hon. Members’ serious concerns about that; banks should not be able to treat customers unfairly in that way. The examples that hon. Members have been giving do not seem consistent with the principle of treating customers fairly. The Government want to be assured that those making complaints will not be punished as a consequence. When the FSA produces its report, I am sure that we will be able to go into more detail with the evidence in front of us.
Damian Collins
If the FSA report finds that the products may have been mis-sold, will there at least be the chance for businesses to break out of the agreements or for there to be a moratorium on payments while individual compensation claims are analysed?
Miss Smith
I hear that point, which has been made a number of times today. It is not my place to pre-empt the findings, not least because the FSA is an independent regulator and because the results and evidence have not yet come together.
However, I assure the House that not only will my hon. Friend the Financial Secretary be listening very carefully to that request, but the FSA already has a powerful toolkit to deal effectively with any potential mis-selling. That can include powers to establish industry-wide or single-firm redress schemes, which comes from the Financial Services and Markets Act 2000; to refer the banks to enforcement; to use supervisory measures; and to obtain redress for consumers through the use of restitution powers.
I want to leave enough time for my hon. Friend the Member for Aberconwy to return to this debate. I come back to the point about the SMEs that have been affected; that is the powerful point that has come out today. Hon. Members have spoken deeply about the difficulties faced by small businesses in their constituencies. The Government are helping small businesses in difficulty in other ways: there are HMRC’s “time to pay” arrangements and advice and information through the Business Link website and other far larger points throughout the economy.
I echo the words of the shadow Minister, the hon. Member for Wolverhampton North East. I encourage any business that believes it was mis-sold one of the products to contact the FSA if it has not already done so, and to give as much information as possible about its case. The report is coming back at the end of June, so I advise such businesses to be swift. That will help the FSA to continue to develop its understanding.
The Government are fully aware of the issue. I am grateful to hon. Members present for putting flesh on the bones. I hope that I have provided the House with some reassurance on what the FSA is doing, the range of the FSA’s powers and the closeness with which the Government have worked with the FSA. We must allow the review to run its course, but we should all look forward to its findings.
Guto Bebb
I thank the Minister for her update on the position of the FSA, which has moved significantly from its initial responses to my communications early this year; I respect the fact that it is moving in the right direction. However, it should be aware that Members on both sides will be looking carefully at its comments at the end of the month.
I also concur with the comments of the shadow Minister, who stated that the House can, at times, perform much better than it does at PMQs. This debate has been extremely positive. What has really pleased me is that contributions came from Members representing five political parties. There have been 14 excellent speeches and numerous contributions from Back Benchers stating that the issue is a concern across the country.
The issue has lain dormant for too long, and there is a real concern about the attitude of the banks towards the businesses. Even today, Members have said that they cannot name individual businesses because those businesses are scared of the banks’ taking action against them. That is a real concern. We need to move forward and to have transparency and openness. We need to identify the scale of the problem and the FSA needs to take a decision showing that as a regulator it has teeth and it will have an effect on the situation. I commend my motion to the House.
Question put and agreed to.
Resolved,
That this House has considered the matter of the mis-selling of interest rate swap products to small and medium-sized businesses; notes the work undertaken by the Financial Services Authority in this respect; and calls for a prompt resolution of the matter.
Business without Debate
Written Ministerial Statements
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Employment Law
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The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Norman Lamb)
Today, as part of their ongoing review of employment law, the Government have launched a consultation on changes to the rules on collective redundancy. In the consultation we are seeking views on changes to both the legislative framework and the guidance on offer in order to create a regime that supports the labour market in Great Britain and promotes good quality consultation.
Evidence suggests that the current rules are too rigid and hamper employers’ ability to restructure effectively whilst drawing the focus of consultation toward the process and away from the most important issues, such as ways to mitigate the impact of the redundancies. The current minimum consultation period for large-scale redundancies is also much longer than most other EU countries. We want businesses to be able to react nimbly to changes in market conditions and to be confident about creating new employment opportunities.
We also want employers to consult their work force effectively over the big issues, including restructuring and redundancy. We do not want to create an uncaring, hire and fire culture; instead our aim is to promote good-quality consultation processes between employers and employees to ensure that the right decision is reached based on a full consideration of all relevant facts.
This consultation looks at how we can revitalise the process. We propose to reduce the 90-day minimum period before very large numbers of redundancies can take effect to either 45 or 30 days, alongside production of a new code of practice.
As well as these important proposals for change, there are some elements that we propose to leave as they are, most notably the protective award. The protective award currently stands at a maximum of 90 days’ pay for each employee affected by a failure to consult and is paid by the employer. As the level of the award is linked to the employer’s attempts to comply (and not to the length of the consultation period) we believe that this is right to keep this proportionate and dissuasive penalty.
The consultation will close (after 13 weeks) on 19 September 2012. During the consultation period we will seek views from a range of interested parties. Following consideration of the responses to the consultation, we will publish a Government response, setting out what we intend to take forward.
Copies of the consultation document have been placed in the Libraries of both Houses.
Charitable Giving
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The Economic Secretary to the Treasury (Miss Chloe Smith)
The Government have today introduced the Small Charitable Donations Bill into Parliament. This will enable charities to claim gift aid-style payments on the small cash donations that they receive. Charities and community amateur sports clubs (CASCs) can find it difficult to claim gift aid on donations collected in certain circumstances, for example bucket collections, where donors may be reluctant to stop and fill out gift aid declarations. This means that charities are currently missing out on potential income.
This new scheme will allow charities and CASCs to claim top-up payments of 25p for every £1 collected on small cash donations of £20 or less, up to a total of £5,000 of donations per year. The scheme is designed to allow top-up payments to charities on the donations for which they cannot easily get a gift aid declaration. It will supplement the main gift aid scheme, which provides over £1 billion a year in additional income for the charitable sector.
In developing the scheme, the Government have taken steps to ensure that it operates as fairly as possible, whilst keeping overall costs of the scheme affordable and also protecting against fraud. The scheme has been designed in order to make it fair and generous, and straightforward for charities to claim the top-up payments. HM Revenue and Customs will be issuing guidance for charities ahead of the scheme commencing.
ECOFIN
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The Chancellor of the Exchequer (Mr George Osborne)
A meeting of the Economic and Financial Affairs Council will be held in Luxembourg on 22 June 2012. The following items are on the agenda to be discussed:
Recovery and Resolution of Credit Institutions and Investment Firms Directive
The Commission will present its new proposals for a directive, following which the Council may then have a preliminary exchange of views on the proposal. The directive will require member states to ensure that their national supervisory and resolution authorities have a set of common tools and powers which will enable them to avert, and where necessary manage, the failure of a financial institution. The proposal seeks to prevent the systemic damage caused by the disorderly failure of such institutions, limiting public sector exposure and preventing wider economic damage.
Contribution to the European Council Meeting on 28-29 June 2012, European Semester
The Council will be asked to approve the fiscal and economic elements of the country specific recommendations (CSRs) for the 27 member states and the Euro area. For the UK, as happened last year, the UK has received CSRs in the areas of public finances; housing; workless households and access to finance, with an additional recommendation on infrastructure. The recommendations are in line with domestic reform priorities and messages given to the UK by the IMF and the OECD. For the UK, the recommendations are non-binding and there are no sanctions for non-compliance.
Implementation of the Stability and Growth Pact
The Council will be asked to adopt the Council decision abrogating the excessive deficit procedures for Germany and Bulgaria. The Council will also be invited to take a decision to lift the suspension of the commitments from the cohesion fund for Hungary. The latter decision will be based on a proposal from the Commission concerning the assessment of effective actions taken by Hungary in order to bring the situation of an excessive Government deficit to an end. The UK agrees with the Commission assessment that the necessary progress has been made in both cases and will support the proposed decisions.
Convergence Report from the Commission and the ECB
The Commission and the ECB will provide an update on their assessment of the progress made by Bulgaria, the Czech Republic, Latvia, Lithuania, Hungary, Poland, Romania and Sweden in fulfilling their obligations regarding the achievement of economic and monetary union. There are no policy implications for the UK.
Follow up to the G20 Summit (Mexico, 18-19 June 2012)
The Commission will provide a read-out of the G20 summit in Los Cabos that occurred on 18 and 19 June.
Financial Transactions Tax
The presidency will update the Ministers on their assessment of discussions so far on the proposals for a financial transactions tax. The Council will be invited to discuss orientations for future work on this dossier. The Chancellor has made clear on a number of occasions that the UK does not support the Commission’s proposal for an FTT. As it stands, the proposal will have significant negative impacts on jobs and growth across the EU. To avoid a damaging relocation of financial trading, FTTs would need to apply in all financial centres, and not just the EU.
Energy Taxation Directive
The presidency will update Ministers on progress on this directive and will ask the Council to discuss orientations for future work. The UK opposes several elements of the revision proposal and supports the approach of the current energy taxation directive where EU minimum rates are established but it is then for member states to determine the structure of their national taxes.
ECOFIN Breakfast
Eurogroup will meet on 21 June. Ministers will be debriefed on the Eurogroup discussions before the formal ECOFIN starts on the 22nd. Ministers are likely to discuss the current economic situation, the most recent trends on sovereign debt markets and proposals to strength the single currency.
ECOFIN Lunch
The multiannual financial framework will be discussed based on a presidency issues note negotiations on the MFF have progressed under the Danish presidency, which is working to present a “negotiating box” at the June European Council setting out the options member states have discussed. There remain a number of options in the negotiating box which are unacceptable to the UK, such as a change to our abatement and the introduction of new EU taxes to fund the EU budget. We will strongly defend the abatement and oppose new EU taxes to fund the EU budget. The maximum acceptable increase in spending in the next MFF is a real terms freeze in payments on current levels of actual spend.
Statutory Residence Test and Reforms to Ordinary Residence
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The Exchequer Secretary to the Treasury (Mr David Gauke)
In June 2011, the Government consulted on introducing a statutory residence test and reforming the concept of ordinary residence.
On 6 December 2012, the Government announced that legislation would take effect from April 2013, rather than April 2012 in order to give the time to consider the detailed issues raised in consultation.
The Government are today publishing their response to the 2011 consultation together with draft legislation to be included in Finance Bill 2013. This sets out the changes that will be made to the statutory residence test following consultation and confirms that ordinary residence will be abolished as announced at Budget 2012. It also contains further consultation questions on which the Government invite comments. The document is available on the HM Treasury website at:
http: www.hm-treasury.gov.uk/consult_statutory_ residence_test.htm
The Government remain committed to their timetable of introducing the statutory definition of tax residence and reforms to the concept of ordinary residence in Finance Bill 2013.
Energy Council
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The Minister of State, Department of Energy and Climate Change (Charles Hendry)
I represented the United Kingdom at the EU Energy Council in Luxembourg on 15 June 2012.
The Commission and presidency gave progress reports on negotiations of the proposal for a regulation on guidelines for trans-European energy infrastructure and on the proposal for a regulation on safety of offshore oil and gas. A number of member states spoke about the need for infrastructure in order to integrate renewables in the internal energy market. The Commission noted that the future of renewable energy would depend on the construction of cross-border infrastructure. On the regulation on the safety of offshore oil and gas, the Commission acknowledged the high safety standards applied by the UK and Norway in the North sea and signalled that it could be flexible on the legal form of the proposal. I welcomed this flexibility, with the support of several other member states.
Conclusions on the “2050 Energy Roadmap” were tabled as presidency conclusions, following late amendments by one member state. The presidency conclusions were supported by 26 member states.
The Commission presented their recently published communication “Renewable energy: a major player in the European energy market”. I welcomed the communication and noted that it should be seen in the context of the energy road map and the completion of the internal energy market, whilst emphasising that sectoral or technological targets should be treated with caution.
The presidency reported on the first reading agreement with the European Parliament on the energy efficiency directive. I and several other member states congratulated the presidency on concluding negotiations of a complex dossier. The presidency informed the Council that proposals to amend an existing regulation and agreement on an energy efficiency labelling programme would be presented to the Council.
The Commission reported on the progress of nuclear “stress tests” and outlined the next steps on the review of the nuclear safety directive.
The Commission updated the Council on a number of international energy-related items, including EU-OPEC, the EU-China high-level meeting on energy, EU-Russia and the southern corridor.
Finally, Cyprus outlined priorities for its presidency, principally taking forward the draft proposals on infrastructure and safety of offshore oil and gas, and communications on renewable energy and the internal energy market.
Bovine TB
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The Minister of State, Department for Environment, Food and Rural Affairs (Mr James Paice)
Following the review of the Bovine TB Eradication Group for England (TBEG), I am pleased to announce that DEFRA will be establishing a new Bovine TB Eradication Advisory Group for England (TBEAG).
TBEG was set up in November 2008 to provide advice to Government on tackling bovine TB which continues to be one of the most pressing animal health issues in England. It is a devastating disease, leading to the slaughter of over 26,000 cattle last year and costing the taxpayer about £100 million a year in England alone.
I would like to thank the members of TBEG, whose valuable work will be continued by the new group. TBEAG’s membership will be broadened to include additional areas of scientific expertise and conservation knowledge as well as a wider range of farming experience. The new advisory group will bring together the farming industry, veterinary profession, Government and other stakeholders to provide expert advice on how we can best work together to tackle this terrible disease.
TBEAG will operate as a sub-group of the Animal Health and Welfare Board for England (AHWBE).
TBEAG will be chaired by John Cross, current chairman of the English Beef and Lamb Sector Body (EBLEX); a former chair of the animal health and welfare committee of the National Farmers Union and farmer of a mixed livestock and arable enterprise in Norfolk.
The group will help to develop a long-term strategy to stop the spread of bovine TB and move towards its eradication. It will consider a comprehensive and evidence-based package of measures, making best use of all the available tools. TBEAG will also consider the respective roles and responsibilities of Government, the farming industry, the veterinary profession and other stakeholders, and will advise on funding and budgetary issues. The group will advise on compliance with EU legal requirements and on the development of the UK’s EU-funded eradication plan. It will provide advice on the full range of issues relating to bovine TB at the request of the AHWBE or Ministers.
European Court of Justice (Appointment of New Judges and Advocates-General)
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The Minister for Europe (Mr David Lidington)
I would like to update the House on progress made with regards to the partial renewal of the European Court of Justice’s judiciary this October.
I am pleased to announce that Mr Christopher Vajda QC was appointed as the new UK judge to the European Court of Justice. Mr Vajda will take up his new position in October this year, for an initial term of six years.
Mr Vajda was nominated by the UK following an open domestic recruitment process in which an expert selection and interview panel comprising of lay, judicial and legal members recommended his candidacy to Ministers. Mr Vajda has extensive knowledge of both European and domestic law, and the corresponding European and domestic legal systems, having practised as a barrister for the past 30 years, appearing before both UK and European Courts on numerous occasions. He has been a QC since 1997. Mr Vajda has also sat as a recorder within the Crown Court for the past eight years. I am sure hon. Members will join me in congratulating Mr Vajda on his appointment. We are confident that he will make a significant contribution to the workings of the Court during his term.
The nominations put forward by a number of other member states have also been approved by the UK, all of which have been scrutinised by the independent panel established under article 255 of the treaty on the functioning of the European Union:
Eleven renewals of sitting judges at the European Court of Justice:
Alexander Arabadjiev (Bulgaria)
Jiri Malenovský (Czech Republic)
Thomas Von Danwitz (Germany)
Jean-Claude Bonichot (France)
George Arestis (Cyprus)
Egils Levits (Latvia)
Egidijus Jarašiunas (Lithuania)
Alexandra Prechal (Netherlands)
Maria Berger (Austria)
Gustav Fernlund (Sweden)
Paolo Mengozzi (Italy)
One nomination for a new judge:
José Luís Da Cruz Vilaça (Portugal)
Two nominations for the renewal of an Advocate-General:
Antonio Tizzano (Italy)
Yves Bot (France)
Two nominations for new Advocates-General:
Melchior Wathelet (Belgium)
Nils Wahl (Sweden)
Britain's Diplomatic Network (Latin America and the Caribbean)
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The Secretary of State for Foreign and Commonwealth Affairs (Mr William Hague)
The Government are committed to strengthening and reinvigorating Britain’s diplomatic network overseas.
On 11 May 2011, I announced plans to open six new embassies and up to seven new consulates-general and to increase our diplomatic representation in more than 20 countries worldwide.
On 2 February 2012, I announced additional plans to open an embassy in Liberia, and on 15 May 2012 I announced plans to open an embassy in Laos and a British interests office in Burma in Naypyitaw.
Today, I can announce further steps to strengthen British diplomacy in Latin America and the Caribbean:
The Foreign and Commonwealth Office will now reopen the British embassy in Paraguay which was closed in 2005, and we will establish British diplomatic representation in Haiti for the first time since 1966. This builds on our decision to reopen the British embassy in El Salvador which was closed in 2003 and the new British consulate in the Brazilian city of Recife. It amounts to a considerable diplomatic advance in Latin America and the reversal of the previous Government’s policy of closing posts in the region.
Paraguay is the country with the largest economy in the world that does not have resident British diplomatic representation and was the fastest growing economy in south America in 2010. This new embassy will further strengthen British diplomatic engagement in the region. It will help to unlock commercial opportunities for British companies in this significant market. And it will allow us to work closely with Paraguay on regional issues such as counter-narcotics and organised crime.
The new British embassy in Haiti will report to our ambassador in the Dominican Republic. It will place us in a stronger position to support our objectives in Haiti and the region. The UK is a major contributor both to reconstruction and development in Haiti through multilateral agencies. We are also one of the major financial contributors to the United Nations Stabilization Mission in Haiti (MINUSTAH), the UN peacekeeping operation. It is in Britain’s interest as a P5 member of the UN Security Council to play a more active role in guaranteeing stability and creating the conditions for growth and prosperity.
The strength of our overseas network is a signal to the world of our engagement and commitment to international peace and security. And our posts themselves are the essential infrastructure of our country’s international influence and of our economic recovery. They provide an early warning system for threats to peace and security and assist British nationals in time of crisis. They support our economy and help British businesses, and they promote our values across the world.
The strengthening of our global diplomatic network will therefore remain a central objective of the Government. On current plans by 2015 we will have deployed 300 extra staff in more than 20 countries and we will have opened up to 11 new British embassies and eight new consulates or trade offices. I will keep the House informed of any further developments.
Employment, Social Policy, Health and Consumer Affairs Council (Agenda)
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The Minister of State, Department for Work and Pensions (Chris Grayling)
The Employment, Social Policy, Health and Consumer Affairs Council will be held today, 21 June 2012 in Luxembourg. I will represent the United Kingdom.
The main discussion will be a policy debate on the Europe 2020 strategy: contribution to the European Council (28 and 29 June 2012)—European semester. I will intervene to state that Council recommendations are the most important contribution that the Employment and Social Policy Council (EPSCO) can make to the European Council on structural reforms for growth. I will further state that the Commission should work more with member states to develop recommendations which are still ambitious and challenging but take into account the national context so that they are also credible and deliverable.
There will be progress reports on four topics: legislative initiatives for posting of workers, the European globalisation adjustment fund (2014-20), minimum health and safety requirements regarding the exposure of workers to the risks arising from physical agents (electromagnetic fields) and the principle of equal treatment of persons irrespective of religion or belief, disability, age or sexual orientation.
In addition, Ministers will consider two sets of Council conclusions, covering responding to the demographic challenges through enhanced participation in labour market and society by all, and gender equality and the environment; enhanced decision-making, qualifications and competitiveness in the field of climate change mitigation policy in the EU.
The presidency will seek the support of the Council for a partial general approach on the programme for social change and innovation (PSCI). Ministers will also be invited to endorse the main messages from the Social Protection Committee’s report on pensions’ adequacy.
Under any other business, the Commission will provide information on national Roma integration strategies and the ratification and implementation of the UN convention on the rights of people with disabilities and the presidency will provide information on the conferences held during the Danish presidency. The Commission and presidency will report on the G20 meeting of Labour and Employment Ministers, and finally, the Cypriot delegation will outline the work programme of their forthcoming presidency.
House of Lords
Broadband: 4G Mobile
Baroness Garden of Frognal
My Lords, Ofcom is examining this issue in partnership with the Government and the mobile and broadcast industries, and it consulted on proposals last year. The Government announced in February that up to £180 million would be available to address interference problems, and that that would be administered by a body called Mitco, with the money coming from the winning auction bidders. Ofcom published its second consultation on this matter in February and is currently considering responses.
Lord Dubs
My Lords, does the Minister agree with Ofcom’s estimate that over 2 million households are liable to be adversely affected through interference with their television when 4G masts come into operation? Will she further indicate whether the money that the Government are making available will include both the installation costs and the cost of the filters necessary to avoid interference, given that for the majority of households this will not be a do-it-yourself job but will require a fully qualified fitter to do it?
Baroness Garden of Frognal
My Lords, the number of households affected is something of a flexible feast. In many households the interference will be negligible and easily remedied, and in those cases the filters will be provided free. People will be expected to install the filters themselves, but Ofcom ran a test; 95% of those trying to fit them had absolutely no problem in doing so, and that included people of all ranges of ability. The actual fitting should not prove as much of a problem, but contingency funds will be available if it is.
Baroness O'Cathain
My Lords, does the Minister realise that fitting the filters is not easy? I am not a complete idiot, but I had to pay £130 to get my filter fitted by a BT engineer. The reality is that there are lots of people around, and I think I am usually quite reasonable about these things, who are not going to be able to do it. I truly believe that 2 million is a gross underestimate of the number of people who are going to have problems with this.
Baroness Garden of Frognal
My Lords, there is general agreement that rolling out this broadband is in the interests of the economy and of the country as a whole. This development affects mainly those who are on Freeview rather than on satellite and cable. Detailed work has gone into checking which people will be the most affected, and the final figures are very much lower than the 2 million being suggested. From the Ofcom test it appeared that most people had no problem with the filters, but for those who do there will be additional resources to help them.
Lord Gordon of Strathblane
How has this situation come about? I confess that I had always thought that, as with most things, we tended to gold-plate our spectrum separation. I was a member of a Select Committee under the chairmanship of the noble Lord, Lord Fowler, which only two years ago took evidence on the switchover of digital radio and television, and no one involved reported any problems.
Baroness Garden of Frognal
All these developments can happen quite quickly with the rollout. With this one, it was not previously appreciated quite how much interference there might be when the 800-megahertz spectrum was rolled out for other reasons. The properties most affected by this will be those that are very close to the masts. Most of the others will have minimal interference, which can be dealt with relatively straightforwardly. A lot of contingency planning has gone into ensuring that people are not disadvantaged.
Baroness Scott of Needham Market
My Lords, Ofcom, which one has to assume knows what it is talking about, has estimated that there is a £200 million shortfall between the money being made available by the Government and what it will cost viewers to adjust their sets. Why, when the mobile phone companies will make a lot of money from 4G spectrum, should consumers end up having to foot the bill?
Baroness Garden of Frognal
The costs for this will be borne predominantly by the licensees of the 800-megahertz spectrum; that will be part of the auction bid that they will have to sign up to. It is certainly not expected that the Government will have to pay substantial sums of money to support what is basically a commercial transaction, albeit one with, of course, very significant impacts for the economy and for people generally.
Lord Maxton
Will the Minister give an absolute assurance right now that, whatever problems might arise from this, there will be no further delay in the implementation of the 4G rollout? We in this country are already too far behind other countries in rolling it out.
Baroness Garden of Frognal
Yes, indeed, my Lords. This is one of the counterarguments: that we really want this to roll out as rapidly as possible. In many other countries this has already happened. Our advantage is that we have been taking lessons particularly from Sweden, which was in the forefront of the rollout, in where the difficulties occurred and where we might be able to fast-track our system.
Baroness Garden of Frognal
How close is close? It will depend. If your house is right next to a mast, you might be very severely affected. Obviously, it will become less of a problem the further away from the mast the property is.
The Countess of Mar
The noble Baroness has said that no extra costs would fall on the Government—that is, the taxpayer. She has not spoken about the extra cost to the consumer, which is what the House is concerned about. How much of the costs will fall on the consumers?
Baroness Garden of Frognal
I am not sure that there will be significant costs to the consumers for this. It will obviously be an additional service when it is rolled out. The filters for the adaptation will be free, and in most cases the installation will be free, so the actual cost to consumers should not be significant when the rollout is completed.
Baroness Garden of Frognal
There should be a cost only if an additional service is being provided that is of benefit to the consumers. People are normally prepared to pay for services that give them benefit. If any additional cost arises, that should be where it is.
Lord Pearson of Rannoch
My Lords, is the problem of living close to a mast permanent, or will it be sorted in due course? How will this affect long-term property prices?
Baroness Garden of Frognal
You probably need Mystic Meg to answer that one. All these things advance as technology advances, so the solutions to any problems advance as well. I cannot see why it should affect property prices. In extreme cases where people simply cannot continue to get Freeview reception, there will be provision for moving them to a different platform so that they continue to receive their television and broadband services. As to property prices, that probably needs to come under a different Question.
House of Lords: Reform
(12 years, 6 months ago)
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Lord Lee of Trafford
To ask Her Majesty’s Government what is their latest estimate of the cost of their plans to reform the House of Lords.
The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
My Lords, on behalf of the whole House, I wish my noble friend a very happy 70th birthday. As to his Question, cost estimates depend on the content of the Bill. Therefore, the Government will publish full cost estimates when we introduce a Bill.
Lord Lee of Trafford
I thank my noble friend for his good wishes. My finest birthday present would have been for him to announce that the Government’s proposals were to be withdrawn because they are nearly friendless and wholly unnecessary.
Is my noble friend aware that the noble Lord, Lord Lipsey, a distinguished and recognised economist, has costed the Joint Committee proposals? The details have been sent to the Library and are freely available. He projects that the total cost of the recommendations will be nearly £500 million by 2020, broadly split between running costs of £300 million and election and referendum costs totalling £200 million—in other words, half a billion pounds in total. That is equivalent to the cost of 15,000 nurses’ salaries in one year. This £500 million compares with the total cost of running this House for the past five years of £91 million; it is five times as much. When the public wake up to this gross waste of money, will they not kick the proposed Bill firmly into touch?
Lord Strathclyde
My Lords, we will publish a Bill before the Summer Recess. When we do, we will have a full estimate of what a reformed House would cost. However, noble Lords would be wrong to assume that this will necessarily be an enormously expensive enterprise. After all, part of the purpose of reform is to reduce significantly the size of the House. However, we will make a full cost estimate when we publish the Bill.
Baroness Boothroyd
My Lords, the Prime Minister recently said that he had not ruled out a referendum on Lords reform. Bearing in mind that this House was told last May, after the country had rejected the AV system, that the cost of that referendum was around £120 million and still counting, what estimate have the Government arrived at for a referendum on Lords reform in these hard-up days?
Lord Strathclyde
My Lords, the Government are not convinced of the case for a referendum, even though it was a recommendation of the Joint Committee of both Houses, which reported earlier this year. The noble Baroness will have to be patient until we publish the Bill, which we will do relatively soon.
Lord Soley
My Lords, are the Government satisfied that detailed scrutiny of legislation will continue to be done in this House, regardless of whether it is elected in whole or in part?
Lord Strathclyde
My Lords, if we had an elected Chamber, I do not see why elected Members should not be able to give legislation exactly the same expert scrutiny as this House currently does. The noble Lord himself was formerly elected and I am sure that many of the skills that he uses now were skills that he learnt in another place.
Lord Elton
My Lords, it is simplistic to argue that to be democratic a House of Parliament must be elected. The importance of the House rests in its function, not in its appearance. Did not the experience of the Terrorism Bill 2006, when your Lordships prevented the House of Commons enacting a Bill that allowed one Secretary of State, having talked to one policeman, to lock up any private citizen for three months without any access to law whatever, show that the unelected House is actually the defender of democracy and should be retained as such?
Lord Strathclyde
My Lords, I hate to say it but my noble friend is rather straying from the original Question on the Order Paper. He makes a very valuable defence of the second Chamber, and the House of Lords in particular, over the past 10 years. However, given that if this House were to be elected it would be on a different basis from the House of Commons—with different constituencies and a different electoral system—there is no reason to believe that a second Chamber, so constituted, would not be able to do some of the very valuable things that this House has done in the past.
Lord Kakkar
My Lords, how can Her Majesty’s Government reassure the people of our country that in destabilising the relationship between your Lordships’ House and the other place their proposals for House of Lords abolition will not undermine the constitutional monarchy?
Lord Strathclyde
My Lords, I have every confidence that the robust nature of the British constitution would be able to bear well an elected second Chamber and it would have no impact whatever on the constitutional monarchy.
The Minister of State, Ministry of Justice (Lord McNally)
I think that we will hear from my noble friend Lord Tyler—and noble Lords should have a look at the third Question that we are coming to.
Lord Tyler
My Lords, returning to the original Question, can my noble friend assure the House that when an estimate is prepared in the light of the Government’s Bill in a few weeks’ time, we will have a true comparison of the future likely costs of not reforming the House along the lines of the Government’s Bill?
Lord Strathclyde
My Lords, I do not think that I can go quite as far as my noble friend wants. Yes, I believe that there will be a comprehensive breakdown of the costs of a reformed Chamber. As for the costs of the future of this House, that is more difficult to see, but the House needs to be aware that the total costs of this House are currently around £90 million a year, forecast to rise to £103 million in 2012-13.
Lord Brooke of Alverthorpe
My Lords, is the Leader of the House aware that some Members of this Chamber believe that the present composition is unsustainable and needs reform? Is he also aware that it is my birthday today too?
Lord Strathclyde
My Lords, I am very glad that it is the noble Lord’s birthday. I am surprised that we have had no questions on age limits being introduced in this House. I join him in being one who thinks that the House should be reformed.
Lord Cormack
My Lords, I am grateful for that support. Does my noble friend accept that the present House is cost-effective, and does he deplore the indiscriminate attacks on the bishops? We appreciate their presence, believe that they perform valuable duties, and we do not expect them to sleep on the embankment.
Lord Strathclyde
My Lords, I entirely agree with my noble friend. Bishops are eligible for the daily allowance and all the travel allowances, like any other Peer. I think that the House regards the bishops as providing very good value.
House of Lords: Behaviour in the Chamber
(12 years, 6 months ago)
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Lord Addington
To ask the Leader of the House what is his assessment of current standards of behaviour in the Chamber of the House and whether he will make time available for a debate on this subject.
The Chancellor of the Duchy of Lancaster (Lord Strathclyde)
My Lords, standards of behaviour vary, which is why in a self-regulating House it is incumbent on us all to take responsibility for ensuring that the rules set out in the Companion are adhered to in spirit as well as in letter. I would welcome a debate on the subject should my noble friend secure time for it through the normal routes.
Lord Addington
I thank my noble friend for that Answer. Does he not agree that certain habits that are coming into this House, such as trying to intervene on people excessively and compulsively, are becoming much more of a pattern and that the noble Lord who is speaking does not have to accept an intervention? Is it not the case that in a debate where we have a speakers list and a noble Lord intervenes and the intervention is accepted, that noble Lord should be here at the end of the debate to hear the summing up?
Lord Strathclyde
My Lords, I have every sympathy with what my noble friend says. The Companion allows Members to interrupt each other with,
“a brief question for clarification”.
But it also makes it clear that Members are entitled to,
“refuse to give way … in time-limited proceedings when time is short. Lengthy or frequent interventions should not be made, even with the consent of the member speaking”.
That is good practice for the House of Lords and we should not emulate aspects of behaviour in another place that do not suit the flavour of this Chamber.
Lord Richard
My Lords, it is certainly true that the House is now a bit more assertive than it was. I am bound to say I think this is a good thing rather than a bad thing. It is also true that people get intervened on in the course of their speeches. It seems to me that that is part of normal debate. I hope the Leader of the House agrees that this is meant to be a House of debate, not one in which people just get up and read set speeches from a script. In that sense it is much healthier than it used to be. Will the noble Lord consider another issue, which is Question Time? Behaviour at Question Time seems to be getting increasingly disorderly. I hope the noble Lord will agree that one of the main reasons for the disorder is that there is confusion as to whether the other side of the House is entitled to two slots or to one. On this side of the House we are perfectly clear that the coalition is entitled to one slot in the normal ladder and not to two. I ask the Leader of the House to confirm that again.
Lord Strathclyde
My Lords, I very much welcome the assertiveness of the House. However, there have been instances in the past of Peers intervening in an opening speech and then leaving the Chamber, not intending to speak themselves. This is something which I think we should all deprecate and is not part of the normal traditions of this House. I wish to make two comments about Question Time. I think that the behaviour in the House over recent months has been very good and I have had to intervene on very few occasions. I comprehensively disagree with what the noble Lord, Lord Richard, says: we have a very good system of understanding which side should speak next. The statistics demonstrate that at Question Time Labour Peers probably speak more than is their fair share.
Lord Geddes
Will my noble friend confirm to the House yet again that there is no such person as a noble Minister?
Baroness Hayman
Does the noble Lord the Leader of the House agree that an underlying pressure on behaviour in the Chamber is the size of the House and the number of Members who want to participate? On an earlier Question, he spoke about the increased costs of a reformed House. Will he confirm that an elected House and a reformed House do not have to be the same thing, and that a smaller reformed House would in fact be cheaper than the current House?
Lord Strathclyde
My Lords, I understand the point that the noble Baroness makes. In 1999, the average attendance at the House of Lords was 350; in 2005, it was 400; in the previous Session it was 475; so we can see the increase there. However, as far as behaviour is concerned, more than half of the Peers appointed since the general election have not attended any of the induction seminars offered by the Clerk of the Parliaments. I have written to them, encouraging them to do so. I am glad to say that the Clerk of the Parliaments will be resuming a further series of seminars in the autumn and I would very much encourage them to go along.
Baroness Royall of Blaisdon
Like the noble Lord the Leader, I welcome the fact that this House is more assertive in terms of interventions, but it is not so different from how it was in the past. I well recall that my noble and learned friend Lady Scotland was intervened on 20 times in one speech. I would like to put that on the record. Does the noble Lord agree that if more recommendations from the Goodlad report on working practices were agreed to and implemented perhaps that would assist with behaviour in the House?
Lord Strathclyde
My Lords, many of the recommendations in the Goodlad report on working practices have been agreed, but quite a lot of them have been rejected by the House. The Procedure Committee will no doubt wish to take that into account.
Lord Dykes
Does my noble friend share my dismay about the behaviour of some Members of the House of Commons? Has he seen that the president of my party in the other place, Tim Farron, described Peers as unelected political appointees coming in for a few minutes to get £300 a day? The deputy leader, Simon Hughes, said that the tax-free £300 a day was the only reason that Peers come in to the House and that we are lobbyists anyway. As a full-time working Peer, I bitterly resent such an accusation. What is my noble friend’s reaction?
Lord Strathclyde
I hope my noble friend will take it up with the president of his party.
The Countess of Mar
My Lords, does the noble Lord agree that it is not our place to criticise Members of another House?
Lord Strathclyde
Yes, my Lords, and I think that the feeling should be reciprocated in both Houses.
Lord Crickhowell
My Lords, will the Front Bench perhaps give a lead on one matter and stop the growing practice of the Whips trying to intervene and stop important speeches during Second Reading debates—a practice that is in breach of the rules and conventions of this House?
Lord Strathclyde
No, my Lords, I completely disagree with my noble friend, but I am very glad he raised that point. The Whips on all sides of the House have a responsibility to draw attention to when a rule, as laid down in the Companion, is being broken and to offer guidance to the House. That is what they do, and they should continue to do it.
UK: Oil Refinery Capacity
Baroness Smith of Basildon
To ask Her Majesty’s Government what assessment they have made of UK oil refinery capacity in the light of the imminent closure of the Coryton oil refinery in Essex.
Baroness Stowell of Beeston
My Lords, the Government have assessed the impact on the security of fuel supply and energy resilience in the event that Coryton closes. London and the south-east are served by a number of supply points, and suppliers have plans in place to maintain their operations. There is a healthy global market with supplier diversity, and the UK has a further seven operational refineries. Consequently, there are no significant risks to the security of supply or energy resilience.
Baroness Smith of Basildon
My Lords, I really worry that the Government are being dangerously complacent on this issue. The Coryton refinery supplies 20% of the fuel to London and the south-east, and its closure will cause a £15 million hole in the local economy and the loss of hundreds of jobs. In a similar position, the French Government invested to protect its national refining capacity, but our Government refused to help and cited European state-aid rules and adequate capacity in Europe. Can the Minister explain why the French Government can support their industry but we cannot? Why are the Government relying on European and world exports at the expense of British industry and British fuel security?
Baroness Stowell of Beeston
My Lords, no one wants to see any business fail and in such circumstances our first thoughts must be with the workers—the people whose jobs are at risk, even though they have done their best to make Coryton efficient and competitive. Indeed, it is very disappointing that the administrators have not found a buyer for the refinery as a going concern. It is right for me to offer noble Lords some context to explain why that is the case.
Potential bidders are faced with high up-front investments to make the refinery viable for the long term. UK refineries are facing tough competition from others in Europe and Asia. The profit margins are low and there is overcapacity in the sector. Eight European refineries have closed in the past three years, and more are likely to do so. Also, the European refinery industry has become out of balance with changing domestic demands. Noble Lords might like to know that since 2000, petrol demand has fallen by 35% and demand for diesel has risen by 34%. We looked long and hard at whether state aid should be provided for Coryton but came to the conclusion that it would not be sustainable because of the existing overcapacity in the refining industry and declining demand for petrol. As to the long-term future, I would add that the department is working with the UK Petroleum Industry Association on a sector-wide UK refining study and intends in the autumn to set out a strategic policy framework for the UK refining sector.
Lord Tomlinson
Is the Minister aware that it would be folly indeed to judge our refining capacity needs on the basis of current consumption, when we are in a double-dip recession? Surely, we all expect the economy to improve and demand to increase? I was not quite sure from her reply whether she referred properly to European state aid. Can she tell us clearly whether the Government have rejected the idea of applying for it? If not, have they applied? If they did apply, what was the effect?
Baroness Stowell of Beeston
My Lords, on the noble Lord’s first point, I should repeat what I have just said. Over the past 10 years, the consumption of petrol has gone down by 35%, so this is not a recent phenomenon at all. More specifically on state aid, the department looked very carefully at whether state aid should be provided for Coryton but we have come to the conclusion that the existing overcapacity in the refining industry and the declining demand for petrol, as I have just made clear, mean that state aid would not be sustainable, irrespective of whether it is allowable under state-aid law.
Lord Dixon-Smith
My Lords, I declare a sort of interest: I used to drive a petrol-engine car, which averaged 26 miles to the gallon. I have replaced it with a diesel-engine car, which can average more than 50 miles to the gallon, and I am not the only person in the country in that situation. Does my noble friend agree that the normal evolution of business dictates that businesses come into and pass out of cycle, and that the real question we should be discussing in relation to Coryton is not how much we might spend to keep it continuing in an industry that is already oversupplied but how we can evolve the site so that it has a long-term viable future and how quickly we can reopen it?
Baroness Stowell of Beeston
I agree with my noble friend. As I made clear in an earlier answer, the Government are looking not just at the current and immediate situation of Coryton but at our nation’s long-term refining needs—something that we are taking very seriously. So far as I can see, that did not happen in the years just before we came into government.
Lord West of Spithead
My Lords, has the work that was started under the previous Government on the resilience of fuel supplies—liquid natural gas and ordinary gas supplies—continued, bearing in mind that, for example, LNG supplies to the UK now account for 12 per cent of our energy requirements? That demands an LNG carrier delivering the gas about every two days, and we were working out resilience plans to accommodate such a supply being stopped, with other plants being available. Is that work continuing and, if so, where? It used to form part of the NRA but it seems to have disappeared.
Baroness Stowell of Beeston
I think I will have to write to the noble Lord on his specific question. However, I repeat my earlier point. At the moment, we have more capacity in this country for refined oil than we need. We are exporting more petrol than we are using, and we are importing more diesel than we are producing. Converting a petrol refinery to a diesel refinery would cost around $1 billion.
Business of the House
(12 years, 6 months ago)
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Lord Strathclyde
That the debates on the Motions in the names of Baroness Scott of Needham Market and Baroness Kramer set down for today shall each be limited to two and a half hours.
Voluntary Sector and Social Enterprise
(12 years, 6 months ago)
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Baroness Scott of Needham Market
That this House takes note of the role of the voluntary sector and social enterprise.
Baroness Scott of Needham Market
My Lords, I am delighted to have the opportunity today to introduce a full-length debate on the voluntary and social enterprise sector. Whether it is care for the elderly, support for people with disabilities, the provision of housing, advocacy, magistrates dispensing justice, protection of our wildlife or conserving our built heritage, the voluntary and social enterprise sector is at the centre of it. In this Olympic and jubilee year, the efforts of volunteers will be showcased in a way that we can all hope will leave a lasting legacy.
I am looking forward to the contributions of noble Lords from all sides of the House, and I declare a non-pecuniary interest as the chair of the England Volunteering Development Council.
We have come to use the expression “third sector” to embrace a whole gamut of activities from the voluntary sector: social enterprise, mutuals, co-operatives, community interest companies and a host of arrangements which no longer fall into the neat, old-fashioned public/private split.
The voluntary sector and what we now call social enterprise have been around for centuries. In my part of East Anglia, the medieval guilds were as much about welfare as they were about trade. In recent times, we have become used to vital services being delivered by the voluntary sector, the WRVS Meals on Wheels service being a great example. However, today’s picture is very complicated indeed. Many services previously provided by the public sector are now being carried out by voluntary organisations and by social enterprises which have spun out from their original public services.
A significant number of large charities have created social enterprises to generate income for them, and some social enterprises, such as housing associations, now have commercial arms that generate income which is ploughed back in to help fund their social objectives. Most of the tens of thousands of these organisations are very small indeed, and have every intention of staying that way. Support has grown up in the form of a number of umbrella bodies such as Volunteering England, Community Service Volunteers and Social Enterprise UK.
What truly defines this sector is that it is full of people who have identified a need, and have set out to fill it. If the Government did nothing at all, this sector would still exist—philanthropy and concern for humanity have existed since the dawn of time—but to really maximise its impact, what government at all levels does, and does not do, is important. So I want to use today as a chance to think about some of the ways in which the Government can nurture the sector by genuinely recognising and promoting the enormous contribution made by volunteers and by those who have chosen business models which put society before profit.
Every year, more than 20 million people across the UK volunteer around 100 million hours and the estimated economic impact of their activity is in excess of £40 billion. The impacts are virtually incalculable. The YMCA alone estimates that it impacts on half a million young people every year. I particularly want to talk about volunteers rather than charities because my fear is that Government are putting too much emphasis on giving money, as opposed to giving time.
It is funny that many people do not really think of themselves as volunteers; they just get on with it. For example, carers, many of whom are very young, carry a huge responsibility. Tens of thousands of people volunteer as an integral part of their faith. People who run heritage railways or arts organisations do not consider themselves as volunteers but enthusiasts. Last week, I chaired a meeting at which former Olympic athlete Dave Moorcroft was talking about the Join In project and he mentioned the athletics club where he started his career. He spoke of someone who had volunteered there for decades, who, when complimented on his volunteering, said, “I'm not a volunteer, I work here. I just don't get paid”.
It is worth reflecting on the nature of volunteering, and the language that we use to describe it. A case study highlighted by the CSV demonstrates this really well. A London hospital which had had little success in its general appeal for volunteers, began to make more specific calls: for example, it asked for Bengali speakers to help patients, which resulted in people coming forward very quickly as they could see that they were needed. Understanding motivation is really important when we think about volunteering in the context of unemployment. Charities and social enterprises are marvellous at providing paid employment for those who have particular employment challenges: for example, ex-offenders, long-term unemployed, and people with disabilities and mental health problems.
The Sue Ryder organisation runs a scheme for ex-offenders which costs £50,000 a year to run and places around 100 people a year in its shops as a pathway to get them back to work. As it costs more than £40,000 to keep someone in prison, that is massively cost effective. For many others, it is a great thing to use volunteering as a way of keeping people engaged and ready for work. However, I have real concerns about making volunteering a conditional part of receiving benefits. That comes with enormous problems. The idea of forced volunteering is anathema to much of the voluntary sector. Perhaps bespoke social enterprise companies would be a better way of providing such opportunities if the Government believe that conditionality is right.
Understanding more about attitudes to volunteering is really important at a time when more public services are being delivered by voluntary organisations, charities and social enterprises, either because it is a deliberate policy or as a response to cuts. We need to know what volunteers think about job substitution and whether they feel that their good will is being taken for granted.
We do not know much about public attitudes to services provided by volunteers. It is important that recipients do not see themselves as somehow receiving second-rate services because they are no longer being delivered by the local council or health authority. The services are often better. We need to ensure that there is no kind of stigma attached to being seen as the beneficiary of charity either through an individual act of volunteering or through a charitable organisation. I am not aware of much research that has been done in this area but it is highly relevant to public attitudes and to the attitudes of the organisations that commission services.
One aspect of recent public service cuts is that people are stepping up to ensure that the things they value, such as libraries, continue to exist. Volunteering is a free gift from the volunteer, but not a free good to society—professional staff are needed to manage volunteers. In order for third sector organisations to thrive, they not only need to feel valued but to be supported. We know that these organisations and individuals thrive when supported by high-quality information, training and advice from local and national infrastructure bodies. The role of these organisations in offering support, sharing good practice and building partnerships is essential. The national survey of volunteering showed that 31% of regular volunteers said their volunteering could be much better organised, and 28% said there was too much bureaucracy.
I know that the Government are committed to getting more people to volunteer and with modern technology it is easier than it has ever been to match people’s enthusiasm with organisations, but it does not work as well as local volunteer centres which offer face-to-face advice and match up individuals with the right organisations. It is very costly for charities to deal with unsuitable volunteers and demotivating for the individuals.
It is also important that the Government understand that volunteer organisations do not have limitless capacity to take on volunteers. They often need some element of professional guidance and back up. A recent survey carried out by the Lloyds TSB Foundation showed that half of all small to medium charities have seen an increase in interest in volunteering, which is only to be welcomed, but a third of them were unable to cope with the demand.
The social enterprise sector is one of the most exciting developments of recent years, although it has existed in various forms for centuries. If you have ever bought a copy of the Big Issue, or been to the Eden Project or shopped at the Co-op, then you have supported a social enterprise. A recent report from Social Enterprise UK highlighted how social enterprise is contributing to the economic fight-back in many of the most deprived communities, in a way in which neither the public nor private sectors have been able to do. The report showed how social enterprises are being run by younger people than seen in the traditional SME sector, have a higher proportion of female directors and more directors from black and minority ethnic communities.
One thing that social enterprises and the voluntary sector have in common is that they are being held back by conventional public sector procurement practices. There are a number of reasons for this. Risk aversion is one of them. Lack of knowledge and understanding is another and the dreaded “economies of scale” another still. But these have to be overcome if our third sector is to continue to thrive, and the benefits of sustainable and innovative alternatives to conventional services are to be realised.
Earlier this year my noble friend Lord Newby took the Public Services (Social Value) Bill through this House and I pay tribute to him for that. Public bodies will now be required to consider how the services they commission might add value to the well-being of their areas. In practice, this could mean that mental health services could be delivered by organisations actively employing some people with a history of mental health problems who really understand the services that they are delivering. Housing providers could create jobs for the long-term unemployed in housing management and catering contracts could include use of local suppliers. It is not about spending more, but about thinking how you spend to give more local impact.
I hope that the Government will undertake to work with public sector commissioners to implement the Act when it comes into force in January, as it could transform the way in which services are delivered. We have to stop being scared of small-scale providers—in many areas they are being frozen out by large contracts. I was really pleased to hear about Oldham, where special efforts have been made to allow microsocial enterprises to compete using an organisation called Community Catalysts. All sorts of stories have emerged from there, including one about two women who were fed up with working for a large impersonal domiciliary care organisation. They set up their own social enterprise and care for 15 people in a highly personal and flexible way.
The Government last week announced that they are making £19 million available to support social enterprises and will be placing lead officers in all the major departments to take the lead on the work. That is to be welcomed. Will the Government now consider a similar approach for the voluntary sector? It is always a problem for any government to deal with issues which cut across departments but it is imperative that all parts of government think about how they can make a difference. For example, the Home Office could make the new portable criminal record checks free for volunteers. The DWP still needs to work on clarifying the impact that volunteering has on the payment of benefits. We really need the Treasury to think again about the VAT regime. The Sue Ryder organisation told me that one of its hospices typically pays £44,000 a year in VAT while an identical NHS operation would get 57% of that back. The changes to health services need to be mindful of the role of third sector providers, through including them on the health and well-being boards, and ensure that Monitor effectively carries out the fair play field review.
There is so much evidence about what the third sector in all its glorious complexity delivers. It delivers where no one else does and often does it better. Beyond the matter of service delivery comes the impact on society where contributions are made by individuals whose motivations are rooted in the place where they live. The impact of volunteering and of being involved in social enterprise—two related but different activities—is marked both for providers and for people who receive the services. Where public services have spun out to become social enterprises we often see much increased levels of productivity because individuals are more motivated by being able to concentrate on what they care about and in knowing that the profits that they make are desirable because they are reinvested.
The impact of volunteering on the well-being of the volunteers is well known, especially after retirement when an estimated quarter of people report that they volunteer. The third sector contributes so much in so many ways that it is difficult to value enough their contribution in creating the cohesion, the social capital and the trust that we all need in order for individuals, communities and society to thrive—but value them we should. I beg to move.
Baroness Byford
My Lords, I congratulate my noble friend Lady Scott of Needham Market on setting out so clearly the complex scene within the voluntary sector. I am sure that other speakers will highlight particular aspects but there are one or two areas that I want to mention. My noble friend commented on whether volunteers are valued for the service they give as much as they would be if they were working in the public sector. Her comments prompted me to turn my mind back to when I delivered meals on wheels in my local village—which, unfortunately, is not now done by volunteers, although state provision is doing it very well—and to reflect that it has lost the local link that people had in the village. They knew the person delivering the meal and would talk to them about their family. It is a sign of the times, although I am glad that in some areas such meals are still delivered by volunteers.
My noble friend also raised the important question of why a person joins in the first place—why do they feel there is a need which will cause them to volunteer? Sometimes it is because they had a relative who has been ill or perhaps some type of family problem. Others are particularly interested in wildlife or in community in the wider sense. I suspect that, in the first instance, many volunteer simply because they want to do something to help. My noble friend was right to say that sometimes it is just a matter of determining how they go about becoming involved as a volunteer. My noble friend has explained that issue clearly so I will not go down that line again.
There were difficulties even before this period of austerity. For many charities, the number of new, young volunteers coming forward has been insufficient to replace those who are leaving because of age, ill health or, in some cases, a feeling that they are not appreciated. What a terrible thing it is for these people to feel they are not appreciated. However, I am sure that in this jubilee year—which has been, and will continue to be, a wonderful experience for so many—we can chalk up another success. Younger people have come forward to help organise and run fun jubilee celebrations. They have discovered that volunteering was not only fun, challenging and hard work but also uplifting and rewarding.
Social enterprise organisations—there are some 62,000 of them in Britain today, contributing more than £24 billion to the economy and employing nearly 1 million people—are a new form of non-profit-making companies. This has the potential to become an important way of providing services at sensible prices while creating job opportunities for people who are willing to work for a reasonable reward. There are, however, a number of stumbling blocks to which I should like to draw the Minister’s attention.
Health and safety occupies a particular position in our national life—I wonder whether there has been a radio or television comedy show in the past 10 years that has not had a dig at it. In principle, health and safety is very important; consider, for example, the improvements to car design that were instigated partly by the need to reduce accidents. However, it can also be abused: examples include bans on playing conkers in the playground and the astonishing announcement made by the Royal Mail in Doncaster only last week that it would not deliver mail to a certain area in the rain because a postman had fallen over and been hurt. Where is it leading us?
The next big concern, which my noble friend touched on, is CRB checks. I am glad that the coalition is committed to reducing the number of such checks. Many older people who have been involved in charities for years were insulted and upset when they were asked to have a CRB check. They felt that they were no longer considered trustworthy. It appeared that no limit was placed on the number or purposes of these checks. I know that it was also a big expense for the voluntary organisations.
Perhaps I may also touch on the position in the City of London. The City of London Corporation is supporting the Big Society Capital social investment fund and that is to be encouraged. It is giving grants of £15 million a year through the City Bridge Trust and is very anxious to help and support those who are willing to volunteer.
There is a range of other organisations that I could mention but I will single out just two. The first is our churches, a national organisation which has parishes everywhere. I am deeply concerned, however, about the way that our churches are perceived. People sometimes say to me that they are only for those who are Christian and pray in them, but that is not so. The churches are a welcoming house for everybody and I hope that this role develops in the coming years.
The second group which I should like to cover is those who volunteer to help our police forces. In Leicestershire, we have 174 police volunteers within three local policing units and 290 special constables who give over 79,000 hours of service. They are unsung heroes. They are not always seen as volunteers, as many regard them as part of the force, but they are, in fact, volunteers.
I touch, finally, on the work that we in Leicestershire are doing with young people. Leicestershire has many clubs for young people, and why are these clubs important? It is because they welcome young people and give them opportunities. From there, they can grow to become much fuller citizens and, ultimately, go on to help others themselves.
Lord Prescott
My Lords, I congratulate the noble Baroness, Lady Scott, on providing us with this opportunity to debate issues involved in voluntary service and social enterprise. I am sure that most of us have been actively involved in them through our political lives, have enjoyed the work and continue to do so. However, the noble Baroness defined what she thinks is voluntary, and perhaps it is being exploited. I wish to draw attention to the dangers that are beginning to develop as voluntary labour is brought into the commercial sector and is governed by contract, not community feeling, and profit. That is an important issue for us to consider.
Problems are developing with a big pool of unemployed people being asked to do voluntary work, whether it is voluntary in the sense that you agree to it, as the noble Baroness, Lady Scott, said, or voluntary in the sense of military service when you are told that this is what you will do. When I see the pool of the unemployed and the mandatory work policies being brought in by the Government—and all Governments have been involved in some part of welfare to work—I worry that the schemes that are developing at present are putting greater pressure on unemployed people to volunteer.
A classic example of that happened quite recently under London Bridge, where a number of young people were dumped in the most difficult circumstances. It was during the jubilee celebrations, and they did not enjoy the wonderful experience that the noble Baroness, Lady Byford, has just referred to. To that extent, I want to address my remarks to the kind of development that is occurring in the name of voluntary contribution. In that case, it was people who were providing marshalling services at the Queen's Jubilee, which was a very important thing to do. Some were paid very lowly and some were given no pay and had to face the pressures applied in the name of the voluntary community. First, they were told, “Please come on this—we’ll pay you”, then when they got on to the bus were told, “No, we’re not going to pay you”. Secondly, they were told, “If you don’t do this, you’ll lose your benefit”. A third factor was the incentive that they would probably get a job at the Olympics site at £8.70 an hour, which is quite interesting because that was part of the contract.
My concern is that this is now all about contracts and subcontract work. It is no longer a case of people working voluntarily in the community, but of saying to people, many of them young, “You’ve now been involved in this long-term. You’re going to be offered a job that you can’t refuse”. It is almost like the Mafia kind of contract: “I’m going to offer you a contract that you can’t refuse”, and so you go into the system and work. I will stick to the one case that I am on about; it concerns a company called Close Protection UK that had the responsibility to train these people—not to pay them—and to put them on to go and do marshalling services. That system is now being considered for fire marshalling work at the Olympics site, but I will come back to that in a second. The people got on the bus and suffered a number of indignities. I do not have time to go through them, because a lot of people want to speak in this debate, but clearly they did not have food or access to toilet facilities. It was a damp site to take a tent to as it was pouring down with rain—we all know the amount of rain there was then. Nobody seemed to care at all about those conditions, but we should be concerned if more and more people are being put into that situation when hoping to get from welfare to work. We should not just exploit them by saying that the work is unpaid.
My worry is that the contract given to this company by the London authorities and others to bring in people to work as marshals was for £1.5 million. If that is the case with work experience, why was a condition not laid down in the contract that all the workers has to be paid a certain amount, as is the requirement for the Olympics? If that is not done, companies are more likely to make more profit by using people who are not paid. That is the concern beginning to develop around the exploitation of voluntary labour. Since there have been many reports in the papers, let me say that I have interviewed a lot of the young people who were involved in this and I have a lot of examples of what they said went on that night. It is true that there have been other examples of those who thought that it was a good experience, so there is some dispute, but it is important to find out what really went on.
With the development of these schemes, I worry that the big companies are getting millions and millions of pounds, as we recently saw with A4e. I think that the Government are already offering £2 billion to get these people off work—they are to be paid in some cases but not in others. There is a requirement for training, which sounds like a few hours a week of NVQ and is not very satisfactory. Basically, it means that these people are then pressed into playing a role. I think we are all aware of A4e, which is now involved in trying to show the numbers it got into jobs. In reality, fraud was involved and cases are under way. It is not limited to that company; it is the process of the contract work that is involved.
Let me take this example. Prospects, a private company, had a contract. It was in fact a non-profit company even under Labour, when it dealt with Ofsted. It then turned itself into a mutual company so that it could make profits and has made something like £11 million this year. The motivation then becomes not to public service but to the profitability of that investment by private companies. What begins to concern me is the conflict between the public interest involved and the private interest that is motivated by securing a profit. When the contract was given by a public authority to Prospects, it then had to go to a charity, Tomorrow’s People, which became involved. It then rakes up the people for the south-west area and then goes to another body on another subcontract. They are the ones that have basically exploited the situation.
I do not have the time to go into all those difficulties, but they are now going to be offered the job of fire marshals—we are replacing firemen with fire marshals at the Olympics. I am worried about that. I have written to the Home Secretary. I have written to LOCOG, which set the contract. I cannot go into all the details of the replies but I can tell you that LOCOG is doing nothing about it; it is confirming the contract. If we are going to put our young people in the hands of these people, what we should be saying is, “Have we not got a responsibility for governance?”. The lady who is in charge of this company has been done for perjury; she has had a number of companies. You would not trust any company with her, frankly. But now the inquiry is under way, we will see what the real facts are.
In conclusion—looking at the time, before the noble Baroness gets up to remind me; as I understand it, you can go to 10 minutes but I am not doing that.
Baroness Stowell of Beeston
I am sorry to interrupt the noble Lord but this is a time-limited debate. As it makes clear on the Order Paper, Back-Bench contributions are limited to six minutes.
Lord Prescott
I apologise. I took advice; obviously I got the wrong advice, but I will not exploit that situation. This whole business now means that a massive pool of cheap labour is going to be exploited, and now G4S even wants to buy the police and replace them with this kind of labour. We had better start looking at what is happening with the exploitation of people. I hope we can have a public debate about it. We have started it thanks to the noble Baroness, Lady Scott, and I am obliged to her, but I would like to get into the details of the issue perhaps when there are fewer people here and I can have a longer time to develop the argument.
Baroness Randerson
My Lords, I will take a very different tone from the noble Lord, Lord Prescott, because I want to talk about the advantages of volunteering and social enterprise, rather than complaining about them. I have spent most of my working life with young people, many from very poor homes, and I can tell you that the impact of volunteering on their lives has been empowering. It has enabled them to develop their CVs, get jobs and gain confidence, which is so much needed.
I thank my noble friend for initiating this debate. It is a hugely important topic, as she has outlined. Charities, voluntary organisations, third sector organisations, social enterprises, mutuals, co-operatives—there is a virtual continuum of organisations that undertake some trading but operate for social benefit rather than private profit. I want to concentrate on the social enterprise element of this debate.
The lack of precision in definition is only one of the hurdles that this sector has to overcome. It is true that in many cases social entrepreneurs are able to operate successfully in situations where the private sector would not be viable. That is their huge advantage. They operate overwhelmingly in poorer areas—another advantage. They attract back into work—often by volunteering, sometimes by paid work—those who have for a variety of reasons been out of work. They are job-rich in an age where technology dominates, and by that I mean that social enterprises create more jobs relative to turnover than standard SMEs. At a time of high unemployment, that is a big advantage. They tend to reinvest their profits locally—another advantage.
The major problem social enterprises face is funding finance. Because of the advantages I have listed, plus the lack of a clear definition, they are regarded by most lenders as little more than charities. Banks seem to believe that lending to social enterprises is akin to bailing out a lame-duck business at best. The attitude is that because it is a social enterprise, it therefore cannot be profitable. The financial sector has not yet developed a robust model for investment in the social enterprise sector. Despite the very welcome recent legislation in the Public Services (Social Value) Act, the Government have not yet provided adequate tax relief for those who invest in social enterprise, in the view of Social Enterprise UK.
The enterprise investment scheme and venture capital trusts are aimed at standard SMEs that issue equity, which most social enterprises do not do. Community investment tax relief is the only form of tax incentive that social enterprises can access and it has a lower rate of tax relief than mainstream schemes. It does not allow direct investment; you have to invest via an accredited community development finance institution. This is more than technical jargon; it is an issue of life or death for social enterprises to be able to get the funding they need. Both the problems that I refer to could easily be removed. The eligibility criteria for the funds concerned also need to be widened.
Another way in which the Government can do a great deal to encourage social enterprises is through their procurement policy. As my noble friend said, the procurement process favours large companies, because the contracts let are often much too large for a social enterprise to tackle and the process is so complex. Public sector procurement needs to take account of social value. The Act that I referred to earlier should enable this to happen because the legal structure is now in place, but the key thing is that attitudes on the part of those letting the contracts in the first place have to change.
It is still a common view that social enterprises are likely to be soft on efficiency and that public sector contracts should go to proper businesses. Social Enterprise UK wants the Financial Services Bill to include a clause to ensure that the two new financial regulators support the development of social investment.
The Government have made a good start. Their announcement last week of additional funding is hugely welcome. They have gone well beyond mere rhetoric and are beginning to examine a comprehensive range of policies across government and to ask every time, “Will this encourage social enterprise?”. Social investment should be at the very heart of the Government’s being. It boosts the economy, reduces unemployment, reinforces localism and increases social mobility.
The Earl of Listowel
My Lords, I, too, am most grateful to the noble Baroness for securing this important debate. I am pleased to follow the noble Baroness, Lady Randerson, in talking about procurement.
I should like to ask Her Majesty's Government whether there is a clear evidence base for the use of a mixed market in services for the care of the elderly and of vulnerable adults and children; whether there is not an overreliance on large, private equity-based providers of care; whether more might not be made of giving third-sector care providers preferred status and promoting enduring relationships between those providers and purchasers, provided that outcomes measures are met; and, finally, whether more might not be done by Her Majesty's Government to prioritise their workforce development responsibilities.
Having sat on the board of a not-for-profit adoption and fostering agency, I know how tough the competition for placements is. I would be most grateful to be reassured that the voluntary sector is not being put at an unhelpful competitive disadvantage with regard to large, equity-funded providers. How can we maintain the smallness to which the noble Baroness referred in circumstances of competition with large, equity-based companies?
The Parliamentary Groups for Looked after Children and for Runaway Children, chaired by Ann Coffey MP and Edward Timpson MP respectively, this week launched their report into children who go missing from care, a report made possible by the support of the Children’s Society and the Who Cares? Trust. The first of its five key recommendations was that there should be:
“An independent investigation into children’s homes in England which are failing to manage and protect children who run away or go missing. This is despite spending £1 billion a year on just under 5,000 children cared for in children’s homes averaging £200,000 per child”.
I should declare an interest as I was involved with the report’s production and am an officer of the one of the parliamentary groups involved.
Local authorities now own only 24% of children’s homes and large equity-based companies are the largest providers. From the report’s key recommendations, we can see that this particular mixed market does not appear to be giving value for money and quality care outcomes. I recently met Eva Lloyd, reader in early childhood at the Cass School of Education and Communities at the University of East London. We discussed her book on the mixed market in early years provision, Childcare Markets: Can They Deliver an Equitable Service? The book is to be published on 25 June and is jointly edited by her and Helen Penn. She emphasised to me that the evidence strongly indicates that our model of mixed market for early years provision in the early years area does not give the best value for money. Indeed, we have among the most costly early years provision in the world. This may in part be because we rely so heavily on large, equity-based providers for our childcare.
I contrast this with a non-market approach and the best education system in the world. Finland tops the PISA international charts for education outcomes in literacy, numeracy and science each year. An important aspect of its service is the quality of its teachers. There are 20 candidates competing for each teacher training place. Every teacher, in primary and secondary schools, has a master’s degree qualification. Teachers are trusted. As I understand it, there is no school inspection system in Finland and very loose national curriculum guidance. The analogy perhaps is that each school is like a small enterprise, run by people who are genuinely committed and highly trained by the Government to do an excellent job and who are given autonomy.
The comparison between us and Finland is said to be flawed because our nations are so dissimilar, in particular since Finland has a far more homogeneous population. This is true, but every school class is of mixed ability and I understand there are no exclusions from school. Teachers have to work with the mix of children that is presented to them and they get these fantastic results.
The experiences I describe above lead me to wonder whether we have an overreliance on a mixed market of provision in services for the vulnerable. Should we be looking more at enduring relationships with particular providers and give preferential treatment to not-for-profit providers where they can demonstrate high quality and value for money? Should the Government’s role be more to ensure that the high-quality workforce—the teachers, early years workers, social workers and so on—is available to meet the demand for services for the elderly, children and vulnerable adults, as part of the local and national infrastructure the noble Baroness referred to in her introduction? Do we overprize our system of regulation and inspection but underprize ensuring that there is a high-quality, autonomous workforce available to meet the needs of our children and of our elderly and vulnerable adults? I ask the Minister what the evidence base is for mixed markets in social care provision providing value for money and best outcomes. I look forward to his response.
Lord Lexden
My Lords, it is a tremendous pleasure to follow the noble Earl, Lord Listowel, who manifests his deep concern with social and educational issues in so many different ways. I also join other noble Lords in thanking my noble friend Lady Scott, with whom I have worked closely on European issues in a spirit of true coalition harmony, for securing this debate on a sector whose immeasurable contribution to our nation’s well-being is so rarely afforded the attention and praise it deserves.
It is with particular reference to Northern Ireland—whose welfare and progress are of special importance to me—that I wish to speak today. The Northern Ireland Executive of course bear the main and direct responsibility but it is surely right that tribute should be paid to the progress of the voluntary sector in the Province during this important debate. The largest charity in this sphere in the Province is the Northern Ireland Council for Voluntary Action—NICVA, not a very attractive acronym—which works on behalf of more than 5,000 voluntary groups. It represents the sector to government and provides support and assistance to individual groups. It is therefore well placed to assess the current health of the sector in Northern Ireland and provide practical recommendations on the best way forward in these difficult economic times. The council’s most recent State of the Sector report shows that more than 27,000 people are employed in the Province’s social sector organisations, of whom 80% are women. Together with almost 190,000 unpaid volunteers, they form a substantial part of the Province’s workforce. An annual income of £741 million is balanced against expenditure of £720 million, underlining the very thin margins on which these vital institutions operate.
The feeling in Northern Ireland is that the worst may yet be to come: 14% of organisations predict that they will have to reduce staff numbers in the coming year. Where well endowed institutions and very generous people could previously afford to give generously, they are now having to count every penny. Donations from the general public, which have amounted to £220 million a year, are now falling.
The question for government and the voluntary sector now is how to give services, and the people who depend on them, as much protection as possible. Voluntary groups which can strengthen their position by coming together, sharing resources and widening their spheres of operation can now secure support from an initiative called CollaborationNI, which helps organisations to ensure that scarce resources are used to their fullest advantage. One notable example is called Will to Give, a charity promoting legacy giving, with the bold aim that one day everyone will make a donation to charity in their will. Smaller charities can now advertise and promote their work under the Will to Give banner. Organisations with no experience in this area can learn from well-established fund raisers and donors can support a wider range of causes. My faltering voice may suggest that I should hasten to sign up to Will to Give—forgive me.
The Northern Ireland Executive are allowing charity consortia to bid for contracts together, ensuring that available funds are distributed among a larger number of organisations. The Executive are working to reduce their bureaucracy. As the Northern Ireland Assembly’s Public Accounts Committee noted recently in its Report on Creating Effective Partnerships between Government and the Voluntary and Community Sector, the,
“wide range of Government departments, agencies and other public bodies”
has led to,
“over-bureaucratic, disproportionate and risk-averse approaches”.
The Northern Ireland Audit Office has recently made its recommendations to address those issues, and its best practice principles will be enshrined in a concordat between the Executive and the sector—it seems that my signing up to the Will to Give cannot come a moment too soon.
Many of the problems that confront the voluntary sector in the Province are unique to Northern Ireland, which of course bears the scars of its recent history. The recipients of the largest private donations in the Province are organisations connected with religious denominations, so long and so tragically divided among themselves. This is perhaps the area where the greatest scope for improvement can be found. Although people may still feel divided by the history, they must be united in their present endeavours. Working together, they can develop solutions that cross political and sectarian barriers. NICVA has recently helped groups ranging from the West Belfast Suicide Awareness Support Group on the Falls Road to the Shankill Women’s Centre, enabling them to deliver better services in difficult areas.
The Vital Links project, funded by the European Union, runs a series of policy forums designed to encourage co-operation among the various organisations. The problems caused by poverty, ill health and poor education do not discriminate between those whose lives they ruin. In working together, groups and organisations in the voluntary and social sector are striving to ensure a peaceful and prosperous future of Northern Ireland. In Alexander Pope’s words:
“In faith and hope the world will disagree,
But all mankind’s concern is charity.”
Lord Giddens
My Lords, I join other noble Lords in congratulating the noble Baroness, Lady Scott, on having secured this debate and on the illuminating way in which she introduced it.
The advent of a so-called age of austerity is an invitation in the industrial countries to think again about how we live. Rather than simply talking of a return to growth, with its premise of endless consumption, we should be considering more profound social goals. In place of austerity as a negative value we should be talking of sustainability, both economic and environmental, as a positive one. There is a great deal of discussion at the moment—rightly, in my opinion—about rebalancing the economy in terms of manufacturers and finance. However, we should also be discussing how to rebalance the economy in terms of social and moral objectives.
I do not really like the somewhat crummy term “big society”, which seems to be an ad man’s notion, but there is no doubt that we should be thinking creatively about how civil society can be revitalised. To me this does not mean denying the importance of the state or of markets; it means working creatively with them. Following the noble Baroness, Lady Randerson, I shall concentrate on social enterprise rather than on the voluntary sector as such.
Social enterprise is conventionally a Cinderella when it comes to funding. The challenge today is to try to mainstream it. One can define a social organisation, at least roughly, as a firm in which surpluses are created for directly social purposes rather than the desire to maximise profit for owners or shareholders, which of course does not mean that such organisations cannot themselves be very profitable. According to official statistics, there are about 62,000 social enterprises in the UK, most of them small. However, some very interesting recent research shows that there are probably five times as many so-called hidden social enterprises. These are nominally for-profit enterprises in which social and environmental purposes loom large and which reinvest a substantial part of their surplus to achieve these purposes. In other words, there is a large hidden stratum of socially and morally motivated companies beyond the orthodox measurement of social enterprises.
Hidden social enterprises, the research shows, have superior growth patterns compared with organised businesses. In the research in question, each of them created nine jobs on average in a two-year period compared with six for straightforward smaller enterprises. Interestingly, twice as many hidden social enterprises have been set up by women rather than men. As the researchers observe:
“This research places entrepreneurs exactly where they should be—at the centre of the debate on the way business moves forward after the financial crisis”.
Can all this be mainstreamed? It can and should, and we should be thinking of the large corporations here, not just the small ones. Take the example of the fast-food corporations, which pay only a tiny amount of the costs that their advertising and the resultant changes in diet have in the population. Obesity is a global trend which is directly integrated with advertising that is aimed initially at children in this country and elsewhere, and it is the National Health Service and other state-based organisations that have to pick up the costs. The fast-food companies themselves should be obliged to cover more of those costs through taxation, as is happening in some parts of the United States at the moment; but surely it will also demand more active, energetic and farsighted business leadership from the larger corporations too.
In conclusion, social and environmental concerns should become a driving force also for big companies so that it is integral to what they do and is not just hived off to a tiny department of corporate responsibility that has been set up purely for public relations purposes. Companies that are in the vanguard—and we have quite a lot of evidence of this from farsighted corporate strategies—might find that such an outlook increases their own survival value.
Lord Shipley
My Lords, I, too, express my thanks to my noble friend Lady Scott for initiating this important debate. The coalition agreement pledged to support the creation and expansion of social enterprises, mutuals, co-operatives and charities in public service delivery, and I am delighted that the Government are delivering on this commitment.
It is important for us to understand the scale of the third sector. In my home city of Newcastle upon Tyne, with a population of 290,000, there are 2,300 voluntary and community groups. One-third—some 800—are registered charities. These large numbers confirm the potential of the sector and, as importantly, the demand for their services. Some organisations are big with lots of contracts and experienced staff; others are of medium size, and tend to be more dependent on grant aid; but the largest number are small organisations with low income levels, often working in neighbourhoods.
As the Government are issuing more work through contracts, the ability and capacity to bid has become more important, and this is where the big and experienced organisations have an advantage. The consequence is that larger organisations that cover the whole country are stepping in. These companies can afford to bid and lose, promote loss leaders and use other income streams to repay loan finance.
What steps can the Government take to enable smaller community groups to compete? The best-value statutory guidance published last autumn, together with recent legislation on social value, requires that consideration be given not only to economic value but also to environmental and social value. This will maximise the additional benefit created beyond the simple provision of the service. As has been mentioned, the social enterprise sector has long campaigned for public sector procurement to take account of social value. This legislation should therefore prove important in enabling the sector to compete successfully for public sector contracts. The big challenge now is to make that happen and to ensure that social value becomes a key component of commissioning. That will require that social enterprises, local government, the voluntary and community sector and central government raise awareness and share good practice. I have been particularly impressed, in the north-east, by the social enterprise framework that has been developed and supported by all the social enterprises in the region. Good leadership is emerging.
As for growth and development, Pricewaterhouse Coopers is offering mentoring support from senior staff, and Teesside University has appointed a social entrepreneur-in-residence. Northumbria Water and the CBI are also undertaking work to bring more social enterprise into the supply chains of big companies. On funding and access to finance, the Northern Rock Foundation is leading a piece of work on access to finance for the sector and has already identified investment readiness as a barrier to growth. Business support seems patchy at best, with enterprise agencies generally not having expertise in this area.
Real businesses show what can be done. In County Durham, a social enterprise is designing and manufacturing collections of home and outdoor-living products. The first collection has been designed in conjunction with Durham prison by two designers-in-residence at Northumbria University. The aims are to change public perception of the quality and style of products produced in prison and to build opportunities for offenders, both in custody and back in the community, to gain employment.
What can the Government do more of and what can local authorities do, too? The Government can help to grow social investment by ensuring that social investment tax reliefs are as attractive as mainstream investment schemes. They can learn from the experience of the Work Programme, launched in late 2010. Nationally, it was expected that the voluntary and community sector would get around a third of the contracts but they got only 20%. The reasons seem to relate to the complexity of contracting and the potential for delayed funding. The Government can make sure that their intention—integral to the NHS reforms—that social enterprise and voluntary organisations could offer bespoke services in their local areas is delivered.
We have heard reference in this debate to the VAT issue, which is a matter of serious concern. I give a further example. I understand that if one housing association provides shared services to another, VAT becomes chargeable on that transaction. Maybe the Government will take the VAT issue seriously.
Local government and councils must ensure that cuts to voluntary sector organisations are not disproportionate compared with those that the council itself faces. It is right that councils can be challenged if they are. Councils should not follow EU procurement procedures when they are not required to do so. They should not use formal contracting when commissioning would be satisfactory or go out for retendering for just one year of support, doing so only weeks before a contract is due to start. Councils need to help upskill the sector with capacity-building teams, by helping them with IT, office space and collaborative budgeting, and by assisting transition where it is needed.
Finally, there is enormous potential for the voluntary sector and social enterprise to deliver growth. That potential should not be underestimated by the Government. I hope they will give it due consideration.
Lord Low of Dalston
My Lords, a couple of years ago we had a couple of good debates about the role of the voluntary sector. The subjects for debate referred more to civil society than the voluntary sector but people seemed to take the view that we were free to talk about more or less whatever we liked. That was a couple of years ago, so the noble Baroness, Lady Scott, is to be greatly congratulated on bringing us back to the subject, especially considering the prominent place that the voluntary sector has assumed in the Government’s thinking about the direction of society. I am taking it that the subject for debate today gives us a similarly free hand as to what we talk about.
ACEVO, the Association of Chief Executives of Voluntary Organisations, says that a social enterprise is an organisation that trades for a social and/or environmental purpose and reinvests its profits in support of that social or environmental aim. As we have heard, a well known example is the Big Issue, the magazine that is sold for £1.25 to homeless vendors who then sell it for £2.50, achieving the social return of increased income and independence. The Annual Survey of Small Businesses UK 2010 estimated that there are approximately 68,000 social enterprises in the UK, which contribute at least £24 billion to the economy and employ an estimated 800,000 people. ACEVO would argue that it is unhelpful to draw a hard and fast distinction between charity and social enterprise. All charities need to be enterprising in their outlook, particularly in challenging economic times, and many pursue social enterprise models.
In a sense, social enterprise is something that an organisation does, rather than something that it is. For example, the charities Catch22 and Turning Point work with the private company Serco to deliver an anti-reoffending pilot at Doncaster prison on a payment-by-results basis, in which payment levels depend on the extent to which reoffending is reduced. This is replicating a social enterprise model in which investors are rewarded when a programme achieves targets. If this is what a social enterprise model is, I would have to flag up dangers. Just to be clear about my own position, institutional and ideological, I have 40 years’ experience of working in charities, great and small, ending up as a vice-president of RNIB, having been chair for nine years at the beginning of this century. I am also president of a number of others, declared in the register of interests, and have been president of others that I helped to found back in the 1970s but which have recently either merged or, sadly, folded.
I am thus a great believer in the big society, pace the noble Lord, Lord Giddens, as an expression of the voluntary effort that goes to make it up. The voluntary sector can add much in specific expertise and commitment to the comparatively blunt instruments that the state often has at its disposal, but it should not be contingent on a rolling-back of the state. We need them both; they are interdependent, as the noble Baroness, Lady Scott, made clear. We need the state to remedy the deficiencies of civil society in caring for the vulnerable and providing basic health, education and other services for the population at large. Some Ministers seem to base their view of what constitutes a healthy society—or a healthy economy anyway—on such a rolling-back. Thus the noble Lord, Lord Sassoon, said:
“As the Government, we have to continue to reduce the burden of the state. If we do that, the economy will flourish”.—[Official Report, 22/3/12; col. 1031.]
We have to be careful that the payment-by-results model does not turn into exploitation. Volunteering is a wonderful thing—but there is also exploitation, as the noble Lord, Lord Prescott, reminded us. It is the exploitation of organisations rather than individuals that I want to talk about. Small and medium-sized charities such as Action for Blind People or the Shaw Trust may have the specialist expertise that is crucial to get those farthest from the labour market into work, but they can find it hard to compete with large private-sector organisations with deep pockets that can bear the upfront costs and uncertainty of the final outcome for the length of time that it can often take to get such people into work. Prime contractors, whose aim is to maximise profit by cherry-picking those who are easiest to place, are also failing to refer to the more specialised organisations those who need the specialist support that is far beyond their capacity. For reasons such as these, the Work Programme—the noble Lord, Lord Shipley, also touched on this—by which the Government set such store to support for getting into work those whom they have thrown off benefit, is just not working, at least for those whose disabilities have placed them at a particularly severe competitive disadvantage.
During the spring, ACEVO held a series of round tables and spoke with over 100 charity chief executives to hear their thoughts and concerns about the future across the different sectors and beneficiary groups. Common themes emerging included the point that cuts are significantly affecting the vulnerable beneficiary groups that voluntary organisations serve. These cuts are being implemented in a climate of little or no public scrutiny and a local democratic deficit. The devolution of power to a local level is not accompanied by greater accountability. With the scrapping of scrutiny mechanisms such as comprehensive area assessments in the Audit Commission and low levels of public engagement with local politics, there is a lack of accountability for local spending decisions. Charities would love to act as the armchair auditors envisaged by Eric Pickles, scrutinising local decision-making on behalf of their beneficiaries, but local authorities do not make the necessary data and information available. For example, Rethink Mental Illness recently attempted to ask local authorities how much of their social care budgets were dedicated to mental health and received incomplete information, or none, which made it mostly impossible to determine what funding had been allocated to social care of different groups, what evidence lay behind funding decisions and whether, and how, funding had changed year on year. Fewer than 50% of local authorities contacted provided the budgetary information requested.
Consequently, there is the danger of a forgotten Britain developing—a marginalised and underprivileged section of society that will be increasingly affected by cuts but goes largely unnoticed by much of society. ACEVO argues that the scrutiny deficit must be plugged. The Government have undertaken to evaluate the impact of cuts as several of their Bills have passed through Parliament. Charities can help to fulfil that role, but it requires genuine co-operation and engagement from the public sector.
Baroness Barker
My Lords, I declare an interest as the owner of a consultancy third sector business. I also work in an unpaid capacity with a voluntary organisation called See the Difference, now known as the Giving Lab.
I very much welcome this debate, which is very timely given the huge amount of change and turbulence going on in what I call the third sector. I thank my noble friend Lady Scott for drawing a distinction between charities and social enterprises. I agree with the noble Lord, Lord Prescott, that there needs to be a great deal of clarity about terminology as fuzziness leaves room for individuals to be exploited, which I think is wrong. I am pleased that noble Lords have drawn a distinction in this debate between what is charitable and what is social enterprise. Last year, Social Enterprise UK kindly came up with a helpful definition of a social enterprise. It is a company which trades and earns at least 50% of its income through selling goods and services rather than through contracts in order to generate profits with which to pursue social and environmental purposes. That is entirely different from what a charity does. A charity works with a different skill set in a different way for a different purpose. That is important because much of the public policy which is being made at the moment has at its heart a confusion between social enterprises and charities. More than that, some charities whose traditional sources of income are disappearing are being told that they should become social enterprises. They are facing a lot of challenges in the way that they go about doing that.
The Americans wished upon us the term “not for profit”, which is deeply unhelpful; “not for dividend” is more accurate. Charities and social enterprises can and should make profits in order to do what they do and to be sustainable. Indeed, social enterprises have to make profits. That has a very important implication for social policy. It means that underfunded public sector contracts can no longer be palmed off to the charitable and voluntary sector. I do not think that people in government have understood the importance of that although some people are beginning to do so. I commend to all noble Lords the Public Administration Committee’s report of 2011, which looks at the way in which the big society is being implemented as a public policy by government. The committee was keen to stress that as more and more public sector contracts are outsourced, it becomes more important for government to conduct an audit and accountancy trail about what happens in terms of funding and outcomes for people.
In passing, I mention the article by Zoe Williams which appeared in the Guardian this morning, in which she looks at the future of public service contracts and particularly the naïve notion that small charities will on their own be able to compete either with big charities and big-scale social enterprises or with private companies to take over what are essentially large public sector functions.
I am pleased to see the noble Lord, Lord Hodgson of Astley Abbotts, in his place. He and I have had a number of conversations. I very much look forward to his review of charity law. That report is due to be published soon. We must be clear that although social enterprises are developing and are very innovative and pose challenges to government and the existing charitable sector, charities will go on.
I conclude by mentioning three strategic interventions which I think the Government could and should make in order to help charities and social enterprises emerge from this period of turbulence stronger and more effective. The first is the need for there to be a toolkit which social enterprises and charities can use to determine whether they are investment-ready. There are a number of different sources of investment for those bodies but the people responsible for their governance have hard decisions to make about where to risk the small amount of resources at their disposal. There is a real need for them to have a tool that sets out those business decisions in a clear way that they can follow.
Secondly, charities have always struggled to demonstrate the outcomes they achieve for the people they work with. However, enormous progress has been made by a particular company, Triangle Consulting, which works with a number of different charities and bodies to develop what is known as an outcomes star. It enables charities working in different fields—mental health, drug and alcohol addiction, and older people—to show the outcome benefits for their client group. There is no outcome star for volunteering and, as my noble friend Lady Scott said, volunteering and the encouragement of it are critical to all this development in the future. I wonder whether the Government might look at supporting an outcomes framework for volunteering.
My final point relates to the digitisation of gift aid. The fact that it continues to be a paper-based exercise is holding back charities and social enterprises, and stops them engaging with a new generation of givers. Digitisation of gift aid will be an extremely important step forward for social enterprises and particularly for charities in the future.
Baroness Wall of New Barnet
My Lords, I, too, welcome this debate and very much thank the noble Baroness, Lady Scott, for initiating it and for providing the opportunity for us all to participate. The diversity of contributions has been wonderful. I shall concentrate, as noble Lords might expect, on the relationships between voluntary sector organisations, charities and hospitals.
As chair of the Barnet and Chase Farm Hospitals NHS Trust, I am keenly aware that statutory bodies can and do extend the reach and impact of their services by working with the voluntary and social enterprise sector. This goes beyond the work with volunteers in hospitals, valued and valuable as they are. I could not agree more with the comment of the noble Baroness, Lady Byford, that it must be absolutely dreadful for anyone to end working for an organisation voluntarily because they are not appreciated. Every year in my trust, I host a party—a celebration to thank the volunteers who help in all sorts of ways around our wards. My next opportunity to do that is in two weeks’ time. I love doing it and I look forward to it.
At my hospital, we work with some of the big voluntary sector providers. An example is our work with Macmillan Cancer Care and Citizens Advice. Working in a partnership between the hospital and these two bodies, we have improved the holistic support that we give to cancer patients. We do so by jointly establishing with Macmillan and the CAB a welfare benefits service operating from Barnet hospital. This supplements the work that we are already doing with Macmillan cancer information, which provides education and support to cancer patients and their families—and, indeed, to our staff.
We are acutely aware at the hospital that while significant strides have been made in the treatment of diseases such as cancer, often what bothers patients at the forefront of their minds are practical issues such as managing the day-to-day reality of household finances while undergoing major treatment. The national cancer patient survey revealed that patients across the country were frequently dissatisfied with access to welfare benefits advice, which is very worrying while they are trying to get better and improve their health with cancer treatment, following their diagnosis.
Our welfare benefits service now provides our patients and cancer teams with expert advice, at both Barnet and Chase Farm hospitals, with visiting CAB benefits advisers supporting them. This has enhanced the support work of our cancer teams because they have been able easily to signpost patients to the service, which has been positively evaluated by patients and our staff. The benefits advisers have also provided training for our staff to raise the awareness they need personally to support the individual and point them to those who can quickly help them with easy access. Bodies such as Macmillan bring flexibility and innovation to the delivery of services, and provide a trusted outreach to cancer patients and their families that public services could not do on their own. We are delighted to be working in partnership with the Barnet CAB and Macmillan Cancer Support because this has been a significant addition to our programme of improvement.
I also pay tribute to many other organisations, including the Alzheimer’s Society. We have worked with this charity to develop our approach to managing and caring for patients with dementia and supporting their families. It has provided us with valuable advice and in fact has supported training for our staff. It is also represented on our dementia steering group and, as such, is able to give an informed out-of-hospital view of how the provision and care of patients with dementia should be delivered.
The final group I should like to mention is Solace Women’s Aid, a voluntary London-based charity supporting victims of domestic violence. It has provided our staff with really valuable training in recognising the implications and evidence of domestic violence.
What all these groups have in common is the ability to bring an additional perspective to the work of statutory services and to provide a focus from the point of view of the users of the services and their carers. They also enable us to reach out to provide services in different and new ways, including potentially side-stepping unhelpful bureaucracy.
As we reform and improve public services, it is important to recognise the contribution that the voluntary sector makes. It is important that medical people provide medical care; financial and other support can come from other areas. I hope that the experience I have described at my hospital illustrates the kind of partnership that benefits users of services and their carers.
Lord Hussain
My Lords, I thank my noble friend Lady Scott for securing this important debate.
The voluntary sector in the United Kingdom is recognised by many as the third pillar of our economy. I have spent most of my working life engaged in this sector as a volunteer. This has given me not only a great amount of knowledge and experience but personal satisfaction and an insight into the issues and challenges facing the voluntary sector.
I am sure that your Lordships are aware of the wide range of voluntary sector activities in the UK—from registered charities and voluntary organisations to not-for-profit organisations that provide much needed care services, advice and guidance, counselling, vocational skills training and many other important areas of service. On an international level, many of our charities, such as Oxfam, Save the Children, the Red Cross and so forth, play a leading role in saving lives and improving living standards for millions of people.
Many famous dignitaries are patrons of thousands of charities. Prime examples of course are members of the British Royal Family—Her Majesty the Queen, the Duke of Edinburgh, the Prince of Wales and Prince Harry. The Duke of Edinburgh leads the way with more than 700 patronages, while Her Majesty the Queen has more than 600. Between them, they cover every area of the charitable and voluntary sector, from opportunities for young people to the preservation of wildlife and the environment. The Prince of Wales is patron of more than 400 organisations and of course set up the Prince’s Trust, which last year alone supported 46,000 young people.
It is encouraging to see that the younger generation of the British Royal Family is already very active in the voluntary sector. Prince William is supporting many charities, including Beatbullying, SkillForce, Help for Heroes and many more. Prince Harry dedicates a vast amount of his time to charity work, such as helping with the Lesotho orphans. The Duchess of Cambridge has chosen her charities to work with, and these include Action on Addiction, East Anglia’s Children’s Hospices and the Scout Association.
Other members of the Royal Family are also involved in invaluable charitable work, and there is no doubt that they drive millions of pounds into this sector every year. I praise the generosity of the British people who, in these economically difficult times, increased their contribution to charities by 6.2% in 2009-10, donating an estimated £10.6 billion according to cafonline.org. The value of this sector has been recognised by the previous and present Governments through the giving of direct financial support and the gift aid scheme. However, that support has never been enough. The cuts in the recent Budget have squeezed this sector to the extent that many small charities and voluntary sector organisations have had to scale down their activities significantly or have been forced to close down altogether.
According to Karl Wilding, head of the National Council for Voluntary Organisations, in the Huffington Post United Kingdom, the latest estimate based on OBR forecasts is that charities face £1.2 billion of cuts a year until 2015. It is also estimated that, as a knock-on effect, 70,000 jobs will be lost in this sector in the first year. This, no doubt, will have a major impact on the vital services that the voluntary sector provides.
I fully understand the current financial situation that has forced the Government to make some difficult decisions. Unfortunately, this huge reduction in financial support from the Government to the voluntary sector is unprecedented and is having damaging consequences. Due to the important work carried out by the voluntary sector, I believe that the Government should consider the impact more closely and do everything that they can to reinstate the financial support to the voluntary sector for it to continue providing an excellent service.
Lord Watson of Invergowrie
My Lords, I congratulate the noble Baroness, Lady Scott, on identifying this important subject for debate. The standard of the debate has been very high and it has been varied.
I declare an interest of sorts. After graduating from university, my first two jobs were in the voluntary sector. The first was with the Workers’ Educational Association, as a tutor organiser, and while there I became active in my trade union, then known as ASTMS, which is now part of Unite. I am surprised that no one has mentioned the trade union movement. With 6.5 million members, many of whom work unpaid on behalf of their colleagues, it is the UK’s largest voluntary sector organisation, although it is not typically seen as such.
I think that the voluntary sector is imagined by many people to have developed relatively recently, certainly since the Second World War, but that is not the case, as demonstrated by the fact that the National Council for Voluntary Organisations, the umbrella body for the sector in England, will celebrate its centenary in 2019. According to the NCVO, there are more than 163,000 voluntary sector organisations throughout the UK. As noble Lords have mentioned, the total income for the sector is around £37 billion, with more than a third coming from statutory sources. It is important to point out that, by a ratio of 3:1, that public funding is in the form of contracts for services delivered, rather than straightforward grants.
The effects of public spending cuts on the voluntary sector are already dramatic. A survey by the NCVO in August 2011 found that the sector stands to lose £3.3 billion from the Government over the current spending review period from 2011 to 2016. That is a conservative estimate based on analysis of the Government’s figures published by the Office for Budget Responsibility. The figures assume that cuts will be made proportionately. However, in practice we know that many local authorities have been making disproportionate cuts to voluntary sector funding. Hard hit by cuts in their own funding, councils are putting charities and voluntary organisations that deliver services in the firing line when it comes to cuts. For councils, cutting their own staff means paying redundancy, whereas cutting contracts means that the voluntary sector takes the redundancy hit.
When combined with the wider impact of cuts on vulnerable people and communities, many charities are facing what might be described as a perfect storm of rising demand for services, combined with falling income. As a result, the voluntary sector workforce has been significantly reduced, with the latest figures suggesting a fall of 33,000 over the past year. There are 162,000 registered charities in England and Wales, with another 23,000 in Scotland. They have a combined annual income of more than £60 billion and employ around three-quarters of a million staff. These figures are testament to the power and importance of the voluntary sector.
Social enterprises complement much of what the voluntary and charity sectors do, although they differ from registered charities in that they expect to be revenue-generating from the service that they provide. Social entrepreneurs are establishing businesses that operate to different values. They believe that their business has a moral purpose and they use their entrepreneurial skill to benefit wider society. Traditionally, capital hires labour with the overriding emphasis on making a profit over and above any benefit either to the business itself or the workforce. In contrast, in a social enterprise, labour hires capital, with the emphasis on social, environmental and financial benefit.
My noble friend Lord Giddens commented that the Cabinet Office figure of 62,000 social enterprises currently in the UK was a considerable underestimate, and I go along with that. However, even those 62,000 contribute £24 billion to the UK economy, which is a considerable amount. Some social enterprises in the UK are major players in their sectors, including the Co-operative Group, John Lewis, Welsh Water and Cafédirect.
All that begs the question as to whether voluntary organisations, charities and social enterprises fit into the coalition’s big society project. The voluntary sector has given the big society a qualified welcome, although a number of concerns have been raised, including the impact of public spending cuts, to which I referred, on the sector’s ability to play an increased role in the provision of public services and whether the sector’s independence might be compromised. Some have gone further, claiming that the big society is little more than a cover for the privatisation of public services. Indeed, the union, UNISON, was unequivocal, stating:
“The government is simply washing its hands of providing decent public services and using volunteers as a cut-price alternative … Public services must be based on the certainty that they are there when you need them, not when a volunteer can be found to help you”.
Many noble Lords will have seen in March 2011 the Channel 4 investigative programme “Dispatches”, which concluded that the big society was about,
“privatising the welfare state on a massive scale”.
The programme explored the increasing degree to which the companies Serco, G4S, and Capita are being paid to carry out work previously performed by central and local government. Charities and the voluntary sector, which might like to deliver some of that work, are increasingly unable to compete with those groups, which are making large profits from outsourcing contracts.
When the Office for Civil Society was formed in 2010, one of its first acts was to cut £11 million from existing organisations aimed at encouraged volunteering. The youth volunteering charity, v, lost a further £8 million and almost 100 jobs with the abolition of its schools programme. When you have a stated aim, as the big society does, of seeking to encourage people to become involved locally, where is the sense in cutting experienced organisations and staff who know how to do the job?
Criticism of the big society has also come from within the House of Commons, but the coalition Government are not listening. In December 2011, the Public Administration Committee published a report calling on the Government to re-assess their delivery of the big society by appointing a single Big Society Minister with a cross-cutting brief to ensure that the work involved was consistent between departments. Having received the Government’s negative response, the committee was forced to reiterate its recommendations last month. Perhaps the Minister might enlighten us as to whether, this time, the committee can anticipate a more conciliatory response.
Lord Stone of Blackheath
My Lords, I declare a specific interest in this field. I chair DIPEx, an Oxford-based charity. We are currently internationalising ourselves and I will cite this as an example later.
I propose to Her Majesty's Government that they may wish to create a hub in the United Kingdom that would encourage and support other established British charities and social enterprises to internationalise themselves. For decades, through the British Council, with a budget of £600 million, Britain has promoted language and education and our arts and culture. That is good for Britain and good for the world. Many excellent charities and voluntary organisations have already successfully internationalised themselves, but others are struggling to create organisations that spread worldwide with the right disciplines and standards, and many as yet have not realised the vast potential and advantage to be had by becoming international.
Imagine if we were to encourage British charities and social enterprises—large, medium and small—to consider researching other countries with the same issues that they are addressing here, and linking with organisations in those countries to form international organisations. I envision that to be taken on by either a government ministry or the British Council—or even the City of London; it was hitherto the centre for the finance industry but could become a centre for world philanthropy, possibly using the City Bridge Trust, which was mentioned earlier.
To start with, if perhaps 100 charities came forward to internationalise themselves, the hub would create for them access to international legal structures, the ability to set global standards and access to branding, marketing and website publishing. Even if it were to cost an average of £50,000 for each of those organisations, the total cost to make Britain the hub for 100 international such organisations would be £5 million.
Let me cite DIPEx as an example. I am not asking for help: we are going to internationalise ourselves using our own resources. This is what we decided to do. The DIPEx charity has worked closely with the University of Oxford, and with the support of the Department of Health—it has funded us so far with £2 million of the almost £10 million we have raised—to create www.healthtalkonline.org, a unique online resource. It publishes people’s personal experience of health conditions.
So far, we have covered 70 health conditions, including 10 types of cancer, heart diseases, neurological conditions and diabetes, and life issues such as bereavement, pregnancy and the menopause. The website includes not only the experiences of patients but those of carers, families and friends. On our website, we receive 1 million hits a week and 3 million unique visitors a year. We now know that watching and listening to the experiences of others can have a major impact on a person’s ability to deal with their health challenges through personal empowerment, being better informed and a reduced sense of isolation.
Based on training and support from DIPEx UK, organisations in other countries want us to help them set up parallel projects in their countries. Universities and hospitals in Spain, Germany, Holland, Japan, South Korea, China, Israel, Palestine, Canada and Australia are involved. Together, we will establish DIPEx International as an umbrella organisation to co-ordinate the activities of the group, to collect and publish health experiences worldwide and combinedly to help with fundraising. We have decided to use £50,000 of the DIPEx charitable reserves for this. Oxford would then become an international centre for the highest-quality worldwide health charity. Already as a result of our activity Green Templeton College in Oxford, where we are based, now plans to create HEXI, the Health Experiences Institute, a centre for research into patients’ health experiences worldwide. DIPEx is just one example of a charity doing this.
The International Centre for Social Franchising sees numerous social enterprises whose success has been evaluated and proven; yet, frustratingly, its wheel is constantly being reinvented. These organisations should be replicated in other areas and other countries. The core idea and the accumulated experience should be the starting point for designing and delivering solutions elsewhere.
Today, I merely suggest to the Minister that he asks the appropriate ministry to arrange a conversation with the people involved, to see whether this programme might help the charity and social enterprise field from Britain to make valuable connections and to create new ways to spread aid and services to countries with which we wish to have relations. I propose that the Minister suggests to his colleagues in government that we perhaps arrange a two-day conference where we invite 30 or 40 people from this field who would be interested in helping to take this idea forward. The participants could include, say, five charities; five social enterprises—small, medium and large—the Social Enterprise Coalition; an international consultant in this field such as the Social Investment Consultancy; the Enterprise Bank; Prism the Gift Fund, with which I am also involved; some experienced lawyers in this field; some big UK-based international businesses to help with advice on internationalisation and perhaps funding; the City Bridge Trust; the International Centre for Social Franchising; the Charities Commission; and, perhaps, the noble Baroness, Lady Scott, who promoted this interesting debate. I am sorry that I do not have the resources to research this more deeply. It is merely a suggestion but perhaps noble Lords will feel that it merits further research, discussion and action.
Baroness Benjamin
My Lords, I, too, express my heartfelt thanks to my noble friend Lady Scott for securing this important debate and for her excellent opening speech. The voluntary sector has a unique role in reaching out to every area in society—to the most disadvantaged and vulnerable groups—as well as in funding vital medical research. I should like to highlight the voluntary contribution made by three of the numerous charities with which I have been involved over many years, so I declare an interest.
First, I would like to draw attention to Sparks. Last year, medical research charities invested more than £1 billion in the UK. That has had a considerable impact on patient well-being, has brought huge economic benefits and has attracted industry investment. The UK is a centre of excellence for paediatric research and the world’s brightest young scientists come here because of our long-term investment in child health. Sparks, now in its 21st year, is one such medical research charity. It is dedicated to funding medical research into all conditions that affect babies and children, helping to improve quality of their lives and giving families hope when they think there is none. It is the biggest UK funder of paediatric research—ground-breaking research which has the potential to have a global impact, such as research on body cooling, now used as NHS standard treatment to prevent brain damage in babies born deprived of oxygen and at risk of lifelong disability. That is probably the most important advance in neonatal intensive care for babies in the last decade. Sparks’s legacy and contribution to child health is truly significant.
Scientific research needs to continue but there is a decline in young people studying science, so what are the Government doing to ensure that our schools and universities are preparing our children to be the scientists of tomorrow?
During debate on the then Health and Social Care Bill, it was stated that the voluntary sector would be relied on for crucial developments that the NHS and public health faced over coming years. The Sickle Cell Society does just that, by helping to articulate the concerns of people living and struggling with that disease. Even though the Sickle Cell Society community hub was commended, its application for Section 64 funding was turned down, despite the potential for inequality that will arise when the specialist commissioning takes effect. Its proposals would have ensured that the interests of people affected by sickle cell disease continued to be counted. The Sickle Cell Society, its clients and the wider BME communities are concerned about that situation, and I ask the Government to meet interested parties to discuss how the society can continue to support its important work within the framework of the appropriate NHS Commissioning Board authorities.
Although local authorities provide many excellent services, the voluntary sector can offer a number of advantages as it operates with greater independence, which means that it can co-ordinate support from a variety of agencies to get the whole family the help that they need, and can reduce excess bureaucracy. Barnardo’s has done just that for decades. Last year, it helped over 190,000 children, young people and their families in over 800 services, including young people in care, those not in education or training and children of prisoners. Barnardo’s also lobbies and campaigns on behalf of disadvantaged young people, and its evidence feeds into government policy-making. It has secured numerous changes in England, Scotland and Wales, such as to retain savings accounts for children in care. Through its Cut Them Free campaign, in which 103 local authorities have signed up to tackle the evil practice of child sexual exploitation in their areas, it has secured a government publication—a national action plan—on the topic, which is long overdue.
The voluntary sector faces problems due to public sector cuts, but the Government could take a number of steps to support it even in times of austerity. One way is through local authorities’ procurement processes, as they often fail to engage potential suppliers in pre-procurement talks. I ask the Government to consider a standardised application process, which would reduce repetitive procedure and save potential suppliers large amounts of time and money. I also ask them to put together a list of preferred suppliers for certain themes of work.
Another problem is the lag time inherent in payment by results, which could mean six months before payment starts, making it difficult for charities to compete in the private sector for contracts. That means that charitable assets face a high risk. Will the Government explore the use of staged payment schedules to reduce the risk that charities are exposed to and reward achievements and outcomes, especially when working with the most vulnerable?
We must treasure and preserve our voluntary sector, and support the valuable contribution that it makes to our society. As a country, we have a rich tradition of giving and volunteering, and in times of hardship and financial turmoil it is often the only source of help and respite for those in difficulty. Let us ensure that our policies help rather than hinder our voluntary organisations.
Lord Rana
My Lords, I thank the noble Baroness, Lady Scott, for initiating this debate on a topic that really goes to the heart of citizenship and all that it means to be a participant in the communities in which we live, as opposed to being a bystander on the fringes. The voluntary sector makes a proportionately greater contribution in Northern Ireland than in other parts of the UK. It has assumed this position for several reasons including the extent of poverty in Northern Ireland, which is higher than in many other parts of the UK, and the weak private sector. Both have been influenced by over 30 years of upheaval and violence. This turmoil has created pockets of severe poverty in Northern Ireland, especially in parts of Belfast, mostly notably west Belfast, resulting from higher levels of unemployment and underachievement in education. The noble Lord, Lord Lexden, has already mentioned the good work done by NICVA, so there is no need for me to repeat that, but I add my words of appreciation and share the admiration that he expressed.
The work of many voluntary organisations touches virtually every section of the community. Among the employed are former prisoners from both sides of the divide, who are unable to find mainstream jobs. Especially in today’s difficult economic environment in Northern Ireland, the sector is a major source of employment. As well as carrying out important work on the ground for local communities, the sector contributes to the development of key skills and working experience, builds confidence and helps to raise self-esteem. The sector is contributing to the strategic focus of the Northern Ireland Executive on accelerating the growth of the private enterprise culture. This is helping to rebalance the economy and reduce an unhealthy overdependence on the public sector. The sector has an annual income of around £600 million, most of which comes from the EU. About 45% of it is public funding, about two-thirds of which comes from the Government’s direct purchase of goods and services from community and voluntary organisations.
The voluntary and community sector, with assets of over £750 million, represents about 4.5% of the Northern Ireland workforce. Most people working in the sector are following a vocation in working to help others, and often go above and beyond what is called for to ensure that help is given where it is needed. The figures represent a significant proportion of people who work to help others. It is a community support system that is fundamental to the economic well-being of communities and their stability. It is important that the Government should be seeking to ensure that the funding is underpinned and sustained adequately.
The sector is suffering, like many other areas, from a tightening of funding sources and faces growing pressures regarding EU funding, which has sustained it over many years. Northern Ireland has come a long way from being classed as having Objective 1 status by the EU, which is a good thing. It is now classed in the reasonably prosperous category. The downside of this is that it does not qualify for many EU funding initiatives, as it did. As the current European Union economic funding programmes draw to a close, Northern Ireland will not attract the same level of financial support from Europe, placing significant pressures on the voluntary sector. Much funding has to be given to support stability in the region through economic regeneration by working together in partnership with the many groups and organisations, by promoting integration as well as providing practical help and by working through initiatives such as the PEACE II programme.
Where assistance may be given is in helping to develop sources of finance for social enterprises, enabling these valuable contributors to continue the work that has already been done, but in doing so we must not supplant one organisation with another. If it fills the breach but at the same time creates unemployment, hardship and social upheaval for workers who have already given much of their lives to supporting the community, it is not operating under the auspices of the big society at its best.
With less government funding available, only those voluntary and community organisations that can exploit opportunities to generate revenue and operate in an increasingly businesslike and innovative manner will survive. The private sector can provide considerable support in achieving these goals by sharing skills and resources with the voluntary and community sector. Government can also help by assisting the sector to source the necessary funding to continue to contribute to local community development. However, the indications are that pressure on public budgets is now impacting the sector adversely and threatening to undermine much of the good work already carried out.
It is imperative that when funding issues are being considered, the special nature of the problems that have beset Northern Ireland are not forgotten, so that a fair distribution can be made to ensure that all the good work is not undone in the need for short-term savings that may have a devastating impact for many years to come, and may in the end cost more to put right.
Lord Storey
My Lords, I thank my noble friend Lady Scott for initiating this debate and for her very important opening contribution. Much has been said and written about the big society. I agree with everything that has been said but I struggle at times to understand what the big society really is—or, to put it another way, what the big society does that our voluntary and social enterprise sectors do not do.
Our voluntary sector must be the envy of the world, supporting people, causes and the most vulnerable, and often taking up lost causes and concerns that nobody else, including government, is able to do. We probably have the largest voluntary sector in the world and the largest number of volunteers. As a nation we can be truly proud. Add to that the incredible fundraising that goes on, which again is one of the highest per capita of any country.
We can all see power and responsibility shifting in our society—that individuals and communities have more aspiration, power and capacity to take decisions and solve problems themselves, and that we all need to take greater responsibility for ourselves, our communities and each other.
Two voluntary organisations I know very well are Clare House and Zoe’s Place on Merseyside. Clare House was named after a young girl who was terminally ill, and provides respite care for terminally ill young people and their parents. It needs to raise £3.7 million a year—yes, £3.7 million—just to keep its doors open and offer the same level of service every year. It receives government money of £353,000 from the children’s hospice and hospice-at-home grant, formerly the Section 64 money. It applies for this funding annually. Zoe’s Place cares for terminally ill babies in the most incredibly caring environment. Again, it has to raise £1.3 million a year, and receives £200,000 from the NHS. Where would our big society be without such wonderful organisations?
Many of your Lordships will have received a briefing from the Sue Ryder voluntary organisation, which is also a provider of health and social care. It cares for people with long-term and end-of-life conditions with its community and home-based services, seven hospices and seven neurological care centres. Again, I really do not know how we would manage without voluntary organisations like these or how our NHS and social services would cope without this huge voluntary contribution.
These organisations are not asking for more money. They were delighted when my noble friend Lord Howe agreed to the amendment of the noble Lord, Lord Patel, to the Health and Social Care Act to ensure the production of a fair-playing-field review so that we can understand the obstacles to non-state providers who want to provide public services. VAT and TUPE transfer liabilities are also areas that we should look at.
The voluntary sector is uniquely placed to meet local needs by building up strong community relationships, offering personalised services, meeting local needs and breaking away from the model of one size fits all.
We have heard from my noble friend Lady Barker a detailed definition of a “social business”. To me, it is simply a business which has a social purpose or a social responsibility. What do I mean by that? Let me give you an example.
The Furniture Resource Centre was established in Liverpool in the early 1990s by a pioneering, young-at-the-time social entrepreneur called Liam Black to deal with unwanted sofas that had often been dumped in back entries or, to use the local parlance, back jiggers. It collected them, reupholstered them and sold them. It employed long-term unemployed people and provided training. It approached an enlightened council and suggested a service called Bulky Bob’s—named after one of its employees, Bob. It would collect from residents’ homes bulky items which the council would previously collect and dump in infill sites. The Bulky Bob’s service would allow residents to phone up and a purple Bulky Bob’s wagon would arrive at an agreed time to collect the items. White items would go to a social business called Create, wood items to a charity and sofas to the Furniture Resource Centre. It also opened in the city centre a store called Revive, which sold the refurbished items. It provided not only an excellent service for local residents, but, more importantly, jobs and training for local people. It increased recycling and stopped dumping. Interestingly, Bulky Bob’s, which is self-financing and self-supporting, has expanded to other local authorities with service-level agreements. It also provides a bespoke service of kitting out social housing.
Social businesses and the voluntary sector are realistic about the country’s economic problems. Many fear that they will suffer disproportionately from cutbacks, which will affect their work in many of the most deprived areas of this country where their efforts are most needed. They want greater transparency in the way in which local councils decide to provide services directly or indirectly involving the voluntary sector, and how they calculate the costs and benefits of those different approaches. Let us celebrate the work of the voluntary sector; let us recognise the unique role that it has in our society; and let us work with it to help it continue to thrive in these very difficult times.
Lord Phillips of Sudbury
My Lords, owing to clerical error, my name was not put down to speak and I am thus speaking in the break, and have four minutes in which to deliver an eight-minute speech. I commend my noble friend Lady Scott both on securing the debate and on what she said. Like, I suspect, everybody else in the Chamber, I hate to think of where we would be without our voluntary sector, because it is still the harbinger of the best values that we have inherited and seek to sustain. It is values-rich at a time when, I am afraid, so much of the commercial world, especially the big commercial world, is values-depleted.
I want to mention the role of small enterprises and voluntary organisations particularly in community life, because I think that many of your Lordships will agree that, in our lifetime, there has been a dramatic decline in the vigour and vitality of community life. It is interesting that that word “community” has the same root as “common”, and it is the communality of our lives that has been so hacked back—the common man, the common law, common sense, common land, common wealth, common fate and common fortune. All those things have been put in jeopardy by the circumstances that we all know well: mobility, work, obsessiveness, a certain degree of excessive individualism and so on. It is the small charity, voluntary organisation and social enterprise which is absolutely integral and central to a revival of the “commons”, as one might put it. They are local, rooted and embedded; they know their patch and are known in it. As was the case in my young manhood, when businesses mostly had those characteristics, you inevitably become part of the community and contribute to it informally. You did not call it pro bono, let alone charitable donation. These local organisations, whether private or not, were so integral to effective community life.
I also want to say a quick word about auditing. A number of comments—for example, from the noble Lords, Lord Giddens and Lord Shipley, and the noble Baroness, Lady Barker—have touched on the performance of business, particularly big business. The Public Interest Research Centre, a charity organisation set up in 1971—I was a trustee for 30 years and am happy to say that it still exists—had an idea whose time may now have come. Its main thrust was social auditing in public companies. I think it is well worth considering, and not just by government, whether it is not now time for us to look at what big companies and business entities, which are often global entities, do by way of social contribution as well as profit-making. I am thinking of things like minority hiring, environmental depletion and so on.
Finally I should like just to give a warning, if it is necessary, against any delusions about how much we in Parliament can achieve in relation to small, on-the-ground charities and social enterprises. I sometimes think that the torrent of laws that spew from this place have inadvertently created an attitude and expectation among people that they do not really need to contribute much and it is all down to government. Well, it ain’t.
My time is up so I shall sit down.
Baroness Thornton
My Lords, first, I congratulate the noble Baroness, Lady Scott, on initiating this debate which, as so often, demonstrated the depth and breadth of knowledge in the House about charities and social enterprise. I first spoke about social enterprises in your Lordships’ House when I came here in 1998, and certainly needed to explain what it was I was talking about. Fourteen years later, I think we can say that with the support of the previous Government, pieces of legislation and, indeed, all-party support, we pretty much all know what we are referring to when we talk about social enterprises, mutuals and co-operatives, and we recognise the important role that these businesses and organisations play in our economy and our civil society.
I need to declare some interests. I am a patron of Social Enterprise UK and was its founding chair in 2001, when it was called the Social Enterprise Coalition. I am very proud of the work of Social Enterprise UK as a national voice for social enterprises. I am a paid associate of Social Business International and its new organisation, E3M, which seeks to ensure an input into the development of social businesses across Europe by capturing the experience of leading social enterprises in the UK. The three Ms are money, models and markets, which pretty much outlines the challenges we face. I am also an ambassador for sport at the trade association for sport and leisure trusts such as GLL, which is one of our Olympic legacy organisations. I have been a trustee of Social Enterprise London, Action for Children, Training for Life and the Jamie Oliver Foundation. I am also a volunteer.
I want to raise an issue about volunteering. The noble Baroness spoke about the importance of volunteers. I agree with her about that but was alarmed—although I many have misunderstood what the noble Baroness said—by the idea that carers are volunteers. When I go home to Bradford tonight and become my mother’s carer for the next four days, I am not a volunteer. I am my mother’s carer and do not regard that as being a volunteer. In this country, we are dependent on our carers and our social fabric would collapse without them. We are in danger of being confused here. When I reflect on the increasing stress and burdens placed on carers by cuts in social services and welfare changes, we have to be careful about our definition. Volunteering is surely also about a choice one makes.
I also have to put on record that there is a small irony here in a debate initiated by the Liberal Democrats about charities and social enterprises. Although many Liberal Democrat colleagues have an outstanding record of support for charities and social enterprises, such as the noble Lord, Lord Phillips of Sudbury, who is indeed one of the House’s undisputed experts, the mover of this debate, the noble Baroness, Lady Scott, and others who have spoken, some have been less enthusiastic from time to time. The noble Baroness, Lady Barker, objected to a health Bill with which I was dealing as a Minister. Having to answer her searching questions about the right to request in the NHS, it struck me at the time that the Liberal Democrats perhaps needed to clarify their thinking about the matter.
I hate to cast a political note into this, but I think I need to say, with respect, to those on the Liberal Democrat Benches that their support for charities—such as that of the noble Baroness, Lady Benjamin, in her role as a children’s champion—is in flat contradiction to their voting record on issues such as welfare reform and legal aid changes.
David Cameron seized the initiative by giving support to social enterprise during his campaign for the leadership of his party. As the then chair of the Social Enterprise Coalition, I was delighted by that and helped—behind the scenes, I have to say—to ensure the success of a Conservative opposition Front-Bench tour of London social enterprises undertaken on a red London bus provided by Hackney Community Transport. I shall resist the temptation to speculate how many of those Conservative Front-Bench spokesmen spent much time on London red buses, but Hackney Community Transport, as people will know, is one of the UK’s biggest and best examples of a social enterprise providing public services.
I was pleased about that because it shows, as is still the case, that the growth of charities and social enterprises need all-party understanding and support. That support translated into two main pledges to support social enterprises in public service delivery in the coalition agreement, which I am surprised that no one has mentioned, so I shall. The coalition agreement, which is how we need to judge the success of the Government’s work, states:
“We will support the creation and expansion of mutuals, co-operatives, charities and social enterprises, and enable these groups to have much greater involvement in the running of public services”,
and, secondly, that they will,
“give public sector workers a new right to form employee-owned co-operatives and bid to take over the services they deliver”.
The Government have made some progress in delivering those objectives. The problem, in true coalition fashion, is inconsistency. We also have to look at an unthinking cuts agenda which is driving the charitable and social enterprise sector into becoming a substitute for robust and thriving public services in a manner sometimes reminiscent of the poorhouse of Victorian times. A playgroup that delivers two or four hours a week of play for a child is not a substitute for a nursery which allows families or single parents to hold properly paid full-time jobs. We need both. The noble Earl, Lord Listowel, was quite right in his analysis of children’s issues.
The Conservatives are also guilty of facing in both directions at once. We have seen enthusiastic support by the likes of Jeremy Hunt for philanthropy and, simultaneously, the Chancellor making a complete mess over tax relief for charitable donations in the most recent Budget. I would be grateful if the Minister could give us an update on exactly where that issue is.
Social enterprise and charities are indeed big business. They are a valuable part of our society and need to be treasured as such. I absolutely agree with my noble friend Lord Giddens when he said that social enterprises should be mainstreamed. The noble Lord, Lord Shipley, perfectly described the importance of the challenges facing social enterprises locally. His plea for support and development is absolutely right. My noble friend Lord Stone talked about internationalising our expertise and business models for charities and social enterprise. He, too, is correct. I remember him talking to me about DIPEx many years ago and it was a mere twinkle in his enterprising eye. If ever there were a serial social entrepreneur in this House, it has to be my noble friend.
I have my own example of a new social enterprise going international. Future First was launched in two state schools in 2009 to bring former students back into their old schools to act as inspirational career role models for young people, and indeed my children’s school in Camden was one of those. Since Cabinet Office funding, Future First is now building grass-roots alumni communities in over 500 schools in England, and has begun to export its model. A 10-school pilot in Nairobi is to start this year, funded by a Kenyan philanthropist, and there is a move to build this in the United States. I congratulate the founders and the Cabinet Office, and I wish them well.
The growth of social enterprises owes a great deal to the previous Government, whose public policy, legislative and financial legacy has enabled the coalition Government to continue their support for social enterprise. I very much welcome the launch of Big Society Capital, but one has to recognise that this is a rebrand of the social investment bank that the Labour Government were establishing through dormant accounts legislation, and it has taken two years to get there. I also welcome the Public Services Value Act. It has to be noted that the words “Social Enterprises” were removed, but it is still a worthy piece of legislation. It will not work, though, unless we embed social values in local commissioning—it will go nowhere at all.
I have two further points. One is that I rather hope that the noble Lord, Lord Phillips of Sudbury, will explain to the House and give us a pre-run of the amendments that I understand he is about to put down on the Social Finance Bill. We will be interested in supporting them, because they are the heart of how we get social investment into the Financial Services Bill. The second is that, while I am grateful to the noble Baroness, Lady Randerson, for explaining the community investment tax relief, I would like the Minister to explain what progress the Government are making on that matter.
These are challenging days for charities and social enterprises. Both are proving resilient and imaginative, as illustrated by the noble Lord, Lord Storey, when he spoke about the Furniture Resource Centre, which was a founding member of the Social Enterprise Coalition, so I am very familiar with it. Both need our support and policies that break down barriers to their success. Whether the government parties can provide public policy coherence and face in one direction at the same time is the question—and, indeed, their challenge.
Lord Wallace of Saltaire
My Lords, on what we are discussing today there is a lot of common ground across the Chamber and across all parties. I do not intend to follow the noble Baroness, Lady Thornton, in her slightly partisan wind-up because there is a great deal of common ground.
We are all volunteers. Volunteering, after all, has a long tradition in Britain. Long before the welfare state grew up there were churches and chapels; philanthropy and charitable activities by the well-off; friendly societies; co-operatives among the working classes; trade unions, of course; and, above all, women. My mother retired from her last voluntary post when she was older than a considerable number of the women in the old people’s home of which she was chair. She was one of that generation who would have had a career had she not married. As we know, one of the problems that we are facing in the voluntary sector is that there is no longer that great pool of capable women who are not able to work because they are married. We therefore have to rely on the fit retired much more than we did.
I suppose that in some ways I am one of the fit retired who is a volunteer, as are half the government Front Bench. I work but I am not paid, although that is partly because I have quite a generous academic pension—not, of course, half as generous as doctors’ pensions—which enables me to provide my contribution. Most of us in this House are actively engaged in one way or another in the third sector. Indeed, I remember some months ago the noble Baroness, Lady Scott, and myself being taken by the noble Lord, Lord Mawson, to the Bromley by Bow Centre, a remarkable generation of investment, started on the basis of a rather dilapidated congregational church and now involved in the regeneration of a large area in east London. So I welcome the focus on volunteers and recognise, as do the Government, that support for volunteers is very much part of what has to happen in this sector; you often need paid staff to train and support volunteers. At a reception for small charities the other evening, I met the leaders of a small charity in north Yorkshire which has two part-time paid staff who, in turn, support several hundred women in visiting elderly people living on their own in homes. That is a good example of the sort of thing that all of us wish to support and encourage, but which the state does not easily provide.
Several noble Lords, including the noble Lord, Lord Giddens, have talked about the proper balance between state, society and market. That is what we are all really concerned about here. We need to make sure that, in that balance, there is a strong civil society as part of the mix, both in relationship to the market and in relationship to the state. The Prime Minister has labelled this “the big society”. I, as a Liberal Democrat, would prefer to call it “the responsible society”, or even “the liberal society”: empowered individuals working within strong communities, working with a decentralised state. I remind the noble Baroness, Lady Thornton, that Ed Miliband said in a speech last year:
“I have been clear that we should recognise the shortcomings of the centralised state”.
Indeed, we need to go back, as far as is possible, to much more local engagement and local accountability. Of course, this is a process. Change takes time. The Localism Act 2011 is another part of this, and so is the provision of diverse funding streams—Big Society Capital—now getting under way and, as the noble Baroness rightly says, building on work of the previous Government with other support schemes providing matching funds—for instance, Community First, the Community Endowment Fund, community foundations and private bodies. They are all very valuable, giving grants to social enterprises when they are set up. I was very happy to visit the Community Foundation for Calderdale, which my noble friend Lord Shutt had a great deal to do with starting. Now there is also the Public Services (Social Value) Act 2012.
Then there is the whole question of government contracting, on which we have had a number of contributions and, rightly, some criticisms. The noble Lord, Lord Prescott, raised the particular question of Close Protection UK. I understand that Close Protection UK has taken full responsibility for the very poor treatment that its staff suffered, and has offered an apology to all concerned. The Security Industry Authority has written to CPUK asking for further information to ensure that it is in compliance with the relevant legislation. We in no way wish to see volunteering as a mandatory requirement for individuals to claim benefits, but volunteering is part of the way in which you get people back into the idea of work, and should therefore be offered, as far as is possible, to people as they begin to get out of long-term unemployment and back on to the job market.
There is a changing culture in government contracting, and that also takes time to change. We have a new Crown representative for the civil society sector, who took up post on 18 June, so this is very much a new initiative. He will work closely with the Crown representative for mutuals and the Crown representative for small and medium-sized enterprises to achieve changes in how the Government do their business, and to ensure as far as possible that we catch the small social enterprises and local companies, which we all wish to do. Social impact bonds are another way of trying to help social enterprises cope with payment by results. A number of experiments are under way in that area.
On funding, all businesses, including mutuals and social enterprises, must consider the VAT question raised by the noble Lord, Lord Shipley, as part of their business planning. Our evidence from mutuals has not suggested that VAT is a major barrier to mutualisation, but I will be very happy to talk to the noble Lord further about some of the issues he raised.
The financing of social enterprises was raised by a number of people. We are concerned to encourage charitable donations, giving as much as we can. We recognise that the welfare state cannot meet all the demands that will be placed on society over the next 20 or 30 years, particularly in adult social care. As the noble Baroness will recall, the consultation on the Budget proposals on high taxpayers was intended to raise the issue for implementation in the 2012 Budget. Some extremely vigorous consultation has been under way, as we will all have noticed, and we have taken it into account.
The world of for-profit companies has been raised by a number of people, the noble Lord, Lord Giddens, and my noble friend Lord Phillips in particular. This raises wider issues about the future of company law and what companies’ formal obligations are, which are rather beyond the limits of this debate. Corporate social responsibility does not save you from takeover when it comes. I lives in what was a company village, built by Salts of Saltaire with its very strong sense of local social responsibility, not far from where Rowntree’s did the same in York and left substantial endowments for regional social benefit. I am aware of Cadbury’s and others in that wonderful Quaker tradition. As such, I am conscious that we have gone a long way back in our corporate sector. That includes the Quaker bank, which educated me and of which I remain rather ambivalently a customer, which has lost a lot of its corporate sense of social responsibility. However, that is a wider question, which I encourage the noble Lord to put down for another debate.
We are learning and reviewing as we go. This summer, we will have a social economy review, which will look at how social enterprises operate. Also this summer, after five years of the Charities Act, there will be a Charities Act review, which my noble friend Lord Hodgson has well under way. I was very happy to be briefed extensively by him on the sheer complexity and diversity of the charity sector. I hope he will not mind my saying that I emerged from it confused at a far higher level than I was before.
The noble Lord, Lord Watson, asked whether we were, none the less, cutting down on the public sector. The evidence that we have shows that we are moving towards mutuals where we can. We are also experimenting with mutuals and there will be a mutuals task force report this summer on the experiments in mutual pathfinders in public sector delivery. Some of the evidence that I have seen, which is still limited, suggests that improving job satisfaction and better workforce morale lead to both higher productivity and greater customer satisfaction, which supports experimenting further with the mutual model. That also raises the question of impact measurement, on which we are working in partnership with the voluntary sector. The noble Baroness, Lady Barker, spoke about this, particularly the role of Triangle Consulting.
The government focus is on communities where social capital is low. This is very much part of the thrust. We will all have different labels for what the Prime Minister calls the big society. We have a vibrant civil society in many areas of Britain. Indeed, in my own village of Saltaire, we are almost embarrassed by the number of local bodies, such as the Saltaire Festival, the Saltaire Arts Trail, the Saltaire Village Society, the history society, the allotment society and so on. However, within five miles of Saltaire are large 1950s and 1960s estates, where social capital is very low. The Community Organisers scheme that the Government are running and the national citizen service are very much aimed at encouraging people who have lost the hope that they can control their own lives and manage their own communities to regain hope and faith in that.
Social enterprises play an important part in this because, as noble Lords have said, they employ people locally and reinvest locally. That is exactly what we need. Last year I was in a very large estate in Yorkshire—I had better not say which one—in which the largest single area of local economic activity appeared to be illegal cannabis growing in sub-tenancy council houses. I was going round with the local police support group. We need to get people back employed within their own communities as far as we can, with community associations and organisers and the encouragement of social enterprises, which feed into a revival of self-confidence and a strengthening of local community links.
I would call that building a liberal society. Conservatives would talk about strengthening the little platoons on which a strong society and state should rest. Labour would talk about local co-operation and self-government. I hope that we would all agree on the underlying objectives and admit that we had not got it right but have continued to work on getting it right—and also admit that there is a limit to what central government can do, because much of this has to come from the local level. We have learned that top-down government is not good for civil society. We have also learned that increasing government expenditure on welfare runs up against strong resistance to paying high levels of taxation. Let us hope that the enterprise on which we are embarked in rebuilding a very strong civil society based on voluntary contributions of all sorts in time, money and social enterprise helps to bridge the gap which we may otherwise face in providing support for a changing society, a much larger proportion of elderly people and all the other contributions that we need to make.
Baroness Scott of Needham Market
My Lords, we have had an excellent debate today. Having six minutes in which to speak is sensible compared to the time given us in some debates; it gives noble Lords an opportunity really to develop their arguments. I particularly enjoyed the way in which we have woven together the broad context of the relationship between markets, society, the third sector and so on, with really good examples of local case studies from right across the country, which both demonstrates the points that we are making and in many cases are really quite inspiring.
A number of issues and themes have arisen which we would never get agreement on if we spent the whole day here, and we have to set those aside. But we have also identified a number of specific problems—and, more importantly, a number of solutions to those problems, which make follow-up from this debate very important, provided that government is prepared to listen. It was a debate that was characterised at least until the very end by an absence of overt party-political point-scoring, and it was the better for that. The role of this sector in our society is beyond measure, and I am delighted that across the House today we have recognised that.
Economy: Growth
(12 years, 6 months ago)
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Baroness Kramer
That this House takes note of the importance of the Government’s growth strategy for the United Kingdom economy.
Baroness Kramer
My Lords, this has been an extraordinary and very moving day. I suspect that many of us heard the speech of Aung San Suu Kyi and share the same reaction to it: namely, that we were listening to something very special being spoken by an extraordinary, charismatic person in a way that was both moving and powerful. That probably makes it difficult for us to speak in this debate in a sense. However, I suspect that we are also encouraged by the virtues that she underscored in her speech: namely, the importance of democracy and of the parliamentary process. We can comfort ourselves that in speaking today we are sharing that philosophy.
My colleagues and I sought to initiate this debate as the issue of growth is so important. I was delighted to see the list of speakers, each of whom has a great deal to contribute in putting forward ideas and suggesting priorities and ways in which to tackle this extraordinarily difficult issue for our economy.
The background to the debate is that in 2010 the coalition inherited a badly damaged economy. The previous Government had built their boom on the back of tax revenues pumped up by false profits from the banks—a bubble that burst in 2008—and on the back of consumer spending pumped up by excessive consumer credit and a huge bubble in asset prices, particularly house prices. I remember that in the other place my colleague Vince Cable pressed the need to deal with excessive public and private debt but was generally treated with some scorn. However, public spending spiralled out of control in around 2004. Even before the bank crisis struck, the UK had the highest budget deficit in the G7. The country had no cushion at all with which to deal with any economic shocks, and the shock came spectacularly in 2008. I think most would argue that devaluation of the pound and ongoing public overspending helped to provide an initial cushion, but by the 2010 general election the UK was on track to have the highest deficit in the G20 and Liam Byrne was not kidding when he left that note saying, “There is no money left”.
However, the fundamentals were worse. According to The Plan for Growth, under various Governments the UK had,
“stopped saving, investing and exporting”.
Savings rates had declined to some of the lowest in the developed world. Manufacturing had fallen sharply as a share of the economy. The UK’s share of the global exports market had declined, largely due to our inability to succeed in exporting to high-growth markets. Some of your Lordships have often remarked with astonishment that Belgium exports more to China than we do. Only 6.5% of our exports are to the BRIC countries. The economy had become dangerously unbalanced by both sector and geography. It was far too dependent on financial services, far too weak as regards manufacturing and economic prosperity was concentrated largely in London and the south-east.
Since then we have made some progress. The Government have taken a grip on the structural side of the deficit, using both tax increases and spending cuts. The talk is of austerity but the truth is a far more measured pace of deficit management. In some ways it suits my Conservative colleagues and the Labour opposition to overegg the reality of the rate at which the deficit is being tackled. We will not see deficit reduction in real terms until 2014 at the earliest. It is quite a measured programme and, ironically, if you were to look at the Labour programme outlined by Alistair Darling and the current programme laid out by George Osborne, you would not find a significant difference. I understand that it suits the parties to highlight the difference, but the reality is that we are moving in a fairly measured way.
It also pleases me that the burden has fallen most on the wealthiest 20%, as it should do. A good example is that while corporate tax has been cut to competitive rates, the starting point of income tax has been increased to take more than a million low earners out of tax altogether. This Government have put forward numerous schemes for growth, which include a boost to the enterprise investment scheme, enterprise zones, a doubling of apprenticeships to revive our skill base, £1 billion committed to the Youth Contract, £1.4 million invested in the regional growth fund, half a million pounds invested in the Growing Places Fund, and investment in the green investment bank that will reach £3 billion in this Parliament. The list is long and I suspect that I can rely on the Minister in his closing speech to add significantly more detail to it. The financial markets have responded and shown sufficient faith that long-term borrowing for the UK has fallen to lows unheard of in recent history. Most recently, one is looking at a rate of something between 1.5% and 1.7% for long-term borrowing.
Unemployment has been an ongoing concern, especially youth unemployment, and I suspect that Tuesday’s report of improvement, especially in the full-time jobs figures, will have pleased all noble Lords. I quote Brendan Barber of the TUC who said that it was,
“some long overdue good news”.
However, much more remains to be done, and it would be sad if we became in any way complacent. Whatever the outcome of the euro crisis, it will continue to be a drag on our economy for some time to come.
Like others, in responding to the issues that have been created in our economy, I have been interested to look at lessons from the 1930s. Recovery from the 1930s recession was not based on fiscal stimulus; and I say that because sometimes there is a myth that fiscal stimulus was the answer. That did not really occur until rearmament in the second half of the 1930s. Instead, devaluation and cheap money were key to recovery. In the UK, they led to a surge in housing construction. That strikes me as a useful lesson. Fiscal discipline has allowed the Bank of England room to use monetary policy, with significant QE so far, and I hope there will be more to come.
Lord Foster of Bishop Auckland
I am most grateful to the noble Baroness for giving way, but what is rearmament but public expenditure spent on arms, which creates jobs in the private sector?
Baroness Northover
Perhaps I may point out that we have a strictly time-limited debate; and if the noble Lord wishes to raise some points, perhaps he may seek to speak in the gap, and they can be answered in due course.
Baroness Kramer
I am happy to respond to that. It was exactly my point. Rearmament represented fiscal stimulus but did not come until much later when recovery was well under way. That is one of the important lessons for us—seeing how that recovery was achieved before fiscal stimulus came into the picture. As the noble Lord confirmed, it is an often-used myth that fiscal stimulus was the answer.
The equivalent today of cheap money has been quantitative easing and, to some extent, credit easing. As a consequence, we have had a weak pound, which, along with devaluation, has played a significant role in boosting manufacturing and exports that have carried us through several years at least, although they may not look quite as strong as they initially did. However, that played a definite role, and I am not trying to score party-political points but get back to how we deal with the issues.
However, I am very concerned that in attempting to access opportunity for growth, small businesses have found it extremely hard to get credit and lending from the banks. It is noticeable that in 1932, the banks worked and provided that credit flow to business. I would argue that we do not have that in the same way today. Effectively, we are looking at a banking system that is broken.
Because of all that, I welcome the Chancellor’s announcement of £80 billion for the Bank of England to provide what is now called “funding for lending”. If the banks prove capable of targeting the money at sectors such as small business and at home buyers who have the capacity and the appetite to invest, I think that it can make a difference in stimulating growth. However, my fear—I have expressed this before in this House—is that the banks no longer have that kind of knowledge base, the skills or the capacity effectively to reach small business. It is a custom business and it needs to be designed by people who really understand those to whom they lend. It is not a commodity business, and the banks that we think of as high street banks are essentially in a commodity business. Therefore, I urge the Government to look at RBS and Lloyds to see whether they can push a change in culture and approach so that those mechanisms are used to get the money to the small businesses that need it.
Small businesses provide something like half our GDP, and simply accelerating the plans that they already have for expansion and investment could have a significant impact on jobs and growth. I also say to the Government that, if there is more money for tax cuts, then tax cuts that would impact on the decision of small businesses to invest would be one of the best ways to use that money.
Housing also played a key role in the 1930s and I am sure that it can do so again. Once again—I have urged this before—I ask the Government to set aside a tranche of some of the credit easing for cheap funding schemes for housing associations, especially the small associations that cannot easily go to the market. One million pounds spent on housing repairs creates some 30 jobs. That is an amazing multiplier, and that is the kind of impact that I think we need to see now.
Nearly half a million unbuilt new houses have planning permission but the developers are holding off on construction. We need to tackle this because it could obviously provide a quick win. Land banking at this time is not an appropriate strategy. If financing is the problem, then this is a chance for the Government to tackle it. I am very glad that the Chancellor has now said that he will use the national balance sheet to try to unlock money for housing, as that could make a significant difference.
Pushing the lever on infrastructure spending can also happen through local government. The Local Government Finance Bill is on its way through this House. Tax increment financing is included in the Bill but is so constrained as to be minimal. I ask the Government to look again at tax increment financing, because each local authority has much low-hanging fruit in small infrastructure projects that could unleash new opportunities for growth with a very powerful multiplier effect.
Looking at the list of speakers in this debate, I can see that many colleagues on all sides of the House will be talking about growth in particular sectors—for example, tourism and the creative industries. Again, I think that a sector-by-sector approach to stimulating growth at this point would be powerful in assisting the economy. Therefore, I shall listen to those speeches eagerly to see what lessons can be learnt.
Earlier, we had a debate on social investing, social enterprise and the voluntary sector. That is a neglected area. In a sense, it has been the poor relation so far as concerns financing and investment. Now, there is potential in the City and other places to look at social impact bonds. What is also needed is a willingness by individuals to invest socially, so that, although they want profit, they give up an element of that profit in order to meet a social objective. Tapping into that will start to deal with some of the hardest-to-meet but quickest gains that we can achieve in our economy.
At the bottom of this, growth must be sustainable. It cannot be built on the back of another public spending bubble that will simply burst, and that seems to be the challenge facing this coalition. I shall listen eagerly to all the speeches because I think that it is the responsibility not just of government but of our two Houses more broadly to come forward with ideas that can provide the growth, jobs and prosperity that the country needs. I beg to move.
Lord Popat
My Lords, I thank the noble Baroness, Lady Kramer, for bringing this debate before the House. My noble friend the Minister also very kindly responded to a recent debate on business finance, so I shall do my best to avoid repetition.
The economic climate we find ourselves in is undoubtedly one of the most challenging scenarios that this country has faced in recent history. Yet its origins were longstanding. There was far too much public sector borrowing and far too little investment in infrastructure; there was too much reliance on the City and the services industry and not enough was done to reform education standards; and there was too much regulation, taxation and compliance for small businesses and not enough exporting to high-growth economies. The tough decisions were unfortunately delayed and the strategic approach to the economy was left wanting.
Unfortunately, this Government inherited an economy in dire need of drastic action. The Government have taken the first, and most important, step to stabilise our great economic ship and they have set out a credible strategy to bring down the deficit that has reassured the markets and allowed Britain to bypass many of the symptoms of uncertainty facing other economies. The announcements this week of falling inflation and unemployment numbers are yet more signs of an improving economy. Now it is time to set an ambitious course for our economic ship. The Government are rightly committed to rebalancing the economy, leaning back towards the private sector for economic growth.
I wish to focus on two of the four main objectives set out in the Government’s growth strategy; namely, to,
“make the UK the best place in Europe to start, finance and grow a business”,
and to,
“encourage investment and exports as a route to a more balanced economy”.
As I have said in this House before, whenever I speak to small business owners, I hear about the difficulties that they are having with financing. I am pleased to report that I am beginning to hear reports of businesses being helped by the £20 billion national loan guarantee scheme—a brilliant scheme that has effectively no cost to taxpayers—and the long-term funding from the Bank of England to our domestic banks, as announced last week, will undoubtedly help small businesses.
In regard to regulation, the Chancellor said recently in the other place that the total cost of regulation imposed on businesses since 1998 is almost £90 billion a year, a staggeringly high figure. Like many businessmen, I have been encouraged to hear the Government's plans to reduce regulation particularly in regard to staffing issues. I strongly support the work to reduce the regulatory burden on small businesses. Yet I remain concerned that the very necessary changes to the planning system may struggle to materialise as desired and that our planning system will remain, as the Chancellor said, a chronic obstacle to economic growth. We must ensure that our small businesses do not continue to invest thousands of pounds in consultants, lawyers and architects only to fall at the final hurdle of our planning system because of anti-growth attitudes in town halls across the country. Only this month my noble friend Lord Wolfson, the chief executive officer of Next, was quoted as saying that he had not spent £100 million he had set aside for investment because he could not get planning permission. Although Next is certainly not a small retailer, it is a clear example of ambitious firms having economic activity held back by a planning system that is not fit for purpose.
I move on to the desire to encourage exports. Many noble Lords will be aware that the UK’s share of global exports had declined from 5.3% in 2000 to 4.1% in 2010. I recently asked the Liaison Committee to consider establishing an ad hoc committee to examine the Government's work on aiding SMEs to export their goods and services, a committee that I am delighted to say has now been formed and is being chaired by my noble friend Lord Cope. I hope that this committee is able to bring about a series of suggestions to help our SMEs reach new markets. Unfortunately, while many of our large firms find it easy to transfer from domestic sales into exporting, that situation is very different for small businesses. Those SMEs which do not export often start doing so because of fortune rather than any strategic priority; and they tend to export to familiar markets, such as the eurozone, rather than high-growth markets such as India, China and, in the next 10 years, Africa. If we can reverse these trends, the effect on the UK’s economy will be positive for many years to come.
I do not wish to prejudge what the committee will find in its report, but it is vital that we review the diplomatic support that our companies receive overseas. The Government have in the past indicated a preference for more businessmen to be involved in our diplomatic relations, and this would be a welcome move to help prioritise growth. I also feel that we can be more proactive with certain countries and regions. For example, Britain has had little or no diplomatic contact with the Chief Minister of Gujarat—economically the fastest growing state in India—yet our international competitors are regularly knocking at his door. We cannot afford to be left behind.
I hope that we get a chance to consider the transport and infrastructure needed to help SMEs export. Our competitors are increasing their airport capacities as new markets open, and so must we.
The Prime Minister said in the other place after the Queen's Speech that:
“We must revive the private sector, spread growth and jobs across the country and make sure that financial services truly serve the economy—not the other way around.—[Official Report, Commons, 9/5/12; col. 25.]
He said that the task of delivering rebalanced growth will be achieved most effectively by “swimming with the tide” to take advantage of the long-term domestic and global changes, particularly the rise of middle-class consumers in emerging markets, spurring a greater demand for our services. That is exactly right. The most important thing is to make sure that our actions match our rhetoric, and that we demonstrate that not only is Britain open for business, but that we are a nation that thrives on seeking out new economic opportunities.
It is often disheartening to read press coverage of businesses in Britain, as if profit were something to be avoided. I believe that this Government are demonstrating that not only do we welcome businesses, but we want to support them. The Government's growth strategy has the right aims and I hope that they are able to rise above the inevitable criticisms they will encounter as they make the right decisions to sail Britain into bluer, calmer and more prosperous waters. Through taking tough decisions in the short term, such as increasing competition in the finance sector, improving our infrastructure, boosting our exports to the high-growth markets of the future and reforming our planning system, we will give businesses, entrepreneurs and investors the confidence to grow our economy.
Lord Bhattacharyya
My Lords, I thank the noble Baroness, Lady Kramer, for securing this debate. I declare an interest as chairman of the Warwick Manufacturing Group.
In many ways, this debate is the companion to that led by my noble friend Lord Adonis last Thursday. If last week we focused on the human cost of recession, this debate is about building a better future. When discussing the Government’s growth strategy, the first question is, “Which strategy?”. There is the “cuts first” plan, which says that the key to growth is rapid deficit reduction. There is the “credit easing” plan, which prioritises lending money to the private sector, and there is the “deregulate for growth” plan, which argues that what limits growth is the inability to fire workers. What do these alleged growth plans have in common? They claim to offer a quick fix—just cut, lend or deregulate and things will be okay.
But the search for easy answers is the problem. For decades, the national hunger for a fast buck meant that long-standing industries were decimated. British expertise vanished and excellence in technology went overseas. We outsourced our industrial heritage and now we are paying the price. Most of the government policies will do nothing to change that.
However, I welcome one of the Government’s strategies for growth which emphasises infrastructure, investment, skills, R and D, construction and using procurement to drive growth. Sadly, it is known to us only thanks to a leaked letter from the Business Secretary. I am here not to bury Vince but to praise him. When the Business Secretary told the Prime Minister that Britain needs,
“a compelling vision of where the country is heading beyond sorting out the fiscal mess”,
and,
“a clear and confident message about how we will earn our living in future”,
he was absolutely right. But who is working on industrial policy for the long term? Who is arguing for creating a real British bank in order that there can be lending? Who has taken the risk to address these issues, even rightly criticising our record in the process? It is Ed Miliband and his team, led by Ed Balls and Chuka Umunna.
Therefore, a coalition for long-termism is forming. It must not be some temporary partisan alliance. No long-term agenda can succeed if it is based on party lines. It should extend from the work that the noble Lord, Lord Heseltine, is doing for the Business Secretary as regards the industrial policy review. My party is conducting the same type of thing. The first challenge is to sustain—not even to make it grow—the manufacturing share of our economy, which is just over 12% of GDP according to the latest figures. Manufacturing matters because it alone can provide capital investment, R and D and exports to drive sustainable growth. Manufacturing represents just over one-10th of our economy, but more than 70% of our business R and D, and 46% of our exports.
Manufacturing cannot be made to grow at the click of a button. You have to create a sustainable ecosystem, which takes skill. Real change is not about numbers and training schemes; it is about changing our whole culture, from companies to government to schools. It is not about spinning a new mantra for the Daily Mail every day. Germany and Japan already think long term—from Berufsabschluss to Senmon Gakko. We too must develop a skills system based on market need and not on getting people off the claimant count.
The same is true of infrastructure. We need not a few shovel-ready projects but a sustained programme of investment in transport, energy supply and the environment, so that suppliers can invest with confidence. In R and D, we must achieve critical mass in a few key technology areas and not spend a little all over the place. If low-carbon transport, digital technology, aerospace and energy are our priorities, we must commit to them from blue sky to shop floor.
Our research grants on internal combustion engines are a key element of the UK automotive sector. We currently fund basic research in an unco-ordinated way when we should keep a focus on low-carbon research. EPSRC spends £750 million a year. It is reasonable to ask how that fits with our national innovation priorities. This is not about questioning the Haldane principle but about clear strategic focus. As the Business Secretary said:
“Our actions are, frankly, rather piecemeal. There are lots of individual funding decisions that lack support in other policy areas, or are not followed through systematically”.
We need to bring together research funding, procurement, skills and the supply chain, and give our key industries a voice in each. These key sectors need oomph at the heart of government. The Automotive Council has made a big difference. It helps to develop common priorities for innovation, encourages investment, and links together the UK supply chain. Other sectors need the same support. The failures of the past mean an industrial strategy that is often criticised as picking winners, yet short-termism means that we create too many losers.
When manufacturing firms do not invest in capital, R and D or people, they discover their weakness far too late and collapse. Instead, we must create an environment in which long-term minded businesses prosper. For decades, British business has been gripped by a consultancy and fast-buck culture, which means that you cannot get long-term financing. Even if you can, our reward structure discourages investment. Then we find these low-investment, low-capital firms are mobile and can outsource jobs, and we can do nothing to prevent them leaving. We end up as a nation of nervous shopkeepers and insecure bank clerks.
We can change this—not by picking winners but by shaping sectors. Our focus must be on leading and creating markets. For example, investing in R and D is not about patents or exploiting intellectual property. The days when you could live off patents are over. Business R and D has become a purchase of the ability to create and shape new markets.
A focus on market leadership through innovation encourages sectors to work together to develop common expertise from large firms to start-ups. It becomes self-sustaining, a positive loop of investment, innovation, leadership and new markets. If government supports sectoral innovation, we can pull supply chains to the UK. This will increase profits and employment and encourage foreign investment. If we think long term, we can build, without extra spending, an economy built on investment not speculation—on sustainable value, not flash-in-the-pan booms.
A coalition for long-termism is emerging, but it is not yet in power. That would require the Government to deliver on the agenda in the Business Secretary’s letter. Unfortunately, so far the Government have paid only lip service to it: a press release here, a stunt there. I hope the Business Secretary can change that. If he cannot, we on this side of the House, led by Ed Miliband, will deliver on that long-term agenda. In either case, I am grateful for the work of the Business Secretary and only hope that he will soon find a more long-term alliance than the temporary coalition he is in today.
Lord Clement-Jones
My Lords, I am not going to be provoked. I thank my noble friend Lady Kramer for so expertly setting the scene for this debate. A question on so many people’s minds is, “Where is the growth going to come from?”. I want to focus on the sectors with great potential for growth for which the DCMS has prime responsibility—the creative industries and tourism—both of which, I am glad to say, received some attention in the Treasury’s plan for growth last year and in the update this March. On the way, I also want to touch on higher education.
First, however, I shall say a word about the Olympics. There is no doubt that this has been an extraordinary achievement for the ODA, LOCOG and all the others involved in the preparations for the London Olympics. We were, however, promised a business legacy for the Olympics and I wonder whether the Minister can explain why it appears that, through the IOC rules, some 75,000 businesses will be banned by their contracts for 12 years from declaring that they have acted as a supplier to the Olympics.
Although official breakdowns of statistics are not helpful in this area, the digital and creative industries combined seem to contribute at least 7% of UK GDP, and those employed in the creative and digital fields now number perhaps 2 million. We are pre-eminent in so many areas but there is very strong competition internationally in a number of areas in the sector. I therefore welcome the new tax relief for video games, animation and some TV production that was introduced in the last Budget. Perhaps we will see an improved tax relief for co-productions in next year’s Budget. It is also noticeable how much investment is being made in film and television production—and at this point I should say “of the legitimate variety”. I very much welcome the formation of Creative England to support film and television productions and the activities of Film London to attract film and TV production to London. The UK Film Council estimates inward investment in the film industry at nearly £1 billion per annum, but there is a great deal to be done to secure optimum growth in this sector.
Skills issues in the creative industries need to be properly tackled in each part of the sector to ensure a talent pipeline. Shortages of skilled workers are a particular problem for the creative industries. I welcome the co-ordinated approach adopted by the report of the Creative Industries Council Skillset Skills Group to the Creative Industries Council earlier this year. The report made many extremely useful recommendations, many of which essentially involve action by the industry itself. However, as the Creative Industries Council and government Ministers have strongly endorsed the report, what are the Government, in particular, doing to improve and mitigate further regulatory measures, particularly the regulatory framework for freelance training as part of the Red Tape Challenge? What are they doing to make sure that sector skills council roles are clarified and communicated?
I welcome the strategic partnership between Creative Skillset, the skills council for the creative industries, and Creative and Cultural Skills, which covers a different group of creative industries, but surely there is a strong case for merging the work of the two and ensuring that skills issues across the sector are tackled in a fully joined-up way. The Creative Industries Council report urges greater “synergy and exchange” between STEM subjects and the creative industries. What action are the Government taking to respond to the recommended changes in the curriculum? Does this tie in with their response to the Livingstone-Hope Next Gen review of skills in video games and visual effects?
We also need to recognise that our creativity, ideas and intellectual capital will increasingly drive our future prosperity. The place of intellectual property has never been more important to society or our economy. The report in 2010 by TERA Consultants estimated that 250,000 jobs are at risk if we fail to do anything further about copyright infringement by 2015. The film policy review carried out by the noble Lord, Lord Smith of Finsbury, contained important recommendations about copyright issues, including sanctions for the recording of films shown in cinemas and the important question of implementation of the Digital Economy Act. What is the Government’s response to that? If they are serious about the health of the creative sector, it seems extraordinary that we can only expect introduction of the initial obligations code under the Act in 2014.
Although the Hargreaves report commissioned by the Government has some good aspects it relies on very dubious figures for its economic impact assessment. It seems to assert that current copyright laws in this country are inhibiting innovation, that copyright reform will somehow deliver a massive increase in our creative industries’ output and that copyright exceptions will make Britain more attractive for overseas investors, and so creators’ rights in the UK should be weakened. By contrast, in the first report of the digital copyright exchange feasibility study, Richard Hooper has put his finger on the real issue: there are barriers to the exploitation and licensing of intellectual property rights where there is complexity of process in the organisations involved in establishing ownership of rights, and in some cases insufficient availability of repertoire under licence. It certainly appears that the majority of responses to Hargreaves, published last week, are more minded to take the Hooper approach. There are exciting prospects for a Britain with a digital copyright exchange in place becoming an international hub for rights clearance, if we can get HMRC to negotiate suitable double-taxation provisions.
Turning to higher education, as the UUK report Creating Prosperity at the end of last year made clear, our higher and further education sector makes a major contribution to the development of talent and skill for the creative economy. Some 16% of our students are engaged in courses relevant to the creative economy. Rather than trying to restrict access for foreign students through our visa system, we need to create more internships for overseas students in the creative industries and the arts. As so many have said, not least London First and the vice-chancellors of our universities, we need to exclude non-EU students from our permanent net migration figures, as so many other countries, such as the USA and Australia, are increasingly doing. I look forward to hearing what the noble Baroness, Lady Valentine, has to say on this subject. Perception about UK visa policy is hurting our message that we are open for business and welcome international students and visitors.
How good are we at promoting the quality and potential of these industries overseas? Do we have the right architecture? I welcome the activities carried out by UKTI, in particular the appointment of the new IP attachés. I also welcome the signs of increased co-ordination between Visit Britain, the Arts Council, UKTI and the British Council, but how does that fit in with the Creative Industries Marketing Strategy Board or the Creative Industries Council? Is the Intellectual Property Office involved? If not, surely it should be. I certainly welcome the creation in 2011 of London and Partners as a single promotional organisation for London.
There is also the important question of investment in our digital and creative industries, particularly for start-ups and SMEs, and I particularly welcome the commissioning of work by the Creative Industries Council on access to finance. Can the Minister indicate any conclusions from its report, which I believe was presented to the council on 12 June, and when it will be published? Much depends on how attractive we are as a location for investment. The stories that could be told in our regional cities—for example, Liverpool, Manchester and Birmingham—are good ones. I applaud the Tech City initiative and UKTI’s involvement in that.
I shall not talk about broadband, but that is absolutely crucial to the further development of our creative industries. Tourism, however, is the world's fastest growing activity and the UK has enormous advantages and attractions. Although tourism is acknowledged as the third largest industry sector, employing directly and indirectly some 3.6 million people, there is still a lack of adequate government appreciation of its potential. Symptomatic is the recent letter from the British ambassador to China addressed to the Home Secretary about his frustration over the lack of promotion of Britain as a tourist destination to the Chinese and the cost and complexity of visas for tourists.
We should be much more joined-up. Should there not be a Cabinet committee which joined together the strands of government policy? There are many other deregulation issues—I hope that I have made a contribution to that agenda with my Live Music Act—but we need to make sure that our tourism industry is unshackled by many of the regulations that afflict it.
Lord Bates
My Lords, I, too, congratulate my noble friend Lady Kramer on securing this debate and on the way in which she introduced it. Like her, I find it quite difficult to come back to work after that inspiring speech in Westminster Hall. I feel as though I have been walked up to the mountain top and then need to come back and start inspecting the sewers. However, the sewers in this case are pretty important, because they have to do with jobs, growth and matters of that nature.
I am pleased to be able to follow my noble friend Lord Clement-Jones, who put his finger on something—in fact, Aung San Suu Kyi also mentioned this; namely, how we are perceived internationally. When we berate ourselves for queues at Heathrow, let us remember that they are queues of people wanting to come in, not wanting to get out. Sometimes, we underestimate the attractiveness of this country around the world. When people of the eminence and experience of Sebastian Wood, the UK ambassador to Beijing, call the current strategy on visas self-defeating, we should all take a bit of notice.
When people come to this country to study, they are coming here not to rip us off or to claim benefits but to invest the thick end of £100,000 in the British economy and probably a lot more besides. Including students, who are effectively investors in Britain, in immigration numbers needs to be looked at very carefully, otherwise we will see pressure put on to reduce their number in the face of massive growth. UK universities have supplied some information and research showing that the number of international students will double in the next seven years from 3.7 million to 7 million. That is a huge market and we need to be at the table for it. The UK is home to four of the world’s top 10 universities. As the Government’s advertising campaign tells us, Britain is great, but we cannot say that we are open for business if, when people try to get here, they find that the door is shut.
The noble Lord, Lord Bhattacharyya, mentioned innovation. Let us consider that most of the people who come to this country and to our universities are often very highly skilled graduates, often in science and technology. That same information from UK universities suggested that 40% of teaching in science and technology in UK universities is undertaken by people who come here from overseas. Instead of allowing people two years’ postgraduate work experience to contribute to the UK economy, to set up businesses, to teach, to train and to innovate—which we desperately need—we have ended up changing the law so that we kick them out after three months. It seems crazy. We kick them out and probably send them to the United States, Germany or France, who of course welcome them with open arms. This is a high-class problem, because Britain is attractive. We recognise that there needs to be a public discourse on this. There is no doubt that in the country, and in the heat of battle during elections, immigration is an issue. However, people need to understand that there is a fundamental difference between those people who are coming to this country perhaps not with the best of intentions and those coming to invest and help create wealth and jobs. I very much endorse the remarks made there.
In many ways, that leads into the general comments that I will make. I had a conversation yesterday with an entrepreneur in the north-east called Graham Robb, who has a small business. He said, in a slightly flippant way, that he had taken on four new people over the past month. When I asked him to what he attributed this rapid growth in his business, he said that what was fantastic was that because of the jubilee and the Euro championships, suddenly debt, gloom and doom were off the TV and out of the newspapers, and people were starting to feel good about themselves. The minute that happens, they start to invest and trade. One of the most telling tables in the excellent briefing paper prepared by the House of Lords Library for this debate is the one on business confidence. When asked if they expected business to improve in the next year, 18% said yes, 29% said it would stay the same and 50% said it would get worse. When that is the perception of the people you are relying on to invest and go forward, you realise that you have a problem.
On the other hand, let us look at what engineering and manufacturing are doing. We are seeing some extraordinary performance there, with exports growing quite rapidly—in manufacturing as well, they are up 8%. I know from the north-east of England that we have record exports for the third quarter in a row and there is no sign of that trend abating. It is as if it is only going to gather pace. This is tremendous news. When EEF The Manufacturers’ Organisation was asked what it thinks the outlook is for the next 12 months, 70% of members have a positive outlook and believe they are going to invest in order to take advantage of the good future that is ahead of them. We need to seize on that, along with the other good things that are happening around the economy, and get behind them.
The UK is moving up the world competitiveness league table again. For the first time since 2007, we are now back in the top 10. That is what the world thinks of us and of British manufacturing. It is pretty popular around the world, which is important. If we want, we can tell young people coming out of school that they have no hope and no future, and that the world is going to hell in a handbasket, but that is not what is happening around the world. The Institute of Directors’ latest economic research predicts that the world economy will triple in size during the lifetime of the person leaving school now and that the size of the middle class will expand from 1.8 billion to 5 billion in 2030. It is not all doom and gloom. There is real momentum and real opportunity out there. However, if we are so beset with focusing on our weaknesses rather than actually heralding, championing and exploiting our strengths, such as education and tourism, we cannot take full advantage of it. My conclusion on the growth strategy is that, yes, all the fundamentals are in place. Of course we need to tackle the deficit, keep taxes down, deregulate, introduce and improve skills, and make it easier to set up businesses—all those things are fundamentally important. However, we also need our sales guys to get out there and promote the UK, and make sure for the people at home that when people want to come and invest in the UK, our doors are open and there is a welcome mat there waiting for them.
Baroness Liddell of Coatdyke
My Lords, I too, congratulate the noble Baroness, Lady Kramer, on obtaining this debate. It comes at an opportune time to allow us to explore a number of issues connected with Britain’s economic growth. She was right to draw attention to how many of us have spent most of this afternoon listening to Aung San Suu Kyi. That brings home to us, at the fag end of the parliamentary week, as we are back into humdrum work here in your Lordships’ Chamber, how much she would have valued the opportunity to have the democratic exchanges that take place within this Chamber.
I do not share the noble Baroness’s analysis of the global financial crisis. She seems to have forgotten that in 2010, the coalition Government inherited a situation where we were beginning to move into growth. Two years in, we are into a double-dip recession. However, I will not be hijacked down that route, because I want to take up a number of the issues raised by the noble Lords, Lord Clement-Jones and Lord Bates, in their excellent speeches.
I want to talk about an industry that employs 2.6 million people directly in 200,000 SMEs and contributes £115 billion a year to the UK, almost 9% of our GDP: the tourism industry. As the noble Lord, Lord Clement-Jones, pointed out, it is the third highest earner of foreign currency. It comes just behind chemicals and the financial services industry. One reason why I am interested in tourism—I should point out that I have a registered interest as a non-executive director of VisitBritain—is that I have had a lifelong interest in the regeneration of remote communities.
Tourism can get into the parts of the country that the rest of economic policy cannot reach. The impact of growth in tourism in turning round those economies is considerable. One benefit of tourism is that it can move fast. I saw it very dramatically a decade ago, at the height of foot and mouth disease, when, as the Secretary of State for Scotland, I saw that the rural areas of Scotland, particularly around the borders, were dramatically affected but the rest of Scotland was open for business. The tourism industry, under the excellent leadership at the time of Prince Philip, the Duke of Edinburgh, took the initiative to bring tourism to Britain. As a consequence, a catastrophe for the industry was averted. No other industry can move at that pace. I cannot think of any other industry that can address an economic crisis as rapidly. Too often, government policy has marginalised tourism. I welcome the references to it in the Government’s growth strategy; I just regret that the growth strategy came rather late in the day and has ignored 100 years of economic theory on how to grow yourself out of recession.
DCMS does a very good job of championing tourism, and I pay tribute to this Government, who have seized it more aggressively than other Governments—perhaps out of necessity—but I make my remarks more specifically to the Treasury and, in particular, the Home Office, because I want to take up some of the visa points raised by the noble Lords, Lord Clement-Jones and Lord Bates. We have an industry which is extremely competitive internationally; we remain seventh in the world for visitor numbers and visitor spend. Overseas visitors spend £18 billion a year and contribute £3 billion to the Exchequer. Given the sluggish growth that we have in this country, we should highlight those industries that can bring in spend and Exchequer revenue quickly.
UK net GDP growth has been extremely poor since January 2010, at 1.2%, but international tourism is more than twice that: 3% growth in visits and 8% of growth in spend, according to the ONS. If we are able to continue at that rate of growth up to 2020, tourism’s contribution to GDP is forecast to grow at 3.5%. That means 250,000 new jobs. If an entrepreneur knocked on David Cameron’s door and said, “I can bring you an industry that will create 250,000 new jobs”, David Cameron would snatch his hand off, yet there is a continual process of growth and development in tourism that, if helped, could create 250,000 new jobs, but we put significant barriers to growth in the way. I am tempted to go down the route of air passenger duty and the appalling situation with aviation policy, not least in relation to the slots that are available at Heathrow and the barriers to inbound travel from places like China—but I am not going to go there. Instead, I am going to take up something that the noble Lord, Lord Bates, said about the situation with China.
China is the fastest-growing market for inbound tourism for all of the major tourism economies in the world. In the past decade, we have seen a dramatic increase in the number of inbound tourists who have come from China. Chinese residents spent £72.6 billion on outward travel in 2011 alone. That puts China third in the UNWTO league for expenditure on foreign travel, and it is a 400% increase in a decade. France and Germany are in the top 10 for that spend. Where is Britain? We are down in the 20s. Some of that is down to the issue of slots at Heathrow, but some of it is down to the visa policy that this Government have adopted.
VisitBritain conducted a market research survey of 1,000 Chinese potential tourists. Two-thirds of them said that the visa process was the inhibiting factor in them coming to Britain. Sebastian Wood is not the kind of ambassador who throws his toys out of the pram at regular intervals—I should know; he was my boss at one point. However, he has allegedly drawn attention to this problem. We put obstacle after obstacle in their way. If you want a visa in China, for a start you have to fill in a form in English. Of course, many of us could do that in Mandarin and Cantonese. Secondly, you have to produce original documents such as your marriage certificate, proving your immigration status as well as your financial status and your travel plans, and you do not get them back until the visa is granted. These are important documents; think how twitchy we all feel when such documents are missing. I ask the Government to look imaginatively at how we can deal with this visa problem—America did it.
One of the reasons why France and Germany do so well is that they are Schengen countries. Why can we not give a visa to someone who has complied under the Schengen criteria and allow them to come to Britain when they come to Europe on the Schengen visa? This is common sense, not rocket science. If we can concentrate on making China see Britain as a welcoming place, there is an opportunity for much greater trade and investment.
The noble Lord, Lord Clement-Jones, and indeed the noble Lord, Lord Popat, referred to the fact that we want more investment in Britain and we want to see things tightened up between all the agencies that promote investment in this country. One of our most successful ventures at the moment is that, at long last, the Foreign Office, VisitBritain, UKTI and the British Council are working together. It is about the quality of life here in Britain and what an exciting place it is.
In conclusion, the Olympics are a fantastic showcase opportunity for Britain. We saw the extent of international interest in the Diamond Jubilee. Tourism this year may dip because, ironically, people may think that Britain is full, but this is a chance in a generation to sell British tourism around the world. Let us seize it. It will not cost a lot of money and it will not be complex but keep in mind those jobs, those 200,000 SMEs and the potential of 250,000 new jobs by 2020.
Baroness Sharp of Guildford
My Lords, I, too, thank my noble friend Lady Kramer for introducing so expertly this timely debate. In preparation, I went though a number of the documents that have been issued by BIS over the past couple of years or so. I was struck by the introduction that my right honourable friend the Secretary of State for Business, Innovation and Skills, Vince Cable, made to A Strategy for Sustainable Growth back in 2010. He said:
“The growth we need should be different from the past. Instead of relying on ever increasing household debts financing unaffordable consumption, we should look to greater business investment … We need to position ourselves to prosper through the transition to a greener economy. Our country should make more use of its scientific excellence, so that innovation becomes a motor for long term growth and change”.
In other words—and this was picked up by a number of speakers, notably my noble friend Lady Kramer and the noble Lord, Lord Bates—we need a shift from a consumption-led economy to one led by investment. As my noble friend Lady Kramer has said, there is great hope that we shall see this investment coming from the small and medium-sized enterprises that constitute such a considerable part of our economy. There is real frustration that all the efforts to increase money supply do not seem to reach that sector. We see it in the renewed efforts of the Chancellor in this past week to ensure that that money is targeted for small and medium-sized businesses.
However, as the noble Lord, Lord Bates, said, the problem is also one of confidence. To some extent, one can see that in what is happening at the moment. Britain is locked into what Keynes would have called the “classic liquidity trap”: we are increasing the money supply but it makes no difference. Until confidence among businesses changes—the “animal spirits”, as Keynes called them—we will not see this rising investment that we so badly need.
I find myself worried by what is proposed by the Opposition in terms of a reduction in VAT. It seems that their solution—to reduce the VAT and people will start spending money—is not correct. It just takes us back to an economy which is based on consumption, not on investment. It is vital that we see investment improved.
I will concentrate my remarks on two sectors that Vince Cable mentioned in his introduction: first, the transition to a greener economy and, secondly, making the most of our scientific excellence; on that, I will pick up the whole issue of skills. Mariana Mazzucato, who is now a professor at my former university home of the science policy research unit at the University of Sussex, has pointed out in relation to the eurozone crisis that, in many ways, the message and advice that other European countries ought to be getting is, “Do what the Germans do”, not just in terms of cutting back and austerity but in terms of mirroring how Germany has created its competitiveness. In an article in the Guardian on 17 May she wrote:
“German competitiveness is not due only to its lower unit labour costs (which are not low when welfare benefits are included), but to its strategic investments in research and development, vocational training, state investment banks that create ‘patient’ finance, and its recent emphasis on greening the economy. Similarly, the engineering group Siemens did not win a UK contract for fast green trains because of low wages, but because of its innovation investments, which have made it one of the most competitive companies in the world”.
It is not just in so far as its labour costs are low. It is also because its investment in innovation, and training its staff to use these investments, effectively means that its productivity is far higher than most EU countries, including the UK.
In some respects, one might say that the coalition Government are following this advice precisely. The green investment bank, which was launched last week, is in many respects a state investment bank, aimed at helping firms, particularly small and medium-sized businesses, make the transition into the green economy. This does not just mean photovoltaics and wind energy developments, which have been given so much publicity, but solid investments in better heating systems and insulation. Fifty per cent of the energy consumed in this country is consumed by domestic heating. It remains shaming that the average home in Sweden—a country with a much colder climate than ours—consumes only 25% of the energy used by the average British home. Investments in insulation, draught-proofing and double glazing remain among the best that we can make. They require no long-term planning and development, provide jobs in the hard-hit construction industry and can provide them now, not in three years’ time.
As my noble friend Lady Kramer indicated, we Liberal Democrats have for some time been urging a major programme of housebuilding. In Sweden, new homes use hardly any energy; they are energy-neutral. A major programme of new, affordable homes, built to modern standards, would improve our performance enormously. In the 1960s, when the population was increasing at a similar rate to the present one, the target was to build 300,000 homes a year, many of them in the social housing sector. Today, our target is 170,000 homes over five years—34,000 a year—and last year the number of affordable homes under construction fell to 15,698. The potential is there to use this period of recession to invest in a long-lasting asset that will increase general well-being and the benefits of which should last for a very long time. I can only hope that we will seize this opportunity, for it would appear be a win-win proposition.
I also want to talk about science and innovation. I applaud the ring-fencing of the science budget of £4.6 billion and the extra money that has gone into the research budget in the past 18 months. However, the 2010 spending review slashed capital expenditure in the science sector and, as the Campaign for Science and Engineering has exposed, left the sector as a whole £1.7 billion worse off in cash terms. Spending on science is not just money for research to underpin our science base. It simultaneously trains a cadre of scientists and technicians, who are essential if we as a nation are to pick up and use modern technologies to the full. That is precisely what underpins Siemens and German competitiveness.
I fear that while all eyes have been on undergraduate fees and their impact, we have given no thought to the postgraduate situation. Yet it is the availability of these highly trained and highly skilled workers that attracts high-value-added foreign investment, such as that in the pharmaceutical industry, and which—note the position of Pfizer—will leave us if we do not maintain the training of a large number of highly qualified people.
We may well be ring-fencing science in relation to other public expenditure but we ignore what is happening overseas. Figures for 2009 show that, at 1.8%, the UK spends a smaller proportion of its GDP on R and D than any other G7 nation except Italy, while the government spend of 0.17% is bottom of the G7 league table. Germany, the US and Japan are now up to 3%, while China is fast moving up the league tables, as others have noticed. If we are to meet the aspiration expressed in David Willetts’s speech in January—that Britain should be the best place in the world to do research—we need to increase our spend substantially.
I very much endorse what the noble Lord, Lord Bates, said about the visa issue. We are doing much harm to ourselves with our current visa arrangements, which discourage many postgraduate students from applying to do their work in Britain.
Baroness Valentine
I declare an interest as chief executive of London First, a not-for-profit business membership organisation. I start by adding my congratulations to the noble Baroness, Lady Kramer, on securing today's debate. It is timely, since finding ways of generating and sustaining growth is surely the central priority for the Government.
The Government have already taken some welcome steps. Last week the Chancellor announced further monetary stimulus—or plan A-plus, as some have described it—to support lending by banks to businesses and home owners. He also acknowledged the need to amend the Financial Policy Committee’s objective, so that it now balances the important aim of maintaining financial stability with enabling the banks to contribute to economic growth.
We all want to see the financial sector better regulated. The result will be that our banks are well supervised and stronger, and so more able to support the UK economy. Yet, however welcome these measures, we have to accept that the Government have limited room for manoeuvre. We therefore need to be both innovative in finding measures that can support growth and determined in rooting out policy barriers that stifle it.
Let me start with innovation. We are in a fiscal paradox. A combination of eurozone turmoil and determined action to cut the deficit means that the Government can borrow at very low rates. This is the ideal time to borrow to finance investment to support growth, yet some would argue that the Government can borrow at these low rates only because they are committed to borrowing less. I believe we can turn this contradiction to our benefit, with a twin-track strategy that continues with austerity measures while borrowing for investment in specific, identified, growth-enhancing infrastructure projects, provided that this borrowing and its associated activity are clearly ring-fenced. This approach would not rattle international investors. Rather, the reverse is true; these measures would enhance, rather than undermine, the credibility of the Government’s fiscal policy—and the IMF lent its support to this kind of approach a few weeks ago.
This investment should fall into two categories. The first is in areas where the Government need to finance and fund investment, typically in transport infrastructure. I wholly endorse the comments made by the noble Baroness, Lady Kramer, on the use of tax increment finance in this response. There are many projects across the country whose wider economic benefits have been assessed, and deliver the greatest returns; whose construction would stimulate demand in the short term; and whose operation would support economic growth in the medium and long term. These include the northern hub scheme to bring faster, more frequent rail services to the cities of the north; widening of the A11 in East Anglia; the upgrading and expansion of England’s motorway network; and in London the Tube upgrade programme, Crossrail 2 and new river crossings.
The second is where Government can stimulate new or additional economically productive investment in privately provided infrastructure. For projects with long payback periods, such as in power generation, a relatively small commitment from government could provide the security that would make these projects commercially viable, and thus encourage private-sector finance. This can come in the form of pump-priming from government, long-term pricing commitments, or the removal of an element of risk. Realistically, this is the most likely prospect for developing cost-effective green technologies, for example.
The Government also have a role in encouraging economic regulators to move away from their short-term focus on price. This needs to be balanced with support for building capacity in the network, to meet the growth in demand that is already forecast, as opposed to overseeing a gradual decline and the associated stresses on the system. In this context, it is surely time for regulators to look more favourably on projects that have sat for too long on the drawing board. The recent threat of drought, for example, has brought home to us all the need to invest in the resilience of our water supply. Surely the lowest-hanging piece of fruit is new runway capacity in the south-east, where the private sector is ready to invest if only the Government would let it. I do not want to turn this debate into one on airport policy—the noble Baroness, Lady Kramer, would never forgive me—but I want to reiterate its importance. The UK desperately needs a growth policy which allows us to do business directly with the largest emerging market economies, and that must include direct flights to and from London.
I turn to what I have described as the policy barriers to growth. By this I mean the various ways in which public policy acts as a brake on the private sector investing. As the air capacity issue illustrates, overturning some barriers will require political courage in the face of legitimate and loud opposition—no one should underestimate that challenge—but others can be tackled through politically uncontroversial measures. There are many areas in which there appears to be something of a mismatch between the Government’s declared goals and the policies they have adopted, or the way in which they are implemented. I am sure that some will be raised by colleagues during this debate but as an example I will focus on one critical area—getting into this country to work, study or invest. In so doing, I will continue the theme initiated by the noble Lord, Lord Clement-Jones, and continued by the noble Lord, Lord Bates, and the noble Baroness, Lady Liddell.
The Home Secretary this week criticised businesses that complained about the Government’s immigration caps for “sending a negative message” about Britain. The message that the Government would like to send is that Britain is open for business, but the one being heard by many of those we want to attract is, “Please go somewhere else”. Taking education as an example, a recent survey by the National Union of Students found that 65% of international students would not recommend, or are unsure whether they would recommend, the UK as a place to study as a direct result of government policy. International students could bring income to our universities and acquire an understanding and, I hope, affection for Britain which would stand us well in the future. Our response is to show them the door as soon as they have collected their exam results. Other countries such as Australia encourage them by allowing them to work for a short period after graduation. Abolishing the straightforward post-study work route which allowed non-EU students to work for up to two years after graduation is a penny-wise, pound-foolish move.
In tourism, our cumbersome, expensive and time-consuming visa process costs us substantial potential income. Fewer than 5% of Chinese visitors to Europe come to the UK. Why would they, when they can visit 26 other countries on just one visa, while we make them jump through hoops for one that allows access to the UK only? We need consistency at our borders. For arriving visitors from outside the EU to have to queue for two or three hours at immigration, even if once only, is no way to welcome them or to get repeat business. There is no trade-off between secure borders and the speedy processing of arriving visitors; all that is required is to have enough border force staff on duty in the right places at busy times. In a world of often tough policy choices, this surely is a simple, quick win.
To conclude, at a time when we need the private sector to deliver growth, we need a laser-like focus on the barriers that thwart it, complemented by action to stimulate investment. The Government’s realisation that we need a plan A-plus is welcome; I suggest that we add a few more pluses over the coming months.
Lord Haskel
My Lords, I agree with the noble Baroness, Lady Kramer, and my noble friend Lady Liddell that Aung San Suu Kyi is a hard act to follow. However, I would like to speak about something that she may recognise: namely, confidence. The noble Lord, Lord Bates, spoke about this in his very interesting remarks. The Government have missed out as regards confidence as the threat of a double recession and problems with the euro convinced them that there was no future—economic or political—in austerity alone. Sadly, the Government felt unable to adopt Labour’s five-point plan which comprised deferring or slowing down cutting the deficit, a temporary reduction in VAT and getting more young people into employment and training. In doing so the Government missed the fact that these actions would improve confidence by giving hope for the future. I do not agree with what the noble Baroness, Lady Sharp, said in that respect. It is the Government’s original policy of austerity alone that has contributed to this lack of confidence—a lack of confidence in the real economy, which is where the growth lies.
One reason for this failure is that we have a Government who think largely in terms of the financial sector. Money makes money. But you need the real economy, with goods and services that everyone who has been speaking in this debate has described, to create the money in the first place. This is where the growth will come from. This is where confidence is required. This is where we need to encourage and make positive sentiments, just as much as we need to in the financial markets. Yet this hardly features in the Government’s actions. What we have is a conventional pulling of financial levers—tight fiscal policy, loose monetary policy, and more or less quantitative easing. As the noble Lord, Lord Popat, said, this is not an ordinary crisis. I agree with him; and to help deal with it we all need to take every opportunity to build confidence to support and encourage the real economy.
I agree that Ministers talk about the march of the makers. They talk about the importance of competitiveness. Yes, the Plan for Growth laid out strategic aims, and the noble Baroness, Lady Kramer, told us about them; but when practical opportunities arise to create confidence, the Government do not take them. In fact, they do the opposite.
Let me give you examples that have been raised in your Lordships’ House. The noble Lord, Lord Clement-Jones, spoke about the Olympics. Twice the Government have been asked to take steps to relax the rules that the noble Lord complained about whereby British companies can use the Olympics as a shop window for their products. Twice the response has been what I can only call—with apologies to my noble and learned friends—a lawyer’s response, not a Minister’s response. Sure enough, only last week an article appeared in the Financial Times saying how this had been a blow to confidence because those companies felt they were,
“being left out in the cold”.
The noble Baroness, Lady Kramer, the noble Lord, Lord Popat, and others are urging companies to export. They are right. Indeed, we sit on a committee looking into this. There may be problems with the euro, but business in Europe goes on. Firms want to export to the EU, but are not sure how. Since January 2010, it has been a legal requirement for each member state to have a single point of contact in English on the internet for the purposes of opening up their markets. However, this is not working, and the matter has been raised in your Lordships’ House. It has been raised by the Federation of Small Businesses but nothing has happened. The result has been that people say, “Why should I bother?”. Confidence therefore ebbs away.
The Government’s most recent low-interest lending scheme is designed to spur the banks to new lending. I agree on this occasion with the noble Baroness, Lady Sharp, that clearly the money from quantitative easing and previous schemes is staying in the financial sector. It is not reaching the real economy. Project Merlin is not working and there is a great deal of wringing of hands about this. What do the Government do? Why, they offer more of the same with promises that this time it will work. The noble Baroness, Lady Valentine, described this. Is this going to build up confidence and encourage the real economy to produce the growth that we all so desperately need? It is beginning to look as if this is a Government who never lose an opportunity to miss an opportunity to give confidence to the real economy. These are examples that we have discussed in your Lordships’ House, but there are many more examples elsewhere.
As well as taking these opportunities to build confidence, how else can the Government temper austerity with encouragement and build confidence? Certainly, infrastructure projects, about which many noble Lords have spoken, must help. We are all aware of capacity restraints, shortages and things that need replacing. However, to build confidence, it is also essential to understand what is happening in British business and industry, and then we can build on our strengths.
There are very few large British-owned industrial companies any more, and they have been shedding workers. What we do have is a large number of clever, lively, innovative and enterprising companies that specialise in selling their products, ideas and services to narrow markets—markets which very often they themselves have discovered and shaped, as my noble friend Lord Bhattacharyya described, and which often turn out to be large because we live in an age of global markets. All the data show that these companies are accounting for a larger and larger share of our economy, and they have been the ones taking on people. For example, Formula 1 may be a very narrow area of activity but the spin-off businesses, such as those producing rain-sensing wipers or the sensors that tell the pit about the driver’s physiology, have become worldwide businesses. The growing trend of mass customisation exactly suits this kind of business. Additive manufacturing is becoming a destructive technology in the same way that music databases on the internet are now closing down record shops. We are good at this sort of thing.
Nowadays, these companies often work in groups and clusters, supporting each other, to reduce risk and share knowledge. Business has become much more permeable, especially in the digital world which the noble Lord, Lord Clement-Jones, described. If the Government want to bring about growth and competitiveness early, these are the kinds of businesses they have to support and encourage. The Government can create confidence by championing their products, services and way of business, not by neglecting them. Ministers do not have to take it from me. The Government are well aware of what is going on. Each government department has a scientific adviser who must know about these products and services. Foresight, the Government’s own horizon-scanning service, has and is studying all this and is well aware of what is going on, as is the Technology Strategy Board.
As my noble friend Lord Bhattacharyya explained, our skills and education system need radical improvement, as does our infrastructure and financial system. We have to get 1 million people aged under 24 back into work, and, yes, our industrial base is too narrow, but that takes time. That is for tomorrow and the next day, but today we have to show a sense of urgency and deal with this unusual crisis. We have to find growth by showing support and encouragement, and by building confidence where our strengths lie; then tomorrow we can deal with the rest.
Lord Shipley
My Lords, I, too, thank my noble friend Lady Kramer for initiating this debate. I think it is true that the UK is weathering the debt crisis better than many countries, and we seem to understand why we have so much debt and what needs to be done to reduce it. Our problem is that, in addressing the public deficit and personal debt, growth has stalled. As the noble Lord, Lord Haskel, pointed out, confidence is poor, so people hold cash to protect themselves against instability and uncertainty. As they do that, banks repair balance sheets, businesses hold cash amounting to some £700 billion and individuals reduce their borrowing and try to save more. That is now leading to too much cash doing too little and simply earning low returns in interest. Meanwhile, unemployment is high—particularly youth unemployment—borrowing can be hard even for good business proposals and we continue to build too few homes.
As my noble friend Lady Kramer pointed out, the Government have given leadership through their growth initiatives and in their recent boost last week to high-street lending. We all need to respond to restore confidence and thereby generate jobs. Can more of those with money to spare be persuaded to spend some of it on services, employing, for example, a tradesperson who may be having a tough time getting work? That could make a difference and prevent someone having to cease trading and ending up on state benefits. Can we deliver an urgent boost in housing? We are not building enough new homes; the construction industry has declined by more than 4% in the latest period. There is an acute shortage of most kinds of properties but particularly of affordable, social housing, as the number of people renting rises. I can see no alternative to a major government injection of cash to provide the necessary gap finance to get homes under construction. I hope that the Government will urgently consider addressing this issue because tackling it will drive growth and employment as well as build confidence and homes.
There is also an important point about governance in that I believe there is a direct relationship between local empowerment and local growth. In England, government offices and regional development agencies have disappeared to be replaced by local authorities and local enterprise partnerships. These new structures are bedding in and I am confident that they will build on the successes of the RDAs.
Crucial to this further success is tax-increment financing, which permits borrowing against future business rate income. I agree with the noble Baronesses, Lady Kramer and Lady Valentine, about the importance of tax-increment financing—TIF—in generating growth, because England's major urban areas are suffering from a lack of demand which impacts directly on national performance. Spending and borrowing are being driven down by low confidence, restricting business growth. The recent and welcome moves to increase credit need to be backed by further measures to stimulate demand. Access to borrowing needs to be matched by the ability and confidence to repay that borrowing.
Infrastructure investment creates jobs, confidence and a high-ratio return. With low availability of public finance, TIF is widely recognised as a critical tool in delivering such investment and stimulus. Although the Government have created the means for TIF to operate through the Local Government Finance Bill, they have limited its potential effectiveness with their proposed resets, which make it difficult for local authorities to secure the level of return they need and will in turn reduce their ability to invest. The Government need to be more confident about local government’s ability to manage risk and make robust decisions.
By comparison, Scotland passed a Bill under devolved powers in December 2010 to allow six TIF schemes to run. Scotland looked first at which projects had real merit and then decided what to fund. Although some Scottish schemes are not yet fully resolved, that was a sound principle—to find the growth opportunities and then to allocate the funds. Some £500 million of public finance is now committed, attracting £2.5 billion from the private sector. I feel that England can learn from Scotland on this as it seems to have found a sensible way of proceeding. Many potential TIF proposals in England seek to rebalance the economy by stimulating developing industries such as biotech and high-tech manufacturing, resulting in long-term growth in high-productivity sectors which benefit the national economy. Longer-term pay-back periods may often be necessary to deliver that.
As I understand it, the borrowing by local authorities for enterprise zones announced a little while ago may also be treated more favourably than TIF and will not count against the public expenditure control framework, whereas TIF will. That implies a choice of accounting treatment, which I find confusing. I also wonder whether it would be welcomed by CIPFA.
The Association of British Chambers of Commerce, the British Property Federation, London First, the Centre for Cities, Core Cities, the GLA, the LGA, London Councils, the British Council of Shopping Centres and many individual private sector companies have all called for a much bolder approach to TIF because it is a mechanism that businesses think will help them grow. I very much hope that, during the passage of the Local Government Finance Bill, the Government will be able to respond to the potential that TIF projects offer.
That brings me to transport. I have never understood why the UK does not have a strategic transport plan. We seem to lack an airports plan, a road strategy and a plan for rail. That is not a new problem—it has been the case for too many years. The result is that too much infrastructure investment has been short term in its thinking, with a quick payback period in economic terms. It is not designed to rebalance the UK economy in the longer term. We should remember that private sector investment follows government decisions on infrastructure investment. Thus, HS2, which I support, will define for the private sector, because of its route, where firms should think of investing. It really matters what the Government say and where they think public investment should be placed.
To rebalance the UK economy requires a boldness and confidence about the long-term of transport infrastructure investment benefits to the economy; hence the need for dualling the A1 in Northumberland, improving rolling stock on regional rail services and delivering congestion relief through roads investment rather than having the Highways Agency simply put barriers in the way of development and growth by objecting to developments proposed on the grounds of future road capacity, as happens far too often.
Several parts of the UK suffer from low levels of transport infrastructure investment and their potential for growth is more limited as a result. The Government have the opportunity, two years in, to do something about that and to move from short-term decision-making to a clear long-term strategy which informs their investment and that of the private sector.
Lord Paul
My Lords, I, too, commend the noble Baroness, Lady Kramer, for securing and initiating this timely debate. I declare an interest as the chairman of Caparo Group, an industrial manufacturing company. While we appreciate the efforts made by the Government to formulate a strategy for growth, the manufacturing industry has seen little progress despite much talk. Many of those involved in UK manufacturing sometimes wonder whether the Government have a strategy for growth, given their enthusiasm for austerity. It is a tribute to the continuing efforts of the workforce and management of British manufacturing that so much has been achieved in the face of economic adversity—our car industry is a shining example. Yet, my overall sense is that this cornerstone of our economy and our future has been neglected in Britain for far too long.
That must now change if we are to reassure those involved in the manufacturing industry of their worth and ensure that our most able engineering graduates are not tempted away by the bright lights of the City and the financial markets. Manufacturing is still a solid activity providing stable jobs and long-term careers that can embrace the latest thinking in design and technology. Furthermore, it is vital that a country such as Britain has a strong manufacturing sector for strategic as well as economic reasons. We therefore need to keep manufacturers busy.
Two of the largest sectors of demand for UK manufactured products are the public sector and exports, particularly to the EU. The Government expect private sector export-led growth to offset public sector austerity and spearhead a recovery. Yet what has happened? Manufacturers that have worked for years to achieve world-class competitive standards for the UK now face not only a dramatically weakened eurozone, but a strong pound. Profitable exports to continental Europe are thin on the ground. By adopting policies that will increase real demand for UK manufactured products, the Government can enable UK manufacturing to play a full part in leading an economic recovery.
The cuts in the new infrastructure projects for roads, schools and hospitals of recent years cannot be quickly reversed. Recent moves to restart many of these projects, although welcome, will take too long in the planning process to be of much help in getting the economy growing again in the near term. Instead, the Government should focus on the backlog of infrastructure repairs and maintenance. This would also engage the severely depressed construction sector in a streamlined and accelerated tendering process to rapidly generate jobs with manufacturers and contractors.
A keystone of recent government strategy has been quantitative easing by the Bank of England. While it may have aided money supply problems—some people of course have questioned this—it has backfired on British business. Quantitative easing has helped to artificially depress UK government gilt yields—the rate which the Government have to pay to borrow money—and they are now at their lowest level for more than 300 years.
That may seem like a good thing, so why is it a problem for business? Indeed, it is a good thing for the wider economy. However, the problem is that the same rate is also used to calculate today’s cost of future pension promises. The lower the gilt yield, the bigger the liability that is calculated. Extremely depressed gilt rates have hugely increased pension scheme liabilities and the deficits of many UK companies. According to the Government’s Pension Protection Fund, more than 85% of the 6,432 private sector pension schemes in the Pension Protection Fund index were in deficit at the end of May to the tune of £312 billion. Many of those schemes are supported by manufacturers.
However, only a year ago, less than 65% of those schemes were in deficit, with a much more modest total of £25 billion. Despite assets increasing by £41 billion, liabilities have risen by a massive £329 billion over the year. This has placed UK companies under increasing pressure to fund artificial deficits at the expense of real investment in growing their business. If business cannot invest and thrive, who will be left to pay the pensions? With the way in which pension liabilities are increasing, many manufacturers cannot help wondering whether their business is a pension fund with a manufacturing company bolted on instead of the other way around—almost the story of the tail wagging the dog.
Surely that cannot have been the intended effect of the quantitative easing strategy. In any event, let us take a longer-term view on evaluation of pension liabilities that matches the longer-term nature of the pension commitment. This would allow businesses the stability to build robust plans to meet their pension obligations to the benefit of all, rather than the highly volatile and disruptive approach that currently prevails and has been a competitive drag on the UK economy for far too long.
I would, however, like to congratulate the Chancellor and the Governor of the Bank of England on their recent initiative to provide funding for business through further support for bank lending. As the Government know well, small and medium-sized businesses have suffered for far too long from a lack of adequate sources of capital, which I am sure has been a contributory factor to the decline in manufacturing in this country over the past 40 years. We have of course seen initiatives in the past which, despite good intentions, failed to help those who were targeted. This time it will succeed only if the Government ensure that industry receives the funding it needs. If the current policies and programmes fail, this country will continue to lose its place in the global economic hierarchy. That is why I urge the Government to take a more realistic approach to economic growth and the sectors that can contribute to it.
Lord Stoneham of Droxford
My Lords, the essential task and purpose of the coalition is to reduce the government deficit and restore growth. The nature of our partisan politics exaggerates the differences between the Government and the Opposition. Divisions also lead us to overlook what the real dividing lines and problems are. The biggest problem is that the big drivers of the economy between 2000 and 2009 were private borrowing and public spending. Tim Morgan in a recent publication The Quest for Change and Renewal shows that growth in construction, real estate and finance sectors was 42% and growth in health, education and public administration was 28% while the rest of the economy was languishing at -5%, and the real output from manufacturing was plunging by 26% to remain at 12% of GDP.
This suggests that a huge proportion of the economy is currently incapable of growth due to the overdependence on sectors relying on private borrowing and public spending. It is not surprising that we are having difficulties finding a way out. When combined with the huge explosion of private household debt, which individuals are now rebalancing as precautionary motives take hold, it is not surprising that growth remains illusory. There are no short-term fixes.
I want to address my remarks to the importance of the housing sector to restoring growth, and I declare my interest as chair of Housing21. Housing is a great driver of growth. One new house adds at least one new job in construction and two-and-a-half to three jobs with all the associated purchases in the economy. Twenty per cent of the output of housing is sourced through manufacturing. One of the great disappointments of the previous Government is that, despite the boom they created, only 233,000 houses were being built at the top of the boom, and the number has now fallen to below 100,000.
Housing is very cyclical. As demand rises, it soon reaches supply constraints, not just land, but the capacity of the industry to build quickly and cheaply enough. We need to improve capacity. This is a long-term, not short-term, task. A recession and its economic difficulties are often the best time to achieve change in business and to prepare businesses for the future. No good will come if we simply cut back capacity by reducing cost in the short term. Housing has a huge impact on the wider economy and our social objectives. The noble Lord, Lord Best, my friend and colleague in the housing sector, always uses the example of building 100,000 retirement homes. This not only enables 150,000 people to move to more suitable accommodation, but assists 350,000 people to move to the larger accommodation that is released by those moves, and there are associated benefits in savings on health and social spending and in family morale, not to ignore the economic spending as new homes are set up.
There is growing awareness of the importance of housing in the recovery from the previous equivalent economic catastrophe between 1929 and 1932. Recently this has been highlighted in a CentreForum publication by Nick Crafts and in a speech earlier this week by Vince Cable. Those of us brought up on Keynesian teaching all assumed that recovery at that time came from New Deal economics and rearmament. No it did not. They had a devaluation of 25%, which helped, as now. They followed an orthodox fiscal policy of getting the deficit down. Debt at that time was 180% of GDP, and the servicing costs of that debt were 8% of GDP against 3% now. They followed a policy of cheap money. Interest rates fell from 10% to 1%. The only real difference in the 1930s was that then there was no banking crisis and no credit crunch. In addition, there was a network of mutual building societies and locally facing banks ready to fund mortgages at low interest rates. The Government remained in fiscal balance from 1929 throughout the 1930s and from 1932 the economy started to grow by 3% per annum until the end of the decade, and one of the drivers of that was the doubling of housing development to 300,000 houses a year using cheap money.
What can the Government learn from this and what can they do? There are three lessons and five actions. Institutions must start to lend again so that housing borrowers can take advantage of low rates. Confidence has to be rebuilt. A continuing expectation of low rates is essential to the private sector but also important to housing associations and councils. The role of the state, both nationally and locally, must be in partnership with the private sector to incentivise and indeed leverage recovery using the strengths of its own balance sheets without necessarily adding to the deficit.
Turning to the actions required, housing strategy must encompass all forms of housing and not be preoccupied with owner-occupation, as important as that is. There is a huge need for more private rented, affordable and social housing. Partnership activity between the sectors lowers costs and risks and enables flexibility at the margins when houses that cannot be sold can be rented or used for social housing. Keeping housing in silos encourages social apartheid and raises the cost of housing provision. Mixed developments help cross-subsidisation of social housing.
The Government should consider using quantitative easing measures to directly benefit housing development rather than simply improving the balance sheets of banks. A 1% easing of interest rates could lower the cost of financing housing by 20% to 25%, which is very significant over a 30-year repayment period. It could also reduce the need for subsidising social housing directly. Housing associations are already forsaking banks for bond issues to finance their developments. Examining new sources of funding could facilitate more development.
Not enough progress has been made, despite promises that it was going to be, in sourcing pension funds and institutions looking for suitable long-term investment providing real returns, particularly in private rented housing. Certainty on rent policy and even the development of government guarantees would be better than direct government investment. A whole series of government schemes already provides very significant funding: the Growing Places Fund for infrastructure; Get Britain Building for development finance; freeing up public sector land initiatives; the New Homes Bonus. We have to push on these but we must be prepared to consider that we might have to spend £1 billion to produce 40,000 to 50,000 homes if all else fails.
Finally, as I said in the housing strategy debate I initiated earlier this year, the Government need to be ambitious. There needs to be a housing tsar in government to galvanise the private, public and voluntary sectors to drive these policies and to raise our sights from building 100,000 homes this year—if we are lucky—to over 200,000 in 2015.
I always thought it was that great liberal Conservative Harold Macmillan who broke the 300,000 homes ceiling in the 1950s. Actually it was done in the 1930s and, if I dare to say so, it was probably one of the reasons why that one-nation Conservative Stanley Baldwin formed the Government after 1935, despite the great crash in 1929.
Baroness Royall of Blaisdon
My Lords, I, too, am grateful to the noble Baroness, Lady Kramer, for allowing us to debate the vital issue of growth this afternoon. There is a link between growth and democracy, about which Aung Sang Suu Kyi spoke so powerfully this afternoon. Democracy is frail and it is best nourished by participation in our democratic system, but that requires people to have hope and confidence in the future, including their own economic future. Where hope is lost, where confidence in our system is undermined, fear and extremism take hold. I know that all noble Lords in the Chamber this afternoon will strive to ensure that that does not happen.
The noble Baroness has always given great importance to growth. Indeed, in her maiden speech as Member for Richmond Park, she spoke powerfully about the need,
“to reconcile the importance of environment and sustainability with economic development, prosperity and growth”.—[Official Report, Commons, 23/5/05; col. 473.]
From these Benches, despite what has been said this afternoon, it would appear difficult to reconcile this view with being a member of a coalition Government who are responsible for an economy that has not grown in the year and half since the spending review. One might say that it is a case of “Kramer vs. Kramer”.
From outside government, it is rather difficult to detect any co-ordinated growth strategy. To outside observers, including the CBI, there was little or nothing in the Queen’s Speech. It represents a waste of a parliamentary Session when industry and businesses large and small are crying out for a strategy which will return our country to a healthy rate of economic growth as soon as possible. Despite what has been said, I remind noble Lords that when my Government left power after a tumultuous global financial crisis, George Osborne inherited an economy that was growing. Unemployment was falling. Borrowing was below expectations—£20 billion lower in our last year of government than forecast. Yes, the deficit did, and does, have to be dealt with, but not with such speed. It is thanks to wrong decisions that focused on austerity rather than growth that we have ended up in a double-dip recession.
Growth is the necessary condition for meeting the aspirations of our citizens, providing employment as well as hope, and for funding the public services on which we all rely. Rather than pursing a growth strategy, this coalition Government have chosen fear over hope. They have focused on a policy of austerity that is not working here and is not working in the rest of Europe. In the very short time since his election, President Hollande has brought about a change in discussions in the European Union so that even the Prime Minister is now talking with his European colleagues, although he is not translating words into action. These Benches certainly agreed with President Hollande when he recently said that growth was a condition to meet deficit targets and that it was important to have policies that stimulate growth. I hope that at the European summit next week his influence will be strong.
It is true that there is growth in some sectors—for example, the automotive industry, which is thriving—and I celebrate that, especially when they invest in skills, training and R&D. They are providing sustainable growth in which their profits rise as a result of investment and innovation, not through speculation. My noble friend Lord Bhattacharyya was right to focus on manufacturing and to say that so much more could be done if there were an integrated approach. My party believes that there is a role for intelligent government intervention to stimulate greater innovation, maintain infrastructure and ensure that R&D is strengthened.
The success of major industries is vital also for the SMEs which make up their supply chain. I am told that 99.7% of all businesses in the EU are SMEs, which seems a staggering figure. Our own 4.5 million SMEs employ about 14 million people, accounting for almost half of private sector turnover. SMEs are the foundations of our economy, our community and our country, but, at the moment, those foundations must feel a bit shaky. Some are in danger of crumbling, desperate for an injection of confidence and hope, perhaps crying out for an industrial strategy which would deliver for SMEs as well as for large enterprises. They are worried that UK plc is getting left behind in the global race for the future. It is no surprise that, according to the SME Finance Monitor, the main barrier to future borrowing by SMEs is the economic climate, with 43% of would-be seekers saying that the effect of the economic climate will hold them back from seeking the finance to expand and grow.
I met representatives from the Genesis Initiative just yesterday and was bowled over by the expertise, experience and ideas around the table—these are huge strengths that must be exploited—but I was also acutely conscious of frustrations about missed opportunities. They need a supportive Government with vision and a long-term growth strategy that takes into account the long-term needs of industry and businesses large and small.
The noble Lord, Lord Popat, mentioned red tape, but no one yesterday mentioned it. I was interested to read in the Economist that a recent GE Capital study found that four of the top 10 challenges facing German and French firms are related to regulation, compared with just one in Britain—that is not to say that it does not have to be dealt with, but it is an interesting finding. The same study says that the main challenge for British firms is getting workers with the right skills. It also mentions the high cost of housing when companies try to attract skilled workers. On skills, I would ask the Minister how he thinks that Mr Gove's curriculum changes, which have a total focus on academic subjects rather than any focus on vocational subjects, are going to help. They will force children into a narrow education when we should be nurturing young entrepreneurial flair.
Many noble Lords, especially Liberal Democrats, have suggested that the Government are not putting enough money into building new homes. The noble Lord, Lord Storey, had some interesting ideas. As he mentioned, every house built represents two and a half years of work for one person, yet jobs in our construction sector are still contracting. An excellent IPPR report said today that Britain is in the midst of the biggest housing crisis in a generation. Taking action now to deal with the problem, which afflicts the lives of millions, would indeed stimulate growth. I agree that my own Government did not build enough houses, but there are certainly not enough houses being built at the moment.
I also ask the Minister why more is not being done in these difficult times to enable SMEs to take advantage of the bidding for contracts inside and outside the European Union. German, French and Italian SMEs have much more exposure to markets outside the EU than their British counterparts and I suspect that they have more government support.
We also have the benefit of the Commonwealth, whose potential we should assist SMEs in exploiting. The green investment bank is a fine initiative, with which I agree, but why is there no real discussion or action relating to a national infrastructure bank? Like many noble Lords, I wonder why more is not being done to promote investment in infrastructure, which is a key component for successful business and industry, and is a motor for growth; not to mention the employment that it provides. Unemployment remains a scourge in this country and the wider world, which is why the G20 summit was so important. However, the leadership needed to provide a global plan for jobs and growth appears to have been lacking.
I welcome the fall in unemployment figures announced this week, but even the FT is today talking of future increases, along with the chambers of commerce. Many of the people who are now taking part-time jobs are doing so because they could not get a full-time job. Of course, the increase in the number of manufacturing jobs is good news, but so much more needs to be done. Unemployment for 2.6 million people, including over 1 million young people, and fear of unemployment for millions more means that not only do people not pay tax and government borrowings consequently rise but consumers do not have the confidence to spend. The few are still spending; the many are not. I was horrified to learn that two new food banks open every week and that we have children who are in such poverty that nearly half of teachers have taken food in for their pupils. I am not critical of food banks—far from it, they fulfil a desperate need—but I am ashamed that in the 21st century there is a need for food banks in our country.
The Government clearly have a responsibility to implement policies that stimulate growth in the short term. As my noble friend Lord Wood of Anfield said in an earlier debate,
“we need to move on beyond the rather stale polarity of laissez-faire on the one hand and the demonisation of old-style corporatist industrial policy on the other, to work out not whether but how a Government can provide secure foundations for long-term growth”.—[Official Report, 31/3/11; col. 1359.]
That is why Sir George Cox, as noble Lords will know, has agreed to carry out an independent review, commissioned by my right honourable friend Ed Miliband, into the impact of short-termism on business. Businesses need to be able to take a more long-term view if we are to develop an economy that works for working people and competes with countries where longer-term planning is taken for granted. Sir George is issuing a call for evidence and, in view of the expertise in this Chamber, I very much hope that noble Lords will respond.
Having said that, what we need is action now. Many noble Lords have mentioned the fact that last week the Governor of the Bank of England, understanding the need for urgent action to sustain our economy, announced the funding-for-lending initiative. Of course, this is both welcome and necessary but will only work if the demand is there and small businesses have the confidence in our economy and the growth of our economy to borrow. At the moment, I do not think that confidence is there.
Confidence demands action and unless action is taken that enables businesses to grow and stimulate the economy, thereby giving people hope and jobs, we will not succeed in getting the deficit down. For the present and future well-being of our country, it is imperative to restore confidence and growth but at the same time to ensure that the proceeds of growth are shared by the many not the few. That is the challenge. To date, the coalition—the Liberal Democrats as well as the Conservatives—has failed to meet that challenge and it is therefore failing the hard-working people of this country.
Lord De Mauley
My Lords, I start by thanking my noble friend Lady Kramer for initiating this debate and noble Lords on all sides for participating and for some important, helpful and often creative ideas. Even if I do not have time to touch on all those ideas specifically this evening, I will, I assure noble Lords, take all of them back to the respective government departments.
As underlined in my noble friend’s opening speech, the Government’s overriding priority is to return the United Kingdom to strong, sustainable and balanced growth. There are three parts to our strategy to achieve that. The first two are focused on dealing with the challenges we face now: sustained deficit reduction to deal with the record deficit we inherited; and monetary activism to provide immediate stimulus to the economy through credit easing, quantitative easing and the recently announced liquidity and funding for new bank lending. The third part of our strategy focuses on dealing with the challenges of the future: promoting long-term growth by accelerating supply-side reforms that will enable United Kingdom businesses to develop and grow.
I will deal with each of those in turn, along with the points that have been raised. First, I turn to the immediate challenges. As I think no one would dispute, we are living in difficult economic times. We are recovering from the biggest financial and debt crisis of our lifetimes. If one thing is clear, it is that we cannot borrow our way out of a debt crisis. The actions we have taken to reduce the deficit and rebuild the economy have secured stability and positioned our country as a safe haven in an international debt storm, with interest rates near record lows, benefiting families, businesses and the taxpayer.
Our fiscal plan, supported by the IMF and the OECD, has helped us maintain our AAA credit rating and lowered interest rates to record lows, making business loans and family mortgages cheaper. Of course, as the noble Lord, Lord Paul, said, the eurozone crisis remains a challenge. As we have said before, Britain cannot cut itself off from what happens elsewhere. Problems in the euro area—our biggest trading partner—affect us too, but there are still encouraging signs: 630,000 private sector jobs have been created, more than outstripping public sector losses; manufacturing output, rightly referred to by the noble Lord, Lord Bhattacharyya, is up by more than 3 per cent; and exports outside the EU are up by nearly a quarter since this Government came to office in 2010.
Of course, we acknowledge that there is a long way to go. Building for the future, our Plan for Growth set out a wide-ranging, radical programme of economic reforms to help build a stronger, more balanced economy in the medium term. We have already made significant progress towards our four ambitions.
The first is to create the most competitive tax system in the G20: cutting corporation tax to 24% in April this year, and to 22% by April 2014; committing to lower the top rate of tax; and committing to make tax easier for small unincorporated businesses by introducing a new cash basis for calculating tax.
The second is to make the UK the best place in Europe to start, finance and grow a business. There has been £3 billion saved through deregulation; we have introduced the national loan guarantee scheme, with further support for credit to follow as the Chancellor and the governor announced last week; and we have increased the generosity of incentives for investment in early-stage businesses.
The third is to encourage investment and exports as a route to a more balanced economy—£1 billion has been invested in infrastructure to reduce congestion on the roads, for example—and setting an ambition to more than double UK exports to £1 trillion by 2020.
The fourth is to create a more educated workforce that is the most flexible in Europe. We created more than 450,000 new apprenticeships last year. We will continue to work closely with business to implement our reforms.
I turn to specific questions from noble Lords. My noble friends Lady Kramer, Lord Shipley and Lord Stoneham, among others, asked about housing. Each of my noble friends stressed the importance of housing to the Government’s growth strategy, and they are right. Over the past decade, housing construction, repairs and maintenance have accounted for an average of 3% of GDP. As noble Lords will be aware, the Government published our housing strategy last November. This included introducing the NewBuy mortgage indemnity scheme; launching a new £400 million Get Britain Building investment fund, which was subsequently increased to £550 million; and reinvigorating the right to buy by increasing the maximum discounts to £75,000. My noble friends urged us to go further, perhaps using guarantees, and I am grateful for their views. We have said that the Government are looking at further ways to use the principle of guarantees to boost the credit for housing and infrastructure, and that work is ongoing. We will set out our plans in due course.
My noble friends Lady Kramer and Lord Shipley and the noble Baroness, Lady Valentine, raised the matter of tax increment financing and made a number of specific points. As my noble friend Lady Kramer explained, from April 2013 all local authorities will be able to borrow against future business rates revenues, partly or wholly to fund the provision of infrastructure. That in turn should lead to an increase in business rates, which normally would be taken into account when resetting local authorities’ tariffs and top-ups. However, to allow long-term planning, the Government have set an aspiration to allow 10 years before that reset for TIF. While I accept that that may not be long enough to allow local authorities to finance big-ticket projects, it is another tool that local authorities can use to promote growth in their area and could kick-start many small projects that are, as we well know, ready to go.
My noble friend also mentioned TIF 2, which was the announcement in the Budget that up to £150 million will be available in 2013-14 for large-scale TIF projects in core cities. Bids from core cities are now being assessed. We appreciate that the limit of £150 million means that not all TIF 2 projects will be able to go ahead, but TIF 2 schemes come at a cost to the Government because we have to count the cost of the additional spending that the new borrowing by local authorities supports. As a result, with our continued priority of deficit reduction, the Government have to limit the amount of funding available for TIF 2 schemes at this time. However, I will ensure that the noble Lord’s comments are passed to the Treasury.
My noble friend Lady Kramer touched on the importance of a social investment strategy. She called for the Government to develop one, and I am pleased to say that the Treasury is already undertaking an internal review of the financial barriers to social enterprise. This will conclude by the autumn. The Cabinet Office is also looking at the legal and regulatory barriers to social enterprise through the red tape challenge. We are very much alive to these issues.
My noble friends Lady Kramer and Lord Popat talked about the banking sector. My noble friend Lord Popat argued that the Government should be encouraging the creation of new banks. We have seen a number of new entrants into the current-account market in recent years, including Metro Bank, and I agree with him that it is essential that the regulatory regime facilitates new entrants wherever possible. The Government are of course also supportive of ensuring that the divestments of branches by Lloyds results in as strong a challenger bank as possible. We have engaged with the European Commission and with Lloyds itself on that point.
My noble friend Lord Popat also talked about smaller lenders. He might be interested in the Government’s support for community development finance institutions. For example, £30 million of regional growth fund money has been used to establish a wholesale fund that will provide extra capital for CDFIs to lend on to businesses and individuals. I know that my noble friend Lady Kramer is well aware of the importance of CDFIs. Like my noble friend Lord Popat, she raised the advantages of local banking models focused on building relationships with customers. I very much agree with her that banks need strong relationships with their customer businesses, and it is encouraging to see the success of banks such as Handelsbanken, which focused on its relationships with businesses. More widely, I am encouraged by the work that the major high-street banks have done through the BBA’s business finance task force to build relationships with businesses—for example, through a new appeals process and support for mentoring for small businesses. I am pleased that my noble friend acknowledged the schemes announced by the Chancellor and the governor last week. Those follow the national land guarantee scheme that we have introduced, and measures such as expanding the enterprise finance guarantee and setting up the £1.2 billion business finance partnership to encourage non-bank lending. The Government remain focused on the need to help businesses obtain credit.
My noble friend Lord Popat also raised his concern about the planning system. I certainly agree with him about its importance. Indeed, the Government have made this issue a priority in our growth strategy. Already, we have published the national planning policy framework, which is now in effect. This focuses 1,000 pages of policy guidance into around 50, and includes a powerful presumption in favour of sustainable development. This will remain a focus for the Government because the planning system had simply become too complicated. I hope that the chances we are making can unlock the kinds of investments that my noble friend mentioned, which have in the past been stopped by planning rules getting in the way.
My noble friends Lord Popat and Lord Bates also raised the vitally important matter of exports, a subject which a number of other noble Lords also touched on. There are, as my noble friend said, some encouraging signs, with exports to countries outside the EU up by nearly 25% since May 2010. In terms of the key emerging markets which my noble friend Lord Popat mentioned, and in particular the value of UK goods, exports to India grew by 11.9% over the past year, and to China by 15.8%. As a result, China and India were the destination of 5% of UK goods exports in 2011, twice as large a share as five years earlier.
I agree, however, that the Government have to stay focused on this, including on the diplomatic support which our companies need. Indeed, my noble friend Lord Sassoon is not here responding to the debate today partly because he is doing exactly what my noble friend Lord Bates exhorted us to do—he is meeting with my right honourable friend the Prime Minister and my noble friend Lord Green to talk about how the Government can best target high-value export opportunities and inward investment into infrastructure, a matter to which my noble friend Lord Popat also referred.
The noble Lord, Lord Bhattacharyya, raised the matter of an industrial strategy. I agree with him not only about the dangers of picking winners but that we need to think about the long term. We are developing an industrial strategy to give businesses, investors and the public more clarity about the long-term direction of the economy. We are responding to what industry is calling for, looking at how we can set out a vision for where the UK’s strategic capabilities should lie and how we will support them.
My noble friend Lord Clement-Jones raised a number of points, and I welcome his recognition of the role of tourism and the creative industries in promoting growth. On his specific points, he asked about businesses being banned from declaring that they have acted as a supplier for the Olympics, a matter to which the noble Lord, Lord Haskel, also referred. I agree that it seems, to say the least, a little strange, so we are looking at redrawing the terms of these arrangements. We will make an announcement in due course.
My noble friend also talked knowledgably about skills in the creative industries and suggested merging the Creative Skillset sector skills council and the Creative and Cultural Skills council. I understand that there have been discussions about this, but that it was decided that it was not the right time to take it forward. I will, however, ensure that his views are noted. He also asked about overseas promotion, and I welcome his positive comments on UKTI’s work. UKTI has a network of advisers working on this, working closely with DCMS and other organisations.
Finally, my noble friend asked about the work of the Creative Industries Council on access to finance. I am not yet in a position to tell him what was in the report presented last week but I assure him that it will be looked at closely. I welcome his interest in these sectors and assure him that the Government share it.
My noble friends Lord Clement-Jones and Lord Bates specifically raised the matter of foreign students. We need to bring migration down to sustainable levels. The Government are committed to achieving net migration in the tens of thousands. However, we recognise the economic benefits of overseas students and the substantial export earnings that they create for the UK, as well as the importance of the long-term relationships that they can create. We welcome legitimate students but we must crack down, and we are, on bogus colleges and those who abuse the student visa route. The new system ensures that only high-quality, genuine students can come to the UK to study with legitimate education providers, which, I am sure, is what noble Lords want.
In related comments, the noble Baroness, Lady Liddell, and my noble friend Lord Clement-Jones, spoke thoughtfully about the importance of tourism—with which I strongly agree. Of course, we have enormous opportunities to capitalise on the Olympics this year. I should perhaps mention VisitBritain’s £100 million campaign to attract international visitors, with matching funding from the private sector. Added to that is the Great Britain image campaign, with funding of more than £22 million. We estimate that nearly 90 million people will see these advertisements at least five times. Put together, VisitBritain is running the largest tourism marketing campaign in our history.
My noble friend Lord Bates and the noble Baronesses, Lady Liddell and Lady Valentine, referred to Chinese visitor visas and the recent letter from Her Majesty’s ambassador, Sebastian Wood. Obviously, I would never welcome the apparent leaking of such a letter but it at least shows noble Lords that the issue is being looked at seriously by senior Ministers. I noted the suggestion of the noble Baroness, Lady Liddell, about allowing access to Chinese visitors with a Schengen visa. I will certainly pass that on and make sure that it is considered as part of this work.
The noble Baroness, Lady Valentine, touched on the important issue of airport capacity. The Government are committed to maintaining the UK’s aviation hub status. The aviation policy framework is due to be published shortly and will set out the Government’s strategy to ensure that aviation contributes to economic growth within environmental constraints. The Department for Transport plans to publish a call for evidence on maintaining our hub status this summer. This will give all stakeholders the opportunity to comment in more detail. I am sure that the noble Baroness and London First will put forward their views.
The noble Lord, Lord Paul, spoke about, among other things, the effect of low interest rates on companies’ pension liabilities. It was an interesting point and one that I will look into. However, one must weigh this concern against the very real benefits to those same businesses from the effect of low interest rates on the cost of their funds, to which my noble friend Lord Stoneham, among others, referred.
The noble Baroness, Lady Royall, spoke about research and development, which is extremely important. I am not sure that she asked a specific question but the Government launched their innovation and research strategy for growth in December 2011. It sets out how the Government will support innovation and research in the UK, where our investment can add value, how we will achieve this and how we can leverage significant public and private investment to drive sustainable growth.
There were a lot of questions to which it is impossible to do justice in the time allowed. However, I will ensure that any that I have not been able to answer are addressed in writing. I hope that I have demonstrated that the Government are tackling the current economic challenges head-on. Continued deficit reduction and monetary activism are vital to rebalance the economy and achieve strong, sustainable and balanced growth. Alongside dealing with our immediate challenges, the Government have a plan for growth, which I have outlined today. These issues are vital for the UK economy; noble Lords made that point forcefully today. Again, I thank my noble friend Lady Kramer for bringing this matter to your Lordships’ attention and all noble Lords who have participated.
Baroness Kramer
My Lords, I will just very briefly thank the Minister for his commitment to take back many of these issues to the relevant parts of government and for giving us an indication that in quite a number of areas the Government are already thinking along the same lines as your Lordships. It is nice to come to the end of a debate with a positive conclusion coming from it.
I also very much thank all noble Lords who participated and brought real thought, knowledge and understanding to what we all agree is one of the most important issues facing us here today. I would say to the noble Baroness on the Labour Benches that we have perhaps a slightly different perspective on the issues around deficit reduction and the strategy that she outlined sounded a bit like a bubble and bust strategy, which would worry me indeed. It is easy to raise confidence, but then when it is destroyed again the damage tends to be deeper than the confidence initially created. But we can set apart partisan differences because most of the debate was so extremely constructive and reflected the real strength, knowledge and public interest motive that mark out the Members of this House, and I thank everyone who shared their thoughts today.