Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Lord Colwyn)
Good afternoon, my Lords, and welcome to the second day of the Local Government Finance Bill.
Local Government Finance Bill
(12 years, 5 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
The Earl of Lytton
The Earl of Lytton
My Lords, in moving Amendment 18 and speaking to Amendments 28 and 29, my purpose is primarily to flag up an issue of principle. I remind the Committee of my involvement with the first tier of local government, as president of the National Association of Local Councils, the national body representing parish and town councils, and whose assistance in this matter I acknowledge.
My support for the idea of a larger share of business rates going to billing authorities under the business rate retention scheme which we discussed on Tuesday was, I have to admit, not entirely altruistic. It was founded on the belief that too little was being channelled back to the billing authority given the many other claims on the funding stream implicit in that arrangement, certainly if we are to have any real incentive flowing from it. By implication, therefore, little or nothing would be available in practice, even if the principle of my amendments was agreed, to flow to the first tier of local government.
The Bill is—in part, at any rate, or so we are led to believe—about introducing the financial aspects of the Government’s localism agenda, which I support wholeheartedly. It is a process of trickling down powers and responsibilities from central government to local government and from local government to neighbourhoods and parishes. I hope that that is a given—I am glad to see the Minister nodding. At Second Reading, I flagged up an issue concerning a defect in the Bill, namely that the process of financial trickle-down seemed to halt at the principal authority level. There is nothing in the Bill for parish, town and neighbourhood councils. In short, and viewed in very local terms, the financial benefits do not flow to the very local level where the properties on which the tax is raised are actually located and in which locality exists a neighbourhood-based, statutorily constituted and precepting local authority.
I remind the Committee that local initiatives which would raise revenue in business rate terms are not by any means confined to principal authorities. Parish and town councils up and down the country are, and continue to be, involved in schemes to encourage retail, commercial and other value-added activity.
These amendments are framed in what I admit is a deliberately crude fashion with a view to highlighting the complete absence of a local council share in the retained element of the BRRS and to ask why, in the name of all that is called localism, the redistribution of this is limited to major precepting bodies only. Removing the word “major” from various provisions as a qualification to the beneficiary precepting bodies is intended thereby to include local councils which also have a precept in the redistribution benefit.
Before 1989—I think that was the date, but my memory may have failed me—parish and town councils did get such a share, but it was scrapped when the community charge was introduced. While that denial of benefit might have been appropriate at the time, local councils have made enormous advances and shown what they are capable of doing. Indeed, I have a list with me of the very many initiatives up and down the country which all show how much can be achieved with tiny sums of money. I think that the Minister would be amazed at just how much can be done with very little money if the collaborative ethos and common purpose that particularly hallmark neighbourhood and parish initiatives are given a fair chance. However, that cannot be done without any resources at all.
Many of these initiatives are specifically aimed at business activity. The demise in the ability of principal authorities to fund many services, let alone any new initiatives, leave the local council—often a parish or town council with quality council status and a real drive to benefit their community—to pick up the reins. As I have said, this cannot be achieved without some resources. We already know the common practice of principal authorities agreeing to pass services and functions to parishes yet simultaneously claiming that there is no budgetary allocation to pass on to enable those services to be provided in practice.
I do not entirely blame principal authorities. In fact, I have been involved on and off with principal authorities for rather longer than I have been involved with parish and town councils in many respects. Principal authorities have been caught financially between what can only be described as a rock and a hard place. However, at local council level it looks bad and in neighbourhood terms it seems almost like a financial sleight of hand, which is known in the jargon of the sector as double taxation; namely, the service is passed further down the line but none of the resources—which are somewhere implicit because there is a cost element in a principal authority’s budget—get passed on. The closure of public toilets in resort towns that rely heavily on coach loads of day visitors and attempts by the town councils to keep them open is just one exemplar of that situation.
I cannot know what the Minister’s response will be, although I have my suspicions. Probably the least likely outcome is that she will accept the amendment. The question then is: what does she propose? Will there be a line of funding that will benefit the local council sector, and what guarantees can she give that, if that money is made available via a principal authority, it will be passed on?
I am realistic about funding things at neighbourhood and local council level. I accept that the question of how to distribute such a local council share will arise if the principle is accepted, but that is further down the line. Furthermore, I also accept that the last thing that we need is a plethora of very small schemes or even those which are not worth while just because money is available or because it will be lost if it is not spent in a particular financial year. Worthwhile projects, unfortunately, have lead-in periods that do not sit conveniently into a fiscal year template. I am familiar with the undesirable effects of an overrestrictive “use it or lose it” regime.
The Government’s message regarding local government finance is clear: not only is there no new money but there will be a 10% cut. However, if anything is to work at neighbourhood, parish and town council level, there has to be some redistribution of resources, unless the Government are willing to stand accused of some sort of large-scale deception by the very constituents they promised to assist. I hope that that is not the case. However, given that the maximum effect can be achieved with tiny resources and the ability at local council level to leverage a huge amount of voluntary commitment, there is a very good reason to make a modest redistribution. I look forward with interest to the Minister’s response on this matter, which I believe is critical to the objectives of true localism. I beg to move.
Lord McKenzie of Luton
My Lords, this is an intriguing series of amendments, and we have a degree of sympathy with them. The amendments would include parish and town councils within the scope of those for whom billing authorities must share their portion of the business rates. I suspect that the difficulty with this is that other parts of the components of the scheme for business rate retention would have to be applied as well. You could not just make the payment without the other bits and apply it potentially to many thousands of authorities.
Under the current local government arrangements business rates are paid to central government and come back via the formula grant, not, I understand it, to local precepting authorities but to billing major precepting authorities. However, this does not work under the business rate retention scheme. The retained business rates have to be allocated between authorities and the proposed basis is that, with two-tier arrangements, 80% of the business rate would be allocated to district authorities and 20% to major precepting authorities—police and fire and rescue included. As I understand it, the rationale for the 80/20 split is that lower-tier authorities are typically responsible for planning and more able to influence economic development.
The noble Earl might well argue—he touched on this—that the new regime for neighbourhood planning opens up that opportunity more to parish and town councils. Some are already very much involved in a drive to improve the economy of their areas. However, if such councils are not to be encompassed within the tariff top-up arrangements for billing authorities, it would seem to follow that they should have their own calculation. It might not be difficult to establish the business rate base but to derive a funding amount would presumably require some breaking out of the formula grant, and I am not sure how easy that would be to do.
In passing, we should note that there will be a requirement for billing authorities to work with local precepting authorities to address the council tax support funding. If I have read the documentation correctly, it is envisaged that this could well involve a payment from such authorities to town and parish councils.
While I understand where the noble Earl is coming from on this, the practicalities make the amendment difficult to accept. However, I will be interested to hear the Minister’s response. There is the germ of an idea here that needs support.
Lord Shipley
My Lords, I think I agree with the comments of the noble Lord. There is an issue here that relates to the deletion of “major”. Will the Minister respond on the content of the Localism Act? On the rights and powers of precepting authorities, my memory is that some crucial amendments were made to the Bill on Report, which enabled the protection of the rights of parish councils and neighbourhood planning councils. Is the Localism Act sufficient to deliver the resources that should lie within the money, particularly that raised through the community infrastructure levy, to very small neighbourhood areas? I would appreciate the Minister’s guidance on that point.
The Parliamentary Under-Secretary of State, Department for Communities and Local Government (Baroness Hanham)
My Lords, I thank the noble Earl, Lord Lytton, for introducing this little amendment. Neither he nor other speakers will be totally surprised when I say that it is not acceptable in its current terms. I shall tell him and the Committee why.
We recognise that parish councils underpin many neighbourhoods across England. They have been given a specific role under the Localism Act. Local, parish and town councils are specifically mentioned as being able to generate neighbourhood plans. As has been said, they are the focal point for a wide range of local involvement and action under the Localism Act. For some parish and town councils, that range of activity and involvement will include promoting economic growth but they do not have the same financial levers to deliver growth as principal authorities do. I know—the noble Earl has just said so—that some town and parish councils are keen to receive a share of business rates. That was evident not only from what the noble Earl said but from the Government’s consultation on rates retention last year, when several parish and town councils expressed in their response a desire for a change in this matter.
However, the local government resource review was set up to look at how principal authorities are funded, with a view to giving them greater financial autonomy, strengthening the incentives to support growth in the private sector and the regeneration of local economies, and reducing their reliance on central government funding. The funding of parish councils is therefore outside the scope of the review’s terms of reference. The Government’s proposals for business rates retention are focused on changing the allocation of business rates, which previously fed into formula grant, which is not paid to parish or town councils. Therefore, allocating parish and town councils a proportion of business rates would be at the expense of the principal and major precepting authorities, thus weakening the growth incentive. I just add that of course all parish and town councils have a precepting power so that in general they are able to cover their costs. Although I accept that that may not be a great contribution to growth, it is certainly something that they are able to do.
The Government consider that it might be appropriate to reassess this position in the context of an untimed, unnamed and unexpected fundamental review of the business rate retention scheme, but I would advise noble Lords not to hold their breath on that.
As I said at the outset, the noble Earl will not be surprised when I say that I cannot accept the amendment.
The Earl of Lytton
My Lords, I shall not profess to any great surprise at what the Minister has just said. Notwithstanding the point made by the noble Lord, Lord McKenzie—that this would have a knock-on effect on other issues—I would have hoped that the principle of making sure that there was an adequate stream of funding somewhere or other would be accepted. I know that in other parts of the Bill there are proposals for a degree of funding, and this will undoubtedly come up at a later stage in our discussions. None the less, the principle of linkage between having a stake in the income and, as it were, presiding over the geographical area in which part of this revenue is drawn seems to be fairly inescapable.
Nor should it be assumed that, for instance, parish and town councils are necessarily small, parochial—with a small “p”—bodies; some town councils around the country have larger budgets than a principal authority. I suppose it is fair to say—and to some extent I say this in the Minister’s defence—that one problem is the huge diversity in the size and complexity of parish and town councils. None the less, if we do not have some sort of aspirational link between the funds generated and what is done at local level, it seems to me that that will be a fundamental failing. Perhaps the review did not look far enough down the trickle-down waterfall to pick up some of the things that concern me.
These were intended as probing amendments. I have made a note of what the noble Baroness has said but I shall reserve my position in seeking leave to withdraw the amendment because this is something to which I may well need to come back at a later stage. With that, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
the percentage referred to in paragraphs (a) and (b) shall be determined following full consultation with local government”
Lord McKenzie of Luton
My Lords, I shall speak also to Amendments 32 and 40 in this group. Amendment 19 relates to the determination of the central and local shares and requires them to be set after full consultation with local government. It is accepted that this determination must currently be specified in a local government finance report and thus be subject to a parliamentary process, but that is not a substitute for engagement with local government.
We accept that there has been extensive engagement in relation to the Bill but what does the Minister see as the regular process going forward in this regard? Perhaps she could outline for us an anticipated timeline of events in future years after the introduction of the business rate retention scheme, although I hesitate to call it a steady state.
Amendment 32 relates to tariffs and top-ups. The local government finance report will spell out the basis of the calculation of these payments, but before it is laid, the Secretary of State must notify such local government representatives as he sees fit. The amendment requires there to be a consultation rather than local government just being notified. Amendment 40 is a parallel amendment related to the process for amending reports.
I will just touch on the amendments in the name of my noble friend Lord Smith, who is unable to be here today. Amendment 20 mirrors our Amendment 19 and is identical. Amendment 23 causes the finance report to give details of the consultation; a proposition which we support. Amendment 25 requires the report that should be sent to local authorities to be there by the end of November, for obvious reasons. Amendment 33 mirrors our Amendment 32 and is a duplicate. Amendment 34 requires that the Secretary of State must consult on the detail and not just on the general nature of the proposals, which is the requirement at the moment. These amendments are all about proper engagement with the local government sector. Perhaps the Minister will let us know the Government's intention. I beg to move.
Lord Shipley
My Lords, I first declare my interest as a vice-president of the Local Government Association, which is the first of the afternoon. I apologise for missing Tuesday's Committee when large numbers of noble Lords were making a similar declaration.
Baroness Hollis of Heigham
Could we take it for granted that we do not need to continue to declare? If we have done so on our first Committee day it should stand for the rest of the Committee stage.
Lord Shipley
That would actually be a quicker way of proceeding.
I agree with the amendment moved by the noble Lord. The Localism Act was about devolving power and decentralising decision-making. This set of amendments makes it clear that there should be full consultation with local government before decisions are made. When decisions are made, that cannot just be about notifying those decisions but should clearly explain through consultation first but secondly explanation of the decision that has been made, particularly in a matter as complex as tariffs and top-ups. Thirdly, there has to be consultation on the detail not just on the general nature of things.
I hope that the Minister will take on board that feeling because the Localism Act has changed the balance of responsibility between central and local government. It would help enormously if it were not just left for the Secretary of State to have a set of powers whereby things can be announced but not actually explained.
Lord Beecham
My Lords, I entirely support the amendment moved by my noble friend and supported by my erstwhile colleague on Newcastle City Council and fellow vice-president of the Local Government Association. It clearly makes sense, and, as the noble Lord, Lord Shipley, said, it is clearly in the spirit of the Localism Act.
However, there is another aspect. The Government set much store on the proposals in relation to the business rate as part of an approach to incentivise and increase local investment by business, growing the local economy and all the rest of it. In that context, it would surely be sensible if, in addition to consulting local government perfectly properly on these topics, they also consulted business. That cannot be done at every local level by the Government and councils will no doubt continue to have discussions with their own local businesses. However, as I pointed out on our first Committee day when I quoted the London chambers report, some 53% of businesses believe that councils set the business rates now. So there is a certain amount of education to be done here. But at the national level, I would have thought it important for government to consult, particularly about that proportion of the business rate that is to be held centrally rather than devolved locally, because that clearly would be a matter of concern to the business community.
Without the necessity of moving anything formally, it would be helpful if the Minister could put on the record an intention that in any consultation about the business rate and the various elements, resets and proportions and so on, the Government will consult the business community as well as local government.
Lord True
My Lords, I apologise for leaving the Committee early last time. I had a meeting of my council to attend. I must also explain I am not a vice-president of the Local Government Association but I am in receipt of a very kindly letter from it inviting me to become one.
Lord True
I shall be able to join other noble Lords.
As I said when I spoke briefly yesterday on another matter, I do not think that everything has to be prescriptively set out in legislation. I will be listening very carefully to what my noble friend the Minister says about consultation because the points that have been made by other noble Lords are very well made. It is obviously vital, particularly in the first stages of a new process, that a real and meaningful consultation takes place. We will be very interested to hear what my noble friend says about whether or not it is necessary to put this in the Bill.
I would like to refer to two amendments specifically. I will not follow the comments made by my noble friend Lord Shipley, but the points he made about “general nature” in Amendment 34, tabled by the noble Lord, Lord Smith of Leigh, were well made and I agree with him. Amendment 25, also tabled by the noble Lord, Lord Smith of Leigh, which inserts,
“no later than the end of November each year”,
is also interesting. I have no doubt that officials in the department will say it is very unwise to put something such as this in the Bill because you never know what is going to happen, et cetera. But everybody in local government is aware that these things seem to be creeping later and later. It was always November, and you knew what was going to happen; then it was December. Now we are facing a whole range of legislation, specifically this one, with very short timescales, which we discussed at Second Reading.
I know that it is not only my noble friend’s department that is involved in these discussions, but some earnest by the Government to inform local government rather earlier than has become the norm would be highly desirable. Even if my noble friend cannot accept Amendment 25, I hope she will accept that many in local government would like to know where they stand a little earlier in the financial year than has been the case all too frequently in recent years.
The Earl of Lytton
My Lords, I follow what the noble Lord, Lord True, has said. I have been involved on and off for many years with various organisations that are reliant on sums of money coming from local government, and if local government is pushed to the wire in terms of setting its budgets, this has a knock-on effect in every allocation it might make to any other body. I am not involved with any organisations that receive money by way of grant at the moment, but in the past I have attended meetings at which finance officers and chief executives of these small bodies have been absolutely tearing their hair out because they do not know where they stand; they do not know whether they are going to have the budgetary allocation to enable them to keep core staff, and so on.
Leaving these things to run until a very late stage is pernicious because the downstream effects are incalculable and affect employment and the viability of schemes. So I would like to reinforce what the noble Lord, Lord True, has said about that: there needs to be a better lead-in period to deal with these things and it should not be left to the last minute on the basis that it does not matter. It matters very much and I wish to impress that on the Minister.
Earl Attlee
My Lords, I would like to declare that in terms of local government, I am still in short trousers.
Earl Attlee
I thank noble Lords for their helpful explanations of these amendments. They deal variously with aspects of the local government finance report, particularly around the consultation arrangements that will apply. I agree that proper engagement is very important to ensure a successful outcome.
The Bill provides that the central and local shares, and the basis of calculation of payments flowing to and from local authorities, will have to be set out in the annual local government finance report. As we do currently, we will continue to consult local government on a draft local government finance report in the autumn before laying the report before the House of Commons in January or February each year. The noble Lord, Lord McKenzie, accepted this point in his opening remarks.
Amendment 25, tabled by the noble Lord, Lord Smith, and I think spoken to by the noble Lord, Lord McKenzie, seeks to bring forward the laying of the final local government finance report. Although I can sympathise with the good intentions of the noble Lord in bringing forward this amendment, I cannot recommend that the Committee accepts it. Amendment 25 would bring forward the process by three months from the current timetable.
The Government have always endeavoured to give local authorities the information they need as early as possible. The noble Lord, Lord McKenzie, asked me about the timetable. The current process for the local government finance report is as follows: the summer consultation is in about July and sets out the basis of calculation; the draft report comes out in approximately November and has the detail; and the final report comes out in January 2013. As for the future process, we may not need to carry out the summer consultation in future years unless there are substantial changes to the calculations.
In the past, the local government finance report timetable has been driven by the availability of up-to-date data to make the necessary calculations. Under a rate retention scheme, this will still be the case. For example, the September RPI figure, which will be used to uprate tariffs and top-ups, will not be available until later in the year. In reset years, the need for updated data will increase.
Although I cannot accept the noble Lord’s amendment, I can assure him that the Government will continue to use their best endeavours to ensure that local government, as far as possible, has the information that it needs to undertake its budgeting processes. Although I understand the intention behind each of the amendments in this group, I ask noble Lords to withdraw them. I believe they are either unnecessary, since, in practice, consultation with local government will continue to take place as it does now as a matter of course, or, in the case of the timing of the report, undesirable, since they may limit our ability to use the most up-to-date data for calculations. I am sure that that is not what the Committee desires.
Lord McKenzie of Luton
My Lords, I thank the Minister for his reply and all noble Lords who have spoken in this short debate. Nearly every one who spoke was sympathetic to and in agreement with the thrust of these amendments. Indeed, that was the tenor of the noble Lord’s comments. I understood from what he said—it seems to be on the record and we will read it in Hansard tomorrow—that there is the clear intention to continue to consult with local government on a timely basis. That is very important.
We have to reflect a bit on the issue around getting that information available in November, but the noble Lord, Lord True, and the noble Earl, Lord Lytton, made some very powerful points in support of the amendment—in particular, the sooner you know what your resources are, the better able you are to deal with those who are looking to you for support and engagement.
I agree with my noble friend Lord Beecham, as ever, that there are other interested groups here, particularly concerning the central share and how that is going to be dealt with. I think that the noble Lord, Lord Shipley, was right when he said that the Localism Act has basically changed the scene so far as this is concerned. I take a degree of comfort from the Minister’s response—particularly the commitment to make sure that the consultation continues.
I guess that we will have to see what the nature of the components is. We will be coming later to what is likely to be in a local government finance report, given that formula grants are going to be less important, if not disappear altogether. We will also be dealing with what is in the document to consult on. In the mean time, I thank the Minister for her response and beg leave to withdraw the amendment.
Lord McKenzie of Luton
Lord McKenzie of Luton
My Lords, I shall speak also to Amendments 27, 30 and 31. Amendment 26 relates to payments to the Secretary of State of a billing authority’s central share. Regulations can define the non-domestic rating income and include, among other things, an assumption of an authority acting diligently. Ministers may well say that this term is well embedded in the local government finance legislation, and doubtless the Minister will be able to point us in the right direction so far as concerns its meaning and why it is necessary. However, perhaps we can just recap. Whose judgment will determine whether an authority has acted diligently and what regard will the judgment have to what might be varying policy frameworks? Are the Government looking for something here which goes beyond efficient billing and collection arrangements?
On Tuesday, we heard from the noble Earl, Lord Lytton, about the maintenance of the business rating system and the challenges faced there. He highlighted the fact that collection risks are on local councils but that maintenance obligations lie with the Government. Perhaps the obligation for authorities to act diligently will be matched by an obligation on the Government properly to fund the valuation service.
If the Secretary of State deemed a council not to have acted diligently, what would the consequences be? Would the council have a right of appeal? If the Government are confident about the benefit of the incentive in these provisions, why is it not enough to encourage councils to act diligently?
Amendment 27 is a minor probe concerning payments of the central share. Paragraph 7(2) of Schedule 1 contains the words,
“in the course of the year”,
which suggests that all payments, even if subsequently adjusted, will be made during the year rather than later and in respect of the year. The amendment of my noble friend Lord Smith suggests that it should be paid in two instalments. Perhaps the Minister can enlighten us about the Government’s intent on that.
Amendment 30 refers to payments to major precepting authorities. This provision again deals with an authority’s non-domestic rating income, which will be defined in regulations as the amount payable to it,
“subject to such adjustments as may be specified”.
It is understood that the adjustments that would be made will include such matters as mandatory, discretionary and hardship reliefs, and the cost of collection, et cetera.
The noble Baroness will be aware of representations received from Sporta concerning the impact of the new system on mandatory and discretionary relief. Sporta represents charitable, leisure and cultural trusts. Under current arrangements, the Government meet the cost of mandatory relief and a proportion of discretionary relief, which is recognised in the government’s technical paper 2, Measuring Business Rates. I have the authority of the chief executive of Sporta to quote from the letter. It refers to the business rate retention scheme and the central and local shares. He says:
“The effect of this approach will dissuade many authorities to set up, extend or support leisure and cultural trusts—for two main and exceptional reasons. First, leisure trusts operations can involve large amounts of buildings and facilities, and therefore business rate concessions are significant. Therefore any transfer to them, or new investments by existing trusts, would impose substantial unfunded costs on the local authority. Second, unlike with the position of most other charities, local authorities can themselves directly influence the creation of trusts—by deciding or not to transfer assets to them on a lease and by awarding, or not, a contract to them for operation of facilities. The disincentives created by unfunded concessions could therefore be great and thus the benefits of having more community facilities run by trusts would therefore be lost—and this is happening now as local authorities react to the statements which the Government has already made”.
It goes on to say:
“We understand that the DCLG Working Party which is considering the regulations recognises in principle the problems for the charitable sector which the prospective loss of compensation for local authorities will create. However, we should like to ensure that DCLG are fully aware of the special problems which will be faced by leisure and cultural trusts, because of their scale and as a result of the fact that the formation of the trusts can often be dependent on the decisions of local authorities themselves”.
The concern relates to new or extended provision, as it seems that existing provision would be reflected in calculating the baseline and, therefore, the tariffs and top-ups. Those will not be changed—apart from RPI adjustments—until resetting. In the mean time, local authorities will take a 50% hit for any relief granted. Perhaps the noble Baroness can give us an update on current thinking because this seems to be a particularly serious issue. I would be interested to hear if there is a solution in hand.
Amendment 31 is again a minor probe. This is about certified accounts. It makes reference to the use of certified calculations or information, which is related to payments to the major precepting authorities. Can the Minister expand on what use is anticipated of these accounts and information? There is a broader issue, which I do not propose to press, about what is being certified by auditors and what the nature of that certification is, but perhaps that is a matter that I might take up outside of the Committee.
Amendment 39, in the name of my noble friend Lord Smith, requires the Secretary of State to make top-up payments in two instalments, which seems an entirely reasonable proposition. I beg to move.
The Earl of Lytton
My Lords, I shall speak very briefly on Amendment 26. I am sure that the noble Lord, Lord McKenzie, would not thank me for sitting silently when the matter revolves around the question of non-domestic rating. There are two words in the clause that the proposal seeks to amend. One is “diligently” and the other is “payable”. A great deal hinges on those two words.
I previously explained at Second Reading and in comments made in the debate on the Queen’s Speech that there is a problem with the management of the tax base, which is implicit in the bundle of rateable values that afford the basis on which this particular bit of local government finance arises. I would have to say that diligence may be there in abundance, but efficacy is not. Later on—although I suspect not today—we will come to amendments that I have tabled where I set about trying to deal with some of the shortcomings implicit in the present system.
There is no unwillingness to implement a proper and fair system at all levels of central government, government agency and local authority. But if the system is underfunded and suffers from a lack of degree of care and maintenance input, problems will arise. What may be diligence to one body of people may look like neglect to others. I am particularly concerned that if the term “payable” means what would otherwise have accrued to the billing authority in this sense but does not for whatever reason, that represents the horns of a dilemma, bearing in mind that, as the noble Lord, Lord McKenzie, said, the billing authority has no responsibility for the maintenance of the tax base. In other words, it has no stake. Some of my amendments try to address that. As matters stand, the billing authority has no role in the accuracy of the list or indeed whether something is in the list as a non-domestic hereditament or not.
It concerns me that, if the Government’s own Valuation Office Agency cannot catch up with this, to try to make that somehow by implication the responsibility of the billing authority must be wrong in the absence of additional resources in which to achieve it. Clearly, there are no additional resources because we are talking about a 10% cut. If it came to be interpreted by the courts, although I am no lawyer, I fear that the words “diligently” and “payable” may have the sort of meaning that I rather fear and the noble Lord, Lord McKenzie, fears might be attributable to them.
It could put the billing authority in an extremely difficult situation and could have knock-on effects throughout a large number of billing authorities with the potential for what I can only describe as a large degree of mayhem in local government accounting for any given year until it works through the system. I support the principle of what has been said.
Baroness Hanham
I thank the noble Lord, Lord McKenzie, for moving the amendment and I hope that I can reply to most of the points that have been raised. Amendment 26 seeks to remove the obligation on local authorities to act diligently, which are the words that have been questioned regarding the collection of the non-domestic rating income due to it under Sections 43 and 45 of the Local Government Finance Act 1988.
This section focuses on the need to establish the payment that will have to be made by the billing authority to the Secretary of State in respect of the central share that is due. It is obviously important that there is a clear understanding of what is meant by non-domestic rating income in this context, and this paragraph confirms that the Secretary of State will introduce regulations that provide that clarification.
In preparing those regulations, we are clear that the Secretary of State should be taking into account not just the income that the billing authority receives, but the amount that it would be reasonable to expect any authority to collect if it acted diligently. That is the amount that is due to it, and if it does not get that and its collection rate is below 100%, it is still being assessed on the former amount. This is not a new concept. The principle of diligence is well established, as the noble Lord, Lord McKenzie, intimated, in the 1988 Local Government Finance Act in its treatment of a billing authority’s contribution to the business rates pool; for example, Part 2 of Schedule 8.
Local government is therefore familiar with the principle of due diligence as part of its responsibilities for collecting non-domestic rating income. It would send a rather unfortunate signal if we were to suggest a lessening of the responsibilities of local authorities to ensure that the business rates that are due to them are actually paid. I think that most local authorities understand and make enormous efforts to ensure that they get the maximum amount of business rating that they possibly can. I certainly remember being challenged when we got up to 97%; now we want to get to 100%.
Amendment 27 relates to the regulations that will be introduced to establish the administrative arrangements to be put in place for processing payments of the central share. We are clear that we intend to be as accurate as possible in making the calculations for the amount of the central share. However, it is obviously prudent to ensure that mechanisms are put in place to deal with those scenarios where it is subsequently determined that the payments to the central share that have been handed over by billing authorities are either lower or higher than those required. Paragraph 7(2)(b) of Schedule 1 makes it clear that the regulations to be introduced by the Secretary of State on the administration of central share payments may make provision to deal with under or overcontributions. Having reflected on that paragraph, and the proposed amendment, it is not clear to me in what way the proposed amendment will improve the clarity of the intention of that paragraph.
Amendment 30 would prevent the Secretary of State including, within regulations governing the calculation of payments to be made by billing authorities to major precepting authorities, adjustments to reflect either costs that fall on billing authorities or different circumstances that will need to be reflected in any payment schedule; for example, we envisage that, in defining non-domestic rating income, the regulations will make an adjustment for the cost of collecting the business rates income. Otherwise, there is an obvious undesired outcome that the billing authority has to absorb the cost of that administration alone. Similarly, the definition of income will reflect specific circumstances where the rates collected may be apportioned slightly differently; for example, as we confirmed in our statements of intent, it is our intention that all the business rates income from new renewable energy projects will be retained by the planning authority. The regulations would enable the relevant adjustments to be made to reflect such circumstances.
Amendment 31 relates to the circumstances that might apply following an audit of a billing authority’s calculations for the purposes of making payments to its major precepting authorities. We hope that there will be few, if any, occasions, where the audit of a billing authority’s calculations and information certified by the audit did not match what was supplied to the major precepting authority. However, there might be occasions when this is the case. Paragraph 9 confirms that regulations may make provision for the use of the certified information in relation to payments to the major precepting authority. Use of certified information in this way would mirror the arrangements set out in paragraph 40(6), which provides that the Secretary of State should be able to rely on certified information and existing non-domestic rating pooling.
Transparency over the funding to be available, and the basis of the calculations used to determine that funding, will clearly be important to everyone to establish confidence. This section sets out that the regulations may include provisions to establish what might happen where there is a mismatch between the information supplied and the certified information produced by the audit. In such a scenario, we envisage that all parties would want to understand the nature of the difference and how the certified information and calculations might be used to correct, where necessary, any mismatch. In my view, the regulations are absolutely the right place to provide that additional clarity on the use of the certified calculation or information.
Amendment 39, tabled by the noble Lord, Lord Smith, and spoken to in his absence by the noble Lord, Lord McKenzie, would replace the current flexibility in the Bill and instead require payments from central government to local government to be made in just two instalments. I hope that I am able to reassure noble Lords that it is our intention, subject to consultation with local government, to spread payments in respect of the rates retention scheme, both to and from local authorities, over the course of a year. We intend to do this by setting up a schedule of payments over the year. We will consult on the number of instalments over which the payment should be made. However, we believe, at this stage, that the two payments envisaged in this amendment would be too restrictive under these circumstances. I ask the noble Lord, with this explanation in mind, to withdraw the amendment.
The noble Lord, Lord McKenzie, asked about mandatory payments. I understand that will be outside the central charge. I may need to write to the noble Lord, but mandatory payments are clearly important as they cannot be ducked. I understand the question of sports and leisure clubs is still under discussion, and perhaps we may be able to deal with that at a later stage.
The Earl of Lytton
My Lords, can the Minister clarify something further for me following what I said a short while ago? Let us imagine the situation of a popular coastal town, in which there are a large number of properties that may be used seasonally for holiday purposes. Many will in fact be people’s second homes and may even get a reduction when assessed for council tax because they are second homes. Because of the seasonal nature, it is difficult to track whether these are going to fall above or below what I believe is the 140-day threshold of occupation for holiday purposes. I have to say that I am not sure whether that is for general tax purposes rather than local tax, but the question then is what their whole or main use is. In theory, if one is using the property year-round for holiday lettings, that is clearly a change of use, but there is no requirement to go for planning consent and it probably does not require any building regulations control. There may be some issues to do with health and safety, but how would the billing authority know what stock lay out there and what it was used for?
I appreciate that the Minister may need to come back on this, but in such a situation, how would a billing authority know whether it was behaving “diligently” or whether it was supposed to go around tracking down who all these people are? When I did an investigation last year into holiday homes, I found that a very large number of what I understood to be holiday homes, which were clearly being advertised as such through letting agencies, were in fact subject to a council tax assessment. If we are not careful, we will be putting an absolutely impossible burden on the billing authority, if “diligently” causes it to fall foul of something that is going to be extremely difficult for it to catch up on.
Lord True
Along with the noble Earl, I do not expect my noble friend to answer this point now. The issue of “diligently” is, in law, an important one given that we are framing a new approach. We need to understand how that will be assessed, particularly if it also comes up with reference to the relationship between local authorities and precepting authorities. It cannot be a subjective test. The Secretary of State will not say, “I don’t think they’re doing a good job but those people are”. Secretaries of State have never acted like that in the history of local government, have they?
Baroness Hanham
In reply to the last point of my noble friend Lord True, if I can provide anything useful, of course I will. My noble friend is the leader of a council and, as far as I know, he has been acting under the duress of being presumed to be acting diligently ever since he took over. This has been part of the Local Government Finance Act 1988 since it was passed. It is not new. It is entirely the same wording as local government has been operating under for the past 24 years and it is well understood. Local government finance officers must also understand it. It means that you go about getting in the money that you are required to have to the very best of your ability. The challenge—particularly now, with the economy in the situation that it is—is to get in as much as possible of the amount that you should have.
I am not sure whether the Government will judge the level of diligence but it is perfectly open to someone else to challenge whether a local authority has acted diligently if, for example, its revenue drops substantially. I do not think there is anything more that we can say about it but I will be more helpful if I can. However, this is a very well worn path, which is probably no different from what we will do.
The noble Earl, Lord Lytton, raised the question of holiday homes. I know that he has extensive amendments coming up later. The local authority collects only the money as assessed against whatever the nature of the property is. If a valuation office, which must value all properties, values a holiday let as a normal domestic property, so be it. The local authority does not challenge that. It is left to the valuation office or anybody else to suggest that perhaps a property is being used as a business and might need to be looked at again. Therefore, holiday homes are not particularly relevant to this matter at the moment. I hope that is helpful.
Lord McKenzie of Luton
My Lords, I thank the Minister again for her response to these amendments. On the issue of acting diligently, this is a probing amendment; I did not necessarily want the words deleted from the text. I wanted to understand how they might be applied in the current situation. We are in a different situation. Previously, the collection of business rates was turned over to central government and came back via a formula. That formula drove what local authorities had. It is going to be different in future; that is what the system is about. The Minister said that this is well tried and tested. How many challenges have been made under these provisions in the past three years? Who have those challenges come from? She hinted that they might come from anyone. It would not necessarily be the Government who have to take this view. This is important, particularly in the light of the comments by the noble Earl, Lord Lytton, whose knowledge of the rating system is profound and will be very helpful to us in this Committee. He can spot nuances that would not be apparent to some of us at least. We need more information on this. We will look to bring something forward on Report if we cannot get some clearer idea.
Will the Minister at least deal with the question of whether there is a right of appeal and what the sanction will be? If a local authority was deemed not to have acted diligently, what would the Government do? Would they gross up the business rate they receive in the calculations that are made? What is the sanction? Is it one that only government can apply? Is there a right of appeal against it? This raises lots of questions.
The other amendments were effectively probing, apart from the amendment about mandatory and discretionary rate relief. Quite apart from the specific circumstances that Sporta has written about—I understand there is some discussion on them—there are issues of principle here. How will it work in future for new provision that under the old system, and under the new system, would be subject to mandatory relief? The Government would have picked up the whole of the tab for that, but now it gets shared with the local authority. The local authority picks up half the cost which, other things being equal, is likely to make it less inclined to grant relief, not because it would not wish to, but simply because it would not have the resources to do it. Is that analysis right, or is there a different analysis? I know there are issues about how the baseline is set and how the existing provision features, but can we at least have a bit more about that as well?
Baroness Hanham
Mandatory is mandatory. Mandatory means that you have got to do it. I am more concerned about the discretionary aspect. There are two lots: a mandatory grant and a discretionary grant. As I understand it—I am sort of swinging backwards and forwards here—the mandatory grant will be taken into account in the share. It would not be deducted, as it were, from the local authority’s income. I will write to the noble Lord on that because we do not want confusion. It seems to me that if it is an absolute requirement to pay it, there must be some payoff from that. Local authorities determine what they should collect and what they write off. Their auditors check it. I shall write to the noble Lord further on the mandatory grant because I do not think we are getting anywhere.
With regard to due diligence, it refers in practice to the sums that a local authority writes off as bad debts. It is for a billing authority to determine those sums and for the authority’s auditor to determine that they are reasonable. Due diligence would seem to me to work on the basis that you use your best endeavours. The noble Lord asked whether anyone has ever been challenged on it. I think that is going to be very hard to unearth because local authorities would be the only ones to know. If we have anything useful on that, I will let the noble Lord know, and also whether there could be an appeal. It might be helpful and save the noble Lord a lot of trouble on Report if we lay that out more clearly for him and for Members of the Committee, which I will do.
Lord McKenzie of Luton
I am grateful to the Minister. I am happy to leave to correspondence the issue of due diligence, the consequences, and what appeal rights there may be. I hope that we will know in good time for Report so that we can revisit it if we need to.
I will just have one more go at mandatory relief. I go back to the document that the department itself issued: technical paper 2 Measuring Business Rates. Paragraph 4.22 states:
“The main consultation paper explained that there would be no changes to the current system of reliefs, or to the criteria that determine eligibility. The Government does not believe that, under a rates retention scheme, the cost of mandatory relief should be borne entirely by the authorities in whose area it arises”.
The same follows for discretionary relief.
Particularly in relation to discretionary relief, that must be a deterrent. I presume that that comes because of the 50:50 share. From what the Minister said earlier, are the Government reviewing this issue to reconsider whether there are any changes to the impact of the legislation that they might introduce? This does not affect only sport: I am sure that the department has had representations from a number of entities on this. Again, we would certainly wish to explore this further on Report if we cannot get some clarity or solutions relating to this by the time we get there.
Baroness Hanham
My Lords, the answer to the noble Lord’s point is that it will be part of the consultation in the summer. Consideration is still being given to the position on reliefs and the consultation will produce an answer. I hope that by Report we will know for certain what the answer is. But I take the noble Lord point’s completely about something that you have to do and how that will be shared. Discretionary seems to be more something that is within the ability of the council to decide. But I do not want to dig myself any deeper into a hole here. I will leave it and write to the noble Lord. I understand that the noble Lord is happy about due diligence.
Baroness Sherlock
When the Minister is writing, will she help us to understand not just the impact on local authorities but the consequences for those bodies to which they might have contracted? Also, what impact do the Minister and the Government think that that might have on localism and the big society, for example?
Baroness Hanham
That is a little wider than the amendment, but we will look at Hansard and see.
Lord McKenzie of Luton
I do not think that the Minister is right to categorise my position as ”happy” on this, but I am content that there is a way forward and we will get some further information. Cordially, I beg leave to withdraw the amendment.
“( ) A review of the basis on which the Secretary of State calculates payments to authorities must be undertaken in conjunction with any revaluation of rateable values on non-domestic property after 2015.”
Lord Tope
My Lords, in moving this amendment I will also speak to Amendment 36. Both are in the name of the noble Lord, Lord Jenkin. However, as noble Lords will know, he has literally just finished a three-and-a-half-hour debate in the Chamber and I have agreed to speak to these amendments since my noble friend Lord Shipley and I added our names to them. The noble Lord, Lord Jenkin, has promised to return when I have finished.
Amendment 35 refers to the review of the basis on which the Secretary of State calculates payments to authorities. That is probably best known to all of us here as the reset. The reset will review the needs and resources formula on which the local share calculations, such as the tariff and top-up, are based. The Government’s intention, as set out in the statement of intent on the central and local shares published on 17 May, is that the first reset should take place in 2020, which will also coincide with a revaluation; subsequently, as we know, the resets would be at 10-year intervals.
Amendment 35 prescribes that resets should happen at the same time as the five-yearly revaluation of non-domestic rates. The next revaluation is due in 2015 and the following reset would therefore be in 2020, as currently intended. Amendment 36 requires a review of the baseline funding level and changes in needs and resources to be carried out when local authorities are compiling their non-domestic rating lists. This is the same as a revaluation. Section 41 of the 1988 Act provides that this must happen once every five years. Therefore, the effect of both these amendments is the same. I beg to move.
Lord McKenzie of Luton
My Lords, as we have heard, Amendment 35 requires that any review of tariffs and top-ups must be undertaken in conjunction with any revaluation of rateable values. As I understand it, that is broadly the intent of the Government. However, it would seem that locking into this approach effectively gives fixed reset periods. One of the problems with this, as the Government have identified, is that the further in advance a reset period is known, the more possible it becomes for local authorities to plan on that basis and potentially manage growth and investment in their areas to achieve maximum gains from the reset process. This could result in perverse outcomes as local authorities seek to defer growth in their local areas in the year before a reset is due. It also produces a rigidity in the system and an ability to have regard to how resources in the system are aligned to changing levels of underlying need.
In their response to the resource consultation, the Government have said that it is proposed to adjust each authority’s tariff or top-up following revaluation to ensure as far as possible that their income from business rates retention will be unaffected by the valuation. However, I am not sure whether that necessarily amounts to a full resetting involving the recalibration of the baseline; it seems to be a different process. Perhaps we can have some clarification on this. Indeed, I am not sure that it would be possible to use the formulation to set the baseline at the point of a revaluation because the business rate base would be the historic one, not the updated one. I would be grateful for some clarity as to what is involved in an adjusting of tariffs and top-ups that is not the full reset—I can see from the Box behind the Minister that that probably is the position. Of course, having regard to changes in relative needs in resources is absolutely key, and we support that.
It is a difficult balance between preserving the flexibility of earlier resets so that you can respond more quickly to changes in needs and resources and seeking the benefits of a practical update that perhaps has the benefit of a longer-term incentive. On balance, we would argue for the flexibility to be able to respond more readily, particularly given some of the data about how quickly the council tax base can change over time.
The Earl of Lytton
My Lords, I support the principle of what the noble Lord, Lord Tope, said in moving the amendment because we are in circumstances of unparalleled turmoil in the non-domestic sector. The present—2010—local rating lists are based on an antecedent date of 2008. It will not escape the Committee that that coincides with the peak of the market before much of the fallout of the financial situation had filtered its way though. One of the effects of that has been to produce some significant shifts in the way in which land use is now looked at. It will also be apparent to many noble Lords that there has been a growing level of conversions of properties that were once commercial into residential. This is, for many reasons, to do with the problems of building on greenfield sites, issues concerning the interim arrangements regarding the national planning policy framework and the removal—effectively the abolition—of the strategic planning system when the coalition came into being. I do not apportion any blame. We are where we are.
It is quite clear that a lot of businesses are paying rates on the basis of transitional relief escalation based on 2008 levels of value and are increasingly of the view that they are unsustainable. I have previously pointed out that on a like-for-like basis, non-domestic ratepayers appear to be paying more pro rata for their floor space than residential property owners pay under council tax for equivalent space. That may not be the case in central London—I have to defer to the noble Lord, Lord True, and others with greater knowledge of that—but in the rural shires, that certainly seems to be the situation. This fuels all sorts of things. If something is used for a commercial purpose, it fuels a lack of willingness to make any sort of declaration because people do not want it to go that way. One might say that there is no incentive on a billing authority to point something up as a non-domestic hereditament in circumstances where it gets 50% clawback. If it were under council tax, it would have got the lot, but I leave that for the time being because that is not the thrust of what I wish to say.
Next year we will have another antecedent valuation date for the 2015 valuation. The likelihood is that outside central London large numbers of values will fall. The transitional relief for substantial movement may well kick in, so as they have been counting up year on year towards 2015, after 2015 they may well be counting back down again. I have great concern about the reset not being until 2020 because the turmoil visited upon all sectors, residential and non-domestic, public sector and private sector alike, is making for great uncertainty and a great deal of unpredictability. It seems to me that by 2020, seven years down the road, assuming this comes into force in 2013, it will be so far out of date that something needs to be done about it before that time. I know that the Institute of Revenues Rating and Valuation, of which I am a member, is equally concerned about the long-term effects, given the problems with the arrangements for the reset and valuation being so out of kilter in their degree of modernity.
This is a science. One has to try to work out how many financial criteria dance on the head of one pin, and I might not be the best person to describe this in detail, but I foresee a problem and I would like to hear what the Minister has to say about it.
Lord True
My Lords, briefly, I support what has been said by my noble friends. I understand why my noble friend and her colleagues in the Treasury have put forward this proposal but, without repeating points that I made at Second Reading, the acceptance by many authorities of the transfer from one system to another is an acquired acceptance of accumulated unfairnesses—as some would call them—of all varieties. I hope that my noble friend will consider favourably some of the points that have been made by my noble friends, such as this factor and the kind of turbulence and uncertainty that the noble Earl has just been referring to—and I gave the example of the extraordinary movement in our business rate revenue of about 11% between the last two years—the fact that, in the future, we cannot foresee it and that we are going way beyond the public spending survey period.
Baroness Hanham
My Lords, if the noble Lord, Lord Jenkin, was here, I would tell him that I am grateful for his amendment and the explanations that have been given on his behalf by the noble Lord, Lord Tope.
It might help noble Lords if I remind the Committee—if it needs reminding—how the rate retention scheme will deal with the spending needs of local authorities and how it will handle the changes in rates income that authorities will experience at a revaluation. When the scheme is first set up in 2013-14, we will determine whether authorities have to pay a tariff or whether they receive a top-up payment. To do this, we will compare the local share of the business rates that an authority collects with what I shall simply call the baseline funding level, which is essentially the number that currently falls out of the formula grant process. In other words, it is the share of money that the Government believe each authority should have, taking account of its needs and resources—a calculation that is done currently.
Therefore, at the point that we set up the rate retention scheme, we will have fully taken account of the needs in the same way as we do now under formula grant. Thereafter, we do not intend that the rate retention scheme will take account of needs again until the system is reset, and we have already indicated—and noble Lords have said they understand this—that our aspiration is to have the first reset in 2020 and to have resets only every 10 years thereafter; so 2020 would be eight years after the introduction of the scheme. This is to ensure that there is a sufficiently long time between resets to incentivise growth. If, instead, we were to adjust tariffs and top-ups every year, or every few years, to reflect changing needs, we would completely destroy the incentive effect that this scheme is designed to achieve.
As noble Lords will recognise, if authorities are to be encouraged to invest in growth, they need to be certain about the reward that they will get. As has already been pointed out, authorities will often incur costs as a result of growth and, just as often, those costs are incurred before the rewards from increased rates materialise. If the rate retention system were to be set up in a way that risked authorities incurring costs but then not seeing rewards because tariffs and top-ups had been adjusted, they would have no incentive to invest in growth.
How long the system needs to be stable for is a matter of judgment. Amendment 36 of the noble Lord, Lord Jenkin, would effectively require a reset for needs every five years to coincide with a revaluation. The Government believe that this period is too short. The timeframe over which investment is made and over which costs and rewards materialise will very often be longer than this, a point that was made by many of those responding to last summer’s consultation on the scheme. This is why after 2020 we intend to reset the scheme every 10 years. However, as I indicated last time, we will always retain the ability exceptionally to reset earlier if, for example, we found that the needs and resources had got significantly out of line.
Lord McKenzie of Luton
That was helpful, as I have been trying to understand the difference between a full reset and a change in the tariffs and top-ups. What factors would be taken into account? The noble Baroness said that need is going to be ignored, which would certainly bother a number of us. How is that going to be achieved?
Baroness Hanham
My Lords, the needs assessment will be the same as the assessments for the baseline that were made initially. As I understand it, you would have to revaluate against that baseline. Any adjustments needed to that as a result of the revaluation would be made on the financial basis that there is no change to the amount a local authority is receiving unless there has been some change in the baseline or in the ingredients of the baseline. I think that is correct as to how the assessment will be made and, again, I will write if it is not.
Lord Tope
I am very grateful to the Minister for that explanation and to all noble Lords who took part in this debate, which raised some interesting and useful points. We will read it carefully in Hansard and I am quite certain the noble Lord, Lord Jenkin, will read it with even more care and interest. I do not speak for what he may intend to do when he has done so, but in the mean time I beg leave to withdraw the amendment.
Lord McKenzie of Luton
“(3) Such basis of calculation must take account each year of an assessment of the level of need in each local authority, and in particular their ability to comply with their equality duty and obligations under the Child Poverty Act and homelessness provisions.”
Lord McKenzie of Luton
My Lords, in moving Amendment 37, I shall speak also to Amendment 38. We are still with tariffs and top-ups, which are important because, apart from levies and safety nets, they are the route to seek to address matters of needs and resources. Some local authorities collect more business rates than they currently receive in formula grant, while business rates collected by others are lower than their current funding levels. Hence, there is a need to rebalance resources, a process that we support. However, this requires establishing a business rates baseline for each authority and a baseline funding level. Amendment 37 sets down a general test for this, which requires that the basis for calculation that must be set out in the local government finance report should specifically have regard to an assessment of need. This amendment particularises that local authorities should be resourced to be able to comply with their equality duties, their obligations under the Child Poverty Act and homelessness provisions. The noble Baroness will note that these are the very same issues that central government has pressed on local government, reminding it of its responsibilities in relation to council tax support schemes.
Amendment 38 requires the local government finance report to set out details of the calculation of the baseline position. Establishing the baseline requires establishing the business rate that each billing authority collects and how this is shared between billing and non-billing authorities. The Government have proposed that this is determined by averaging business rates income, although the number of years over which it is averaged has not yet, apparently, been agreed. The amendment requires this to be made explicit in the finance report, but perhaps the Minister can in any case give us an update on this as well as set out the criteria that will determine the final basis of determination. Reverting to our previous discussion, how would this work in relation to a revaluation if the basis of the business rate baseline was an historic average? It would be difficult to do that at the point at which you had a revaluation because you would be averaging on the old basis. There is a difficulty there, but that is an aside.
Establishing the baseline also involves determining an income or funding level, and it is proposed that it is based on the 2012-13 formula grant, subject to some adjustments. It is these adjustments that the amendment also requires to be spelt out. In this regard, we support the decision to update population data, as these are a key driver of the cost of services.
So far as relative needs formulae are concerned, the Government maintain that they have increased the proportion of formula grant distribution going to relative needs at the expense of the central allocation, as this would support the most dependent authorities. For the purpose of the tariff/top-up calculation, the higher the formula, the lower the tariff or the higher the top-up will be. Can the Minister update us on what is happening on these adjustments and tell us the current thinking because the outcome of these deliberations is locked in until a reset and it can be significant? If the proposal is to set the formula grant for the current year, the Government switched data to help the disadvantaged authorities by the central and relative needs shares. If they are thinking of putting that into reverse for the purpose of this calculation, then presumably the risk is that those disadvantaged authorities will not have the benefit that the formula for the current year has given them. I should be very grateful if the Minister could deal with that.
Paragraph 2.47 of the resource review consultation document states:
“In the current settlement we increased the proportion of formula grant distribution going to relative needs at the expense of the central allocation to support the most dependent authorities but made no change to relative resources”.
On the consultation, it states:
“Responses were mixed on this point and we have decided to look again at this issue prior to further consultation, when we will take a decision on whether, or not, to consult on any proposals”.
So the question is: are the Government going to consult and what are those proposals? I beg to move.
Lord Shipley
Perhaps I may intervene for a moment in relation to Amendment 37 to probe the meaning of the word “need”. I should like to raise an issue concerning exempt student households. It is becoming an increasingly serious matter on which I would appreciate the Minister’s guidance.
Student households are exempt from council tax. They are also exempt from business rates where it is a house in multiple occupation but owned by a landlord. The principle has been that councils get reimbursed from the national pot. In the past couple of years, that has not been happening as it should, and in some cases there is around a 25% deficit so that only around three-quarters of the income that would be expected is being received, yet local services are being provided without all the income that is necessary to pay for them.
I understand that the consultation that is taking place over the summer with local authorities will look at this issue, but I am seeking an assurance from the Minister that the matter will be taken very seriously. In the past, need has been taken to include full reimbursement of the loss because student housing is exempt.
Baroness Hanham
My Lords, as I was about to say, the noble Lord, Lord McKenzie of Luton, was asking about the consultation on the needs and the formula. That is part of the summer consultation, so it will be dealt with before we meet again on Report. I am not going to muddy the water before that, so I will leave that there. I do not think there is any intention to change the exemption from council tax for students and business premises.
The first reset will start in 2013-14 and the Government will set out in the local government finance report all those elements sought by Amendment 38, but only in 2013-14 and in any reset year. I do not need to go through again the arguments I have already deployed in relation to Amendments 35 and 36 but, as I have already said, outside of a reset year, we do not intend to reset tariffs and top-ups to take account of need. We have been through this. This is because the scheme is designed to produce, and we intend it to deliver, a significant incentive for local authorities to promote growth. We think that incentive would be destroyed. Instead, we intend that the scheme should give authorities absolute clarity for a period of up to 10 years—clearly it will be eight at the start—about the payments that they will receive or make to central government. This will give them the strongest possible incentive to respond to business concerns, secure the necessary investment and increase their income through sustained growth.
I am sure that the noble Lord, Lord McKenzie, will recognise that, for these reasons, the Government cannot accept either of these amendments, and I hope that he is persuaded to withdraw Amendment 37 and not to move Amendment 38.
Baroness Donaghy
Will the Minister clarify her answer to the question asked by the noble Lord, Lord Shipley? She indicated that the system would not change. Is that the system of a couple of years ago or the system that seems to have been drifted into on student accommodation?
Baroness Hanham
It is as it pertains at the moment, which is that students are not charged council tax and the owner is not charged business tax. I think that is correct, and there is no intention to change that.
Lord Shipley
I should be very happy to have a written note about this prior to Report. It would help us enormously. The issue is that the exemption should be fully refunded to local authorities; as I understand it, in the past few years it has not been. It is becoming a problem for places that have large numbers of houses that are wholly exempt because they are wholly occupied by students. There is simply no income at all.
Baroness Hollis of Heigham
It would be very helpful if the Minister could clarify a position that is increasingly causing concern. There may be a house for students that is completely exempt from business rates and council tax. Then one of the students goes into a part-time job while continuing their degree. My understanding is that if the student’s income from their part-time work is above the threshold, that brings the whole property into council tax, although the student continues to be eligible for a single person discount. That seems to run directly against the concern about work incentives for universal credit and against the need for students to find part-time work, given the increase in fees that they now have to meet for the first time. Will the Minister clarify whether this affects business rates or council tax?
Baroness Hanham
My Lords, I will write to noble Lords on both those matters. Clearly there is a slight difference of emphasis and it would be more helpful if I wrote to the Committee.
Lord McKenzie of Luton
My Lords, I thank the Minister for her reply. Of course, we are in the Moses Room so I shall withdraw Amendment 37 and not move Amendment 38. Before I do so, I return to the issue of the baseline and needs and resources. Even if one accepts that the formulation used when setting the baseline is a fair and reasonable basis on which to do so, what evidence do the Government have to suggest that it is capable of holding in an appropriate way and that there will not be a divergence of needs and resources over seven years, 10 years or any other period?
Baroness Hanham
My Lords, when I was winding up I said that the Government would keep this under review and that, if there were a major change, the Government would be prepared to look at it on an individual authority basis within the local government finance settlements. Is that what the noble Lord, Lord McKenzie, is asking?
Lord McKenzie of Luton
In part it is. I can see that the Government might feel moved to adjust the formulation following a very significant change. However, we are talking about people’s lives here. Incremental changes to support can have a dramatic effect on them. I have looked at the impact assessment and the assessment of economic benefit, which was a fairly opaque document. I am trying to identify what work the Government have done so that we do not need to worry about resetting after three years, five years or any other period, and so that we are confident that, broadly, those parameters will hold over that period.
Baroness Hanham
I will let the noble Lord, Lord McKenzie, know. Whatever the calculation up to that point, the intention is to ensure that there is a settled time between resets in order to establish growth and benefits from that. I have said that a couple of times. The noble Lord will not expect me to answer now on all the calculations. I shall take a look and, if I can get further information for him, I will do so in due course.
Lord McKenzie of Luton
I am grateful for that and look forward to the further information. It seems that, in all this, the incentive effect takes priority over the needs issue, which is unfortunate. However, for the time being, I beg leave to withdraw the amendment.
Lord McKenzie of Luton
Lord McKenzie of Luton
My Lords, in moving Amendment 41, I shall also speak to our other amendments in this group, Amendments 42, 44, 45 and 45A. Amendment 41 is a probing amendment. It concerns regulations about the levy payment calculations. These can be made,
“by reference to such other factors as may be specified in the regulations”.
Will the Minister indicate the type of other factors that it is envisaged might feature?
Amendment 42 would require the Secretary of State to allow 28 days for representations to be made on the basis of the calculation and to implement a process for receiving representations. I am sure that there will be informal arrangements but there should be some formal process by which local authorities can challenge the calculation.
Amendment 44 requires a report to Parliament after three years. The Government have yet to conclude on the safety net but it could be something like a 7.5% to 10% reduction from baseline funding, which, as time goes by, other than being uprated by RPI, would become an increasingly distant figure. Can we have an update on the thinking and on what evidence will be used? A significant diminution in base funding for an authority could be cumulative and we would be very concerned about that. We have debated before a significant loss of the business rate base: we heard from the noble Lord, Lord Greaves, last week. Some of it might be involuntary because of major closures; some of it might be voluntary, such as the discouragement of major regeneration projects. We need a clear path to review how it is working, so we believe that a report to Parliament at three years to see how that safety net is operating is very important.
In similar vein, Amendment 45 seeks to put down some criteria and the need for an evidence base. I apologise for the late tabling of Amendment 45A; it just got stuck in the system. It is a probing amendment intended to focus on the cumulative impact of the safety net, particularly when local authority reserves are being depleted and, in any event, the Government are focusing on levels of reserves.
I have put my name to Amendment 46, which is in the name of the noble Lord, Lord Jenkin, who will perhaps talk to it if necessary. There is something of a hotchpotch of issues there but it is intended to be probing in order to understand issues concerning the levy concept. I beg to move.
Lord Jenkin of Roding
My Lords, this group includes Amendment 46 in my name, to which I am delighted to see the noble Lord, Lord McKenzie, has added his name. We come to this in a splendid example of a total coalition, if I may put it like that to my noble friend the Minister.
I will say a word about a special point that affects the City of London in a moment, but the point about Amendment 46 is that it is asking that volatility in local authority income due to rating appeals is formally recognised and “fully compensated”. The justice of this is self-evident. Under the current proposals for business rate retention, local authorities will be unable to benefit from business rate yield growth due to rental increases after revaluation. However, when it comes to reductions, local authorities are expected to manage and absorb funding volatility caused by rating appeals after revaluation, subject to the provisions of the safety net. Of course, volatility in funding will fall entirely on the local authority.
Just as with other matters of this kind, it is not within the control of local authorities because the rating revaluations are all done by the Valuation Office Agency, which is outwith local authority control, and yet the Bill is providing that local authorities must bear the risk. This seems unbalanced and unfair. If it is right one way, it must surely have the converse effect of being right the other way. I should be grateful to hear my noble friend’s answer to that.
Under the current proposals there is what London Councils describes as asymmetry—a view that I entirely endorse. It seems to me that they are wholly asymmetrical and that, in these circumstances, there must be some form of indemnity from the Government against significant VOA errors. Without this, local authorities will simply have to bear the whole risk, which could be quite substantial.
I give notice that the City corporation has raised with me a separate point on which it may wish somebody to table an amendment on Report. It is a slightly different point but it comes up under the same general issue. It is technically distinct from our proposal, which I have just described under Amendment 46; nevertheless, it seems to be in some way similar. Our Amendment 46 deals with appeals founded on some error by the VOA. The City’s difficulty concerns appeals or alterations founded on a subsequent change of circumstances—namely, for instance, a movement in the local property market that produces an oversupply of commercial property. They have had experience of this in the City. Of course, it does not affect just one office or one set of business premises; it affects them all at much the same time. Therefore, it could have quite a serious impact on the City and on other areas where there are high concentrations of high-yield commercial property.
Even after the dispute has been resolved, the refunds can be backdated for several years, which means that the local authority has to wait for them. Here again the argument should be that local authorities should not be exposed to this kind of risk, because the Government have already accepted that they are not to be exposed to bearing the risk of general movements in the local property market. If it is right there, why is the same argument not applied to movements due to appeals from the valuation office? I understand that it would be appropriate to raise a separate amendment if one was going to try to incorporate something in the Bill, so at this point I am just giving notice of this issue to my noble friend. However, I think that there is a point on which she may wish to comment—she probably knows about this—as well as on what I would call the enlarged coalition proposal under Amendment 46 that the volatility of the ordinary valuation process should be borne by the Government and not by local authorities.
Lord Palmer of Childs Hill
I rise to make the coalition complete and show that it is indeed a multi-coalition point. My name appears on this amendment, as does that of my noble friend Lord Tope. Most of what I wanted to say has been covered by my noble friend Lord Jenkin. I just emphasise that the Valuation Office Agency is another separate body and that it will make decisions on appeals. It will decide whether there is any liability but local authorities will have to pick up the pieces. It seems that there is central government on one side and local authorities on the other. To my shame, I am not sure whether the Valuation Office Agency is still a part of HMRC but it certainly was as a valuation office. Local authorities will be caught between a rock and a hard place because things will happen that neither government nor local authorities will be involved with, and local authorities will then just pick up any compensation that might be needed. Although my noble friend Lord Jenkin widened it in many ways, so far as I can see, all the amendment is seeking is to ensure that losses due to appeals are fully compensated from the safety net. We believe that this would be fair and equitable for local authorities.
Lord McKenzie of Luton
My Lords, I formally put on the record that I am pleased to be part of this expanded but temporary coalition. The case has been well made. The broader point that the noble Lord, Lord Jenkin, made is well worth pursuing, and I would be happy to talk to, and possibly again support, him and extend this coalition in those limited circumstances.
Baroness Hanham
If the noble Lord is going to join the coalition, why not from the Front Bench, given the way things are going?
This group of amendments presents a good opportunity to discuss the key element of the rates retention scheme; that is, the operation of the levy and the safety net. From the outset, we have signalled our intention that the rates retention scheme will include a safety net mechanism to protect local authorities from significant downward shocks to their income. We did so in recognition of the inherent volatility in the business rates system, to which my noble friend Lord Palmer has just referred, that can see rates income vary from year to year, principally because of appeals, to which the noble Earl, Lord Lytton, referred, which are generally out of the local authority’s control, or a sudden change in local economic circumstances as a result of, for example, the closure or relocation of a major business. The safety net will be funded by a levy on the disproportionate benefits that some authorities would otherwise experience simply because of their high initial business rates baseline. The detailed calculations required to determine whether a local authority is to make a levy payment or receive a safety net payment and, if so, the amount of any such payments will be set out in regulations, which will be subject to the affirmative resolution procedure under paragraphs 20 and 23 of the schedule. In both cases, those regulations will need to set out the precise detail of what is to be measured and how it is to be measured, and the provisions in paragraphs 20 and 23 give the scope to be able to include all relevant items in defining income for the purposes of the calculations. Amendment 41, moved by the noble Lord, Lord McKenzie, seeks to remove some of that scope by removing the ability in regulations to make provision for the calculation of levy payments to be by reference to some factor other than retained business rates income.
I shall lay out how we think the calculations will work. The noble Lord, Lord McKenzie, will be aware that we intend to set a proportional levy at 1:1, which will mean that all authorities can expect to retain up to 1% growth in their baseline funding level for every 1% growth in their authority’s business rates baseline. This will require the authority’s retained rates income for the year to be compared with its baseline starting level. In other words, that is the rates income we initially calculated that the authority would collect—its business rates baseline—plus or minus any top-up or tariff before applying the levy rate to the difference between the two. The initial comparison or the application of the levy rate could be described as another factor.
We are also trying to create a legislative framework that will stand the test of time. Noble Lords have already referred to the need to keep the safety net under review, and we agree with that. A consequence of keeping it under review is that we may at some point in the future want to redefine how the safety net works and we may—who knows?—want to include a reference to other factors. If a future Government were to do that, they would, of course, have to get the agreement of Parliament to those changes through the affirmative resolution procedure, so the right level of scrutiny is clearly available.
There is no secret conspiracy here. We do not intend to take account of some other mysterious factors. The provisions as they stand simply enable the way the levy payments are to be calculated to be set out in regulations. It is true that they may also provide some flexibility, but we have no plans to do anything other than provide for a proportionate levy on retained business rates income, as I have set out.
I have more sympathy with the noble Lord’s Amendment 42—that must be the first time I have said that since we started.
Baroness Hanham
Don’t get too excited. The amendment for which I have more sympathy, Amendment 42, seeks to ensure that there is a period during which authorities can challenge the calculation of the levy payment, but I do not believe that it is necessary to set that out in regulations. The basis of the calculations is, as I have explained, to be set out in regulations and local authorities will have ample opportunity to comment on that. Individual calculations will be based on the information supplied to local authorities, so there should be no reason for the calculations to be wrong.
However, I appreciate that local authorities have concerns, as this is something that we have discussed in the working groups that we have with them. Although I am not convinced that a requirement in the Bill is appropriate or necessary, I shall take this away to give further consideration to how we might meet those concerns. That is my sympathetic bit.
Turning to the discussion on the safety net threshold, prompted by Amendments 43, 45 and 45A, noble Lords will be well aware that decisions about the levels of the safety net threshold and the levy ratio are very closely linked. They must balance a range of competing issues and they cannot be divorced. While the safety net needs to offer protection against significant shocks in the local rates base, as I mentioned earlier, it will be funded by other local authorities through the levy. Therefore, the levy ratio must be set at such a level as to generate sufficient income to fund demands on the safety net at the chosen support threshold. Equally, that level must be such that it continues to offer an incentive to authorities to pursue growth.
We have carefully considered all these issues and believe that the levy ratio at 1:1, together with the safety net support threshold in the range of 7.5% to 10% below baseline funding, offers the best combination on balance. We will be consulting local government over the summer before any final decisions are taken. Therefore, although I appreciate the intention behind the noble Lord’s amendments, I am not in a position to accept them.
I think that Amendment 44 tabled by the noble Lord, Lord McKenzie, is unnecessary. I understand his aim but he will no doubt appreciate that we will of course want to keep the operation of the safety net under constant review, particularly during the early years of the scheme. If we believe that it is not offering the right level of support, we will change it.
Finally, with Amendment 46 my noble friend Lord Jenkin seeks to ensure that provision is made for the effect of appeals on an authority’s income—a matter raised earlier by the noble Earl, Lord Lytton. We recognise that the impact of rating appeals on an authority’s income is outside the control of the authority but we do not believe that this amendment is the way to deal with it. Instead, as I have previously explained, we will be building two significant protections into the scheme. First, we will be reflecting appeal losses in the initial calculation of tariffs and top-ups. In other words, we will set the level of tariff or top-up as though authorities have collected less income from rates than is the case, recognising that over time they will lose some income on appeal. Generally, we have put in place the safety net so that, where authorities lose more on appeal than is allowed for in the initial calculation, they will be substantially protected through the safety net payments.
With those assurances, I hope that the noble Lord will feel able to withdraw his amendment.
Lord True
My Lords, I think I understood what my noble friend said and I am grateful for her generally positive response. However, I think I heard her say that the high-income authorities will pay for the funding of the safety net. Of course, I do not know how a high- income authority is defined. If it is a tariff authority—and my authority expects to be a tariff authority—I have just given an example: one appeal has had the effect of knocking 4% off the overall business income. I do not expect the Minister to answer this point now but I hope that there is not an assumption that every tariff authority is necessarily able to bear that sort of short-term turbulence. I should just like to put that point on the record.
Baroness Hanham
Within that, the authorities that will pay the levy are those described as having a disproportionate increase. That is an authority that may have the ability to raise an enormous amount of new money. If the tariff is there and an income is not coming in or is dropping, you cannot be described as having a disproportionate income.
Lord True
I am grateful for that, but that is probably something better dealt with in correspondence. Is anyone from Westminster here? In short-term parlance, we all understand that Westminster is the kind of authority thought of as being disproportionate, with due respect to my friends in Westminster. Could officials let us know about that disproportionate definition tariff? Obviously, if the authority that has to finance the safety net should also be one of those gaining from it, we are in a slightly odd situation as I read it.
Baroness Hanham
I will write to the noble Lord. My understanding is that as long as you have sufficient income left as a tariff authority, you probably would not justify help from the safety net. It is for those who lose an enormous amount of income and are not able to cope with that because it is below the base line. None the less, I shall have the noble Lord written to about that.
Lord Jenkin of Roding
My Lords, I am grateful for what my noble friend said about looking again at the issue raised by Amendment 46, but I am not sure that I wholly understood. I do not want to anticipate the argument that we might have on any amendment that she might bring forward on Report, but I understood that she said that one thing that the Government might do would be to try to take into account the impact of appeals. Is that what she said? How can you know before the appeal has been heard? I just do not understand. It is just another estimate, whereas the amendment is looking for full compensation for that. I am not sure whether I have properly understood what my noble friend said in her earlier response.
Baroness Hanham
It must be extremely difficult to work out in advance how many appeals will be won or lost. There will be an assessment of what that will be and it will be taken into account at an early stage. The noble Lord is asking for full compensation on every appeal that is lost or won—if it were the other way round, we could take money back. At present, if it is likely that a lower amount of rates will be collected than expected because of outstanding appeals, that will be taken into account. That is some form of compensation, it seems to me.
Baroness Donaghy
May I ask for further clarification? The Minister indicated that the appeals losses would be included in the initial tariffs and top-ups. Obviously, one accepts, as she said, that you cannot give an accurate figure for something that will happen in the future. However, there must be some basis on which the assessment will be made. Will it be based on an average across the country of previous appeals under another system—a completely different system? Will it be based on a figure plucked from the air, or the rate of inflation? There has to be some understanding of how that assessment will be approached—some framework—even though, as we all know, you cannot forecast the future.
The Earl of Lytton
My Lords, before the Minister responds to that, we are in danger of losing sight of some of the basic geometry of what has happened here, which was alluded to by the noble Lord, Lord True. He talked about an event that caused the complete recalculation of a large part of the rate base for his authority. I have explained before that it customarily takes about two years from when you lodge an appeal against a non-domestic assessment before the valuation officer has the time to start discussions. That is not the time that it takes to get to the tribunal; that is the time in which you might get a substantive response. The time that it takes to get to an appeal may depend on various other things, including whether it is grouped with certain like matters.
Lord Beecham
My Lords, we are talking about a safety net, but it seems that both the number of holes in that net and their size are to be estimated. It is quite a difficult position. The formulation of the noble Lord, Lord Jenkin, seems much more rooted in objective fact and would give a degree of certainty. Should the Minister not take this matter back for another look?
Baroness Hanham
My Lords, I am happy to do that. The historic figures, which will be used across the country, will be used as the basis of what we have been talking about. We can try to bottom out the detailed calculations between now and Report. It is probably more helpful if I write to Members of the Committee so that they can see what they are. However, the rates system is not new; we have had a system of business rates for ages. At least some of it will not change at all. There have been rates and appeals for all that time. There is not a huge difference in the mechanism but the results may be slightly different. I will write to noble Lords about that as well; it will be a long letter.
Lord McKenzie of Luton
My Lords, I thank the noble Baroness again for her responses to these amendments. She said that business rates have been with us for a long time. They have but what is before us is a fundamental change in which risk moves from central government to local authorities. It is a lot of risk for local authorities. Like a number of noble Lords who have spoken, I understand that something is embedded in the baseline figures, but I am not convinced that that fundamentally deals with the ongoing problem that the noble Lord, Lord Jenkin, has outlined. Like the noble Lord and others, I will read the record on that. I am sure that it is something to which we shall return.
I was on the point of being overjoyed by the Minister’s response to Amendment 42 but was less so when she was not able to accept it. However, I am grateful that at least the spirit of the amendment is alive and that it will be taken away for further consideration.
On Amendment 44, I accept that there will be ongoing routine monitoring and assessment of how the safety net will work. That is not inconsistent with there being some formal report to Parliament on how it has worked and what its effects will be. We will certainly wish to return to it on Report. In the mean time, I beg leave to withdraw the amendment.
Lord Jenkin of Roding
“(2) Before making such a determination, the Secretary of State must consult such relevant authorities and bodies representing relevant authorities as the Secretary of State thinks appropriate about whether the Secretary of State should make such a determination.
(3) If, following consultation under sub-paragraph (1), the Secretary of State determines that the amount referred to in sub-paragraph (1) is to be distributed among one or more relevant authorities, the distribution may not be made unless—
(a) the basis on which the Secretary of State intends to make the distribution (“the basis of distribution”) is specified in the local government finance report for the year in question, and(b) the report is approved by a resolution of the House of Commons.(3A) If a report is approved by resolution of the House of Commons under sub-paragraph (3)(b), the Secretary of State must calculate what amount (if any) fails to be paid to each relevant authority as its share of the amount referred to in sub-paragraph (1).”
Lord Jenkin of Roding
We now turn to the issue of the distribution of the remaining balance of the levy fund, which comes on page 36 of the Bill. As the Bill currently stands, it is entirely up to the Secretary of State to decide how that is going to be done: whether it is going to be rolled over or distributed to local authorities. Amendments 47 and 48 propose that this should be a matter of consultation between the local authorities and the Government, and then be subject to approval by Parliament via the local government finance report. Without that, there is no way for Parliament to exercise any control over the distribution of the levy, which could be quite a significant sum at the end of the period to which it applies.
The logic of the system that the Government are introducing is that it is local government money. It should therefore be returned to the local authorities and not be the subject of a further centralisation of control by the department. It is the old question and the department seems to want to retain overall control over the decision as to whether the balance should be rolled over or distributed, whereas in accordance with any sort of localism agenda it should be recognised that it is local government money and it is for local government to decide what should happen. At least it should be the subject of consultation, as the amendment provides, and then be dealt with subsequently in the local government finance report and so be within the control of Parliament. I hope that my noble friend will be able to see the sense of that and how it is in accordance with the Government’s overall policy of localism. I beg to move.
Lord McKenzie of Luton
My Lords, I have added my name to Amendments 47 and 48 and wholeheartedly support the proposition that has been argued by the noble Lord, Lord Jenkin. There is nothing more to say on that matter.
The noble Lord, Lord Beecham, and I also have Amendment 49 in this group, which is a bit of a failsafe proposal. It says:
“Should any part of a balance on a levy account for any year remain undistributed after 3 years from the end of that year, the Secretary of State shall report to Parliament on the reasons therefore”.
If it is accumulating over that period, there is real cause for concern. This is an added protection and certainly does not displace the propositions in the earlier two amendments.
Lord Palmer of Childs Hill
My Lords, the noble Lord, Lord Jenkin, has covered most of this but I wish to add a few words on Amendment 47. This ensures that the Secretary of State must consult on whether the remaining balance on the levy account is redistributed to local government or rolled over to the following year. I really feel that this amendment is trying to prevent this legislation from resembling the National Lottery, where if someone does not win a prize it is rolled over to the next round. Here, instead of there being a balance that is distributed to the people whence it came, we are suggesting that it is rolled over to the next lot of recipients in some lottery-type arrangement. All this amendment is trying to do is to limit the levy to the period to which it relates and to those who have contributed to the levy within that period.
Baroness Hanham
My Lords, we are in danger of amending the amended. These clauses were amended in the other place as a result of some of the concerns there. These amendments would reverse changes to the way that the Government distributes surplus levy income that were made in the other place. I recognise the noble Lord’s intentions in tabling these amendments—indeed they reflect much of the Government’s proposed process for distributing the levy surplus when we first introduced the Bill in the other place. However, as the Bill was amended to meet concerns raised there, I cannot accept these amendments. We have said that any surplus levy income that is not needed to fund the safety net will be distributed back to local authorities. We will not simply hold larger and larger surpluses.
Amendments 47 and 48 propose that the Secretary of State should consult with relevant authorities in advance of determining how much levy surplus should be distributed back to local authorities and set out the basis of distribution of levy surplus in the annual local government finance report. Although I sympathise with the intentions behind these amendments, setting out the distribution of any levy surplus through the local government finance report rather than through regulations is not the best approach. In fact, there are unintended consequences of this approach, in particular for the timings of payments to distribute the levy surplus.
When the Bill was discussed in Committee in the other place, concern was raised that the proposed process for distributing surplus levy was a bit long-winded. Setting out the basis of distribution through the local government finance report would mean that even when the Government had taken a decision to distribute some or all of any surplus back to local government, authorities would have to wait six months to a year before they saw the money. As a result of that, the Government agreed to look into speeding up the distribution and therefore amended the Bill—which is how it stands now—so that the process for distributing levy surplus, and the basis of that distribution, could be set out in regulations, ensuring that the payments can be made immediately after the decision to make them is taken.
Furthermore, to provide appropriate parliamentary oversight, the Government ensured the regulations would be subject to the affirmative procedure and hence subject to the approval of both Houses of Parliament. Regulations will need to be in place well in advance of any levy surplus being distributed, so authorities will have the certainty that the noble Lord is seeking. Once the regulations are in place, they will have this certainty each and every year until and unless they are revoked.
Amendment 49 requires the Secretary of State to report to Parliament the reasons why any remaining balance of the levy account has not been redistributed within three years. Again, although I recognise the intention behind this amendment, I do not believe it to be necessary. I reiterate that it has always been the Government’s default position not to hold back excessive amounts of surplus levy. The levy account will also operate with a high degree of transparency—the payments made both to and from this account will be easy to identify, as will the overall balance. Furthermore, the Comptroller and Auditor-General will report on the account and lay this report before Parliament in the same way as he currently does in the report entitled Pooling of Non-Domestic Rates and Redistribution to Local Authorities in England. This will provide Parliament with adequate opportunity to raise the issue of the levy balance, if required, through the normal processes.
On the basis of these arguments and the fact that this has already been amended, I hope that noble Lords will not press their amendments.
The Earl of Lytton
My Lords, apart from the redistribution of this levy to local authorities, it remains the case that it is funded by what is paid by businesses on their non-domestic premises. I simply wish to have an assurance from the Minister that under no circumstances could this be used or treated as any sort of contingency fund to overcome inherent deficiencies and time lags in the system. As I have previously pointed out in the context of this Bill, non-domestic ratepayers are getting a bit of a raw deal in terms of what they pay per square foot by comparison to other contributors to local government finances. Their values are based on 2008 antecedent valuation date figures, for which they are paying ever more through the processes of transition, in circumstances where their own economic situation is increasingly challenged. Furthermore, I believe that the Valuation Office Agency has admitted that there is an element in the national non-domestic multiplier for losses and adjustments resulting from appeals.
Baroness Hanham
My Lords, I have already said that if there is a surplus on the levy it will be redistributed to local authorities as soon as possible and in agreement with them. So I do not think that the noble Lord’s comments are valuable at this point. There is a very straightforward intention here. The levy that arrives from a surplus of growth within some local authorities, if there is an excess of it, is distributed back. I must say to the noble Lord that I have 30 pages of response to amendments that he has put down on all these matters, so perhaps we could deal with them all at that stage.
Lord Jenkin of Roding
My Lords, I listened to my noble friend with care. Due to the extraneous noise overhead, I am not sure that I heard it all. This Room is rather vulnerable to the helicopters flying overhead. I got the impression that she feels that there is merit in what we are saying and that she understands that her regulations will in fact deal with it. Would that be a fair summary?
Baroness Hanham
I am happy that the changes that were made in the other place will ensure that the levy is redistributed as quickly as possible, in consultation with local government, and that will be laid out in regulations.
Lord Jenkin of Roding
Indeed, if that is going to happen, that is not unsatisfactory.
Can I have an assurance that the regulations that this clause provides for will be available by the time we get to Report?
Baroness Hanham
We have said that we will have all regulations available before we meet again.
Lord Jenkin of Roding
In those circumstances, I hope that my noble friends in the expanded coalition will agree that I withdraw the amendment.
Baroness Kramer
Baroness Kramer
In moving this amendment, I shall speak also to Amendments 51, 52 and 53. The amendment is in my name and that of my noble friend Lord Tope, but I hope that there is broad sentiment around many of the issues that these amendments contain.
The amendments address tax increment financing. For anyone who remains in doubt, and I know that most here are well aware, tax increment financing is simply a mechanism for using future increases in business rates generated by a project, such as new infrastructure, to finance that project in the first place. In other words, it allows a local authority to trade in future taxation income for the present benefit that will create that taxation stream.
As many noble Lords are aware, this is a mechanism commonly used in the United States, where it has provided extensively for the regeneration of communities, but it dates back to Victorian times in our own country and similar kinds of mechanisms effectively created many of our great cities. It is very British at its core. We are all delighted to see this come back into the framework of local government thinking, but we would also like to see it come into the real economy in an effective way—in fact as well as in framework and description. That is why I tabled these amendments.
Amendment 50 is relatively straightforward and effectively puts tax increment financing into the Bill. It is beyond most of us to understand why it is not there in the first place, particularly when the Chancellor in his Budget referred to TIF, its acronym, frequently and in virtually every debate uses the phrase “tax increment financing”. For the sake of clarity, for goodness’ sake let us deal with that and make sure it is in the Bill itself.
Amendment 51 goes to more substantial issues. Many of us who are concerned about local government and about the broader economy have been looking to TIF as a way to finance much needed infrastructure, particularly in the cities that are the engines of the economy. This comes at a time when the nation needs growth above all things. We are also aware—and anyone can look at today’s Financial Times—that the Government have found it exceedingly difficult to package together infrastructure financing. All of that makes TIF more important.
It is of great concern that the Chancellor has, in effect, capped large projects or TIF 2—I was not going to address TIF 1 very much—at £160 million. Indeed, the Minister will be far better aware than I am of the many applications from the core cities. She will know if there are good quality infrastructure projects that could and should be funded by TIF that exceed that £160 million figure. I do not have any insider knowledge, but I would be stunned if that were not true. A PwC study not that long ago showed that something like double that could be put in train in one year although it would take many years to work its way through. The demand and need are clearly there.
In addition, volume matters in order to create a market. I return to the point that the FT makes about the difficulty of accessing the financial markets for infrastructure finance. Numbers such as £160 million are frankly not worth the candle as far as the financial markets are concerned. To develop the expertise, achieve the understanding, get mastery over the rules and legislation and then go out and build the investor base that will buy, there is a need for a steady stream of substantial projects, not just in year one but going on year after year, to create and build up a market.
We know that the financial markets can absorb this kind of financing because they do it for the US. British banks as well as American banks do it for US cities. Continental banks are doing it for the US and the continent. In other words, there are many players, but they will not do the work, engage themselves in the process and deliver the financing if they are only going to get a trickle. They need a proper volume. On the one hand, we have projects that are positive for the economy and on the other hand we have a mechanism that can fund them and the goal of these amendments is to help the Government to bring these two together.
We recognise that behind much of the Treasury’s resistance to allowing projects beyond a cost of £160 million is the notion that TIF funding will have to be added to the numbers for the deficit. I think that that is highly questionable and many others would consider it to be so. If PFI funding was off books, then, my goodness, this funding is far more off books because you are generating a project whose cash flow returns paid for the project in the first place. It is an absolutely classic example of off-balance-sheet financing. Indeed, it is far less risky than something such as PFI, which included all kinds of variants and complications, whereas, almost by definition, TIF draws together the immediate focus of the initial investment and the tax revenue generated over the life of a project. That link is immediate and direct, whereas it was much more obtuse and diffused with PFI.
As I look at the accounting standards, I wonder whether enterprise zones are being treated differently, even though their financing mechanism is essentially identical. This is something that I do not know the answer to; we asked, but have not received an answer. Are they getting different accounting treatment? If they are, that simply underscores the point.
The amendment provides,
“that any indebtedness incurred against such amount shall not be treated as a liability of the public sector through adjustments to the Accounts and Audit Regulations made under section 27 of the Audit Commission Act 1998”.
When the Minister was kind enough to invite Members from all sides to have discussions with the Bill team about a range of issues in the Bill, I asked whether some justification could be provided for this accounting approach versus forms of accounting used for PFI and enterprise zones. I do not know whether it has been possible to develop that. I also asked whether the Government have talked to the financial markets to understand what needs to be put in place for these to run as live, rather than theoretical, projects. Going back to the FT article, we have a real problem with the gap between theory and practice, but we have an opportunity to close it in this Bill.
The other two amendments follow on quite closely. With regard to Amendment 52, perhaps someone can explain to me why we have to have a specific date on which designation takes place—the first day of a year, or whatever it is. That is completely beyond me. I think that Amendment 52 is just a bit of good sense.
Amendment 53 is another way of approaching this issue. It essentially says to the Treasury that the way to make a decision about whether to do TIF financing is to look at the individual project proposed, decide whether it is a damned good project that needs to be done and can be paid for in the way proposed, and, if it passes the various tests and criteria, authorise it. It takes away the need to set a fixed ceiling and allows the Treasury to make intelligent decisions about the projects that come before it, judging them on their individual merit. At the same time, the Treasury is in a position to look at the overall economy and public finances. That would allow an intelligent, customised approach to these kinds of projects. None of this tackles TIF 1—an area I wish the Government would look at again. However, we talked about that at Second Reading. I beg to move.
Lord Best
My Lords, I support the amendments in this group. The British Property Federation has said that it and others have been deeply frustrated by the way in which a policy that could have been a significant driver of growth and urban renewal has been watered down to such an extent that it will have very little impact. It seems a real shame. TIFs could be such a valuable mechanism in helping local authorities to play a really serious part in achieving local economic recovery and growth. The disappointment is that the Government are planning to control so strictly the numbers of these projects that could be encouraged by being outside the business rates growth levy or the proposed business rate system resets.
I can suggest reasons why TIFs are necessary and useful. The first is that they will help the construction industry, which is in a very bad state—the worst position it has been in for several decades—to become the engine of growth that takes us out of recession once again. We need the construction industry, and it needs the boost that TIFs could bring. Specifically in relation to housing—my pet interest—TIFs would not fund any new housing development, but they could fund the infrastructure that supports and surrounds such developments. I chaired the LGA/DCLG commission on ways in which local authorities could ease housing shortages, and I was struck by how there is synergy between what TIFs can do and easing housing shortages. A housing development can so often not go ahead because the infrastructure scheme that would surround it cannot be financed. I saw a major site, a large site of derelict land in the London Borough of Newham, which needs a big bridge built to bring it to life and enable it to be regenerated for housing, offices and commercial developments. It needed a TIF infrastructure scheme to get it going, but it would pay for itself over a period.
Then there are benefits to central government: higher stamp duty revenues resulting from rising property values—I am trying to appeal to Treasury self-interest here—higher income tax and higher corporate tax due to the increase in economic activity. Then there are savings to central government as people would get jobs and no longer require the social and health benefits they were receiving and there are the social benefits of regeneration. All these things flow from getting this sorted.
As I understand it, what is worrying the Treasury is that TIF funding goes straight on to the national debt. It is counted as being part of public expenditure because local authorities are at the heart of it. If housing associations were the ones doing the borrowing—they could not possibly be—it would not count at all. It is because local authorities are there in the middle of this arrangement that the Treasury finds reasons to block this, other than on a very modest scale— £160 million is not going to get us going. This is a self-inflicted punishment that the Treasury is insisting upon because it is not commonplace in other countries to regard as public expenditure prudential borrowing that is going to be repaid out of a flow of income that is predetermined, clear and visible. The Treasury has decided this, and it could undecide it without troubling any European agreements. I think the anxiety is that the international banking community will say, “They are changing the rules in the United Kingdom. This will scare the international financiers. The UK is up to something with these new TIFs”. I think the international banking community would like to see the UK economy getting stronger and things happening and moving forward. I do not think that the Treasury is right in holding the line on its definition, which is contrary, for example, to the definition of public expenditure in Germany, France or Holland.
It would seem entirely sensible for the Government to adopt a lighter-touch approach in relation to the approval of potential TIF projects under option 2, enabling TIFs to be a really significant mechanism for investment with minimal bureaucratic interference.
Lord Shipley
My Lords, may I add some further remarks about tax increment financing and say how much I agree with all the comments so far on this set of amendments? For several years, I have been absolutely convinced of the importance of tax increment financing for driving cities. In recent months, I have assisted as an adviser to the Government on their cities policy; I declare that interest. This derives from being convinced by the group of eight English core cities and their secretariat, when I was leader of Newcastle City Council, that tax increment financing potentially unlocked growth in a way that conventional capital infrastructure funding schemes did not and could not. I am particularly struck by devolution in Scotland having led to there being, in various states of preparedness, some six tax increment financing schemes on the drawing board.
The importance of this has been exceedingly well explained so far but it really matters financially. This is not just about business rates; it is about other taxes, too. Once growth in building and development happens, other taxes will follow. For example, there will be stamp duty, income tax, VAT and corporate tax revenues, all of which enable the Government to gain from growth in the country generally.
The PricewaterhouseCoopers 2008 report made absolutely clear the potential for the UK here. It drew on 40 years of US evidence and made it clear that this could be replicated in the United Kingdom. Many professional bodies—this is not just a matter for local government—now say that tax increment financing is now a thing for the future and that we must just do it. However, delivering it means that the reins must be loosened by the Treasury. First, TIF should not be treated as an in-year spending decision. Secondly, the Treasury should not place an arbitrary limit on the number of schemes permitted each year. Its consent should apply to all those schemes that meet the criteria. Thirdly, there must be longer periods, of up to 25 years, over which debt can be repaid because investment requires certainty of income for investors. Therefore, TIF cannot just be prudential borrowing with resets. For many potential schemes, 10 years—or seven in the first instance—will not be enough.
I have shared the concerns of such organisations as the British Property Federation and many others, which all urge the Government to look again at tax increment financing to understand its potential for growth, and to encourage the private and public sectors, working in partnership, to make sure that growth can be delivered. It is through growth that government spending can be maintained at its current levels.
Lord Jenkin of Roding
My Lords, I shall add a word or two on this, about which I spoke briefly at Second Reading. I agree entirely with the arguments that have been put forward so far. The speech of the noble Lord, Lord Best, was extremely clear and he made his point with great force.
We have been here before. I introduced in the House of Lords a Private Member’s Bill on business improvement districts, or BIDs. That was based on a precedent from the United States, as is TIF. We got it right though the House of Lords but the previous Government found no time for it in the Commons, so it failed. Two years later, a Bill was introduced by the Government, which the noble Lord, Lord Rooker, presented with enormous pride, saying, “Look at what we’re doing”. It was my Bill, almost word for word, but the noble Lord, Lord Rooker, whom I have known for some time and for whom I have great regard, did not acknowledge that fact at all. I took the view that I was not prepared to make a fuss. The fact is that I was pleased to see BIDs reach the statute book, and they have been quite effective so far, so one has seen this happen.
I have some sympathy for my noble friend at the Dispatch Box, but of course the person who ought to be answering these arguments is my right honourable friend the Chief Secretary to the Treasury, Danny Alexander. That is part of our system. I have been the Chief Secretary so I know and understand the system, which is extraordinarily advantageous to Treasury Ministers. They make the operational department answer all the arguments that are put up. The most we can expect from my noble friend on this is if she says that she is impressed by the strength of the arguments and that she will prevail upon her Secretary of State to have another go at the Treasury. The fact that the Treasury is proposing to treat this simply as an addition to the borrowing requirement in the year in which it is spent is, as the noble Lord, Lord Best, and others have made clear, to ignore totally the reality of what a TIF is. It is not just spending in the year; it uses the prospective revenue from additional business rate income in order to raise a loan which can then be used for infrastructure projects. Many examples could be given, such as money being spent on a housing estate, roads and so on.
That is what everyone expected would happen. When we heard the announcement back in 2010 by the Deputy Prime Minister, enormous hopes were raised. I would suggest that the Chief Secretary to the Treasury might be invited to answer why those hopes have not been met. As I say, I have some sympathy for my noble friend because there is nothing she can do about it except to go back to the Secretary of State and have another go by bearding the Treasury and saying, “Look, this is not a tenable argument. It has to be made to work”.
After all, the Government have made a great song and dance about how one of the ways we can secure economic growth is by investing in our infrastructure. Some very large schemes have been put forward on that basis in the hope that they will be funded by the private sector or even from inward investment. A few hours ago I was discussing foreign direct investment in the Chamber, and this is the same issue. If one can borrow money in order to be able to develop infrastructure in this country, one is creating jobs and building in growth, which is what we all want to see. What is in the Bill—simply having TIF 1 and TIF 2—is what I would say advisedly is simply a form of emasculation. I quoted at Second Reading the view of one of the local authority associations. It has looked at this carefully and does not think it adds anything that will be of any use to anybody. It pains me to have to say this to my noble friend, but I would ask her to go back to the department to say, “We cannot defend this. The arguments are overwhelming and we must look at it again”. Otherwise I suspect that we shall be asking the House to accept amendments on Report perhaps along the lines of those put forward by my noble friend Lord Tope and the noble Baroness, Lady Kramer, tabled today. Again, I feel very strongly about this and share their views absolutely, so I hope that my noble friend may be able to respond.
The Earl of Lytton
My Lords, unlike my noble friend Lord Best and the noble Baroness, Lady Kramer, I am not an expert on TIF, but I can relate to this process, having been involved with development schemes in one form or another. I understand the principle behind this and I strongly support it. I feel like something of a spoilsport in view of what has been said because I have just one slight concern. In normal circumstances if one was looking forward to steady and progressive growth, one would say, “Let’s do it”. However, the information that I have had has indicated that one or two municipalities in the United States have suffered from solvency problems after getting themselves involved in these things because of a larger-scale downturn that was beyond their or probably anybody else’s control. I could understand a Treasury reticence about opening what it might see as a floodgate if it felt that we were in sufficiently uncertain times—and I believe that we are in quite uncertain times—and that, as a long-term punt, it could not foresee a guarantee of growth that would pay that back.
There are many instances right across London. I go back to the early days, when Canary Wharf was being developed. One of the problems that it hit was that, at that time, it could not finance the Jubilee line extension. In effect, it caused the developer to become insolvent. If you imagine that being done on a municipal scale, then obviously it is a very significant issue. The guarantees are not built in. I do not think that any of us would want to find that municipalities involved in TIF schemes would become insolvent. I am sure that there must be safeguards.
Baroness Kramer
I will just add a word because the points that the noble Earl, Lord Lytton, makes are important. One reason why we framed Amendment 53 as we did is so that the Treasury can take a look at projects. In the United States no federal approval takes place—essentially, it is the state that decides off its own bat. In the UK, we are saying to the Treasury, “We are not going to just say to local authorities, ‘Do as you will’”. The Treasury has the opportunity to come in and take a serious look and will give permission, but on a project-by-project basis.
I was on the board of Transport for London after the Jubilee line was completed. The point the noble Earl makes is the reverse one, and the Jubilee line is an ideal example. Even with overruns, the Government put in something like £3.5 billion to build it and developers walked off with something in excess of £30 billion in profit because of the increased values around the various stations, extra rents, land prices and whatever else. At least now, with the opportunity to capture increased business rates, we can get some of that money in to create the project in the first place.
In effect, what happened in London was that the money did not circulate back and the whole Jubilee line project was delayed for years until the Government thought that they could find capacity within the public accounts. It would have happened immediately, and been of great benefit to this country, if people had been looking at TIF financing structures. That is one of the reasons why they are so valuable.
The Earl of Lytton
My Lords, that was what I was trying to say in terms of the Jubilee line, so I am sorry if I gave a false impression. These things are vitally important to leverage in that sort of level of finance. My only concerns are the times we live in. If one is dealing with a development appraisal in conventional valuation terms, the process contains a high number of price-sensitive variables, so much so that my professional body, the Royal Institution of Chartered Surveyors, does not really advise using that sort of development appraisal, or residual valuation, approach for producing what it calls a regulated purpose valuation because of the inherent number of price-sensitive variables. I do not want to pour cold water on things—I simply wanted to point out that TIF is a tremendously good idea but we must make sure that the circumstances are ones in which it can robustly survive.
Lord Beecham
My Lords, having spent some considerable time searching through the Bill to find where TIF was, I have to congratulate the noble Baroness on discovering it. It is a bit like Higgs boson. The physicist who discovered the Higgs boson will no doubt get the Nobel Prize for Physics. Perhaps we should nominate the noble Baroness for the Nobel Prize for political metaphysics.
Lord Jenkin of Roding
One might also congratulate the House of Lords Library on a very splendid section about TIF in its briefing pack for this Bill. It, too, had to say that TIF was not mentioned in the Bill at all. That point is enormously well made.
Lord Beecham
I reiterate my congratulations to the noble Baroness—and indeed the House of Lords Library.
The noble Baroness was rightly critical of some of the aspects of the public finance initiative with which she lived for around 20 years. I was with an LGA delegation on one of our rare visits to 10 Downing Street when we met the then Prime Minister, John Major, at the very beginning of this process. Of course, it has been adopted by successive Governments with considerable enthusiasm. But it always struck me that, whereas there was a good case for that kind of scheme where you could see a revenue stream, there was very little case where there was not a revenue stream. Schools and hospitals, for example, could not be allowed to close or fail, so there did not seem to be a chance of risk-classing in those sorts of cases, whereas on a more commercial basis it seemed quite appropriate. This, arguably, is a better version of PFI.
Of course, as the noble Baroness said, TIF derives from America, where they have other forms of municipal financing, such as bond issues. At some point we might want to look again at those as opposed to this particular scheme, which is analogous in some respects but tied more particularly to specific projects. There are certainly distinct advantages to this. I note the point that the noble Baroness, Lady Kramer, made about the relationship with enterprise zones. I hesitate to raise—for the fourth or fifth time—the question of enterprise zones and their relationship to various aspects of this Bill. I hope that I will have a reply to some of my previous questions, but I join the noble Baroness in asking about the relationship of enterprise zones to the TIF programme.
I am intrigued by Amendment 51, which seeks to avoid the trap of any such financing being regarded as part of what we used to call PSBR—now debt—and takes it off balance sheet. It seems such a simple solution that I wonder why it has not been adopted before, perhaps in relation to other matters. I hope that it stands up; it would be good if it did. If it does, I think we would be in a similar position to that of former Labour Ministers in 1931, when the incoming Government went off the gold standard and they said, “They didn’t tell us we could do that”. If this proves to be a viable mechanism, I hope that it will have a wider application, and indeed it might.
The noble Lord, Lord Best, referred to his special field of expertise, housing, and rightly pointed out that the schemes will not be available to support housing but will be available to support infrastructure. There are two aspects to that. First, there is surely another way of promoting housing construction. If the Bank of England is going to pump endless billions into the vaults of our esteemed banks, would it not be better to pump that money directly into housing construction? This would have precisely the same effects on the economy that the noble Baroness has alluded to: the net cost after you take off the savings to the benefits system—increased tax income from corporate tax and the like—would be less than the amount devoted. You would have assets on the balance sheet—this is not money for current expenditure—and that might be a way forward. I suppose that is not really within the province of the Local Government Finance Bill, but it raises the question of TIF and its use for infrastructure.
As I understand it, the Government have been looking for investment in infrastructure from pension funds and the like. I recall a recent report, although I cannot remember whether it was produced by the National Association of Pension Funds or the IFS, which indicated that there was little interest thus far in such funding from those sources, whereas this offers a clearer route to making rather more rapid progress, and I very much hope that it will be pursued.
Nevertheless, there are some potential flaws in the present proposals. In particular, the amount allocated— I think the noble Baroness said £160 million although I thought it was £150 million, but it is in that region—is pitiful, as she rightly said. I do not know whether yesterday’s “city deal” announcement dealt with this £150 million or £160 million—whatever the figure is—which I thought was to be allocated to the authorities involved in that city deal but, if so, however it is divided up, it is a very small amount indeed and will do very little. Even in a single authority, it would not do an enormous amount. Spread across eight authorities, it would do very little. I hope that this is seen as a first instalment and that the process will go on to much larger sums in future, and rapidly, if we are to see a real impact on the present situation in the economy.
TIF 1 also has its problems because, as the noble Lord, Lord Shipley, and the noble Baroness, Lady Donaghy, pointed out, the restrictions seem to be quite perverse. The timescale for repayment is particularly so because, if there are to be resets and so on, nobody is going to be taking on large sums that have to be repaid in a very short time, as the noble Lord, Lord Shipley, rightly said. Indeed, lenders may very well be reluctant to lend over those times. I entirely concur with the view expressed by the noble Lord, Lord Shipley, that it is ridiculous to have an absolute limit and for there to be a cap on expenditure in the first year. On the contrary, I would have thought the more the better to get the thing moving in the early stage.
We certainly approve of the concept and hope it can be made user-friendly, if I can put it that way, to lenders and authorities. These amendments certainly go some way to taking us in that direction. Again, the noble Lord, Lord Jenkin, is quite right. We cannot expect too much of the Minister in replying today, unless she has somehow received a blank cheque from the Treasury, which would be a first. I am sure she will report back the strength of feeling among people with considerable expertise in these matters, whether ministerial or professional, and we might see some improvement.
On Report, it would be helpful to have explicit reference to the scheme in the Bill. It has to be very clear what we are talking about and whether there are to be any changes in the scheme as adumbrated so far. It is clear that this is not going to be a panacea. It will not do everything, but it would be a welcome extra tool for local government, which is perfectly capable of using it effectively, as it has demonstrated for generations. It can and does play a significant part in regeneration, very often in partnership with the private sector. I very much look forward to the day when local authorities can get on with schemes under the aegis of TIF—however it eventually emerges from this Bill—and, perhaps, other measures.
I note that Scotland seems to have jumped the gun. That is interesting because presumably—certainly in the present state of affairs—what happens there would impinge upon the national UK debt. Sitting where the noble Lord, Lord Shipley, and I sit, just over the border, it would be extremely irritating if it were found that Scotland was able to do a great deal and we in the north-east were not. Of course, the same would go for many other parts of the country where there is huge need and demand for investment of this kind, and for the contribution that that could make to the economy.
I certainly commend these amendments, and I hope that the Government in one form or another can look sympathetically at them and address the very legitimate concerns that have been raised in order to make a good policy work effectively, which is what we must all seek.
Baroness Hanham
My Lords, this has been, as I thought it would be, a very interesting debate. I am not necessarily going to be able to give noble Lords all the enthusiastic encouragement that they look for but there is no doubt that this is something that will generate more discussion, and I accept that.
I know from the noble Baroness’s Amendment 51 that there has been a search for the words “TIF” and “enterprise zones” to be spelt out in the Bill. They are not specifically identified but I assure the Committee that the provisions under paragraph 37 of new Schedule 7B deliver both TIF 2 and enterprise zones. An amendment that names TIF in the Bill is therefore unnecessary.
Before turning to the substance of the amendments, I want to say that it has been interesting that the whole discussion has been on the basis of TIF 2 and none of it on TIF 1. I need to point out that the measures in the Bill relate to TIF 1, TIF 2 and enterprise zones. For the benefit of the record, I think that at some stage we need to spell out what TIF amounts to.
However, we want to clarify the position and remove misunderstandings about what is possible or not possible within the policy. I think it would be fair to say that noble Lords have not really acknowledged that, as a result of the Bill, all local authorities will have unfettered access to a share of business rate growth to increase their potential borrowing. As things stand at the moment, under TIF 1 it will be possible for local authorities to undertake developments unfettered. They can do so with their normal prudential borrowing.
TIF 1 rests wholly within the business rate retention scheme and the core feature of the rates retention system, including the levy and reset. Beyond that, the Government will not impose any further constraints, and local authorities will be able to get on with it. I know that the criticism has been—
Baroness Kramer
We did not raise TIF 1 here because it is more of a reset issue, but will the Minister acknowledge that, with the way the reset works, the capacity to do TIF 1 will be exceedingly limited because the whole project has to go from conception to completion and complete repayment within a very narrow reset period? The consequence is that certainly by year two or year three it will be absolutely impossible to raise the financing because nobody will have any certainty that there will be a flow of business rates beyond the end of the reset date to complete the payment cycle. Perhaps the Minister will acknowledge that it is a de minimis amendment. The language may not be de minimis but the effect of the way in which the reset period works makes it de minimis.
Baroness Hanham
I will persist with my view that there is an advantage here for local authorities in that they will have the opportunity with tax increment financing within the reset period of seven years, and then, with the longer reset period, 10 years, to help with those projects. In addition, the Government will guarantee long-term certainty over revenues and enterprise zones—as mentioned by the noble Lord, Lord Beecham —meaning that local enterprise partnerships, with which the revenue will sit, will be free to undertake long-term borrowing without any central government controls. Those are the two areas which do not come under TIF 2.
Finally, the Government stated, and made clear, in the 2011 Budget that they will support a limited number of TIF 2 schemes in the core cities, to which the noble Lord, Lord Shipley, referred. The Secretary of State may specify, in regulations made under paragraph 37 of new Schedule 7B, that business rates uplifts, from a very clearly defined area, will be disregarded from the levy and reset calculations for a specified period. The amendments specifically concern this measure.
The Government are fully committed to supporting growth. I noted carefully what the noble Lord, Lord Best, said about housing and about housing construction stimulating the economy. We will continue to have that debate, but the measures to do that are currently in place and are not related to TIF. There have also been a lot of questions about the £150 million in support from TIF for what will amount to a limited number of core cities. Some of those core cities have been announced today and are currently putting forward substantial and interesting proposal bids for this money. I have no doubt that it will work its way through the system.
Amendment 51 seeks a way to get TIF 2 reclassified as non-public sector debt, to which I say, “Oh dear”. Business rates are a tax, and taxes are uniquely established by the tax-raising power of government. Therefore, TIF 2 must be recorded as government borrowing. There is absolutely no choice to be made about how TIF 2 is accounted for—it is not the Treasury sitting on our shoulders here, it is the Office for Budget Responsibility that has made that decision. It is an independent body and has made very clear how this will score.
Furthermore, core cities that are successful in the TIF 2 competition will be undertaking additional borrowing that has not already been reflected in the Government’s local authority self-financed expenditure forecasts. The Government have been clear that we will need to limit the amount of TIF 2 that occurs so that the Government remain within the wider deficit reduction plans.
In respect of balance sheet issues concerning enterprise zones, the policy to allow rates to be retained within the zones will lead to an increase in the local authority self-financed expenditure forecasts and will be scored as public expenditure. As the business rates retention system does not start until April 2013, no costs have yet been accrued. The Government are working with local enterprise partnerships on forecasting these costs and will be discussing the detail with the Office for Budget Responsibility ahead of the Autumn Statement. That may give some substance for the noble Lord, Lord Beecham, who says I have not answered any of his questions. Given this, it is not possible to take TIF 2 schemes off the balance sheet, as the amendment seeks.
Amendments 52 and 53 would not only remove important controls from the system—I have already explained the importance of maintaining the Government’s fiscal deficit policy—but would add further layers of complexity to the operation of the scheme. That would potentially impact on all the calculations of central shares and precepting authorities, removing the certainty that precepting authorities would have about the income they were to receive in that year. Noble Lords will not be surprised when I say that I cannot accept their amendments. I will not be surprised if they say they are going to return to this at a later stage.
Baroness Donaghy
Can the noble Baroness clarify whether, when the Office for Budget Responsibility made clear that this could not be off-budget, it gave a full explanation as to why it said this, and whether the Government have to accept what the Office for Budget Responsibility says? I wonder if it is a swing of the pendulum against the outcome of PFI. Having a fuller picture of why that independent body said this might give us the opportunity to explore the subject further rather than just accept that it is closed.
Baroness Hanham
With regard to the point about whether we have to accept what it says, the answer is yes. The OBR advises the Treasury, but what it says pretty well has to be taken on board and dealt with in the way it says. I do not think I have a note at the moment of the reasons behind what it said. If they are in the public arena, I will make sure the noble Baroness knows what they are.
Baroness Donaghy
Does that mean that, on all subjects, every statement made by the Office for Budget Responsibility will be accepted by the Government?
Baroness Hanham
Sorry, I have to keep looking over my shoulder for. It would be better for me to quit looking over my shoulder and say that I will answer with detail in writing.
Baroness Kramer
My Lords, I am absolutely fascinated by the comments on the Office for Budget Responsibility. It is incumbent on the Government to provide us with the analysis or the statement that it made that requires this from its perspective to be on books because it would be very interesting and beneficial to everybody to get the comments of the accounting community and some of the various international standards boards. It would mean that we could have a fully constructive discussion. I cannot think that any of that could possibly be confidential. In fact it would be perfectly odd if it was confidential to explain why one made a decision that something needed to be allocated to one particular set of accounts or another. That would be exceedingly helpful.
It would also provide us with the criteria, because obviously there are many different ways to structure TIF projects. If various poor cities are bringing forward their proposals in such a way that they have inadvertently set them up so that they fall on books when, with some further thought and different structuring, they could be off books, that would be extremely sensible for everyone to know. That surely must be in the public arena, so I look forward to that.
Having heard the tone of this meeting, the Minister is exactly right to understand that this is an area that we would wish to pursue. I so much appreciate all of the various speeches and analysis that have happened from the noble Lords, Lord Jenkin and Lord Best, and others. It underscores the importance to local authorities up and down the country who are trying to drive forward economic growth in their communities and see TIF as a very significant tool with which to be able to achieve it.
I thank the Minister for her explanation, but she is exactly right: we will continue to push and I hope that she will take the issues back.
Lord McKenzie of Luton
“Publication of Impacts and ResetsCalculation and supply of information on the impact on total resources available for Local Authorities39A (1) The Secretary of State must for each year and in relation to each billing authority in England identify—
(a) the total level of resources available for each billing authority in the preceding year including—(i) the local share of an authority’s non-domestic rating income;(ii) the total of any top up or tariff;(iii) the total of any levy paid to the Government;(iv) the total of any safety net paid by the Government;(v) the total amount of resources raised through council tax;(vi) the total of any homes bonus paid by the Government;(vii) any other payments made by the Government considered appropriate to be included by the Government following consultation with local government;(b) an estimate of the total level of resources available for each billing authority in the forthcoming year including—(i) the local share of an authority’s non-domestic rating income;(ii) the total of any top up or tariff;(iii) the total of any levy paid to the Government;(iv) the total of any safety net paid by the Government;(v) the total amount of resources raised through council tax;(vi) the total of any homes bonus paid by the Government;(vii) any other payments made by the Government considered appropriate to be included by the Government following consultation with local government. 39B (1) The information under paragraph 40A must be set out in a report, to be called an “Impact of Business Rates Retention Report”.
(2) The Secretary of State must for each year, alongside the local government finance report, lay or make arrangements for laying, the Impact of Business Rates Retention Report before the House of Commons.
(3) As soon as is reasonably practicable after an Impact of Business Rate Retention Report is laid before the House of Commons, the Secretary of State must send a copy of the report to each relevant authority.
Resets of the Business Rates Retention System39C (1) The Secretary of State shall be required to make arrangements for a ‘reset’ of the Business Retention System every 3 years to coincide with each spending review period.
(2) The reset is to take on board a reassessment for each authority of—
(a) relative spending needs;(b) relative resources available through council tax income;(c) relative resources available through business rates.(3) The assessment of relative need is to be determined in full consultation with local government.
Designation of tax increment financing schemes39D (1) The Secretary of State may by regulation—
(a) designate one or more tax increment financing schemes;(b) provide for the calculation in accordance with the regulations, for each year for which the designation has effect and in relation to the billing authority of the amount mentioned in sub-paragraph (2);(c) provide for that amount to be disregarded for the purpose of the calculation under paragraph 39C(2).(2) The amount referred to in sub-paragraph (1)(b) is the total amount which, if the authority acted diligently, would be payable to it for the year under section 43 or 45 in respect of the hereditaments in the tax increment financing scheme.”
Lord McKenzie of Luton
My Lords, I beg to move Amendment 54 in the name of my noble friend Lord Smith, who is unable to be with us today. The thrust of the amendment is to cause a report, termed an,
“Impact of Business Rates Retention Report”.
It calls for the report to be laid before the House of Commons alongside the local government finance report. I believe that the intention is that the report would cover the current and upcoming year. It further calls for the Secretary of State to make arrangements for a reset of the system every three years, which we have debated already, to coincide with each spending review period. We have not particularly touched upon that issue. The amendment also requires the Secretary of State to designate one or more TIF scheme and for the revenues to be disregarded in assessing the reset of the business rate retention scheme; a matter which we have just debated at some length.
The thrust of this amendment is a reminder of the complexity of the new system and the difficulty which will confront local authorities in setting their budgets, especially in the early years of implementation. I note in passing that the proposed report is focussed on billing authorities, but it would seem logical to extend it to major precepting authorities. In any event, the report should include payments to major precepting authorities. It would also be appropriate for such a report specifically to identify revenue support or Section 31 grants payable to local authorities and also the central share of business rates aid to central government.
My noble friend’s amendment, however, raises the issue of what the local government finance report will look like in the future. No doubt thousands of councillors will miss ploughing through the intricacies of the formula grant, although this will have to be covered at the outset to set tariffs and top-ups. Under this Bill, the local government finance report must precede the specifying of central and local shares, the basis of calculation of tariffs and top-ups and the amounts to be credited to the levy account. However, what will happen routinely to the relative needs formula after the initial calculation of these matters? Will this still feature as part of the annual local government finance report? If not, on what basis will the Government be able to assess need for determining whether there should be an early reset or an in-year safety-net payment—indeed, for the distribution of revenue support grant itself? It would be helpful if the Minister at least outlined these and perhaps arranged to write in detail.
Baroness Hanham
My Lords, as the noble Lord has acknowledged, we discussed in earlier amendments a number of the things that he has raised, focusing too on the case for requiring the Secretary of State to undertake reviews of resources and need, and for the Secretary of State to take account of changes in relative needs and resources in resets of the system. Given those exchanges, I will not rehearse all the arguments again as they will be on record.
However, it will not surprise the Committee that I cannot support the amendment, as it would fundamentally undermine the purpose of our changes to the funding of local government. There are two key principles at the core of those changes. The first is to deliver a powerful incentive for local authorities to drive growth in their area, and to benefit from that growth. I remind the Committee that such authorities are all around the country; growth is not a southern phenomenon.
Secondly, we are clear that the arrangements should deliver strong protections to those areas that are less able to generate growth or where the business rates are less than the needs of that area. That takes in tariffs, top-ups and levies. We have made clear that baseline funding levels will be equivalent to what councils would have received under the formula grant. As a result, each local authority’s baseline funding level, and therefore the calculation of its tariff or top-up, will be based on figures that take account of the different needs of each area, so our changes will recognise relative needs.
Having established the baselines, an integral part of our proposals is to provide certainty and predictability to councils. Those authorities that have a lower business rates base need to have certainty that their top-up payments will remain fixed, subject to being uprated by RPI annually. Those authorities that, at the beginning of the scheme, have spending needs in excess of their business rates need to have confidence that any tariff that they are paying is fixed—again, subject to being uprated by RPI.
That level of stability in the scheme is crucial to enabling local authorities to carry out their budget planning. At the heart of our arrangements is enabling local councils to benefit from growth. To maximise that incentive effect, we have set out an aspiration to allow 10 years before resetting tariffs and top-ups. At the start of the scheme, the statement of intent that we published in May confirmed that we would not expect a reset to take place before 2020—and I have acknowledged that that is eight years, not 10.
The use of a lengthy period between resets was also strongly supported by respondents to the consultation that we undertook last year on the parameters of the proposals. However, we have also been clear that in exceptional circumstances we could consider the need for a reset to be undertaken on a different timescale. This could reflect on significant changes in need and resources. Noble Lords can be reassured that we are not blind to such possibilities.
Noble Lords will also appreciate that each year we will publish a draft local government finance report which will be subject to consultation and approval in the other place. I am sure that authorities will use the opportunity provided by the provisional settlement, as they always have done, to make their views known on the resources available to them. As always, we will listen carefully to any such representations.
However, at this stage we are confident that we have developed the right balance between providing an appropriate timeframe for councils to benefit from the incentive effect while also providing stability and security for councils. A period of only three years between resets would not achieve that balance and would, in my view, undermine the incentive effect.
The amendment also proposes text on the designation of tax increment finance schemes. As we discussed, TIF is very firmly part of our proposals, and paragraph 37 already provides the appropriate powers to facilitate such schemes and to ensure that the business rates from such schemes are disregarded for the purposes of setting top-ups, tariff and levy amounts. With those explanations, I hope that the noble Lord will be able to withdraw the amendment.
Lord McKenzie of Luton
I thank the Minister for her response. I think that we have aired issues of reset and TIF enough for today. However, I want to return to the first part of my noble friend’s amendment. I did not have the chance to discuss the background with him so I am interpretingwhat he may have intended, but it gives rise to an issue about what that local government finance report will routinely look like in the future.
Obviously, the first year will have particular features, but if we look at current local government finance reports, there is a whole raft of information and regression analysis that drives the formula grant and helps establish need right across the country. What will happen to that in the future? Presumably, the information will not routinely need to be available on the Government’s proposition in that report, so what will it look like? What will it contain? It will clearly have to contain certain information that has to precede the decisions and payments and so forth that flow from the Bill, but what will be the core of that and will it have details about the revenue support grant and the basis on which it might be distributed?
Baroness Hanham
I am not going to detain the Committee tonight. We have the details and I will make sure that the noble Lord has them. The ingredients of the local government finance report, which will be annual, will probably change from time to time, but if I may, I will write to the noble Lord with the details.
Lord McKenzie of Luton
I am grateful to the Minister and beg leave to withdraw the amendment.
Lord Warner
“( ) In making any change to revenue support grant arising from introduction of any part of this Act, the Secretary of State will ensure that no council with responsibilities for adult social care services is required to reduce their funding of those services in real terms until legislation has been introduced that provides a comprehensive and sustainable solution for the funding of those services.”
Lord Warner
My Lords, this amendment is in my name and that of the noble Lord, Lord Best. I tabled this amendment to probe the Government further because of the unsatisfactory response to my questions that I received at Second Reading. It is to the issues that I raised then concerning the parlous state of funding for adult social care that I wish to return this afternoon with this amendment. I do so because of the implications for that situation of this Bill. While it gives more local discretion to local authorities, it takes further resources away from local government overall when many authorities are in dire straits over the funding of adult social care, which in some authorities can account for 60% of their expenditure.
The desperate situation that has arisen over the funding of adult social care arises to a great extent because the Government have totally failed to come forward with any response to the funding proposals made a year ago in the report of the Dilnot commission, of which I acknowledge I was a member, or indeed with any alternative proposals if they did not like what the commission suggested. The signals that they have consistently given out are that they will not produce any clear funding reform proposals when they publish their White Paper and draft Bill on adult social care, which the Whitehall rumour mill suggests may be next week. Any light that the Minister can throw this afternoon on what the Government’s policy is on funding adult social care would be more than welcome. I wish to encourage some indiscretion on the part of the Minister.
The amendment is intended to prevent a bad situation getting worse. It will have no impact whatever if the Government get their act together and come forward with proposals that can be implemented to place the funding of adult social care on a sound and sustainable basis. Much of that soundness and sustainability would come from service users paying more if they had the resources to do so, as the Dilnot commission proposed, so this is not simply a matter of ratcheting up public expenditure. The amendment would prevent making any changes to the revenue support grant arising from measures in the Bill for those local authorities with responsibilities for adult social care if that would mean a real-terms decrease in funding to those services before the Government have introduced legislation that provides a comprehensive and sustainable solution for funding those adult social care services.
The solution to whether the amendment has real impact is totally in the hands of the Government. All it does is give them a pause for thought before services for the poorest, vulnerable, elderly and disabled people and their carers are reduced further. Let me briefly say why this pause is necessary. I am relying to some extent on figures produced from a parliamentary Answer on local government expenditure provided by the Minister’s own department. I have to say that the information was not provided in the most helpful format, which is hardly surprising given the story that the data tell. However, with the help of the Library I have managed to explore the data in a way that is reasonably intelligible.
The data establish the rapid decrease in adult social care expenditure by local authorities under this Government, even though service demand is going up rapidly because of demography and local authorities are doing their utmost to protect adult social care services by cutting other services. I pay tribute to them, across the political spectrum, for their political courage on this issue.
The data show that at constant 2011 prices, local authority expenditure on adult social care went up from £15.46 billion to £16.4 billion between 2008-09 and 2009-10. Noble Lords will recognise that 2009-10 was the expenditure for the last year of the previous Government. It then fell back to £15.54 billion in 2010-11, declining again in 2011-12 by another £0.5 billion, although there are some technical changes that slightly confuse the picture. The evidence available to me and other noble Lords who are close to local government suggests that expenditure will fall again significantly in real terms in the current year.
There is the very real possibility that expenditure on adult social care will be some £2 billion less in real terms when the Bill takes effect next year compared with 2009-10, despite the best efforts of local government to make amends and try to cope with that set of problems. The knock-on effect of this for the NHS is considerable. When I was a Minister, the Department of Health formula was that for every pound you cut from adult social care, you spent £1.30 on the NHS. You can do the arithmetic for the implications of all this for the NHS as well as for users of adult social care services.
The Deputy Chairman of Committees (Lord Brougham and Vaux)
I must advise the Committee that, following a printing error, Amendments 54A and 54B should be numbered Amendments 56A and 56B to Schedule 2.
Lord Best
My Lords, I shall be brief in supporting the amendment of the noble Lord, Lord Warner. We all owe him a debt of gratitude. He was one of the three Dilnot commissioners, along with Dame Jo Williams and Andrew Dilnot. Their report remains the key piece of policy guidance to which we all look to reform the system fundamentally.
I have declared my interest as president of the Local Government Association, which is right behind this amendment. The LGA has made adult social care its highest priority. It is the issue about which it is most concerned at the moment. If we take out the dedicated schools grant, social care is already much the largest area of local government spending. The 28% cut to central government support for local authorities over the current spending review period has not, I am glad to say, led to a 28% reduction in social care services for older people, adults with learning difficulties and others in need of care. Local authorities have absorbed some 85% of those cuts through service redesign and efficiency savings. However, this can go on for only so long before very painful results become apparent.
The cost of adult social care services is now set to rise, on a trajectory that the LGA has calculated, from some £14.4 billion to £26.7 billion over 18 years. That is an increase of 85%. By the time we get 18 years down the road, we very much hope that a series of measures will be in place to head this off before we get to the point at which virtually all local government expenditure must be on social care. However, there is the period in between in which things may get worse and we do not want this legislation to heighten those dangers.
It seems unlikely that a Bill could be introduced before the next election. If something came forward in 2015, it would probably be enacted in 2016 and become effective in 2017-18. We would already be several years down the road. The King’s Fund has estimated that by 2014-15 the gap in social care provision will already have reached £1.2 billion a year. Central government support needs to be in place now. We will get a reset in 2020 but in the intervening period funding for social care is a really important consideration for the Government. Although there may not be an expectation of the noble Lord’s amendment being accepted in its entirety, the sentiment behind it is strongly supported by the Local Government Association.
Baroness Hollis of Heigham
I support my noble friend’s amendment. I am confident that the Minister will not reproduce the rather unwise remarks that we sometimes get on the Floor of the House that in seeking to cut the deficit you cannot afford to spend money on social care. There are sources of finance that could be available to government—any Government, including mine, which could and perhaps should have done this as well so I am not making a partisan point—which would adequately fund the Dilnot proposals on pension tax relief, about which some of us know something and others know relatively little. I may be in the second group.
At the moment pension tax relief is £30 billion and the difference between the standard rate and the higher rate is £7 billion. In the past we weaned the country off mortgage tax relief, first by bringing it down from higher rate to standard rate—that was done by a Conservative Government; the noble Lord, Lord Lamont, I think, but it may have been the noble Lord, Lord Lawson—and subsequently it was abolished altogether. The point about this is that in all our thinking about funding people’s long-term savings and their ability to cope with long-term care and so on, we think there is something called work and something called retirement, and that you should save from the one and transfer it to the other. We have to start thinking much more about people’s longevity, which is a good sign, and moving money from work to early retirement and from early retirement to later retirement; there are three categories.
If you were to ring-fence the money that is currently spent on higher rate tax relief down to lower rate tax relief, which is enjoyed by higher rate taxpayers on their way in, even though they pay only lower rate tax on the way out, it would be redistributed within the pensioner community from younger pensioners in their 60s and 70s to that same group of pensioners as they age into their 80s and 90s. For what it is worth, it would also redistribute, to some degree, from the better off to the poorer. As far as I am concerned, it would hit every winning duck that we want to hit: we would make pension tax relief fair; we would redistribute within the pension community in a ring-fenced way; we would redistribute from the better off to the poorer; and we would, I am sure, be able to commend it to the public in terms of fairness, because most people will be postponing income they might have got in their 60s and 70s to be able to have it in their 80s and 90s.
Before the Minister says that we cannot possibly do anything about this given the deficit—and I realise that this is for HMRC and the Chief Secretary and so on to think about—I would like to put this into play because I would be very sorry indeed if the proposal coming out next week was put into the long grass on the grounds that there can be no funding available and therefore we have to struggle on from an interim ad hoc base, as we are doing at the moment. There is a way if there is political will, and I am quite sure it is the sort of proposition that could command support right around the House and from all political parties. It would be fair, decent and affordable and it would give people security.
Baroness Hollis of Heigham
My Lords, I am giving only my own views at the moment. I have not sought the views of my Front Bench on this. I am coming out of the pensions world on this and my concern about the unfairness in pension tax relief and the way that we could link this to the funding for long-term care that my noble friend has mentioned. But certainly not; they are my views.
Baroness Hollis of Heigham
I have not put them to the Labour Party Front Bench.
Lord Warner
It might just help the Committee to say that there are plenty of suggestions around, which the Government are well aware of, that enable you to implement the Dilnot proposals without any increase in public expenditure. What you are required to do, though, is reprioritise, which the Government are unwilling to do, as far as I can see. Starters for 10 would be not just the creative proposal of my noble friend but means-testing generous winter fuel payments, free TV licences and bus passes for people who are higher rate taxpayers. Plenty of proposals have been put forward for using inheritance tax to pay for that. All these proposals could be put into play if the Government were prepared to enter objectively into a discussion with the Labour Front Bench in the other place, with whom they are having so-called cross-party talks, but very little creativity seems to be coming from the government side.
Lord Beecham
My Lords, I am not empowered to commit the Labour Party to a particular policy stance on this, although I find some of the arguments and options advanced by my noble friends quite interesting. What I do know is that the Conservative Front Bench walked away from joint-party discussions two and a half years ago, have done nothing so far about Dilnot and, by all the auguries that we are hearing, do not propose to do very much about it. We will see in due course, if and when we get some proposals that may come before the Recess.
In what has been a long—perhaps inordinately long—municipal career, my most rewarding period was when I served as chairman of the social services committee of my council for four years in the 1970s. We managed to transform the provision of social services, at that time including children’s social services, since hived off—in my view, perhaps rather unfortunately —in a way that would now be impossible, given the financial situation. This is therefore a matter that is very close to my heart and, of course, to the hearts of many others.
It is disturbing that, as we have heard from my noble friend Lord Warner and the noble Lord, Lord Best, the financial situation is deteriorating really quite rapidly in the face of substantially rising demand, produced in part by demographic change, and in part by the advance of medicine and care. Younger people with physical and learning disabilities are living longer and elderly people are living longer, and we must be glad of that but, as we have heard, it imposes considerable pressures on services and budgets. We have heard some of the data on that this afternoon.
It is often assumed that we are talking largely about the older population. That is not the case because younger people with learning disabilities are growing fastest in terms of numbers and in terms of the costs that have to be met to care for them. The Local Government Association’s projections are that the percentage of expenditure on younger people will rise substantially—indeed, more than for the elderly. The cost of care for that particular group is expected to rise by 42% by the end of this decade. As the noble Lord, Lord Best, has pointed out, that ultimately could lead to virtually the entirety of local authority budgets being devoted to adult social care of all kinds. In any event, the LGA estimates that if current demand, which is likely to develop, were to be met in full, funding for all other services would drop in cash terms, assuming a level playing field, by 66% or 80% over that period, so we are talking about a very large potential gap. The consequences of some of the savings that have been referred to by my noble friend and the noble Lord, Lord Best, are rather worrying. The financial pressures on providers of residential care are causing considerable difficulties.
Baroness Hanham
My Lords, the problem of adult social care does not rest with the local authorities alone. The noble Lord, Lord Beecham, has already pointed out that there is a similar responsibility on the National Health Service. If this problem had been capable of being resolved, it would have been by now. I recognise the noble Lord’s frustration coming to this Bill as a result of his work on the Dilnot commission, and I understand it fully. However, everybody here will be aware of the ongoing discussions every time you turn on the radio or television. There was another discussion last night on “Newsnight” on these serious problems, which are, at the moment, more or less intractable. The last thing I want to do is to try a light touch on this. I appreciate fully that this is a very serious matter, but so do the Government. The Government are wrestling with this, like previous Governments did. If the noble Lord was dealing with social services in 1970 and was then leader of a council, he and I at both stages were dealing with having to reduce expenditure and increase and toughen criteria.
This has long been a problem and it has gradually got worse because of the demographics and the general increase in costs. We are now against the background of an enormous deficit—which was not the responsibility of this Government but which we are having to deal with—which is not helping the situation either. As I said at Second Reading when the noble Lord, Lord Warner, brought this up, the Government—as he and others know—are committed to publishing a White Paper shortly that goes across both departments. I confirm that my department is in regular touch with the Department of Health about it. The White Paper will set out the plans to transform care and support. I recognise very clearly that this is beginning to absorb an enormous amount of public funding.
Clearly, the battle is to decide whether any personal contributions have to be made or whether there are other routes. If you are forcing people to sell their houses, you are in very difficult territory. I understand the reason the noble Lord, Lord Warner, brought this up. I am not going to accept the amendments for the reason that this is not solely a part of local government and it is certainly not a part of what we are discussing at the moment. I only add that the Government have already allocated an additional £7.2 billion over four years to adult social care, so we are not pulling back on our commitment to it. We are very much committed. We now have to wait for the White Paper. I very much hope that the noble Lord will not return to this at a further stage.
Lord Warner
Well, my Lords, that was all very interesting from the Minister. I suppose I thank her for it. I am not sure that I was very convinced by any of it. To get it on the record, this Government set up the Dilnot commission. They encouraged us to produce a report within 12 months, which we dutifully did. It is now 12 months since we reported, and there has not been a peep out of the Government about what they want to do. I do not mind if they do not like it, but they might have had the decency to suggest another approach that they would like. However, what we have had is silence and all the signals—from the cross-party talks and elsewhere—are that what we will get next week is a White Paper and a draft Bill that will be extraordinarily silent on the subject of money. I am a very patient sort of chap. I am very happy to wait until I see this document and what the arguments are and to consider it over the Summer Recess. I do not approach that with any great optimism. I am happy to withdraw the amendment on this particular occasion but I do not give any assurances to the Minister that I will not come back to this on Report, refreshed after the Summer Recess.
Lord McKenzie of Luton
Earl Attlee
My Lords, the Committee has made very good progress but I would be extremely grateful if we could consider this amendment. I do not think it will take very long and it would be advisable to take it.
Earl Attlee
My Lords, I have agreed with the usual channels that we would do so.
Lord McKenzie of Luton
My Lords, I am happy with that and do not think it is going to take very long. I start with an apology for tabling these amendments just yesterday, but they arose out of the debate we had on Tuesday and I make no apology for returning to the issue of the local and central share, and what this entails. We accept entirely that the Government intend to use the central share for the purpose of local government in England, although, as defined, this does not have to mean actually paying it to local government. This is what the statement of intent promises. It is also clear that for the first two years of the scheme, revenue support grant will be made available to local authorities to keep them whole, because their local share of business rates will be below the control total set by the 2010 spending review.
This amendment looks beyond these years and requires revenue support grant to be paid in any year when the central share is positive. It is of course at this stage just by way of a probe, because it begs a lot of questions and we need a lot more detail to make it secure. However, it is designed to give the Government the chance to say how they are going to use the central share and on what basis. They must have some notion. What principles will be applied after 2014-15? Will its use be driven by a needs/resources approach or on some other basis? What is that basis?
I was going to have another go at a question I posed previously. I think it may have been dealt with in the letter I received from the noble Baroness—for which I thank her—just before Committee started. I have not yet had a chance to absorb it. I will perhaps reserve my powder on that particular issue but the substantive issue remains as to what that central share will be used for after those initial two years and on what basis will any use of it be determined.
Baroness Hanham
My Lords, I thank the noble Lord for dealing with the amendment briefly. I think that other members of the Committee, who look like they are gathering their papers together, will be grateful if I can be equally brief. As the noble Lord said, we have covered quite a bit in previous amendments and I hope that my letter to all members of the Committee will deal with some of those issues. We know, and I have explained, that the central share will be repaid in total to local government. I acknowledge that it will come back in a way that is not in the control of local government but it will come back in the form of specific grants, initially with the revenue support grant part of that. The revenue support grant might reduce in due course, but, if it does, the local share will increase. It will be a balancing act between one and the other. Because of the relationship between the central share and fiscal control, it is conceivable that there could be a situation where no revenue support grant was paid but the Government would still be collecting some small amount of central share that they would again return to local government via specific grants.
In general, the proposition is that everything that goes to government by central share would go back to local government by other specific grants, some of which are laid out. We have had some discussion about that. I have had discussions elsewhere on what the specific grants would be and I hope we may be able to throw more light on that in the not-too-distant future. I hope that the noble Lord will withdraw the amendment.
Lord McKenzie of Luton
I thank the Minister for her reply, which has taken us a little further forward. We well understand that, one way or another, the central share will be used in its entirety for local government in England. Knowing what that means in more detail, particularly its distributional effect, still eludes us. It certainly eludes me. It would be helpful if more information on that could be forthcoming between now and Report. I know we will want to return to this issue. For this evening’s purposes, I am happy to beg leave to withdraw the amendment.
Earl Attlee
My Lords, I am extremely grateful for the forbearance of the Committee. This may be a convenient moment to adjourn until 3.30 pm on Tuesday 10 July.
House of Lords
Media Oversight: Transfer of Responsibilities
Lord Whitty
To ask Her Majesty’s Government whether they will reconsider their decision to transfer responsibility for media, broadcasting, digital, telecommunications and oversight of Ofcom from the Department for Business, Innovation and Skills to the Department for Culture, Media and Sport.
Baroness Garden of Frognal
My Lords, there are currently no plans to do so.
Lord Whitty
My Lords, I thank the Minister for that rather disappointing reply. I think the House and the world understand why, in the BSkyB case, the Prime Minister had to remove responsibility from a Minister who appeared to be prejudiced in one direction and give it to a Minister in a different department who we now know to be prejudiced in another direction. However, that is not my point. At the same time, and with no logic, the Government transferred whole swathes of responsibility not just for BSkyB and broadcasting but for media as a whole—digital, telecommunications and oversight of the key regulator, Ofcom. Why was that done and who has benefited? It is not clear to me that consumers, small businesses hoping to compete, or the public interest have benefitted. Surely competition and consumer protection should be paramount.
Baroness Garden of Frognal
My Lords, the noble Lord makes some valid points and I acknowledge his expertise in consumer matters, which will of course inform his views. However, he will appreciate that there are many aspects of government in which more than one department has an interest. The Department for Culture, Media and Sport is an economic-focused department, so it makes a great deal of sense to bring together for the first time the full value chain of the technology industries—the infrastructure, content regulation and the creative industries—in one place. It is, after all, the department for media.
Lord Fowler
My Lords, perhaps I may remind the noble Lord that it was the last Government who deliberately changed the law in 2003 to allow foreign takeovers of British television companies and thus enabled BSkyB to make its bid. I put it to my noble friend that in future it would be better if, irrespective of whichever party is in power, politicians were removed altogether from taking the final decision in media takeovers.
Baroness Garden of Frognal
My noble friend makes a powerful point, which I know he has made before. This is being treated extremely seriously by the Government. We are currently looking at various reviews, not the least of which is the Leveson inquiry, which will focus on this. I am sure that decisions will be taken in due course.
Lord Sugar
My Lords, first, I declare an interest as the chairman of YouView, a non profit-making organisation that was announced yesterday. It provides a new system of broadcasting television for the UK made up of all the publicly funded broadcasters. The point I would like to bring to the noble Baroness’s attention—
Lord Sugar
I will get there if noble Lords give me a moment. Is it not irrelevant where the responsibility lies for looking after this sector? What is perhaps more relevant is ensuring that the people who work in the department are qualified and understand what this business is all about. It is a dynamic and fast-moving sector. The company that I have just referred to will provide individuals with opportunities to start their own television channels. We do not need bureaucrats who do not understand this dynamic industry.
Baroness Garden of Frognal
My Lords, the noble Lord has of course a great deal of experience and expertise in these fields, which is why I come back to the answer that I gave to the noble Lord, Lord Whitty: that it makes a lot of sense to deal with all these issues within one department, which is called the department for media and where expertise from officials resides. That is more likely to be helpful to all the creative industries.
Lord Northbourne
My Lords, can the Minister give us any encouragement to believe that an element of social responsibility will be part of the work of the Department for Culture, Media and Sport in being responsible for the media?
Baroness Garden of Frognal
I would sincerely hope so, my Lords. Social responsibility is written into all government policies across all departments, and DCMS is certainly involved in that.
Baroness Bonham-Carter of Yarnbury
My Lords, DCMS is a small department that punches way above its weight. Indeed, the creative industries are the fastest growing sector in the economy. Does the Minister agree that, as broadcasting is a key factor in this part of the economy, it and all things pertaining to it should remain within the DCMS?
Baroness Garden of Frognal
I entirely agree with my noble friend that DCMS supports and encourages the creative industries, and I join her in celebrating all that those industries bring to this country. They make an enormously important contribution, not just to the economy but to the cultural richness of the country and, indeed, to the UK’s standing on the international stage, where we are world leaders in many areas of the arts and media.
Baroness Jones of Whitchurch
Does the Minister recognise that the events of recent weeks mean that Jeremy Hunt no longer commands the confidence of the media or the public in dealing with media regulation? How much longer will the department be expected to limp along with a Secretary of State in limbo waiting for a reshuffle? Do not the arts, culture and sports organisations in this country need better leadership?
Baroness Garden of Frognal
Harsh words indeed from the noble Baroness. I cannot possibly agree with her that Jeremy Hunt is a lame duck Secretary of State. He continues to run a department with important and high profile responsibilities. He is highly regarded within the fields that he covers. Nor can we forget that one of his responsibilities is for the Olympics and Paralympics, which are about to be of major significance in this country.
Lord Hughes of Woodside
Does the Minister share, at least in part, my rather old fashioned view? One of the reasons why we are in such a mess, not just in the broadcasting industry but in many other things, is that years ago Parliament abrogated responsibility for taking decisions and passed it on to so-called independent quangos.
Baroness Garden of Frognal
I am not entirely sure that I agree with the noble Lord. Parliament still has the ultimate responsibility for what goes on in the country in these different areas, particularly in the field of media, which we are discussing today.
Lord Foster of Bishop Auckland
My noble friend’s words were not harsh enough. We have a weak Prime Minister. He should have called for Jeremy Hunt’s resignation immediately he discovered there was a problem. That is the problem; we have a weak Prime Minister who does not have the courage to do the right thing.
Baroness Garden of Frognal
Once again, I am afraid that I cannot agree with the noble Lord, which will not surprise your Lordships. Jeremy Hunt has actually held himself accountable to Parliament. He has also given evidence to the Leveson inquiry. A whole deal of evidence is coming out on this and we have to wait until the Leveson inquiry is finished before we can pass any sort of judgment.
Women’s National Commission
(12 years, 5 months ago)
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Baroness Greengross
To ask Her Majesty’s Government whether they have any plans to create a representative body to replace the Women’s National Commission, which was abolished in 2010.
Baroness Verma
My Lords, let me start by recognising the many achievements of the Women’s National Commission over 40 years of service. However, the Government feel that it is now both important and appropriate to engage with women more directly and much more widely. It is for that reason that we decided to close the WNC in 2010 and bring its functions into government. I am very pleased to report that our new approach is working well and that the feedback that we have had is very positive.
Baroness Greengross
I thank the Minister for that reply, and I know about her personal commitment to hearing the voices of women, particularly the more marginalised groups of women. However, does she not think that we need some sort of central hub, some replacement organisation, that can bring together the voices of those who tend not to be heard and who are marginalised? Also, could the Government not be in breach of their obligations under the Beijing platform for action, which requires them to have in place a mechanism that will enable women’s organisations to communicate effectively with government at a national level?
Baroness Verma
My Lords, I thank the noble Baroness for her initial kind words, but perhaps I may reassure her and the House that we are, first of all, meeting the obligations under the Beijing platform because, through the Government Equalities Office, which is part of the Home Office, we are able to deliver all the requirements placed on this country to ensure that all voices are heard. However, we took on this programme on the basis of listening to people’s voices through a large consultation called Strengthening Women’s Voices. We found from the feedback that our approach is what women actually want.
Baroness Browning
My Lords, I declare an interest as a former government co-chairman of the Women’s National Commission. Does my noble friend accept that the strength of having a government Minister as co-chairman was that the commission set its own agenda—in other words, its priorities were at the top of the list and were not set by other people or government? Having a government Minister as co-chairman meant that those concerns went directly to the heart of government. That was the WNC’s strength—a strength that is no longer there.
Baroness Verma
My Lords, I am afraid that I have to disagree with my noble friend because, having spoken to many women through consultation, we found that a lot of women were not being talked to or involved in the sort of decisions that my noble friend would want. Also, because of social media and the internet, we are able to reach out far more to a greater number of women and women’s organisations. The fact that the Government are at the heart of this is the key to addressing those issues.
Lord Rooker
What is the gender of the head of the Government Equalities Office?
Baroness Verma
My Lords, I am not quite sure that I can understand the noble Lord’s question, but I should say that we have a Home Secretary and a Minister, Lynne Featherstone, who lead on this area in the departments.
The Lord Bishop of Blackburn
My Lords, an LSE study calculated the public cost of carers leaving work to be £1.3 billion a year in lost tax revenues. It is well understood that women bear the heavier responsibility than men in this regard. What steps are the Government contemplating to ensure that the voices of women carers are heard, as they would have been through the Women’s National Commission before its demise?
Baroness Verma
My Lords, the right reverend Prelate talks about a group within society who perform an incredibly important role. However, perhaps I may also say to him that when taking on board what carers do, whether they are paid or unpaid, we have looked at flexible working, which will have a greater impact on their lives. We have also taken 2 million people out of tax altogether to ensure that they do not bear the great brunt of the effects of our economy going into a downward spiral because of our previous Administration. We are working very hard to ensure that our tax credits will be utilised for those with the most disadvantage in our society.
Baroness Trumpington
My Lords, who is representing this country in the United Nations? I speak having had an interest as being a member of the Women’s National Commission when the United Nations Decade for Women conference was held. It was important that we were represented properly then. I represented many English organisations, including the trade union for English prostitutes.
Baroness Verma
My Lords, we have an excellent UN ambassador in New York. We also have our own Minister, Lynne Featherstone, who leads on all our international issues overseas, so we have really good representation. In fact, we had the largest contingent at the last CSW session.
Baroness Gould of Potternewton
My Lords, one of the strengths of the Women’s National Commission as a representative body of over 670 organisations was that it was able to deal with specific issues. As the Olympics are almost upon us, what action have the Government taken to follow up the extremely valuable work done by the Women’s National Commission, along with the Metropolitan Police and the London boroughs, to reduce the level of trafficking in order to reduce the level of prostitution during the Olympics? Will the Minister tell us what action was taken and the outcome of that action?
Baroness Verma
My Lords, the noble Baroness raises concerns that we also have about the trafficking of women, but I reassure her that all these considerations have been taken into account. We are working across government on these issues. Would the noble Baroness allow me to give her and the House a fuller answer by writing to her? There are a number of areas that we are looking at and working on and it would be helpful to the House.
Universities: VAT on Alterations to Listed Buildings
(12 years, 5 months ago)
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Baroness Deech
To ask Her Majesty’s Government what evaluation they have made of the impact on universities of the removal of the zero rate of VAT for alterations to protected buildings.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, removing the zero rate of VAT from alterations to listed buildings, including those belonging to universities, removes a perverse incentive to change rather than repair them and ensures that all alteration works receive the same tax treatment. The change makes the VAT rules simpler for businesses to understand and reduces the scope for error and non-compliance. In the Government’s assessment of the impact of the measure included in the consultation response published on 28 June, no separate assessment was made of the impact on particular categories of listed building.
Baroness Deech
Does the Minister fully appreciate that the proposed removal of zero-rated VAT for much needed university alterations to listed buildings will have a severe impact on those universities? Not just Oxbridge, but nearly every university old and new has listed buildings and the sector as a whole will have to find an additional £150 million over the next five years. It is like an extra tax which will reduce the amount that universities have for bursaries. Will the Minister accept that the situation could be rescued without a U-turn if the Government were to limit zero-rating to buildings owned and occupied by charities?
Lord Sassoon
My Lords, I fully accept that universities will be affected, but that is not a reason not to go ahead with this measure. It is for sound and principled reasons, which I have summarised. There has been an extensive consultation process, including my honourable friend the Exchequer Secretary meeting representatives from a number of Oxbridge colleges, including the noble Baroness’s successor as principal of St Anne’s College, Oxford. There have been various numbers, including numbers coming from Oxford, which seem to vary considerably, meeting by meeting. I do not therefore recognise the £150 million figure, but I accept that there is a cost. As a result of the consultation, there have been significant changes to extend the transitional period and some of the details of the transition, but the change will go ahead.
Baroness Brinton
My Lords, does the Minister believe that the additional cost to universities resulting from the removal of the zero rate should be met from their teaching and research resources, or by an additional Higher Education Funding Council grant, or should it be passed on to the occupants of student housing?
Lord Sassoon
My Lords, it will be for the universities and colleges affected to decide what they do. We have made generous transitional arrangements which give the affected institutions time to plan. Of course, the total of higher education institutions’ funding will rise during the next two to three years, so there is time for those institutions to make the necessary decisions.
Lord Howarth of Newport
My Lords, if the Government are to continue with the Listed Places of Worship Grant Scheme, why do they not introduce a listed places of learning grant scheme? Better still, why do they not abandon their defeatist attitude towards the European Union and reopen vigorous negotiations with the European Commission to secure a unified zero rate of VAT for both alterations and repairs to heritage buildings?
Lord Sassoon
My Lords, on the noble Lord’s first question, he makes the point that I would make: that the Listed Places of Worship Grant Scheme is a continuation of an existing scheme and not a new scheme that has been introduced. As regards his question on Europe, we need to abide by the VAT rules that Europe sets. Those rules very seriously constrain us, and the noble Lord makes the important point that we have to work within those constraints.
Lord Cormack
My Lords, does my noble friend the Minister accept that the Listed Places of Worship Grant Scheme, while it is welcome, does not address the issue satisfactorily? All buildings in the ownership of cathedrals, for instance, are not eligible for it; it is just the place of worship itself. All the heritage organisations, headed by the Heritage Alliance, have submitted evidence to his department which shows that all those who truly know and care about the future of our built heritage in this country believe that the Government have got it wrong. Can we please have a rethink on this?
Lord Sassoon
My Lords, there has been a consultation; there have been extensive discussions; and the response to the consultation was published on 28 June. Concessions have been made that will significantly help university listed buildings; for example, certain transitional repairs will be allowed to carry on for four summers. I shall not be drawn again into a discussion of listed places of worship, save to say that some of the same considerations apply. For example, anomalies in the arrangements affecting universities include the fact that those listed buildings which are used for business purposes such as teaching are already subject to VAT as are alterations to all non-listed university buildings, so there are very considerable anomalies here which we are clearing up.
Lord Eatwell
My Lords, I declare an interest as the president of Queens’ College, Cambridge, which contains some of the most beautiful grade 1 listed buildings in the country. The Minister did not accept the figure of £150 million put forward by the noble Baroness, Lady Deech, so I can perhaps help him by giving him a precise figure for the impact on my institution. My senior bursar tells me that the impact of this change on my institution will be up to 5% of the teaching, research and student support budget. Was that the Government’s intention?
Lord Sassoon
My Lords, the intention was to reduce a number of VAT anomalies, of which this was one, and to introduce generous transitional provisions relating to those measures.
Ulster Bank
(12 years, 5 months ago)
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Lord McAvoy
To ask Her Majesty’s Government what steps they are taking to ensure benefits and allowances are being paid to recipients with Ulster Bank accounts.
The Commercial Secretary to the Treasury (Lord Sassoon)
My Lords, my honourable friend the Financial Secretary has spoken to Stephen Hester, chief executive of the Royal Bank of Scotland, about the technical difficulties affecting both NatWest and Ulster Bank to ensure that RBS is doing everything it can to resolve these issues as quickly as possible. Social security is a devolved matter in Northern Ireland but the Social Security Agency in Northern Ireland is advising benefit customers to go directly to their local branch where funds should be available to them.
Lord McAvoy
My Lords, I thank the Minister for his Answer but the fact remains that 100,000 customers of Ulster Bank are suffering chaos in their accounts affecting direct debits, benefits and pensions. This also has an effect on small businesses and suppliers. Vernon Coaker called for the Secretary of State for Northern Ireland to intervene but Owen Paterson says it is not his problem and he refuses to help. He holds the important position of Secretary of State for Northern Ireland. Does the Minister accept that this is a disgraceful situation where 100,000 customers and small businesses in Northern Ireland are facing financial disaster but receive no help from a do-nothing Secretary of State for Northern Ireland who is not fit for the job?
Lord Sassoon
My Lords, I do not accept that for one minute. This is a very serious issue affecting, as the noble Lord says, 100,000 individuals in Northern Ireland and the Republic of Ireland. My right honourable friend the Secretary of State for Northern Ireland has been actively on the case. He has discussed the Ulster Bank issue with my right honourable friends the Chancellor and the Secretary of State for Business. The Minister of State for Northern Ireland has spoken to the Northern Ireland Minister of Finance and Personnel and to Sir Philip Hampton, chair of RBS, who has made commitments about the fair and proper treatment of Ulster Bank’s customers with full compensation for financial loss. Ulster Bank itself is putting out daily updates and extending branch opening hours and has a freephone number. These are very serious issues. Once the dust has settled, the FSA will be requiring a full explanation from RBS and NatWest to make sure that any necessary steps are taken so that this does not happen again.
Lord Rogan
My Lords, this morning a spokesman for Ulster Bank stated that this technical failure will not now be fixed until 16 July. This further delay, now to be some three weeks, will compound the already serious cash-flow problems businesses are encountering. Some companies are inevitably going to suffer losses. Does the Minister agree that this raises the question of compensation for consequential losses caused by the IT breakdown?
Lord Sassoon
My Lords, I agree that the difficulties clearly are continuing. I looked at the Ulster Bank website. I see that it is giving daily updates of the situation and it has been completely clear that it is unlikely that it is going to be fully resolved until around 16 July. I repeat that RBS has made a commitment that no business or individual will be left permanently out of pocket as a result of this. The interpretation of that will no doubt raise the issues which the noble Lord raises.
Lord Alderdice
My Lords, the situation for people in Northern Ireland is extremely serious, as my noble friend has said. The noble Lord, Lord McAvoy, has raised the question of those who get benefits, but this nationalised bank run by the Government is also failing to address the needs of those whose salaries and wages are paid in, including from the Government. A number of private sector employers are helping out their employees who find themselves in immediate financial embarrassment during this holiday season. Is there any possibility that the Government, whose own employees are failing to have their salaries and wages paid in, can help in any way in the short term?
Lord Sassoon
My Lords, my noble friend makes a very good point. I do not know what arrangements are being made because, again, it is going to be principally affecting employees of the devolved Administration. But I will take that issue back. I am sure it is being thought about by my colleagues in Government but I will remind them of it.
Baroness Kingsmill
My Lords, does not the chaos and total mess in the RBS-owned banks at the moment, which is affecting so many retail customers, just emphasise a lack of investment in back-office systems and computers in these retail banks, disadvantaging a large number of customers, at a time when we have been focusing far too much attention on what has been going on in the casino banks?
Lord Sassoon
My Lords, I do not know the cause of this significant failure. The noble Baroness may be right but, as I said, the FSA expects RBS to provide it with a complete account of the issues. I welcome the fact that the chief executive of RBS, Stephen Hester, has made a commitment to a full and detailed investigation overseen by independent experts and publication of those findings. In due course, we will know what the explanation is.
Lord Forsyth of Drumlean
My Lords, is my noble friend satisfied with the role of the FSA? Surely it is not enough for the FSA to say, “We want a report”. The FSA is supposed to satisfy itself that people with banking licences have back-up systems to prevent what has happened, which is causing not only distress to families but real damage to commerce in our country. Surely the FSA should be far more active and should be giving an explanation to the Minister for why it has allowed this to happen.
Lord Sassoon
My Lords, we delude ourselves if we think that there will ever be a no-failure regime in financial regulation. Regrettably, issues will arise. We want the FSA to do what it is doing: not getting in the way but doing whatever it can to ensure that RBS solves the immediate problems. Then it will get the full explanation and, on the back of that, the lessons for all concerned, including, I am sure, the FSA, will be learnt.
Lord Browne of Belmont
My Lords, as normal banking facilities will not be available at branches of the Ulster Bank until 16 July at the earliest, and given that there are public holidays in Northern Ireland on 12 and 13 July, will the Government take steps to ensure that Ulster Bank branches remain open on those dates to enable customers to receive advice and to access banking services? I declare that I am a client of the Ulster Bank—one, I hope, of good standing.
Lord Sassoon
My Lords, I am aware that 42 Ulster Bank branches have extended their opening hours until 7 pm. I am aware, because I have checked, that the availability of the freephone number, which is available until 10 o’clock at night, has been widely publicised. I am not aware of what the bank intends to do on those bank holidays, but it will have heard the question.
Business of the House
(12 years, 5 months ago)
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Lord Strathclyde
That the debate on the Motion in the name of Lord Jenkin of Roding set down for today shall be limited to three and a half hours and that in the name of Lord Higgins to one and a half hours.
Public Service Provision Committee
The Chairman of Committees
That Lord Griffiths of Fforestfach be appointed a member of the Select Committee in place of Viscount Younger of Leckie, resigned.
Further Education Institutions and 16 to 19 Academies (Specification and Disposal of Articles) Regulations 2012
(12 years, 5 months ago)
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Lord Strathclyde
That the draft regulations be referred to a Grand Committee.
UK Industry: International Competitiveness
(12 years, 5 months ago)
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Lord Jenkin of Roding
That this House takes note of the international competitiveness of UK industry, of its success in attracting inward investment and exporting to global markets, and of its role in strengthening the United Kingdom’s economy and in job creation.
Lord Jenkin of Roding
My Lords, we have had two recent debates in this House that I would like to mention, one introduced by the noble Lord, Lord Adonis, about youth unemployment on 14 June, and one introduced by my noble friend Lady Kramer on economic growth on 21 June. One key to solving both those problems is achieving the success of UK industry—by that I mean all industries—for the nation in earning its living, and that is what this debate is about.
I immediately welcome my noble friend Lord Green of Hurstpierpoint to the Dispatch Box. He has spent so much time abroad over recent months that we do not see him often enough in this House, so it is absolutely splendid that he should be here today. He has made a notable contribution to supporting both exports and inward investment and, if I may put it this way, banging the drum for Britain.
I should declare an interest in that I am an honorary president—I stress “honorary”—of the Energy Industries Council, which has an important role in representing over 600 companies in the supply chain of all energy supplies and in securing business round the world. If I may, I will draw on its experience a little later.
I start with a proposition with which I hope that the whole House can agree:
“There is a growing consensus across UK Government and business that growth in manufacturing and industry is vital for the UK’s sustainable economic recovery, and that technology and innovation will be key drivers of that growth”.
That will come through later in my speech and is as true for exports as for everything else. The proposition comes from a valuable report by the PA Consulting Group, which draws on a survey of over 100 business leaders from the UK’s fastest-growing technology and innovation centres. The report is very well worth reading. It has proposals for a constructive and realistic industrial policy, and I draw it to my noble friend’s attention. It is one of a whole raft of recent policy papers addressing the problem of how we are actually to achieve what that report sets out.
The UK is still one of the world’s major exporting countries. In its most recent inflation report, the Bank of England said that the deficit,
“alongside other factors such as low national saving, indicates a need for the UK economy to rebalance away from domestic demand towards net exports”.
Both parts of that are important. I have been exploring how we can better achieve this objective with a few of the major bodies that aim to help in this process. I mention first that admirable body, the British Chambers of Commerce. In a letter to me about the quarter 1 results for this year, it said:
“This quarter’s Index shows that export orders and sales have increased over the last three months. Trade documentation data for UK goods exports in Q1 2012 shows an almost eight percent increase”—
7.7%, put accurately—
“on the same quarter last year, demonstrating that growth in export goods continued”.
The chambers have of course gone on to identify a number of challenges. I have no doubt that other noble Lords will draw attention to these during the debate, but they draw particular attention to the problem of smaller companies seeking to export for the first time. Among those, they stress the very great importance of trade missions and trade shows, which really are an effective means for new exporters to get started. However, it seems that the use by smaller firms of the state-backed finance products from UK Export Finance, which should go hand in hand with that, is mainly due to low awareness on the part of small firms of what is available. These are specialised services and it seems sad if firms are not aware of what is on offer. I applaud my noble friend for his role in restoring funding for the trade shows programme to UKTI’s budget, but what more can the Government do to overcome this handicap of lack of awareness? If it really is a problem, it ought to be tackled.
The chambers of commerce also mentioned the importance of training people in the mysteries of international trade. It is hugely complex and one must remember that it is always its people who do the actual exporting. The BCC itself does quite a lot of training but too many firms simply do not understand the need for expertise in this area. In this connection I also met a remarkable lady, Mrs Lesley Batchelor, who is the director-general of the Institute of Export. She entirely supported that. Indeed, the institute’s primary purpose in life is its education programme: it runs a variety of courses on international trade. She made the point that too few companies undertake any internal training in exporting—so that, as she put it, any success becomes a matter of happenstance and not a matter of strategy. The institute’s philosophy can be summed up as, “professional qualifications bring competence, and competence engenders confidence”. That is at the heart of this. She went on to say that the UK has an almost psychological disadvantage. As she put it:
“Compared with, say, Italy or the Netherlands, international trade is less embedded in the psyche of many UK firms”.
I recognise that; many years ago, I used to work for the Distillers Company, which exported almost its entire production. However, it is not true of a lot of other companies. My noble friend may well recognise that. Lesley Batchelor mentioned another problem with which we are all familiar—that the media much prefer to report problems and failures rather than successes.
I will mention one success. So far this year 140 companies have won Queen’s Awards for enterprise in international trade. Have we read anything about that? It is there; it has happened; the firms themselves are, no doubt, very proud of it. One can add to that the question, “Why do so many people spend their time talking down manufacturing in this country?”. This does no service at all to industry; manufacturing is hugely important.
In my discussions in preparing for this debate I have heard a great many praises for UKTI, the United Kingdom Trade and Investment body, which operates under BIS. There is no doubt that it does a great deal of sterling work in running trade shows, running missions overseas and encouraging foreign direct investment into the UK. I shall cite one or two examples of this; that often helps to make the point. I come back to what I mentioned earlier, in declaring my interest in the Energy Industries Council. This body, which works very closely with UKTI, has offices in Dubai, Singapore, Beijing, Rio de Janeiro and Houston, Texas. Over the three years since 2009, with UKTI’s help, the EIC has managed the UK pavilion at 26 exhibitions, with 648 UK exhibitors. It has run 25 trade missions for 290 delegates. Between them these have produced millions of dollars of new business for the firms concerned.
Then again, one can look at its activities in overseas investment projects. There is a project known as the Sadara project in Saudi Arabia; it is a $20-billion world-scale chemicals complex. The EIC ran what it called a “share fair” event in this country, and was able to build valuable contacts between the firms that could supply products and services—not just products—for the contractors for the project. Again, it is confident that millions of dollars of business will be won.
We hear a lot about the need to break into developing markets. Here again, the EIC has a very good record. I will mention just two recent successes. They are small firms, and I am willing to bet that there is nobody in this House who has heard of either of them. I may be wrong, and I shall stand corrected. There is a small company called WMT Oil and Gas which has just been awarded a $500,000 contract to produce operations procedures for a deep-water offshore oil field in Brazil. It will be the first tension-leg well platform in Brazil, which will be connected to a floating production, storage and offloading vessel. The company produces its instructions in two languages—English and Portuguese. This is a huge success for that small firm.
Another company, which has been breaking into the Chinese market, is called SafeHouse Habitats Scotland Ltd. Again, it was the EIC that helped it to break into that market. The company produces products such as pressurised welding enclosures and hot-work management solutions. It identified opportunities in China such as offshore oil and gas exploration products, and the EIC helped SafeHouse Habitats to make the market breakthrough. The EIC formula clearly works. It is hugely successful, and I know that my noble friend is aware of that. Can it not be imitated in other sectors of the economy? It seems to be a way to get extra business.
I have extolled the virtues of UKTI but I have also heard criticism of it, and perhaps I should mention that. It is not always quick enough to respond to the accelerating changes in the global market. Here again I cite one example, although it may not be UKTI’s fault—I think it goes deeper than that. A few weeks ago my honourable friend George Freeman, MP for Mid Norfolk, who advises my right honourable friend David Willetts at BIS, spoke to a science and innovation conference in Boston, Massachusetts, where he described the UK’s life science strategy, an initiative that was launched with much publicity by the Prime Minister last year. As many noble Lords will remember, this attracted much applause from the specialist press and indeed has been warmly welcomed by many scientists and businesses that are likely to be involved. It is a very good example of this country backing a sector in which we have a world-leading position, which is what we should be doing.
My honourable friend found that his US audience was completely unaware of the strategy—they knew nothing about it at all—even though it includes a number of measures that are directly aimed at foreign direct investment. Perhaps that is not the fault of UKTI. There seems to have been precious little publicity for the initiative since the Prime Minister’s launch, and that is something that I heard echoed only last night at the Royal Society’s soirée. Who is leading the initiative? Where are the industrialists who are backing it? Why has there been so little publicity since the launch? The strategy has huge promise for the UK. It is an area of high technology where we excel. We have a proud record in that: I shall mention only the UK Biobank. Now, of course, we are espousing the ground-breaking policy of open access to scientific information and network access, and when my honourable friend started talking about that to his American audience, he saw them getting out their pencils and notebooks. That should have been done before. What we need on this issue is a series of international ambassadors to sell this important initiative abroad and across the world. It has a lot to offer this country and could bring billions of pounds of inward investment.
Contrary to the doom and gloom that is so readily purveyed by the media, we have a great deal to be proud of. Our role in international trade is widely welcomed. We have many manufacturing companies selling high-tech products and services around the world. We can attract top-quality companies to invest in this country. Of course we could do better and I made one or two suggestions as to how we might, but let us build on our undoubted successes in this area. I beg to move.
Lord Liddle
My Lords, it is a great pleasure to follow the noble Lord, Lord Jenkin of Roding, in his introduction to this debate. He brings to the subject much ministerial and business expertise, and it is greatly to his credit that he has shown a sustained interest in these questions throughout his public life. He said a lot about export promotion with which I agree. We probably share an analysis of the British competitiveness problem, which is that it is a complete myth that we are a post-industrial nation. We have many highly competitive businesses; the challenge we face is that we do not have enough of them. We need far more and the question is how we get far more. I shall focus my remarks on how the public policy framework can help, and also talk briefly about the questions of the exchange rate and our commitment to Europe and the single market, which is of central importance to this area.
On the kind of supply-side policies needed, again, I suspect that there is a wide measure of consensus in this House. I picked up on some remarks of my great and noble friend Lord Mandelson, based on his ministerial experience in the previous Government. Speaking to one of the excellent meetings of the All-Party Parliamentary Group on Rebalancing the British Economy, interestingly, he praised some of the record of Conservative Governments in the 1980s in promoting aerospace, biotech, pharma and Japanese inward investment in the car industry, which we often forget. He then talked about our increasing love affair, as a nation, with financial services. He said nothing against financial services, but noted that this love affair became a mindless infatuation, since when all we have seen are what he described as “peashooter initiatives” to deal with the need for rebalancing our economy back to production. The question is how we can transform this succession of peashooter initiatives into what the Prime Minister would doubtless describe as a big bazooka.
There is a range of things that the Government could do, building on what the Labour Government tried to do towards the end of their term, particularly in 2010. There is the expansion of technology transfer institutions, the Hauser report, and the need to improve our record in Britain in transforming our excellent, world-class research into commercially successful innovation, which we are not nearly so good at. There is a need for public intervention to provide finance for growing small and medium-sized firms. This is an imperative in today’s environment, in which the banking system is not able to fulfil its proper function: we need a British investment bank. We need a proper infrastructure plan. The Government have made nods in this direction, but they are having difficulty in mobilising the pension funds and private finance that they had hoped for. The truth is that, unless the Government offer guarantees that limit the risks for such investors, we are not likely to get private money into public infrastructure in a big way.
We need to do more on skills. We know that employers, of their own initiative, will not raise skill levels: there is a market failure here. The Government are trying to expand apprenticeships, but their record is very mixed and there is great debate about whether the expansion is a genuine expansion of real apprenticeships that lead to opportunities for technician training going right up the skill ladder. That is what we need and I wonder whether we are getting it. We need action to improve the quality of management. Here is a tremendous role for the post-1992 universities—of one of which, the University of Cumbria, I am director. We need the universities to engage with businesses in raising the quality of management and their workforces. We need to build on our public strengths, which have important competition advantages and where the public role is absolutely crucial, such as the universities in attracting students from overseas, our medicine and our culture.
I am not arguing for big government in order to address these questions, but you must have active government. You particularly have to have an active Government with a strategic sense of how they will develop the sectors where we have the best chance of being competitive. This is particularly important in public procurement. You cannot just have centralised government. You must have effective machinery for action at regional and local level. This is where the decision to abolish the regional development agencies was destructive. In my own area, Cumbria, there is now no effective machinery for promoting regional economic development.
I, for one, look forward to the review by the noble Lord, Lord Heseltine, of the growth agenda. At the moment, for all the talk, I see little sign of the Government upgrading their efforts beyond what my noble friend Lord Mandelson described as these “pea-shooter initiatives”. Indeed, to make a slightly political point, I am bemused about the debate in the other place on growth, which all seems to be about deregulation and tax cuts. No one wants regulation for its own sake. No one believes in taxes for their own sake. But the problems of the British economy do not lie in a lack of flexibility in the labour markets, or in taxation being too high. We have a more flexible labour market, in many respects, than the United States. I find all this talk about the Beecroft report totally bemusing. It is a sub-Thatcherite agenda of deregulation, which is the wrong strategy for the British economy. We have to compete on the basis of skill. We cannot compete on the basis of deregulation. We need a national consensus on the kind of industrial policy we are going to need. It is depressing that we are still a long way from that.
I have just a few remarks to make on the exchange rate and Europe. On the exchange rate, the Government should be thinking about why the devaluation that we saw in 2008 has done so little to improve our trade balance and industrial performance. What conclusions do we draw from this? One conclusion is that the exchange rate does not matter very much in the modern world, with the integration of global supply chains and all the rest. That would be an error. One of the mistakes that we made over the past 20 years was treating the exchange rate as a residual. The exchange rate went up a great deal at the end of the 1990s. The pressure of a high exchange rate was one of the reasons why our manufacturing had problems over the past decade. Although this was good for productivity—the productivity numbers went up a lot—it squeezed the size of the sector more than it should have been squeezed. So the post-1992 framework of our economic policy will have to be rethought anyway in the light of the crisis. We should be thinking about whether we can give a more central role to exchange rate stability in the management of the economy, and how we would go about that. Are the Government thinking on these lines?
On Europe, all this chatter about an in/out referendum might well have serious economic consequences, which no one seems to take into account in the rather heated political debate. How would British business feel, including the people who have invested in Britain, if we were no longer part of the EU, or if we remained in the European Economic Area with no say in shaping the rules of EU governance? Do we seriously think that if there was a prospect of Britain coming out of an active and central role in the European Union that inward investors would continue to look at investment in the UK?
Lord Liddle
I have 12 minutes.
I am not trying to make a political point. However, the question of Britain’s role in Europe cannot be decided on the basis of party-political positioning, or of populism and ignorance. We need business to take an active role in this debate. What I would like to hear from the Government is what they are doing to consult business about its view about Britain’s role in the European Union in future, and what the real costs of playing around with our economic future might be. This raises very serious issues for the future of growth and jobs in Britain.
Baroness Nicholson of Winterbourne
My Lords, the noble Lord, Lord Liddle, in his wide-ranging remarks, commented that he wished the Government could be more active. In my support for the splendid Motion put forward by the noble Lord, Lord Jenkin of Roding, on which I warmly congratulate him, I am not seeking for the Government to be more active, because most businesses would request that government stand back. I am putting forward comments which I hope the Minister will take into full account and maybe even action some of them. I hope this will strengthen the Government’s position in supporting British industry internationally.
It is an absolute fact that, given that the House of Commons is omnipotent and omnicompetent, the international competitiveness of UK industry abroad is in some way restricted by our own democratic system. It places us at a disadvantage with our competitors, for example. Today, we must be looking at the competition while praising industry. We are trying to see who we are up against, and how we can do better than the competition. Our particular democratic political system inevitably pins the Prime Minister, the Deputy Prime Minister and other Ministers to the Benches; as does the system here, with our parliamentary Questions, constant debates and Statements. The democratic accountability of Ministers means that they must very often be here. Inevitably that can be seen to place UK businesses at a disadvantage with nations such as France, which is regularly led by prime ministerial and presidential delegations all over the globe. I know that the coalition Government are working to improve this. However, it is a simple fact that our system, in that sense, cannot provide that same spear-headed support that some other member states of the European Union and the USA can do. Therefore, I suggest that it is even more crucial that the UK Government provide a coherent and cohesive service to UK industry, particularly in-country. The steps this Government have already taken to raise British trade and investment interest abroad, which give a new and highly welcome pre-eminence to commercial diplomacy, are excellent; but there are significant concerns and gaps that still remain. I will be highlighting some of the most serious concerns, and inviting the Government rigorously to address them.
For a Government who have made significant and considerable progress with their welcome stress on value for money, results, outcomes and impact, it is noticeable that such language and structures are not readily mentioned in the Government's commercial diplomacy, such as in the FCO’s charter for business. I wonder whether that might be considered when the new edition, which I am sure is on the way, emerges.
The House of Commons business committee, for example, has previously reported that UK embassy and UKTI staff do not readily identify whether the country in which they are serving is a priority country and what the difference means. That is not helped, in my view, by the lack of transparency and accountability in the process for deciding priority countries or in how and where ministerial-led trade missions are sent. For example, the various sector and advisory groups supported by UKTI are appointed directly by Ministers without any parliamentary scrutiny. That provides a democratic deficit in what are essentially government and thus taxpayer-funded bodies influencing UK policy. It also causes potential conflicts of interest and a lack of trust in the capabilities of those bodies. Perhaps the Minister would be willing to reconsider that point.
I have previously asked a Written Question to this effect and received a somewhat summary rejection by the Government, but I believe it would be more than helpful to shine a light on the practices of the Government in supporting UK industry abroad, perhaps by introducing an independent evaluation body. That could be similar in make-up to the Independent Commission for Aid Impact, specifically for trade impact or at least to offer in some way a more formal, thorough and transparent process than the current largely questionnaire-based process. This revamped evaluation mechanism and transparency would much more effectively highlight results, provided those results have been identified and the objectives achieved; and thus our knowledge, value for money and serious impact, on which the Government, in all other sectors, are so keen, would become available. I think that would immensely heighten the Government’s capability in supporting industry.
I turn to priority countries. UKTI has a series of priority countries and UK Export Finance—the old ECGD—focuses on certain countries, not necessarily the same ones, depending on UK Export Finance’s own criteria of how effective and able it will be to receive its funding back in the long term. The FCO has its own geopolitical and strategic priorities which do not reflect consistently UKTI's priorities. Again, DfID has its own 28 priority countries and works in many more. Is it not unsurprising that with this array of different prioritisations the UK struggles—and I believe that it fails—to put forward a single face, in country and internationally?
Have the Government thought how to co-ordinate these different priority countries and even priority sectors within those countries? A possible example of how the UK does not enable itself to bring its full impact to bear in a country would be the disconnect between UKTI and DfID priority countries. As the Government are already providing significant expenditure to DfID's priority countries, as well as to the other countries in which DfID works, would it not make sense for UK Export Finance to provide preferential export credits to those countries to ensure that the UK is gaining the fullest possible impact and value for money for its investments in its stated priority countries? Are we not now aware that the long-term effectiveness for what is called development aid is, in fact, through the development of business and industry on the ground? That is surely one of the key reasons why, quite properly, this Government, as opposed to the previous Government, have placed commercial diplomacy and the strength of British business and industry at the absolute heart of their overall international policy.
With that in mind, I turn to the knotty problem of UKBA, the UK Border Agency. I declare here that I am honorary chairman of the Iraq Britain Business Council, which is working not just in Iraq but in other countries in the Middle East and North Africa region. In that role, I have the privilege to work with some of Britain’s most competitive and powerful companies in the oil and gas, construction and infrastructure, finance and professional services, education and training, telecommunications, and other sectors.
My remarks do not necessarily reflect the views of any of those companies. Nor have I put these comments in front of any of those companies to gain their agreement or otherwise. These are my own comments. Iraq is one of the great potential sources of trade and development—for international companies as well as the UK’s—which is relatively untapped, and as chairman of the Iraq-British Business Council, I foresee the difficulties that our companies face.
Given our historic legacy and our strong presence in the region of the Middle East and North Africa, UK companies and UK-based companies, or those trading through the United Kingdom—particularly those using the English language, which is now the business language of the globe—are relatively well represented in Iraq. However, there are key issues which diminish UK competitiveness towards both western and eastern countries. I have mentioned several.
The policies and priorities of UKBA for countries and for sectors of populations do not match up with any other British Government policy. It is almost impossible to get UK visas, not only for Iraqi business men and women, but for other nations with which I work in the region. It is difficult, onerous and, I would suggest, humiliating. I take the case in front of me at the moment of an outstandingly large company in the region: one of the main board directors wants to come here for business, and to bring his wife and a couple of children with him. It is Ramadan soon, and it is a good time for him to come as there is space at home and less work going on. Is it really essential for him to wait 15 days at least, maybe 20 or more, in Lebanon, for a visa? Is this a way in which British industry can be helped? Is this the way for us to make friends and influence people, or in the modern phraseology, win hearts and minds, as well as win business?
Of course, it makes the training of staff from host countries, at all levels in the UK, almost an impossible matter. Business meetings in the UK are extremely difficult to set up because of this. I would suggest that UKBA must be brought into the fold of the wider umbrella of the heartland of British policy internationally. I do not yet see that happening.
British business is repeatedly urged by the British Government to invest. In Iraq, the Iraqi Government are also urging us to invest. The Government of Basra delivered this message in a BBC Radio 4 programme. Prime Minister Maliki and President Barzani both say that the door is wide open for Britain. I believe that the British Government are inadvertently not pulling their weight in this overridingly important matter. I urge the Minister to take note of the points that I have made, and perhaps to carry them out.
Lord Kakkar
My Lords, I, too, congratulate the noble Lord, Lord Jenkin of Roding, on having secured this important debate. I would like to focus my comments on something that he said in his introductory remarks around the issue of the life sciences industry. In doing so, I remind noble Lords of my entry in the register of interests as professor of surgery at University College London; as chair of quality at University College London Partners, one of the five designated academic health science centres in our country; and of my collaborative activities with the life sciences industry, focused on the area of thrombosis research, my own particular science interest.
The life sciences industry—pharmaceuticals, medical technology and medical and industrial biotechnology—is described as being exceedingly important to our country, and second only to financial services in the contribution that it makes to our economy. The industry generates in excess of £50 billion a year in revenue and employs some 166,000 people. In the pharmaceutical industry, the export of medicines in 2009 generated £7 billion in excess revenues compared to our importation of medicines. Over the past 30 years the pharmaceutical industry, through sales of medicines and medicinal products, has been a net contributor to our economy.
The pharmaceutical industry employs some 72,000 of our fellow citizens in this country. The medical technology industry has a turnover of some £15 billion a year and employs in excess of 60,000 of our fellow citizens. As to the value of public expenditure in medical research, every pound spent brings a contribution of 39p in extra economic activity in perpetuity. To a simple surgeon that suggests that when we invest in biomedical research we get a 39% return on our investment for ever—which is very impressive. Conversely, it is also well noted that if we were to remove from research council funding £1 billion of annual investment in the sciences and medical research, we would lose some £10 billion of gross domestic product. It is hugely important that public investment should continue to drive this important area of economic activity.
On the broader contributions beyond public expenditure, one-third of all the investment in biomedical research comes from charities. That is really quite impressive. Some 40% of investment in research and development in this area of activity comes from foreign multinational companies. Of all the G8 countries, we receive the largest proportion of investment in our R and D from foreign multinationals, which is tremendously impressive. It is something on which we should focus and that we should bring to the heart of any policy-making.
The Government are to be congratulated on having recognised this and on having made this a particular area of focus and attention over the past two years, not only because there is huge opportunity for economic growth and development associated with investment in the life sciences industry, but because investing in this area has the important benefit of improving our ability to deliver healthcare, improving the technologies and innovations that we can provide to patients and our fellow citizens and therefore improving clinical outcomes. It is striking to see how contributions from research in the United Kingdom play across the world. Our population represents less than 1% of the global population, but 12% of all citations in biomedical sciences around the world are citations of research undertaken in our country. This demonstrates that our impact across the world remains hugely important.
The noble Lord, Lord Jenkin of Roding, mentioned the life sciences strategy that was announced by the Prime Minister on 5 December 2011. It is an important strategy that has the capacity to do a huge amount to drive forward the development of the life sciences industry in our country and also to ensure that biomedical research in the academic arena, in our universities and in the NHS, continues to grow and prosper for the benefit of patients.
A number of important initiatives are described in the life sciences strategy, one of the most interesting of which is the commitment to the development of telemedicine to ensure that we can better manage patients with chronic diseases in their own homes, along with a commitment to ensure that 3 million patients with chronic diseases will be provided with the opportunity to access telemedicine so that their condition can be monitored at home rather than needing to avail hospital facilities for the management of their care. There is also the commitment to a £180-million catalyst fund to help identify and provide early investment into the potential breakthroughs of the future, those that will have the greatest clinical impact and thus encourage investment into our country.
We also have what at the time was a somewhat controversial commitment to ensure that across the National Health Service as a whole, the great store of data on clinical conditions that we hold is better aligned to research opportunities and therefore able to attract greater investment into the health service for research. There is, too, the important commitment to ensure early access into the NHS and therefore early access for patients to innovations and new drugs. This will be particularly attractive to the biopharmaceutical industry in terms of ensuring that it targets its research activities in the United Kingdom because it will be better able to access rapidly the potential markets for its innovations.
In addition to the life sciences strategy, we recently saw the publication of the innovation review by the chief executive of the NHS which looks specifically at how the health service can better adopt innovation, diffuse it widely across the entire NHS and, what is particularly important, ensure that the health service is outward-looking in terms of its relationship with the life sciences industry so that in addition to achieving its primary objective of providing the best healthcare for the people of our country, it is able to contribute to the broader generation of wealth creation, thus promoting the interests of UK plc, as the chief executive puts it in this document.
However, there are also some problems. Although investment in our life sciences industry by foreign multinational companies remains substantial, over the past 10 to 12 years there has been a considerable reduction in the contribution we make to global clinical trials, the important phase 2 and phase 3 research studies that allow us to evaluate novel interventions and new drug therapies. Before the introduction of the European clinical trials directive in 2003, some 6% of all patients going into clinical research globally came from our country. By 2006 the percentage had fallen to just 2%, and by 2010 to 1.4%. That is a very worrying trend. The European Commission has recognised that this is a problem not only for our own country but throughout Europe, and is now looking at how the directive might be revised. What position have Her Majesty’s Government taken in these negotiations, in particular to ensure that, when the directive is re-presented, it is much more flexible in allowing for recognition of the national standards that apply to clinical research, which are particularly high in our country, and that any competitive edge which had inadvertently been lost in the past can be regained once again?
Some 23% of those who work in the sciences and biomedical sciences departments in our academic institutions come from outside the United Kingdom. One of the great concerns is the potential impact of the changes made to visa requirements on the ability to attract top-rate clinical and basic scientists to come and work in our country. Is the Minister able to confirm that Her Majesty’s Government remain sympathetic to the need to attract top basic and clinical scientists so as to ensure that our life sciences, and particularly our academic research institutions, are able to compete at the highest levels globally?
Finally, there is the broader question of how we can build on the initiatives of Her Majesty’s Government to drive forward the life sciences industry. There is concern that the generous settlements which have been provided in the current spending round for the research councils and for medical research in particular may not be sustainable in the next spending round. However, it is vitally important that they are maintained. As I have said, investment in medical research provides remarkable long-term returns to the wider economy. Is the Minister able to confirm that Her Majesty’s Government remain sympathetic to investment in research and innovation?
There is also a need to look at tax incentives to better ensure that this country encourages venture capital investment at the very early stage in translational medical research. We need to develop a system of adaptive licensing, combined with the advances we are going to see in genomic medicine and stratified medicine, to ensure that new innovations can come to the market quickly and benefit patients. We also need to look at the way that the National Institute for Clinical Excellence judges value in terms of innovation, looking not only at the quality of life improvement but also at the economic and broader social impact of innovation.
Finally, there must always be a careful, measured approach towards regulation of research, ensuring that patients are always protected but also that the environment for research in our country remains competitive and attractive.
Lord Brooke of Sutton Mandeville
My Lords, it is a privilege to follow the noble Lord, Lord Kakkar, a professor who brings great professional distinction to your Lordships’ House and conspicuous relevance to this debate. I declare an interest as president of the British Art Market Federation, though I am not going to allude to that international market in my speech.
My noble friend Lord Jenkin of Roding, with whom I have made common cause from time to time on behalf of the City of London, deserves all the conventional plaudits for securing this debate and for opening it so characteristically comprehensively. He deserves unconventional ones too for the letter with which he summoned some of us to his cause. It was a model of its kind and spellbinding in its irresistibility, just as he has today added yet another string to his bow and to a repertoire which embraces expert knowledge of the sciences, especially in the energy field, of local government and of what our forebears would have called political economy. He has, moreover, in the first week of July, given us a whiff of the sense of holiday—even of romance—that lies ahead of us at the end of this month when the long Recess beckons.
Trade has its own mystical aromas. This year is the bicentenary of Burckhardt’s rediscovery, after six centuries, of Petra:
“A rose-red city—‘half as old as time’”,
standing at the great Nabatean crossroads of two major trade routes amid the mountains in the Jordanian desert. Across the centuries, those spices of Araby and silks of the East mingle with John Masefield’s:
“Dirty British coaster with a salt-caked smoke stack,
Butting through the Channel in the mad March days,
With a cargo of Tyne coal,
Road-rails, pig-lead,
Firewood, iron-ware and cheap tin trays”.
Heady though those romantic scents are, there is a different sense in which they are profoundly serious, for unless we can steer our national barque—a Scrabble word I spell for the Hansard writers with a “q” and a “u”—we are not going to evade or escape the slough of despond which is the world’s current economic and financial lot. In the challenging agenda of today’s debate lie the real prospects of recovery from an otherwise intractable fate. In the middle of page 5 of your Lordships’ Library’s admirable note prepared for this debate, there are parentheses from the Office for Budget Responsibility containing the magical words “excluding oils and erratics”. As an undergraduate, I played village cricket for my college in a side called the Erratics, which catches the double sidedness of joy and duty of this voyage. Until today, I had not appreciated that we had then been in philological descent from a trade category.
Since the nature of our predicament makes starting blocks difficult to discern, let me pick out some encouraging—if random—travel brochures. First is the coincidence that in the European Union—which is at this time, saving the grace of many, one or our beds of nails—the complement of overall unemployed is 23 million which, give or take the population of a medium-sized city, exactly coincides with the number of SMEs the Union contains, so that one extra employee in each SME would solve the conundrum of unemployment. It is, of course, a fantasy worthy of the Odyssey because the precise distribution of the unemployed and the national SMEs are not so perfectly aligned, but I cannot conceive of any time in my 18-year private sector career of continuous profit accountability when I could not have constructively added at least one single person to every unit in our business, so it does carry seeds of hope. Moreover, it underlines the virtue of the EU in seeking specially to reduce regulations in units employing fewer than 10 people.
Secondly, the very initials “SME” bring the medium-sized businesses into focus. The lure of the small business as the key to employment growth has been around since Shell promulgated it a third of a century ago, but its now conventional centrality may have taken our eye off the medium-sized ball which, in engineering for instance, provides growth points of great promise. Next, the World Economic Forum’s league tables of international competitiveness show us beginning—even if only patchily—to pick ourselves up off the floor, though I shall return later to one paradox of institutional verdicts which needs attention. Next, it is a truism of success in the world of tourism that a good holiday is made up of dozens of component elements but if one or two go wrong they sully the total recollection. I am struck, in the run-up to this summer’s Games, by how the Olympic totems Wenlock and Mandeville—I take personal pride in the exploits of the latter—have been both imaginative and comprehensive in their management of detail, which is a good augury to be cherished.
Finally, I have sat at the feet of my noble friend Lord Green on the subject of Africa since he took on his present portfolio. We know from the Latin of Pliny the Elder that there is always something new coming out of Africa. I shall be interested in my noble friend’s view on whether he feels Africa collectively is one of the next mega-BRICs—though perhaps one should say mega-BRICAs.
I move from travel brochures to headlines. Despite the contemporary aridity of EU prospects, I find profoundly encouraging the twin facts that, though our manufacturing base has latterly shrunk by almost 50%, our exports of manufactured goods outside the EU have grown by nearly 25% since 2010. That is not merely evidence of a main chance but also of it being seized. Secondly, the virtue that the Library briefing has drawn on so many sources brings home a much greater intellectual coherence to our global trade planning than I would have appreciated prior to preparing for this debate. I find wholly convincing the argument in the research report entitled “Understanding Recent Developments in UK External Trade” in the Bank of England Quarterly Bulletin in the fourth quarter of last year because services exports are less sensitive to movements in the exchange rate, even when I am also aware of how much of our growth in services has been due to the expansion of professional services as against purely financial ones. Trust in us in this area remains globally high.
I am not going to get into the vicissitudes of foreign direct investment—though I realise how we have been currently losing out to the Germans from the Chinese—save to commend the House of Commons Library for its regularly updated Standard Note 1828 on this subject, and to emphasise how much we gain indirectly through technology transfer and management techniques from inward direct investment. Ministers have recently used the car industry as an example. When I started out in business 50 or so years ago, there were already 1,600 American subsidiaries here and it was very noticeable, in sectors like pharmaceuticals, advertising and branded consumer goods, that American participation raised competitiveness to an extent that indigenously there was a substantial economic return in moving suitably flexible British managers from competitive sectors into ones that were notably uncompetitive.
My noble friend responding to the debate will have more than enough to answer when he winds up so, before adding to his agenda, let me utter words of praise. I am profoundly impressed by the way that the Foreign Office under Mr Hague’s leadership is expanding its global commercial and diplomatic coverage, even in these hard times, by reopening embassies and in expanding the consular network, just as my noble and learned friend Lord Howe of Aberavon urged in opposition.
I am full of praise for the growing imaginativeness of UK export finance, as well as that which is helping to secure office space for new UK exporters in effervescent markets. I am delighted by the application of the theory of comparative advantage to the Darwinian evolution of successful exporters through sensitive and sophisticated product choice, especially in emerging markets. However, I have some bits of grit in my shoe, on which I should be happy for the Minister to reply later than today.
The Government have made announcements on enterprise zones, both in the Plan for Growth and the Treasury Press Notice entitled Autumn Statement: Growth of 29 November last year, covering the second phase of the Government’s growth review. However, there are some notable mismatches in the details between the two references. A composite progress report on each of the original choices of zones might be productive.
I return to an earlier comment. The OECD said in its UK economic survey of March 2011 that faster-rising labour costs in UK manufacturing had robbed us of some of the benefit of a 20% appreciation of sterling, whereas the IMF in May 2012 said:
“Encouragingly, labor market performance has been better, with falling unemployment in recent months and fewer employment losses than in the aftermath of previous major UK recessions”.
I realise that there is at least a year between those two comments and that the Government are responsible for neither, but a reconciliation of the paradox would be interesting.
Finally, I hope that the Chancellor’s confession in March 2011 that our tax code had become so complex that it recently overtook India’s to become the longest in the world is not the last word on the subject, even while allowing for his immediate efforts at repair, for unnecessary complexity is not conducive to a good climate in which to do business.
More generally, I hope that we can recover some of what Keynes called “animal spirits”. Paul Claudel, the French poet who was his country’s ambassador in Washington in 1929, could not have known what was in store for the world when he hosted a soirée at the embassy on the first day of the Wall Street crash, and gave a toast to the effect that:
“Between the crisis and the catastrophe there is always time for a glass of champagne”.
However, there is one interesting echo between 1932 and 2012. In 1932, De La Rue was almost bust when a new chairman arrived and decided to take a gamble by throwing a massive dinner for the diplomatic corps, which was so effective in persuading the latter that the company’s future must be secure that security printing orders poured in from across the world. The De La Rue dinner is still with us today, while Greek membership of the eurozone still hovers on the brink.
Let me end as I began. Last month saw the centenary of the poem, “The Old Vicarage, Grantchester”, by my namesake, Rupert. Given when this debate will end, if we can move the church clock from 10 to three on today’s issues between now and the Summer Recess, we shall have been doing our duty and there may, indeed, be honey still for tea.
Baroness O’Cathain
My Lords, I thank my noble friend Lord Jenkin for proposing this debate. I totally support his emphasis on exports as being of fundamental importance to our future economic health. It is rather daunting to follow the exceptional, erudite, literary, humorous and informative contributions to this debate. Now is the time to run for a quick cup of coffee.
Listening to the daily cut and thrust of Questions in this House, there is much repetition of statistics, which are not as great as one would wish. The problem, as always, is the presentation of statistics; their updating and revision deflect attention from the main picture. Serious economic conditions, of course, persist in this country and in all the countries to which we export. We have to concentrate on improving every area of our activity, leading to advances in all sectors involved in exports.
Less than two weeks ago, I took part in a discussion in Ireland with some 25 businessmen about future developments in the Irish economy and the economy of the whole EU. It was a good experience. We all know the sad saga of the monumental boom and bust that left Ireland as the first bailout candidate. Some time ago, the economic situation in that country was described to me as, “the greatest party of all time in the 1990s and the noughties, which led to the biggest hangover of all time”.
The Irish have woken up and taken the medicine, and although they are not yet out of the wood they are well on the way back. Even today, I am told, there was an auction of three-month Treasury bills for the first time since September 2010. The Irish realisation is that they have to work exceptionally hard, search the world for opportunities for export, get their financial house in order and talk the country up. For “Ireland”, say “Britain. Above all, the realisation is that we have to work exceptionally hard, search the world for opportunities for export, get our financial house in order and talk the UK up.
As my noble friend Lord Jenkin has said, we do not give our manufacturing industry enough credit. There are so many moaners and bleaters around that we are actually beginning to think that we are not good at very much. Recently, I was discussing with a friend the subject of UK trading relationships, and it was explained to me that as a trading nation we trade in three distinct groups: the allies, the US; our friends, the EU—not that the allies are not our friends; and our family, the Commonwealth. The message that I took from this is that we need to focus more strategically, not just adopt the line that everything that we produce we can export, market and sell anywhere, or that the methods of developing long-term trading relationships are ubiquitous.
Many of our businesses do not truly take on board that there are developing stars out there. We have been reminded of that today. The analogy with the celestial is not as crackpot as one might think. Through astronomy we are constantly learning about new planets and new stars. There are fascinating revelations that are a long way removed from the situation in my childhood when only eight planets were marked on our celestial globe. Taking us back to earth, yes there are more and more stars in terms of developing countries with growth rates that we can only dream about and where markets are opening up monthly. Many of these are in our own family: namely, the Commonwealth.
I do not want to put the Minister on the spot but I wonder whether he could or would be prepared to arrange a session where we can be enlightened further about the huge potential in the Commonwealth and suggest ways in which parliamentarians might be able to focus on this, rather than bleating about the awful situation that we are in. Yes, sections of world trading are suffering, including, to name but two, the eurozone and banking. However, I remind noble Lords of Oscar Wilde’s great saying:
“We are all in the gutter but some of us are looking at the stars”.
We must look forward, onwards and upwards, building on our undoubted skills, highly developed inbuilt initiative, educated workforce, record of success in many areas, not least in high-tech state of the art engineering, in world-class pharmaceuticals, in food processing, in design skills and, yes, in manufacturing. The motor industry, as I have said previously in the House, is in a better state than it has been for the past 15 years. The noble Lord, Lord Kakkar, has given us a brilliant exposition of UK skills and success in the life sciences industry. Our heads must be kept high. Our rating agency status is, after all, triple A. Remember that France and Italy have been downgraded.
Encouragement should be the buzzword, not dismay. It is particularly important to encourage the young—this has already been alluded to—to ignore despondency and to renew enthusiasm for the UK and its prospects. The UK accounts for about 1% of the world’s population, and we certainly punch above our weight even now. The EU accounts for about 8% of the world’s population, but the Commonwealth accounts for some 30%. What an opportunity.
The Commonwealth contains at least seven of the fastest growing highest-tech and richest world economies: India, Canada, Australia, Malaysia, South Africa, Nigeria and Singapore; and several more fast growers are coming up alongside—Mozambique, Tanzania, Ghana and Bangladesh. All are growing consumer markets with demands for our products and sources of wealth for investment here in this country. The OECD estimates that over the next 20 years almost all the growth in world trade will lie outside Europe. We have to renew our efforts now, focus on policy measures—the noble Lord, Lord Liddle, made this point—and look outside Europe to ensure that we will be ready, willing and very able to participate in the growth and in helping in other ways. We can export items such as education—in training and in our wonderful technical skills, mentioned so ably by the noble Lord, Lord Kakkar.
I am not for one moment suggesting that we should ignore our friends in Europe. From time to time some of us get exasperated with overregulation and snail-pace action to remove the barriers to completing the single market. The EU is and will remain important to us, as the noble Lord, Lord Liddle, has explained. He also made a valid point about recognising serious repercussions if we unilaterally decided to leave the EU. It is important that both sides of this argument are analysed and that all the likely repercussions are aired and understood. The EU market is still the largest single market in the world and over half our exports end up there. One in 10 jobs in the UK depends on trade with the EU, which is equivalent to 3.5 million jobs.
One of the other things I learnt recently is that half of all European business headquarters are based in the UK. All this is proof positive that the EU is important. We just must work harder at it. My noble friend Lord Jenkin gave us a magnificent and specific tour d’horizon and encouraged us all. Now all of us must act.
Lord Haskel
My Lords, I start with a confession. I have a problem with the concept of international competitiveness. The factors affecting a nation’s competitiveness are different from those affecting the competitiveness of, say, a business sector. For instance, my country’s life sciences can be better than your country’s life sciences, as the noble Lord, Lord Kakkar, explained. The competitiveness of individual businesses is much more obvious—“My cars are better than your cars”. So I am grateful to the noble Lord, Lord Jenkin, for this debate about international competitiveness, but while international comparisons may be important to economists, politicians and bond salesmen, to most of us the competitiveness of our place of work is what is important. This is because competitiveness means productivity. That is where we earn our living, as the noble Lord, Lord Jenkin, pointed out; the two go hand in hand.
In 2003, the then Labour Government asked Professor Porter and others to say how we could become more competitive by raising our productivity. Their response was practical and direct: improve and modernise skills and skills training; stimulate innovation through science and product development; supplement manufacturing with services; encourage a faster take-up of new technologies in the public and the private sector, much of this done through clusters; and encourage people to win the race to the top, not enter the race to the bottom. In the five years up to the financial crash, these principles worked pretty well. Our productivity or competitiveness improved by 2% or 3% a year. Many of the policies of the coalition Government still reinforce and bring up to date these principles. I think they still remain true. Yet since the financial crash our productivity or competitiveness has hardly moved. If anything it has gone down. Can we find the answer in the international competitiveness league table? The noble Lord, Lord Brooke, mentioned the World Economic Forum’s global competitiveness index. This year we rank 10th, and two years ago we were 12th. This index is based on 12 pillars that provide a checklist of factors affecting our competitiveness. Some are relevant, others less so, and some are completely absent. On some of them we do very well. We have some strong institutions; we have a respect for law and an honest and uncorrupted public service. In health and higher education we perform pretty well. We have an effective, efficient and competitive market of a size which allows us to be productive. We also have a market which is conducive to innovation. Thanks to our science base, research organisations and organisations such as the Technology Strategy Board and our fascination with digitalisation we have recently developed a large number of clever, lively, innovative and enterprising companies that specialise in selling their products, ideas and services into what at first seem special markets. However, these markets often turn out to be large because we live in an era of global markets. This is the innovation and marketing that the noble Lord, Lord Jenkin, and the noble Lord, Lord Kakkar, spoke about. The Minister works hard at this and I join other noble Lords in giving him our thanks.
In other areas, we do less well. The noble Lord, Lord Liddle, pointed out that our infrastructure lets us down. The World Economic Forum ranks us 28th for infrastructure, just behind Malaysia. I agree with the noble Lord: our skills training has not kept up with demand, nor has it moved with the time—and, yes, this includes management. The conflict between the longer-term needs of industry and the short-term outlook of our financial sector is legendary. The financial sector may be competitive in its own terms, but in terms of UK competitiveness as a whole it could be a distinct disadvantage. No pillar includes intangible investment. In Britain this is certainly now equal to tangible investment and crucial to our competitiveness because of the nature of the businesses which are growing in this country. I am sure that the Minister of all people would agree that money spent on branding or market development is an important investment. All this illustrates the problem I have with international competitiveness.
However, economic data are not everything. It is always a mistake to separate the economics of business and industry from the needs of society. A fair society and a strong economy go together. This is why both social and economic considerations have to be taken into account when judging our nation's competitiveness. The noble Lord, Lord Jenkin, spoke about inward investment. The noble Lord, Lord Kakkar, pointed out that this means people coming here, as well as money. All of us get the feeling that we are less welcoming to foreigners than we used to be. We have benefited greatly from them in the past—are we having second thoughts? I think we are, and this will not help our competitiveness, nor our productivity. Ministers talk about having competitive regulation. This usually means less, but we are slowly learning that we need better regulation not just less, and we need to explain why it is required. Sadly, we are learning the hard way about regulating the banking industry. Our competitiveness does not increase as we reduce regulation. No, our competitiveness goes up as we introduce better regulation. It will be regulation which is enforced. It will be light regulation which encourages a feeling of freedom but not a feeling of impunity. It will be regulation which properly deals with market failure. In sectors such as the environmental industry, good regulation actually stimulates the innovation and investment, which adds to our competitiveness.
Working conditions, too, have become a factor in competitiveness. Social considerations mean that cheap, sweat-shop clothing has not been competitive for some years. The competitiveness of our tax regime has become a social consideration, too. Yes, the generous arrangements whereby companies and individuals can reduce their tax bills may have been a competitive advantage at one time but, now that it is all out in the open, this will change. Social considerations of fairness have to be taken into account in the competitiveness of our tax regime.
We certainly need a policy boost. At national level, we can encourage the national stewardship code for our enterprises, as the noble Baroness, Lady O’Cathain, implied. We must develop a national long-term vision as to where our economy is going, and we must certainly continue with the productivity work of the 2003 paper. This has served us well.
At a more local level, we must concentrate on raising our performance, our presence and our productivity in those sectors where we are strong. The noble Lord, Lord Liddle, explained why. It will inspire people to make where they live and where they work more competitive. At the same time, we must work towards a more equal society, because all these efforts are much more likely to flourish and succeed in an equal society than in a divided society.
Lord Flight
My Lords, I congratulate the noble Lord, Lord Jenkin, on introducing this debate and on raising a mixture of extremely important issues. I am particularly pleased that the noble Lord, Lord Green, will respond and I look forward to hearing what he has to say on the excellent work that he has been doing globetrotting and promoting Britain. His was a very important appointment by the coalition Government.
My interests are those declared in the register. Some of those companies are significant exporters of services. To me, services and manufactured goods are all the same pot. Quite where the division lies, I am not quite sure. Is software a manufactured item or a service?
It is clear that we are doing okay and have more to offer in the life sciences—as the noble Lord, Lord Kakkar, pointed out—in the software industries, in business services, in quality goods and services, and in education both in this country and about the world.
We have not done too badly in continuing to attract inward investment. It is particularly interesting that we are one of the most successful car manufacturers in the EU—I believe that car exports have risen to their highest ever level quite recently. We can make good cars here at competitive prices if the management is up to managing it properly.
It is true that sterling was overvalued for too long and that devaluation has made it more competitive, but it has arguably not made it competitive enough. Unlike Germany, I think that, broadly, the exchange rate should be used to adjust for differences in competitiveness rather to than to put countries through the agony of internal devaluations that wreck their economies.
The noble Lord, Lord Jenkin, mentioned one of the Bank of England’s usual understatements. To me, the economic facts of life are very simple: if this economy is going to pick up and grow, it can do it only through rising exports and capital investment. There is little or no scope for growth to continue to come from rising consumption. We had nearly 20 years of living above our means and of growth based on rising consumption and financed by debt and selling the family silver. We had a massive cumulative balance of payments deficit—to use old-fashioned language. That has come to an end. If we are going to grow, we have to export more. No range of government measures will achieve higher growth unless they achieve higher exports. While I remain a strong supporter of the Anglo-Saxon model, its one weakness is that it leads to the savings rate being far too low, with investment being far too low as a result. It is clear that Germany’s success, apart from its organisational brilliance, has been the amount of its capital investment in modern industry.
However, there is huge opportunity, as I and others have variously described it. The fast-growing economies, the BRICs, are the ones that have the potential to import more. As others have mentioned, we have the blessing of our own particular club in the form of the Commonwealth, which is now, collectively, a fast-growing part of the world and one that has language, culture and businesses practices in common with us. In my experience, it is only too happy to do business with us as far as there is scope. It has been a mistake to concentrate on the EU as our main export market. Our exports to the EU are shrinking as a percentage of our overall exports and, sadly, it is clear that EU is going to be a very flat, depressed economic area for several years to come as it sorts out the currency problem one way or the other. It is crucial, therefore, that we go for the new economies.
I met an individual who runs the Azerbaijan society in the UK. He mentioned that it was unfortunate that Germany had sent its President there but that we had not sent anyone. I needless to say wrote to the noble Lord, Lord Green. Even in Azerbaijan, there is considerable scope to add to our involvement in the oil industry. There is also interest in our education institutions and in our quality goods. What Azerbaijan really wants is a lift in its relationships with the UK.
I shall focus briefly on what I will call our quality goods and services. I am very interested to see that Hamleys is going to go international. It is a fantastic brand name; it is the best toy shop in the country. There are masses of scope for internationalising that. Even Fortnum and Mason is going to do the same thing. I sat back and thought, “Well, Burberry started it. Think of all the fantastic British brands for which there is much greater potential now that there are parts of the world that can afford these things, potentially more than we can ourselves”.
I broadly praise the Government’s efforts. I was very pleased that the Prime Minister shot off to India. India is my pet project. The scope to export to it and to do a great deal more business with it is huge. India, as the Prime Minister of India keeps saying whenever he comes back to Cambridge, would like a special relationship with this country. Well, I would like a special relationship with India.
However you call it, “City” is now a bad word—even worse than “politicians”. I use the phrase “business services”. Our overall business service exports run at £60 billion to £70 billion a year. They are not just financial products and services; they are lawyers and consultants. There is substantial scope about the world, as the rest of the world grows faster and advances, for our business services.
Some negative issues were raised by the noble Baroness, Lady Nicholson. The London Chamber of Commerce has raised the problems of visas and passports. I have had letters from friends in Hong Kong and Sri Lanka complaining that they now have to send their applications back to London. As a result of a rather foolish economy being made by the Foreign Office, the places where they had them processed locally are being closed down, which is causing them a nightmare—others have referred to that. We have to make it easy for businessmen around the world who want to come here to do some business to get their visas or, if they are Hong Kong passport-holders, to get their passports renewed. We simply have to sort out the ridiculous situation of the excessive queues that people have to face after landing at our airports. I am not going to cast blame, but it seems ridiculous that that should have been allowed to happen. It is depressing to note that the destinations served out of Heathrow have reduced by about 50 over the past decade. We clearly need to have the best European hub available as fast as possible. UK passenger duty is far too high. It makes it uncompetitive from a holiday perspective.
There are issues to be addressed, but we should look to British history. We were the first great exporters. What was the East India Company about? It was about trading with the whole of Asia. What did it do? It stimulated manufacturing here. Britons went about the world when it was often highly dangerous and the ship they were on might have found itself embarking on warfare with the Portuguese, but we went about and built a commercial empire that became a physical empire. We have it in our history and in our national character to be about the world doing things. I see a lot of that now reviving. At least half of my son’s generation is somewhere else in the world—maybe in Shanghai or America—busily doing things that ultimately involve British exports increasing.
Towards that end I am very keen on the new technical colleges. A friend of mine has a business that has a unique niche in producing aircraft safety devices down in the depths of Hereford. With 95% exports, it is a hugely successful business. It has grown because Hereford has always had a good technical college and he could get the people he needed trained there in a way that was required for the business. I greatly welcome the expansion of all that.
I congratulate the Foreign Office, as others have, on its much improved services on the ground. However, 18 months ago I went to the Expo in Shanghai. There was a fantastic Italian exhibition of goods and services. You wanted to buy the lot. And what did we have? We had some clever cut-glass work of art and no mention of our goods and services. I wrote to the Foreign Secretary William Hague after he had just arrived to say that this seemed daft and I got a letter back saying that it had won some award as a work of modern art. I thought it was a classic example of how not to be promoting this country’s exports.
We have a great history and we have great potential. We want more young people to get into their planes and to go about the world and do things. I have always thought that in today’s world JCB is a wonderful model of what this country can be about successfully. Let us have many more of those.
Lord Campbell of Alloway
My Lords, I also thank my noble friend Lord Jenkin for spreading a breath of fresh air and confidence about our domestic arrangements. This debate also enables objective consideration to be given to how to resolve the eurozone crisis which inhibits growth of the economy, inward investment and exports to global markets. Last week there was a meeting at Brussels where something was proposed to be done, but it appears that nothing much was explained save in the Sunday Telegraph, where it said that the first step had been taken and there were others to be taken. It did not explain, and no one knows, the nature of these steps, how many there are or what form of delay they might put on implementation of a resolution of the crisis. No one seems to know. Indeed, on Monday the Leader of this House repeated a Statement on the EU Council but there was not a word about this. He did not know. It is impossible to consider that if he had known he would not have told the House. There is no reference to this in the Library notes and looking through the press I have found no other reference to it.
It cannot be assumed, certainly as yet, that this crisis will be resolved, because all other means of implementation to resolve this crisis introduced in the past by the Council of Ministers have failed and created a very unfortunate position. We are in that position now; we have come to a state of affairs where we have unpredictable improbables. All that can be done is for the Council of Ministers to take emergency action immediately and not leave things lying in the hope that something will happen, because nothing will happen. At the moment we are somewhat reliant on what can be done with the improbables. I shall not take much time because we cannot really resolve that. Even the Government do not seem to know what the substance of the situation is. I suggest that the Council of Ministers must negotiate and in their negotiations construct an acceptable system. And an acceptable system is not necessarily one which involves state payments to be under federalist control within the remit of the Lisbon treaty.
What should be done in this state of affairs to which nobody else has referred but which warrants consideration? There is the idea that we shall have a new relationship treaty with the Common Market. That has been suggested by my noble friend Lord Howell of Guildford, who opposed the Lisbon treaty. He opposed it to forestall the drift towards federalisation and to produce an acceptable commercial Common Market. With that on the books, whatever the Council of Ministers does—and it must do it at once—must be temporary, emergency action. It should then be reconsidered at another conference about another system and another relationship.
To conclude, there is also the question of the referendum. At this stage, in this situation, it is premature. It is impossible to say what there will or will not be or even to construct the words that should be used. This will be a matter for further consideration in future on the question of a new treaty. Personally, if one is allowed to say it, I am not very keen on referendums. I think it is better that the views of the people are dealt with at a general election by the parties. I hope that that will be the case.
Lord Sheikh
My Lords, I thank my noble friend Lord Jenkin for securing this important debate and congratulate him on his excellent speech. The Motion covers many areas vital to the UK economy. My contribution will focus mainly on the importance of trade.
I have visited a number of countries in the past two years where I have been privileged to meet various senior figures from politics and business and to speak at various meetings and conferences. Engaging with our overseas partners has reasserted my long-held belief that one of the best ways that we can improve our financial position, both globally and domestically, is to place much greater emphasis on international trade.
Our trade surplus and global market share in key industries such as aerospace and pharmaceuticals provides us with a solid base in manufacturing and research. The City of London maintains its position as the leading venue in Europe for financial services. To maintain and develop our economic promise, we must ensure that more of our goods and services are exported. I share the view held by the Chancellor that trade is vital to our economic prosperity. In addition to continuing cuts to the rate of corporation tax, the Chancellor stated that we must help British businesses to expand and innovate and that we should aim to double British exports to £1 trillion by the end of this decade. I believe that that will play an important role in helping our immediate economic recovery and ensuring that Britain remains a strong economic force for the foreseeable future.
I strongly support the efforts of UK Trade and Investment in encouraging small and medium-sized businesses to focus on exports, with a particular emphasis on the emerging markets. It is important that we maintain our strong trade links with America and our largest trading partner, the European Union. However, it is vital that we capitalise on the growing opportunities in Brazil, Russia, India and China. Many opportunities are presented by improvement in the standard of living in countries such as India and China. Russia must not be overlooked, especially with its new-found status as a member of the World Trade Organisation. We should be increasing our exports of high-value goods and financial services to millions of potential new customers.
The success of the so-called BRICs nations is worthy of praise, but I should like to mention the 7% club. Members of that club have achieved growth of at least 7% per annum since 1998. Research suggests that economies that achieve 7% annual growth will double in size every decade and more than quadruple in a generation. It is thought that after three decades, an economy that consistently grows at the rate of 7% per annum will be twice as large as one of achieving 5% annual growth. The 7% club includes Vietnam, Ethiopia, Uganda, Mozambique, Azerbaijan, Turkmenistan, Kazakhstan, Tajikistan, Angola, Chad, Sierra Leone, Rwanda and Cambodia.
Last month, I led a delegation of British parliamentarians to Azerbaijan, where we met President Ilham Aliyev and leading figures in commerce. We also discussed the relationship between the United Kingdom and Azerbaijan, and stressed that the UK is very interested in expanding business links between the two countries. The Middle East is a region that also holds many opportunities for enhanced trade. I know the area well and frequently visit the Middle East countries.
We could do more to increase trade with Commonwealth countries. Our historic connection should serve as an advantage. However, I would add that the membership of Mozambique and Rwanda speaks volumes about the influence and prestige of the Commonwealth as a unique association in welcoming countries that do not have links with the British Empire. As I mentioned earlier, those two nations also belong to the 7% club.
What plans do Her Majesty’s Government have to enhance trade with members of the 7% club? Greater co-operation among key government departments is vital to realise our potential to identify key markets and develop and promote British products overseas. That is why I wholeheartedly support the Government’s effort to strengthen dialogue among the Foreign Office, the Department for Business and the Department for International Development. International trade missions have a great role to play in achieving those goals. We should organise more trade missions to overseas countries. I am pleased to say that I was recently able to assist in arranging a trade mission to a foreign country.
We give generously to many countries through international aid, but we must consider giving more financial assistance through properly organised trade missions. Aid and trade can go hand-in-hand. Our ambassadors and high commissioners could play a more significant role in that respect.
I have spoken about Turkey and its strategic and economic importance on a number of occasions in your Lordships’ House. The Turkish economy has been growing approximately five times faster than the eurozone average. It is identified as one of the 20 high-growth priority markets in the UK Trade and Investment strategy. The UK-Turkey strategic partnership agreement has significantly helped to boost trade with this rising regional power. UK exports to Turkey in 2011 increased by 20% compared with 2010.
On domestic affairs, I must say a few words on youth unemployment. The level of youth unemployment in Britain is one of the highest in Europe. Young people have the potential to make a vital contribution to our economy and society. It is the responsibility of those in government and commerce to work together to develop the strategy that will help our young people to weather the economic storm. I am pleased that, as from today, the Government have given powers to cities such as Leeds to regenerate their areas, which will help to create more jobs. It is important that our future economic strategy recognises the importance of small businesses, entrepreneurs and innovation to our recovery. Small and medium-sized companies play a vital role in job creation. It is therefore essential that these enterprises are not burdened by excessive bureaucracy. Cutting this and reducing the layers of bureaucracy in our public services is vital to increasing efficiency in our industries.
I declare an interest: I am the chairman of an insurance broking and financial services organisation which also specialises in Islamic finance. I am also a vice-chairman of an associate parliamentary group on Islamic finance. We need to maintain and strengthen our role in promoting Islamic finance, which is based on mutuality, ethical behaviour, transparency and the acquisition of assets, which gives it more stability. Islamic finance is worth $1 trillion globally, and in the UK we have assets worth over $18 billion. Growth in the Islamic banking sector globally is nearly 20% per annum. In the United Kingdom we have a great deal of expertise which we can offer to the world. There are therefore opportunities for our country’s involvement globally. One can argue that if financial institutions had undertaken a greater volume of Islamic products, the financial problems we are facing would probably have been less severe.
We must of course promote our financial services industry but it is also imperative that we manufacture and export specialist products, such as precision machinery and pharmaceuticals. We have the expertise and resources to produce and export such goods. We need to have a balanced economy and encourage ideas that will further promote our manufacturing sector. I believe that we need a multifaceted approach to reviving our economic fortunes. Any overarching strategy must have a greater emphasis on international trade, which I am confident we can achieve.
Lord Bates
My Lords, it is a privilege to take part in this debate and I, too, pay tribute to my noble friend Lord Jenkin for securing it and for the compelling way in which he introduced it by making the case for Britain. In listening to the debate, not least in following my noble friend Lord Sheikh, I have been struck by the deep level of expertise that exists in this Chamber to conduct such a debate. There is wide expertise at a very high level of serving on the boards of international companies and in international trade, none more so than that of my noble friend Lord Green on the Front Bench, who will respond to this debate.
I want to pick up on one point made by my noble friend Lord Sheikh in talking about making greater use of the resources within this House in trade missions. This is not a job application for me. I have spent most of my life in small and medium-sized enterprises, with a very strong emphasis on small, but I recognise that there are people with great expertise in this Chamber who really ought to be sent out there to bat for Britain. I am aware that there is sometimes just a little hesitation in diplomatic circles about having people who have rolled their sleeves up, and who have commercial expertise, engaging in this task.
I recently had occasion to walk across Europe, during which time I visited some 15 different embassies and consulates. I saw the fantastic diplomatic teams who we have there and the wonderful people working for UKTI. One of the most impressive people I met was the new consul-general in Milan, Vic Annells, who is doing a tremendous job there in securing investment. He came straight out of the private sector, having worked in trade in the Middle East, and was knocking doors out of windows, as they would say in the north-east. Sometimes we look a little sneeringly on people if they do not learn the language of the country they are in and we ask, “How can they communicate?”, but we have to remember that there is a universal language of business. People who are competent in that language are also required to make the case for Britain.
I want to divide my comments into three sections: first, on the competitiveness of UK plc and its finance, with a particular emphasis on its balance sheet and cash flow; secondly, on HR and R and D; and, finally, in terms of sales and marketing. In commenting on this debate, many colleagues have referenced the world competitiveness rankings. It is worth reading on a bit into the assessment that the World Economic Forum made:
“The United Kingdom (10th) continues to make up lost ground in the rankings … rising by two … places and … moving back to the top 10 for the first time since 2007. The country improves its performance across the board, benefitting from clear strengths such as the efficiency of its labor market … in sharp contrast to … many other European countries”.
The assessment went on to say that the UK has,
“sophisticated … and innovative … businesses that are highly adept at harnessing the latest technologies for productivity improvements … On the other hand”—
and I emphasise this point—
“the country’s macroeconomic environment”—
it is ranked 85th—
“represents the greatest drag on its competitiveness, with a double-digit … deficit in 2010 (placing the country 138th)”,
in the international league tables.
I mention that report because it is sometimes unfashionable to mention things such as controlling the deficit, which in this case is plan A, in strengthening our competitiveness but it is fundamental because unless we get the public finances under control, our AAA rating is at risk. France has already been downgraded and the only way that we are clinging on to that rating is by virtue of the fact that the Government are committed to getting that deficit down—and they have made progress on that. The deficit has reduced by about 25%, going down from £13.9 billion to £10.8 billion and is set to go down to £5 billion by 2014. That is fundamental to our success. As much as we want to herald the sales and marketing side and get excited about that, we sometimes need to remember that there is a real job of work to be done in keeping that deficit under control.
As managing director of the IMF, Christina Lagarde was absolutely right when she said that she shivers when she looks back to 2010 and considers what could have happened without fiscal consolidation in the UK. If we lost that AAA rating, the cost of our borrowing on the international markets would rise, not only for government but for corporations. The rise in those interest rates would force many firms out of business, and reduce our competitiveness on the international market. Repairing the balance sheet is obviously critical, but there is a second set of measures that need to be taken which come under the broad heading of supply-side measures. We cannot simply say, “We want to repair the balance sheet”. We need to make ourselves more competitive in the process. I believe that that is happening, most notably by reducing corporation tax rates, which now give us the lowest rate in the G7—and by the end of the Parliament we will have the lowest corporation tax in the G20; by raising the threshold of personal income tax to £10,000; placing a cap on benefits to ensure that people are always better off when they are in work; reducing taxes on jobs; reducing regulations; investing in infrastructure projects, such as £16 billion in Crossrail; the Green Investment Bank; the regional growth fund; public service reform; and by rebalancing the economy away from a dependence on financial services to manufacturing. Mention has been made of how manufacturing declined dramatically as a share of our international trade; that trend is now reversing. In my native north-east, we are celebrating the fact that we have had record exports for the second quarter in a row, and this is in the midst of a recession. It is quite phenomenal that this is happening. It is a reason to be encouraged; however, we need to reform public services and rebalance the economy. We also need to introduce rigour into the education system, enhance skills through expansion of apprenticeships and bear down on excessive regulation, despite the current legitimate outrage about LIBOR. We must remember that excessive regulation destroys jobs, and we want to be in the business of creating jobs.
On the banking crisis, there needs to be an honest conversation with the electorate. It will rightly join everybody in “banker-bashing”, as it is affectionately known in the press. The banks may well be—I am sure that they are—part of the problem and the reason why we are in this mess. However, it is only by the banks lending to small and medium-sized enterprises that we can get out of this. So we need to have a way forward. I would like to suggest that, rather than pillorying the banks, looking for fines, changing the regulations and so on—though I am sure that all that is right—it would be better for the banks themselves to come forward and say, “We realise that we have let this country down; we have let down small and medium-sized enterprises; we have not been lending as we should have been, despite our balances improving. We are going to engage in some restorative justice, by looking in the eyes of the people whose loans we have turned down and whose businesses have closed as a result, and apologising for that. We will go that extra mile to see how we can help British business export and compete in this market”.
I come to my final point, which is this. We must recognise that we have a bit of a confidence problem in this country at the present time. It is very much doom and gloom; a number of colleagues have referred to this. However, it is worth looking at the facts. The eurozone is undoubtedly in a mess; we are not doing particularly well. America is only doing slightly better. But that is not the true picture. The Office for Budget Responsibility points out that this year the economy will grow by 4.1% and next year it will grow by 6.4%. If we take world GDP as being roughly $70 trillion, 4.1% growth means that added to the world economy we will see a market for our business the size of France. Next year we will see added to the world economy, or a market for our business, an economy the size of Germany. Sure, exports to the EU may be down by 2.9% but exports to non-EU destinations have increased by 13.3%.
We will be welcoming the Olympics in a few weeks’ time and the world’s eyes will be upon this country. It is fantastic that the Government are tapping into that with their GREAT campaign, highlighting the great place that Britain is. More than 4 billion people will watch the opening ceremony. The GREAT campaign is tapping into the fact that this is still an outstanding country, despite its problems. It is a world financial centre; it is a world transport hub; it is the legal basis of international trade; it has the language of international trade; it is home to the top university, Cambridge; it has the winners of 76 Nobel prizes in science and technology—and we remember that in the week that we acknowledge the contribution of Peter Higgs, the theoretical physicist, to that list. It is the centre for the creative industries: Adele, Coldplay and Jay Sean accounted for 12% of global music sales and 23 Grammy awards. On sport, we are the home to Formula One, Wembley, Wimbledon, Lord’s for cricket, Newmarket for horse-racing, St Andrews and, of course, the birthplace of the Paralympic Games, in which we take immense pride. This is a great country and we have a lot to celebrate about the way we are going.
Lord Selsdon
My Lords, I am grateful to my noble friend Lord Jenkin of Roding, who has an ability to set the scene; it makes it very difficult for those who follow. What I have just heard from my noble friend is almost a layout of what the immigrants should learn if they are to come to the United Kingdom.
I shall take as a theme, “We have been there before. It has already happened, so why are we repeating ourselves?”. When I have nothing better to do, I write White Papers about things that I think should happen. The noble Lord, Lord Stevenson of Balmacara, a fellow Scot, will remember what we were taught in early days: if a man had no estate, there were only three things that he could do. First, he could help other people to do it, in which case he joined the professions. Now, though, for all the professions—accountancy, law—there is doom and gloom, because they find reasons why you should not do something. Or he could take the credit for those who did it, in which case he went into politics. However, if you were a real man, you went out and did it. The noble Lord was sitting as a lone ranger on his Benches. I am not saying that there is no interest on his side—I used the past tense.
I will go back and say, “We’ve been there before”. I take as my theme today, “Yesterday’s story”. If we go back into the past, this was the sort of phrase that was given as an instruction to government—in this case, a guide for the Board of Trade, saying that it should,
“take into their consideration, the true causes of the decay of trade and scarcity of coyne … and to consult the means for the removing of these inconveniences”.
That was in 1621. I can give you one for every year; there is a wonderful book on the history of the Board of Trade. It has gone out of print and I have just rewritten it. I hope that I can give you others.
What successive Governments did was to forget the past. They went and got rid of the Board of Trade and put in place something called BIS—the sort of thing that dogs do before breakfast. No one understood, and the word “business” was divisive. I chaired various trade bodies and went on trade missions, always to places where no one else wanted to go. That was usually at the instigation of two great Leaders of this House, Lord Jellicoe and Lord Shackleton.
Lord Jellicoe said one day, “My dear chap, you ought to do a bit more to help the House. I’m going to put you on Sub-Committee B on the European Union”. I said, “What’s that?” He said, “Liven it up a bit—it’s meant to do something about trade”. There were only three members of that committee: Lord Dennis, myself, and I have forgotten the other one. We went to a series of meetings and we were not sure what we were talking about. We really thought that it ought to be about trade. Then one day we had a visit from the Chancellor of the Exchequer, the noble Lord, Lord Lawson. He sat with these distinguished people; the committee was called the Aldington Committee. We asked him a few questions, although I personally was never able to ask a question because I did not like to intervene among my elders and betters. When we were having discussions about money supply, which seemed to be more important than trade, Lord Amery asked for an explanation. The Chancellor at that time said, “I’m not quite sure if I can get up to your level”. He made an explanation that led to the famous remark from Lord Amery, “I am very grateful, Chancellor, for your explanation. I am most confused but very happy to be more confused at a much higher level”.
Today we are talking about the same sorts of problems: money or trading finance. We have forgotten some of the basic principles. You see, we have a trade deficit in visibles, or in manufactures, of £100 billion, rising at 10% per annum. I always take everything back to when my great-uncle Stafford Cripps devalued the pound in 1948; I have a schedule that runs through that. We have a deficit, and we finance it in part with what I call “invisibles”. Your Lordships may remember that Sir Cyril Kleinwort created the Committee on Invisible Exports that used to wander down from the City to try to lobby their Lordships and others in order to get us to do something to support trade. That soon disappeared, but the invisible surplus is not enough to offset the deficit, and it is getting worse.
We then went into the EU, your Lordships may remember. I was treasurer of the Conservative Europe Group because no one else would take the job, and together with the noble Lord, Lord MacGregor, we had to raise money because the Labour Party did not want to go into Europe at all; they were totally against it. We had a vote in favour here in your Lordships’ House—very nearly a greater vote than for the abolition of hanging—and we went into Europe, as though that would be the be-all and end-all.
I do not believe in exports and imports; I just call it trade. You have a good trade or a bad one, but you trade with anyone who is willing or able to pay, provided that you like them. As soon as you would use the word “business”, the Foreign Office runs away and says that it cannot be seen with a businessman, a box-wallah. The same went for Ministers at home because it seemed wrong to be looking at trade in this sort of way.
When we look around the world today, we find that our biggest single deficit is with the EU. The phrase that we adopted in those early days was, “Britain in Europe: it’s our business to be there”. It was not about a political wish or the controls that would come later, it was simply about business and trade. So we have a thumping great deficit with all the EU countries except Ireland, where we have a surplus. However, some of that surplus comes from containers that arrive in England and then are shipped across to Ireland where the added value goes, because the Irish would not have the money to pay for the amount of trade that we do with them.
That is all just to set a bit of background. I feel that we should go back into the past and look at what the Board of Trade was established for, along with some of the roles played by your Lordships, a subject that has been raised already. One of the key elements of trade—good trade rather than bad—is relationships. This has often been a difficult problem for those who go on all-party group visits, missions and so on, when you wish to discuss the concept of business. Your Lordships’ House, with its 800 Members, has a relationship with every single quarter of the world, and we are still respected. My noble friend Lord Green knows that well. For some time I was president of the British Exporters Association, although that now consists almost entirely of financial institutions—there are hardly any manufacturers left.
If we are looking at where we end up in future—we have raised both the Commonwealth and new markets—the financing of trade has always been one of our skills and it was one of my own responsibilities. At one time it was not necessary to get government guarantees for anything if you had reciprocal trade. We would often go out and sign individual reciprocal trade agreements with any country where you could buy something and then finance it by selling. I will use the simple example of Cuba. We did not have a good relationship with Cuba, but Lord Walston did. He was a Labour Peer and a very good friend of mine; he was not allowed to go to Cuba officially but was allowed by the Foreign Office to visit it on his way to his plantations in another part of the Caribbean. He knew Castro well and we had a few discussions. We said, “What can you sell?”. Naturally, we were all thinking of cigars or rum, and had forgotten that Bacardi was originally a Cuban product. They said, “We do very good grapefruits”. I sighed, “Oh God”. Anyway, I was lucky enough to know someone at Marks and Spencer, so I picked up the phone to them and said, “The Cubans do a rather funny sort of pink grapefruit. Will you buy some?”. They said, “Yes, why not? Tell them to send a shipload”. I turned to the Minister and said, “Could we send a shipload of pink grapefruit?”. That all started with a simple trade.
In those days it was quite difficult when we did not have good diplomatic relations. I found this when I chaired the Middle East trade committee. I could go to Iran, Iraq or any one of the Arab or Middle Eastern countries totally free and unencumbered, because I would be invited. You did not need security; indeed, often it was dangerous if you got together with your own embassy. You would be told, “No, diplomatic relations are not good enough at the moment to be able to prosecute trade”. I never understood that word “prosecution”; it has something to do with following on, but it always seemed a rather negative phrase.
What I am saying quietly here is that we within your Lordships’ House should give consideration again to all those bodies—the British Overseas Trade Board, which was chaired by Lord Jellicoe, the East European Trade Council, which was chaired by Lord Shackleton, and all the others—where individuals and their friends had relationships, often historic, with all these countries, and that could run across the Francophone territories and all the Commonwealth. As my noble friend Lord Sheikh has said, the Commonwealth is a great opportunity.
I have no fears. I just feel that we have subsumed ourselves in the most complex bureaucracy around. Ministers are not really allowed to do business or to sell, although they can come and promote and talk. If your Lordships’ House can identify those people who might be willing to help, then I feel that we have a great sales force.
Lord Paul
My Lords, it is an honour to follow the noble Lord, Lord Selsdon. For the 16 years that I have been in this House, I have always been afraid to follow him, because how would I keep the House amused?
I thank the noble Lord, Lord Jenkin, for sponsoring this important and timely debate. He has great experience both in industry and in government. The noble Lord might recollect that as a very young entrepreneur I came to see him when he was Secretary of State, and he was most helpful.
As chairman of the Caparo Group, an industrial manufacturing company, I declare an interest. Competitiveness is vital for the future of our country’s economy, and nowhere is that more significant than in manufacturing. Having been intimately engaged in that activity all my life, your Lordships will appreciate why I will focus largely on that sector. After a long while, the manufacturing segment of our GDP has shown an appreciable increase in the past three years. That is intrinsically commendable, but it is not enough. Britain is now the ninth largest manufacturer in the world, although that is a far cry from our ranking in the past. My own experience and evaluation tells me that, given the appropriate encouragement, we can substantially enhance that position.
Our manufacturers are doing almost everything they can and, encouraged by the progress made in recent years, are keen to do more. However, for Britain to get the fullest benefit of their endeavours there must be a much more supportive environment. Today, many manufacturers feel that a more positive and creative approach by the Government would help to engender the conditions that would enable them to maximise their potential.
There is considerably more that the Government can do to structure the context in which manufacturers can achieve a higher level of competitiveness, a condition that would be of great benefit to the country as a whole. We live in a world of globalised interaction, a world in which many Governments encourage and support their manufacturing industries. We need to do this, and fast, otherwise others will gobble up the gains that we have so resolutely made.
Here are a few suggestions for consideration that can be implemented in short order. Above all, there is the question of inadequate access to finance. It is now almost four years since the onset of the banking crisis, with its crippling impact on credit availability, particularly to small and medium-sized manufacturing enterprises. Despite government initiatives such as Project Merlin, the money is just not flowing, even from the institutions within its control such as Lloyds and RBS. In view of this, it is now imperative to create a new corporate institution dedicated to industrial finance, a high-powered, well-endowed industrial bank of a kind that I have been advocating in this House and elsewhere since this financial crisis began in 2008.
I have two other concerns in this financial domain. The first is the cost and time-consuming effect of red tape. Despite occasional reassurances, the bureaucratic tangles of regulatory consent and like procedures continue to escalate. Of course we must have protection, but our excessive foot binding is making it easier, cheaper and less risky to establish projects in countries where these burdens are less onerous. My second concern is the consequence of the current exceptionally low interest rates on the overhanging pension burdens on business. Two weeks ago in our debate on the economic growth strategy, I drew the House’s attention to the serious impact of this looming thunder-cloud over the competitiveness of industry. This needs to be addressed and addressed fast.
If our competitiveness is to be sustained, we must rethink energy pricing policy. While I strongly endorse environmental efforts to prevent the destruction of our ecological heritage, we need a sense of balance. The competitive struggle is a tough, international battle that is hard to fight with one hand tied behind our back. There are industries in which energy is a major component of production. Try as one might, it is simply not possible to avoid or reduce this. Our energy pricing is such that our production languishes while our industrial competitors’ energy costs are considerably below UK costs. Our present system of carbon taxes is basic to this problem. It is just not working. Up and down the supply chain of many remaining heavy-process industries, jobs are being lost and businesses are in trouble.
Innovation is the lifeblood of competitiveness. It can be achieved only through better skills and training and the enhancement of industrial education and research environments. There are two ways in which we can accelerate this process. Large companies already maintain their own facilities to supplement public sector education. Through appropriate tax and other incentives, we can encourage these larger corporates to mentor less well endowed mid-sized businesses to establish jointly the type of technical institutions in which innovation and creativity will flourish.
In my distant youth I was a student at the Massachusetts Institute of Technology. There I saw how the Government and the corporate sector worked with the universities to carry out industrial research for which the universities were paid. This strengthened the financial position of the universities while providing innovative ideas and product design to the corporates and to the Government. Ever since, as your Lordships know, I have strongly endorsed these synergies. We have made some progress in this but I suggest consideration of a crash programme in which government resources anchor such interconnections. With other countries increasing their research budgets, perhaps we can offset our own financial limitations through such a pooling of resources and expertise.
Industrial investment is a long-term process and industry needs a clearer sense of economic direction in order to help that investment. The biggest issue for industry at the moment is the banking crisis. This is so fundamental to our national economy that it must be investigated intensively and resolved. A resolution must avoid any political point scoring, as the whole country needs to have its faith in the financial sector restored. The LIBOR fixing has adversely affected everyone. It has hurt the reputation not only of UK financial services but the country as a whole. We cannot afford that. The Minister is, in my view, one of the best people to give advice on this subject, and I hope that the Government will seek his wise counsel, despite his being in a different department.
Lord Cavendish of Furness
My Lords, I am pleased to join others in thanking my noble friend Lord Jenkin of Roding for introducing this debate with such skill and clarity. His reputation brings an enormous amount to this House.
My purpose in intervening today is to draw attention to the obstacles that prevent SMEs, in particular, from being competitive. Since those obstacles are real, in my view, I see no merit in being mealy-mouthed about them. It should be recognised that during the years of financial services hubris, those of us who do things, make things or grow things became highly unfashionable and only slowly are we emerging from those dark days and those perceptions. It appears to me that Governments used to ask bankers how the economy worked. When their fallibility became apparent, advice was sought from the owners of supermarkets and big business. It is my contention that the people that Governments should have been talking to are those who work in the sector of small and medium-sized businesses that make up such a very high proportion of this country’s productive capacity. It is they, and perhaps only they, in the short term, who can deliver growth and investment and they stand ready to do so if only this coalition Government have the will and the courage to unshackle them and let them take flight.
I know that the Minister will point to measures he has implemented and plans to implement in the future. Of course, there are improvements and they are appreciated. I do not mean to underestimate the challenge that this coalition faces or ignore the real achievements in the face of these challenges. It has brought onto the statute book three very major reforms, the main benefits of which, as with many reforms, lie in the future.
I operate, as I have done for the past 40 years, in that very sector which I so passionately believe is crucial to national recovery, investment and growth, and that brings me to declaring an interest. I have beneficial interests in a landed estate based mainly in south Cumbria. The estate’s activities include farming, forestry, property management, leisure, tourism, minerals and housebuilding. We also own and run a racecourse and have 250 people on the full-time payroll, 150 of whom are engaged in extracting, processing and selling slate, a significant proportion of which goes to markets around the world. On the question of exporting, I believe that a successful exporter has a mindset, more than anything else. If I can dig stone out of the Cumbrian hills and send it to the other side of the world, it ought to give encouragement to other exporters.
Let me remind your Lordships what the SME sector comprises. There are 4.5 million small businesses in the UK. They account for 58.8% of the private sector and nearly half of all private sector turnover. In 2010, family businesses contributed £81.7 billion in tax receipts to the UK Exchequer, or 14% of total government revenues. The barriers to growth and investment under generic headings are well known to the Government; perhaps less well understood is the disproportionate impact they have on the sector where I have some experience. The burden of reporting to government departments on such things as PAYE, VAT and national insurance not only grows remorselessly, but those departments do not work to the same standards and timescales as is the norm in the private sector. All entrepreneurs in this sector will rightly point to employment and health and safety laws and their implementation; a lack of credit, widely rehearsed in this debate; and planning delays and regulation as being among the main factors that inhibit growth and job creation. I shall say a word on each and address some other considerations that are sometimes overlooked. I was hoping that other noble Lords would cover the importance of broadband, which I know is a very important aspect of this.
Decent people believing in the rule of law have always defended the principle that justice is worthless unless it is accessible to all. People need and deserve protection from unscrupulous employers and I suspect that the reputation of tribunals for being one-sided in favour of claimants is sometimes exaggerated. However, something is very wrong—I suspect that it is the law itself—when I consider how attractive the system seems to be to vexatious claimants. It is also cumbersome and pitifully slow and therefore costly in terms of time and money.
Charities are particularly vulnerable, made worse perhaps by the Charity Commissioners’ understandable but strong guidance that claims should be settled rather than defended. I have personal experience of this through my local hospice, which I co-founded and was involved with for nearly 20 years, which was nearly ruined by a vexatious claim. I especially ask my noble friend Lord Green to take note of this. Charities play an ever-increasing role in society and I emphasise that they are significant employers and, as such, are very much part of the national economy.
It is above my pay grade to suggest how the law might be changed, but it is plainly true that the impact of employment laws on a small enterprise is different, and by magnitudes greater, from what it is on a large one—a point made eloquently by my noble friend Lord Brooke. In the matter of planning, authorities have apparently cut back on resources; that is something which they had to do and it seems right to me. However, they have done this without changing their methodology. I ask myself this: when all of us have found ourselves forced to do things more smartly and efficiently, why has so little been done in the public sector to do likewise? The effect is plain enough. Nearly 70% of those seeking planning decisions are having to wait longer than the legally required eight weeks. What makes this so scandalous is that about a quarter of such applications are for change of use and a quarter for minor improvements. Every planning permission generates economic activity and all delays costs jobs.
Across my own business, as I speak, 20 jobs are being withheld pending delayed permissions that have been agreed to in principle. Only today I heard that the retirement of a person in the highways department was given as the reason for a local housing development being delayed for six months. Just imagine the effect that that has on employment. My family business is at an advanced stage of considering installing an anaerobic digestion plant to generate green energy. As a consequence of government prevarication on several fronts, together with an estimated two-year delay in securing permission to connect, this project is now on hold. Again, although we can all applaud the intentions of the national planning policy framework, I am bound to say that I reserve my position until I see how it is interpreted at the local level and by the planning inspectorate.
In reaching a view as to the impact of regulation, I have relied on my own experience and that of my neighbours in Cumbria. By the time someone employing three people has completed all regulatory compliance, by my estimation he or she has lost in a working week the best part of a full day. On top of that, there will be the direct cash costs of compliance to be earned. I will cite two examples. I know a brilliant self-employed precision engineer who does work building submarines in the shipyards at Barrow and also in the nuclear industry. He is the sort of person this country really needs. He has an order book that would merit his taking on two or three additional people. He would be willing to train young people. He cannot and will not employ anyone until he sees at least some of the burdens removed and the high personal risk of employing people reduced.
My second example, moving from the sublime to the ridiculous, goes down to the farm. Under Defra’s electronic tagging system, if a sheep tears a tag out, as frequently happens—there is an animal welfare issue there—the farmer is obliged to identify it by reading the tags of every animal in the flock. Did anyone think to consult a farmer before such a crass regulation was introduced?
Another, largely ignored, casualty of all this suffocating red tape is civic involvement. I notice this especially among the farming community who, in my part of the world, have a strong instinct to participate in local affairs. I harbour the suspicion that among the official class the squeezing out of such people who possess a deep understanding of their communities is not entirely unwelcome. I can almost hear Sir Humphrey saying, “Intelligent and experienced people interfering in local government, Prime Minister? That is the very last thing we need”.
One other factor playing an increasing part in eroding our competitive edge is the utilities. I cannot imagine what possessed our predecessors when they created these powerful private monopolies. As one neighbour says, “You have to pay them a huge cheque before they get out of bed”. They are more statist than the state; more statist even than the BBC. In the countryside, all of us have no option but to engage with them. They are completely unresponsive to customers, ruthless in their financial dealings and the services they offer are often exorbitantly expensive. I will go so far as to say that unless the worst offenders are compelled to change their ways, they will continue to exercise a baneful effect on the British economy.
With some honourable exceptions, the utilities culture actually pervades all the agencies of the state to some degree or other. I sit on these Benches basically because I believe in a small state. I hold to the view that I have always held: whatever the state does, it does badly and expensively. As an example, the famous NHS IT system budgeted at £2.3 billion was abandoned when it passed, according to some figures, the £20 billion mark. I do not remember anyone being shot at dawn. All I heard was some tut-tutting and talk about lessons being learnt and lines drawn.
It was therefore slightly offensive for those who are law-abiding to be told by Ministers that there was no distinction between tax evasion and tax avoidance and that both were equally reprehensible. One is legal and the other is not. With the record all Governments have of husbanding our hard-earned money, one might reasonably conclude that the more I keep for reinvestment and the less the Treasury gets its hands on, the better for everyone and the better for the country. Besides which, most of us are willing to pay taxes for the public services we value.
I finish with an experience from last week. My company is considering the purchase of a struggling business in a remote part of Spain that might add to the diversity of our operations. Negotiations are at a very early stage and I cannot even guess at what might be the outcome. Despite that, at all levels, Spanish public officials are going to enormous lengths to facilitate these negotiations with the unambiguous purpose of saving a Spanish business and the Spanish jobs that go with it. Compare and contrast that with the culture of our own public sector. We simply do not have the right culture.
I see that my time is up. I do believe that we have the wrong culture. Unbelievable expenses are placed on SMEs. It may take a generation for the culture to change and become what it should be. But at this time of severe crisis when most of Europe has rendered itself uncompetitive, now should be the moment to change the way we do things; now would be the moment for Ministers to insist that public servants put themselves at the disposal of the public, as some of us older people remember that they used to. Even if a start was made at removing the worst of these burdens, even if the flawed culture begins to move in the right direction, then the SME sector stands ready to respond and will, I am confident, lead us out of these dark days to growth, prosperity and full employment.
Baroness Warwick of Undercliffe
My Lords, I am grateful to be permitted to speak briefly in the gap in what has been a really stimulating and erudite debate. I will make a simple point, which has been referred to tangentially by several other noble Lords in today’s debate. The Government are looking for trade and export-led growth, and a key sector for such growth is higher education. Indeed, there is a Lords Select Committee currently looking at SMEs and growth that is highlighting the HE factor as an essential component.
Depressing figures on growth are regularly quoted in the media and, indeed, in this House. I need to avoid being a Pollyanna, but there is a mechanism with a proven track record that deserves support in the current climate. I am talking here about the role played by the UK’s research base and our higher education sector in contributing to the international competitiveness of the UK. Noble Lords will have seen for themselves the calibre of research taking place up and down the country, the extent of collaboration and knowledge transfer, and the success of our research clusters in attracting inward investment.
While we are undoubtedly in difficult times, it is worth saying that the UK has one of the strongest university research sectors in the world. Our research activity both attracts inward investment and generates export income from a global market. Many global companies—I think immediately of BP, Siemens, GlaxoSmithKline, Boeing and Rolls-Royce—have established successful collaborative research partnerships with UK universities. Our world-leading institutions have a crucial role to play in helping the UK survive the economic downturn and work its way back to economic growth. One example is that the Technology Strategy Board has just announced that one of its technology innovation centres, for stem cell therapies— I declare an interest as chairman of the Human Tissue Authority—will be established at Guy’s Hospital in London because of its credentials as, among other things, a large research and teaching hospital and its access to world-class universities. The UK will be ideally positioned to gain a substantial share of this young industry, due to its leading position in the science of stem cells and regenerative medicine. The noble Lord, Lord Kakkar, gave many more such examples in his tour de force of a speech.
The Universities UK report, Driving Economic Growth, makes the case that higher education is a “core strategic asset” to the UK. I was pleased to see last week that, as part of its response to Sir Tim Wilson’s recent review, the Government announced the creation of a new national centre focused on strengthening the strategic partnership between universities and business, with a view to driving economic growth and recovery.
My plea to noble Lords and the Minister—my friend—is to ask: what further support can be given by the Government to university and business leaders as they work together to address the challenge to the UK of the global economic downturn?
Lord Stevenson of Balmacara
My Lords, we are grateful to the noble Lord, Lord Jenkin of Roding, for giving us the opportunity for an economic debate this afternoon.
The eyes of the public may well be on the Commons and the ongoing question of how best to review the latest banking scandal, but the issues raised in the Motion are very important. It will be in all our interests as a nation if we can improve the international competitiveness of UK industry, stimulate more inward investment, grow our exports and create jobs—and thereby end this double-dip recession made in Downing Street.
We have had a very good debate, with strong contributions from all sides. As has been mentioned, there is great expertise in your Lordships’ House. Much of that has been on display to great effect today. Any debate containing an erudite, literary and amusing contribution from the noble Lord, Lord Brooke of Sutton Mandeville, has to be cherished.
The noble Lord, Lord Jenkin, asserted that there was a growing consensus that technology and innovation would be the key driver in an export-led recovery by our manufacturing companies. I assume that in saying that he was echoing, at least in part, the recent remarks of the Secretary of State for BIS when he complained to the Prime Minister that this Government have no,
“compelling vision of where the country is heading”,
that their actions were piecemeal, and that they had no,
“clear and confident message about how we will earn our living in the future”.
After all, reading from a Library note which was prepared for this debate, and which contains a lot of very useful information, the situation is far from being satisfactory. The ONS reports that the deficit in net trade was £3.7 billion for quarter 1 of 2012 compared with £2.2 billion in quarter 4 of 2011, and that the month-by-month changes to the balance of trade provide a challenging outlook for the health of UK trade. On FDI, the ONS says that 2010 was a “relatively quiet year”, with,
“flows of both outward and inward at their smallest for several years”.
Generally on the state of the UK economy, the OBR said in March 2012 that it expected UK exports to continue to be supported by the depreciation of sterling which began in 2007. Of course, however, that beneficial situation has now reversed, largely because of the euro crisis.
The OECD describes the recovery of UK exports after 2008 as “disappointing”, particularly in light of the depreciation of sterling. On job creation, unemployment is now 2.61 million, or 8.2%. As the noble Lord, Lord Sheikh, said, it is over 20% for 16 to 24 year-olds; and the headline figure is up 0.5% over the year. As my noble friend Lord Liddle said, we seem to have wasted the opportunity created by our ability to devalue our own currency, so as to grow our exports. We have stifled domestic demand, and we have massively increased social costs because of increased unemployment. It is not a pretty picture.
We are also living through a period of seismic, rapid, global and technological change. The Government, as outlined in the last Budget, seem to be relying on a single policy, one of increasing exports,
“as companies capitalise on global opportunities”.
This will be tricky if, as the last OBR report predicted, there is lower than expected growth in the world economy. So what can we do? There needs to be a twin-track approach, boosting the UK’s capacity to export goods and services, which we would all like to see, with an active government approach, as outlined by my noble friend Lord Liddle, and—this is also very important but rarely discussed—focusing on reducing our dependence on imports.
As many noble Lords have said, our chances of success in the global economy will not come from being quite good at lots of things. There is a premium on being the best. We must develop our areas of existing strength—sectors, technologies and services—where we are already world-class, such as the advanced manufacturing, aerospace and automotive industries, business services, life sciences, the creative industries, higher education, and, yes, financial services. Do the Government accept that they need to get behind these sectors, and do whatever they can to ensure that they prosper and can sell their goods and services abroad? Can the Minister update us about the current BIS schemes which support and underwrite our exports? Also, in response to the question from the noble Lord, Lord Jenkin, can he let us know what the department are doing to help SMEs in particular export more?
Other countries are already pursuing active government approaches. We need to match the best of what is out there. Just because the Americans preach a gospel of free markets does not mean that their Government have not made huge interventions in markets through vehicles like DARPA, the Small Business Innovation Research programme and the National Institutes of Health. Look at Germany with its national investment bank, KfW; its centres of technical and vocational training and research, the Fraunhofer institutes; and its network of 426 local banks providing credit to businesses, the Sparkassen. Look at SPRING Singapore. Can we not match these activities? Institutions like these support business development and growth, provide stable finance, allow for information to be shared, foster innovation and encourage its dissemination, and develop the skills base on which businesses can build. We do not seem to have these institutions in the UK, and BIS does not deliver these services at present. That is why we on this side are looking at plans for a British investment bank.
This is not only about getting individual parts right. It is about the whole. It is about competition policy being reinforced by procurement policy. It is about taxation and regulation reinforcing the strategic direction agreed with business. It is about ensuring that the finance, education, training and skills and infrastructure are there for businesses of all sizes. I hope that when he comes to sum up, the Minister will reassure us that he shares this vision of an active Government working together with businesses large and small across the country. In so doing, he will want to pick up on a number of the points raised by noble Lords in this debate. I have a long list here. I would like him to focus on four or five; perhaps he can deal with the others in correspondence.
The noble Lords, Lord Paul and Lord Jenkin, have also mentioned this: our training problems are long-standing and have never been resolved. There is no coherent plan, particularly for the 50% of people who leave school and do not go on to university. Where are the integrated procedures, and who is responsible for ensuring that these people move forward to proper jobs and have a training for life?
There have been a lot of comments about UKTI, many of them complimentary, but there were questions asked about whether it could do more in-country work. There was also a question about whether it would move away from the point-of-sale promotion which it currently engages in, towards bringing new companies and their products to world markets. There is also an issue I would like the Minister to respond to at some point if he can, which is whether we could build more concern for human rights in business into the work which UKTI does.
We heard a lot about the need to stimulate innovation; we also heard some good stories of work going on, both from the noble Lord, Lord Kakkar, and from my noble friend Lady Warwick. Again, this needs more government support and activity, particularly as we think about the way e-commerce can help. We were all impressed by what the noble Lord, Lord Kakkar, said about telemedicine. The noble Lord, Lord Paul, and many others, talked about the finance requirements for SME growth, and there was a general concern about the way in which money was not flowing yet from the banking system to support our industries.
We also heard about the need for spending on infrastructure to support our work across the various activities that have been referred to. These are matters which we hear a lot about, but again there are no plans coming forward.
Finally, I argue that we also need to focus on activities on which the UK has an opportunity to reduce its import dependency, and in so doing assist the development of a more equal society, as mentioned by my noble friend Lord Haskel. According to a recent report from the Centre for Research on Socio-Cultural Change, the pigmeat supply chain is going through a prolonged and unresolved crisis. The size of the national pig herd has declined by around 50% over the past decade, while over a similar period the UK has gone from 80% self-sufficiency in pigmeat to less than 50% self-sufficiency. Clearly, this worsens the UK’s trade deficit and diminishes UK employment. This is a classic example of UK failure in tradable goods against north European competitors. The UK’s growing volume of pigmeat imports come not from low-wage eastern Europe or from Asia, but from northern European countries, which now provide more than 50% of the UK’s bacon, despite their wages being almost double and their labour market being much less flexible.
The authors of the CRESC report argue that because the UK Government take a narrow “competition is best” policy, UK policy interventions have always been limited to a series of unsuccessful voluntary initiatives that did not recognise that the form of competition being practised in this market is, in fact, the problem. In Denmark and Holland we find that government support for the creation of co-operatives and assistance with marketing for artisanal producers has transformed the capacity of their producers to negotiate with the supermarkets, and has stimulated them to export to other markets like the UK. Changing the food processing industry in the ways suggested increases margins and reduces costs, and society gains through reduced import dependence, higher wages and more stable employment. I hope that this morality tale about restoring the great British bacon sarnie commends itself to the Minister. I look forward to his response.
The noble Lord, Lord Paul, called for a common cause on this issue and I agree. We can surely all get behind a sustainable initiative in this area because the prize is a UK economy that is richer, fairer and more productive, positioned to succeed in the growing markets of the future with the right capabilities to do so.
The Minister of State, Department for Business, Innovation and Skills & Foreign and Commonwealth Office (Lord Green of Hurstpierpoint)
My Lords, I thank my noble friend Lord Jenkin of Roding for initiating this important debate and raising the issues with such clarity. Strong trade and inward investment are of course vital to our economic success going forward—on that the whole House seems to be agreed. I thank my noble friend, too, for his kind comments about my role. It is perhaps worth noting that I have spent a fair amount of time in recent weeks and months travelling to 40 different countries as well as continuously around this country. This is not just industrial tourism; this is about understanding the issues that businesses face at this end and at that end in order that we can plan appropriate support going forward.
One lesson we all learnt from the 2008 crisis was that the old growth model is bust. In the run-up to the crisis there was too much growth based on domestic consumption fuelled by debt, and we know that we cannot continue to drive growth in that way. We also know that we cannot rely on government spending also fuelled by debt to drive growth either. The economics textbooks tell you that there are only two other sources of demand in any economy that can drive growth and create jobs—they are, of course, investment and net trade. I would like to talk briefly about each of those.
First, on investment—and focusing especially on foreign direct investment, which plays a key and strategic role in the UK economy—nearly half of total output in this economy is supported by foreign direct investment, a figure which is significantly higher than in France, and much higher than in Germany, America and elsewhere. It is a clear source of competitive advantage to us that the UK is, and has been for many decades, so open to foreign direct investment. It is a cultural orientation which has enabled—famously—the regeneration of the UK automotive industry since the 1980s by Japanese, German, American and now Indian investment. Iconic British brands such as Jaguar Land Rover, the Mini, the Rolls-Royce and the Bentley have been strengthened and revitalised by investment from Germany and India. Innovative cars are being developed and built in Britain now and exported around the world. One-quarter of all of Ford’s engines are built in the UK. The Japanese investor Nissan builds cars in Sunderland and exports some of them to Japan. An impressive 83% overall of cars built in the UK are now exported. The link, therefore, between foreign direct investment and exports is clear.
It is important, however, to remember that it is not just the automotive industry that we can use as an example here—the aerospace industry is another case in point. Airbus and Bombardier, to name but two examples, play a part in an industry that has a 17% global market share. Another recent example of a different kind of openness to foreign direct investment is the China Investment Corporation’s investment of 8.7% of Thames Water. The interesting point about that investment is that it has caused so little comment or nervousness in the British public domain. Can you imagine the same being true if a Chinese sovereign wealth fund invested in the water supply of either New York or Paris?
It is important that we remain an attractive destination for FDI, which means ensuring that our tax regime is attractive, that we minimise unnecessary red tape and that we have a planning regime that is fit for purpose. I know that the whole House will agree with me when I say that a lot of work needs to be done, and is in hand, under those three headings. The headline rate of corporation tax is the most visible sign of how competitive a country is and we are cutting that to 22% by 2014. That will be the lowest in the G7. We are supporting innovation through the patent box and R and D tax credits, and high-growth companies with programmes such as the enterprise investment scheme.
A crucial area where we need to attract FDI is not only in productive activity but in the public economic infrastructure. A number of noble Lords have referred to that issue. The kindest friends of this country would not accuse it of having a world-class public economic infrastructure. Infrastructure UK, a body started by the previous Administration and continued and developed by this one, has been developing increasingly specific project-based plans for investment in transport, energy, water and broadband networks which we will need if we are to compete effectively in the 21st century. It is estimated that around £250 billion of investment will be required between now and 2015, the bulk of which will, of course, have to come from private sector capital working in harness with the Government. That capital will come from foreign institutions, from domestic institutions and also from sovereign wealth funds. A lot of work is being done on that. This is a long-term programme that we have to keep at.
Our regulatory environment is another important signal for overseas investors in this country. We are often, quite rightly, very critical of ourselves, but actually we have a strong reputation overseas for transparency, predictability and the rule of law, and we must never lose this. According to the World Bank, the UK ranks seventh in the world for the ease of doing business and second only to Denmark in the EU. The UK has the fewest barriers to entrepreneurship of any country in the world. It takes 13 days to set up a business here, which is two days fewer than in Germany and almost a third fewer than the international average and a fraction of the time that it takes in some of the fastest-growing, emerging markets around the world.
We have to do much more especially to tackle bureaucracy that is holding businesses back. I note the point made by a number of noble Lords that this bears down particularly on SMEs. It is a continuous challenge. I suspect that if we are standing here in 10 years’ time we will still be pleading for an attack on unnecessary regulatory bureaucracy on behalf of small businesses. But we are working on it. That is why we have introduced the Red Tape Challenge and are seeking to simplify planning procedures—one in, one out on red tape; and the new National Planning Policy Framework creates a presumption in favour of sustainable investment, reducing some 1,000 pages of planning guidelines to just 52.
Secondly, I should like to comment briefly on trade. Historically, our performance has been weak. In fact, since the 1960s, trade has tended to be a drag on growth rather than a driver of growth in this economy. We also have had a burgeoning balance of payments deficit, although that seems to have stabilised in the past year or two or three. The fact, however, is that over the long term we have to find a way of paying our way in the 21st century. We have therefore set an ambitious target of doubling exports to £1 trillion by 2020, which requires growth of a little over 8% per annum compound. Last year we achieved 10.5%, so we are on track, but we have to keep that up, not merely to 2020 but beyond that. To achieve this, we need to look at where we stand in terms of market share. In most markets we lag behind Germany; in many we lag behind France, and in some we lag behind Italy too. I mention those three countries because in some ways they are our most obvious direct competitors.
The rise of the global middle class is a huge opportunity for all of us. As the emerging markets take their place on the world stage—or, in some cases, retake their place on the world stage—what you notice is that everywhere the appetite for the sort of goods that we take for granted is exactly the same, and as strong, as ours. So the opportunities are there. But if our exports do not keep pace with the rates of growth of those emerging markets then we will fall behind the competition. Our challenge is to get more companies exporting and to increase the amount that we export outside of the European Union.
Central to implementing this strategy is UK Trade and Investment. I would like to spend a few moments discussing how UKTI has been reorganised and refocused to meet the challenges we face. We have appointed a new chief executive and renewed the top management team, bringing in people with strong private-sector enterprise. Our UK-based trade advisers now work on incentivised contracts and so do our inward investment services.
In overseas priority markets we have set up a new group to identify so-called high value opportunities—contracts for major infrastructure projects, whole new cities and so forth, which create opportunities so long as we showcase the British offer cohesively and effectively. This is methodical work. We have identified in particular 60 top priorities. For each one of those we have an action team led by someone from UKTI, drawing in industry representatives from the relevant sectors. In some cases they are helping consortia to form; in others they are providing a cohesive offering, in particular creating the framework within which SMEs can access these enormous project opportunities which can seem so daunting to an SME working on its own. As just one example, in Malaysia, UK firms, including some small ones, have won business designing train stations and providing engineering consultancy for the country’s largest infrastructure project, worth over £10.5 billion, in mass rapid transit.
We have also introduced best business practice by strategically managing relationships with our leading exporters and leading investors so that they no longer feel that they have to run from pillar to post when trying to deal with government. This is beginning to produce benefits, although I am confident that this is, again, something that we have to keep up over the long haul if we are really to gain the benefit of providing a cohesive presence for inward investors and large British exporters to deal with. It is showing benefits.
Perhaps our most important task is to help more and more SMEs into the export markets. We have set a target for UKTI of doubling its client base from around 20,000 currently to 50,000, between now and 2015. Of course the vast bulk of that client base is already, and will continue to be, SMEs. We have a new team in UKTI headed by a new executive with strong personal business experience leading the charge on this. We have put in new programmes, and I am pleased to report—because this struck me almost from day one when I got into the job—that we have reversed the downward decline in trade access programme support. We have pushed the budget up this year, and if I get my way we will push it up next year too.
We have introduced new programmes of e-connectivity designed to help SMEs talk to each other and share experiences, because there is nothing so powerful as an SME talking to another SME about the practical challenges of getting into the international markets. We have introduced a new, more flexible approach to charging for market introduction services. I believe that there was too much of a confusion of ends and means, as the budgets for selling these services became the end. No, they are a means and not the end itself: the end is to serve clients and help them get into the export markets.
UKTI is also working much more closely with UK Export Finance, formerly known to many of us as the Export Credit Guarantee Department, which can now for the first time in 20 years offer services to companies of all sizes. For the past 20 years it has in effect been providing services only in the form of big-ticket, long-term credit guarantees for the defence and aerospace industries. We now have a range of products in place which are relevant to an SME in the smallest possible denominations.
Moreover, we know that exporting helps companies to grow. We know that businesses that export do better with the help of UKTI and UKEF. We know that on average companies that work with UKTI go on to win overseas sales of over £100,000 within 18 months. We know that this is value for money from the point of view of the taxpayer. However, I think that it is important to stress a theme that has come through this debate already on several occasions; that is, that the Government cannot do this alone. You will no doubt hold the Government to account for the quality of the services they deliver through UKTI and UKEF and through the Foreign Office and its work through the missions and posts overseas. However, even if you scored us 10 out of 10 on all of those dimensions, it still will not be sufficient.
There is a key role for the supporters and networks of SMEs to play as we help small companies face the often daunting challenge of getting into the export markets for the first time. I am working as closely as I can with, for example, chambers of commerce, including the British Chambers of Commerce, the Confederation of British Industry, the FSB; and also with banks, lawyers and accountants—all of whom are clearly critical to the prosperity and growth prospects of small companies—as well as with trade bodies such as the Energy Industries Council, which my noble friend Lord Jenkin mentioned and with which we do indeed co-operate on many levels, just as we do with a number of other such institutions representing industry interests and needs. The sector groups include the aerospace, defence, security and space industries; the BBA; the Law Society; and the Institute of Chartered Accountants, which I believe is playing an extremely valuable role in helping its members—who have so many SME clients—understand the opportunities.
I have also been working with honourable Members from the other place in a cross-party initiative to encourage them to seek out businesses in their constituencies. If you divide the target that the Prime Minister set of 100,000 new companies into the export markets over the next few years by the number of constituencies in the UK, it works out as just two or three dozen businesses per constituency per year. Put like that it does not seem as daunting as the figure of 100,000. The critical point is that this is a collective effort. Again, a number of noble Lords have raised the possibility of the roles that Members of this House can play, and one or two Members have already referred to missions led by Members of this House. I would be delighted to work with any of the noble Lords in this House who have links to business groups or know particular places well, to find ways of engaging them in what I believe is a collective challenge.
Turning to the various comments made in the extremely interesting and very wide-ranging interventions by noble Lords, I have to say that I will not have time to do justice to all of them. This was a very wide-ranging debate covering many of—essentially all—the issues in the economy today. I will attempt to focus on some of the major themes and commit to writing to noble Lords where I am not able to address particular points.
My noble friend Lord Jenkin mentioned three things in particular. The first was the issue of the awareness of UKEF and, come to that, UKTI. There is work to be done on this. It is clear that not enough of their potential customer base knows of their services and how to get to them. We need to work hard on that. We are putting a lot of effort into this. In particular, in the case of UKEF we are appointing representatives into all of the UKTI offices around the region. I have regularly, as I mentioned, been around the regions meeting with businesses, holding events and so forth. This is continuous work and we have to keep at it.
My noble friend also mentioned the question of life sciences, the importance of the life sciences initiative and the need to ensure that we showcase what we are seeking to do, as well as the need to get on with it— I think that that was really the thrust of the point. I resonate with the point that we need to make sure that the world beyond our shores understands what a telling proposition we have to offer. This is simply one of the best centres for life sciences development and investment anywhere in the world and we need to work to showcase that as effectively as we can. I would like to take away the thought of having some form of group of ambassadors from the industry to work with us in showcasing these opportunities. I believe that we have done that increasingly successfully in healthcare services, a related area where, for example, the noble Lord, Lord Darzi, has led both missions and a working group for us in helping us to showcase UK healthcare services more effectively.
I will move on, if I may, to comments from other noble Lords. The noble Lord, Lord Liddle, made a number of points about the importance of skills investment and the linkage between research in the universities and commercialisation thereof. A number of other noble Lords made similar points. The role of catapults will be extremely important in this.
The term “pea shooter” was used to suggest that we were not doing enough. This gives me the opportunity to make a general statement in response to a number of comments, including those of the noble Lord, Lord Stevenson. It would not be fair to characterise what the Government are doing as merely using a pea shooter. Extensive investments are going on, for instance in apprenticeships. The Government will spend £1.4 billion on start-ups, which this year will involve something of the order of 450,000 new apprenticeships. What we are doing was started by the previous Government and has been continued and ramped up by this one. We are rebuilding an apprenticeship system that fell into disrepair in the 1970s, 1980s and 1990s. We need to rebuild it. I will repeat something that I have said once or twice already. We must stick at this over 10 or more years before we get back to where we should be—with a skilled industrial base for this country. Along with all noble Lords in the House, I look forward to the report of the noble Lord, Lord Heseltine, on the competitiveness of the UK economy.
A number of noble Lords raised the question of Europe. I will dwell on that for a moment or two. It is clearly the case that, whatever the uncertainties about the way forward for the eurozone, we are involved in Europe. We are a member of the European Union, 45% of our exports go to the eurozone and half of them go to the European Union. We are impacted by the European Union. It is absolutely in our interest to continue to press for full implementation of the Single Market Act. The services directive and the digital single market are areas that will make a huge difference to Europe’s competitiveness globally, and to the opportunities that our companies will have in global markets. The Government are fully committed to arguing continually and loudly for Single Market Act implementation.
I am reminded that we are running out of time. This reflects the extensive nature of the debate. We have covered many topics. I would love to have had more time to talk about energy reform and its implications, and to respond to the point of the noble Lord, Lord Paul, about the importance of getting energy policy right for industry, for consumers and for long-term security. This is a difficult and complex area. As noble Lords will know, a Bill on this is being scrutinised in the other place at present.
In general, the message is clear. This is a collective effort. We need to work away at encouraging more companies into international markets. This is not a one-year fix. It is not a programme that we can conceive of implementing only for the lifetime of one Parliament. We will be living with this for a generation as we rebalance the economy away from excessive reliance on domestic consumption towards international engagement.
I will make one final comment. I promise to write to noble Lords whose points I have not been able to address. The more we succeed in this, the more we will not only repair our balance of payments position but contribute to growth. Very important research shows that SMEs in particular that get into international markets enjoy very considerable productive efficiency gains quite quickly—something like 30% gains in the first year or two of taking the first steps into the international market. That goes on as they spread their wings into new markets. It leads to higher profitability, greater longevity, further job creation and, in summary, to the strengthening of the backbone of the economy.
My final point is therefore that what we are talking about is not simply the balance of payments. It is not simply the need that we have to pay our way in the 21st century. It is about the regeneration of the economy that is core to the growth strategy that this Government have in place alongside the deficit reduction strategy and the strengthening of the macroeconomic environment.
Finally, I thank the noble Lord, Lord Jenkin of Roding, for introducing an extremely important opportunity for us collectively to talk about an issue that is central to all of us who have concerns about this country’s future economic potential.
Lord Haskel
The Minister spoke warmly of reducing corporation tax. Of course, what he forgot to say was that the Government are also reducing capital allowances by an even greater amount. What impact will that have on our competitiveness?
Lord Green of Hurstpierpoint
Corporation tax must be seen in the context of an overall tax package. We have a number of new measures in place. I referred to the patent box, whereby we will tax revenue from intellectual property at 10%. We have very generous R and D tax credits. We have introduced enterprise investment allowances. It would be very difficult to do anything other than recognise that the overall tax framework contributes to a very business-supportive tax environment. It needs to be competitive. The goalposts are moving internationally as other countries seek to create competitive tax regimes. We need constantly to watch what others are doing if we are to go on being an inward destination that foreign investors find attractive.
Lord Jenkin of Roding
My Lords, according to my calculations we have 14 minutes left before our three and a half hours run out. However, I will relieve noble Lords’ anxieties by reassuring them that I do not intend to speak for anything more than a minute or two. I know that the next debate is ready to start.
I will say three things. First, the Motion was drawn in deliberately wide terms in order to embrace not just the narrow definition of manufacturing or service industries but a whole range of industries. A number of noble Lords made maximum use of that. We heard a lot from around the country and across sectors about the importance of competitiveness. I particularly welcomed what was said, for instance, about competitiveness in our cultural exports, which are hugely important.
Secondly, I am most grateful to noble Lords who took part in the debate. I was not sure whether we would secure a long enough list, but we did. I hugely value—and my noble friend said that the Government value—the amount of expert evidence that has come from this House in a way in which we are justified in taking some pride. We have a range of expertise here that was on show in this debate.
Thirdly, I thank my noble friend the Minister, who demonstrated his mastery of the subject as a result of his own long experience, including his experience as a Minister, of dealing with the problems both of encouraging exports and of promoting foreign direct investment. He showed not only that he was master of his subject but that he had taken on board some of the genuine criticisms that were made about where the Government could do more to help industry and companies, particularly SMEs, make their contribution in this field. We look forward to seeing the letters that he has promised to send to all noble Lords. I thank him most warmly. As I said in my opening speech, we do not see enough of him here because he is so busy banging the drum overseas for Britain. I beg to move.
Supply and Appropriation (Main Estimates) Bill
Horses: Transportation
(12 years, 5 months ago)
Lords ChamberRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Lord Higgins
That this House takes note of the welfare and transportation of horses in the European Union.
Lord Higgins
My Lords, I am very glad and indeed fortunate to have the opportunity to open a debate on issues related to the welfare and transportation of horses in the European Union. In doing so I should declare an interest, as my daughter is an equine veterinary surgeon. It is pleasant to introduce a debate on a European matter that does not involve reference to the eurozone and the various controversies associated with it, on which I have spoken on a number of occasions recently, but it is also true that this debate is unusual and perhaps can be summed up by a quotation in the excellent House of Lords Library note that was prepared for this occasion. Under the heading “Overview”, it states:
“There is a special relationship between most British people and horses. We do not see them as farm livestock”.
However, our views are not shared by all other countries. Indeed, EU law regards horses in the same way as farmed animals.
Much of what we have to discuss today is concerned with how the European Union could be useful in ensuring that everything is done to make sure that animal welfare, in particular the welfare of horses, is maintained effectively. For almost a decade, I have been concerned with the suffering caused by the international trade in live horses for slaughter. As noble Lords may know, this mostly takes place between Poland and other countries in eastern Europe, Italy, and to some extent Spain. The charity World Horse Welfare has been at the forefront of campaigning on these issues.
Ideally this trade should cease altogether so that horses are slaughtered in their country of origin and then exported frozen or in some other form as meat. That would eliminate completely the problems that I and many other noble Lords are concerned about. However, for various commercial reasons that is not likely to happen—not least, I should say in passing, so far as the trade with Italy is concerned, where the motivation for carrying on the trade as it is arises from the fact that the horses, which are imported for slaughter, are apparently then presented as fresh Italian meat. One would hope that my noble friend might consider making representations to the Italian Government with a view to stopping what is in effect a fraud being perpetrated on the people of Italy, because they are consuming the product.
This issue has been raised in a number of different ways, in particular on the question of whether there should be an amendment to the European law on this subject. In the forefront of all these is the problem that, as evidence from World Horse Welfare and others shows, the animals are transported in the most appalling conditions that do not conform to what is set out in the regulations. Large and small horses or mares and stallions may be put together with little headroom and inadequate water for the journey that they have to undertake.
Perhaps most important is the question of why there is no limit on journey times. Animals can be transported from Poland to the heel of Italy without any limit being imposed on the length of the journey. In response to an Oral Question tabled by the noble Lord, Lord Dear, a few days ago, my noble friend the Minister said that he would press for a change in the regulations on journey times. When he winds up the debate, perhaps he can tell us to what extent he has managed to make progress in that respect. It is the crucial matter at the moment, quite apart from the other particular issues that I have mentioned.
The second problem is the question of enforcement. When I raised this matter in a debate held in May 2008 in the Moses Room, my understanding was that enforcement was the responsibility of local authorities. This is an international trade, so there is no reason why any local authority should be particularly concerned about how horses pass through its area. Perhaps the Minister could say whether that is still the case and, if so, whether something could not be done to put in place a more effective system of enforcement.
All the evidence suggests that the regulations are not being enforced properly. Whatever the terms of the regulations may be, if they are not enforced they will not help the animals who are travelling in these very bad conditions. The proposal on journey times has been endorsed by the European Food Safety Authority. This has been taken into account by the Commission, but we have still not had an assurance that the regulations will be changed to deal with the recommendations put forward by that authority. No doubt negotiations will continue, but perhaps my noble friend could tell us how he sees the next stage in the campaign to try to prevent these abuses developing.
That covers the first point about which I have been concerned for a long time. However, when the previous debate took place, and when I have raised the issue by way of Parliamentary Questions and so on, I was not fully aware of a separate set of problems that are different in nature but of equal severity. They relate to the tripartite agreement that was designed to allow the free transportation of thoroughbred and competition horses between the UK, Ireland and France without the need for health certification. This is entirely admirable because these are extremely valuable animals. I imagine that the transportations are conducted with a degree of luxury, which is in total contrast to the poor animals I referred to a moment ago. It is good that the practice should continue.
However, as I understand it, in 2005 the agreement was extended to allow the free transportation not only of high-value horses but of horses of low value, which can now circulate around these countries unchecked and unmonitored. The market has been growing as a result of the overbreeding of horses both in the UK and on the continent. Animal welfare charities are aware of cases where these horses are being moved from place to place, including into and out of the UK, with no official record of those movements, making them virtually untraceable and rendering any disease control measures difficult. Apparently the European Union law on routine port inspections of horses entering and leaving the UK allows for regular checks only in exceptional circumstances. These horses are now going in and out with no checks being made for diseases.
This is an extremely dangerous situation. We are all aware of the case in 2010 of a horse being imported into this country from Romania, where there was an outbreak of equine infectious anaemia. It is a notifiable disease and the animal was slaughtered in due course. If the tripartite agreement is not amended so that it reverts to its original form, there is a serious risk that infection will enter this country and spread through our livestock, resulting in horses having to be slaughtered—no doubt to the great distress of their owners.
This is something that should be preventable. I would be glad to know whether my noble friend has taken the point fully on board, and I will seek to negotiate the tripartite agreement, maintaining its original intention while ensuring that the risk of disease spreading to this country from elsewhere in the European Union is reduced. For example, imports can come in from France although the horses concerned might have originated somewhere in eastern Europe, where there are disease problems. I know that the Minister is sympathetic to all these arguments and I hope that he will be able to take positive action on the issue.
I believe that both the previous and present Governments are sympathetic to these arguments, so I hope that we can encourage the Government to take positive action and to press forward in negotiations in the European Union to protect the position of horses. This relates both to the very bad conditions in which those unfortunate animals are being shipped around the UK—my noble friend referred to it the other day as a disgusting trade—and to taking adequate steps to ensure that there is no spread of disease that would have very serious implications for the UK trade generally, which I gather amounts to some £3 billion. We are fortunate to have this debate and I am glad to see that a number of noble Lords are taking part. I hope this will lead to further progress in dealing with these problems, which are important for the economy of the country as well as of concern to anyone with an interest in animal welfare. I beg to move.
Baroness Mallalieu
My Lords, I first declare a personal interest as the president of the Horse Trust and the chairman of the All-Party Group for the Horse. I am also a member of the Humane Slaughter Association. Secondly, and most importantly, I thank and congratulate the noble Lord, Lord Higgins, on securing this debate which is particularly timely in relation to the Commission, for reasons I will come to.
At the age of 11, I came across a leaflet written by Ada Cole, the remarkable woman who founded the charity which is now called World Horse Welfare. It was about the export of live horses from Ireland, taken by sea for slaughter on the continent. There was one photograph which I can still remember in every detail. It was of a carthorse with a kind eye and a crooked white blaze, barely able to lift its head from the position in which it had collapsed on the dockside in Antwerp. It looked totally exhausted and a picture of misery. After, no doubt, a lifetime of work, its last days should not have been spent at sea in terrible conditions. The caption beneath that picture, which I have never forgotten to this day read, “A victim of man’s greed”.
That terrible trade in old and unwanted horses from Ireland to France and Belgium by sea has gone. It was killed, in part, by public outcry when, on one occasion, some 12 dead horses, which had collapsed during the journey and been thrown overboard, were washed up on a genteel English seaside beach. The fact remains that, after 50 years of so-called progress, some 65,000 horses still make long, gruelling and almost wholly unnecessary journeys to their death within the European Union each year, with the sanction of the Commission which is frightened of restraining trade. About 15 years ago, we had a debate on this subject and I can still remember one speech from that evening. It was made by Lord Slynn of Hadley, no longer with us, who described his own experience of stopping at a continental motorway service station and looking through the vents of a huge lorry standing in the car park. It was crammed with horses, some visibly injured, all utterly exhausted, standing in total silence. They had, he found, been on the lorry like that for two days and had two more to go before arriving at their eventual destination for slaughter in southern Italy.
There has been progress, but it has been painfully slow and inadequate to prevent what is a wholly unnecessary suffering. I have recently visited Transylvania—part of Romania—where tractors are still a rarity and the work is done, as it was 150 years ago, by horse-drawn vehicles. The population of working horses in eastern Europe is still huge yet, despite the fact that no horse there is more than 12 hours from an abattoir in which it could end its days after its working life finishes, many will instead make a journey of two to four days to Italy and Spain in vehicles which are, as the noble Lord, Lord Higgins, said, far removed from the sleek racehorse transporters which we see on our motorways. Those horses are overcrowded, sometimes quite unfit to travel and with wholly inadequate checks made to monitor journey times and rest periods or on whether water is actually provided. Ironically, the comparative cost of slaughter near the point of origin and refrigerated transported is, I am told, very little different from the cost of transporting these animals across a continent in these conditions. The majority of the meat is processed in any event, so arguments about consumers demanding fresh meat are largely irrelevant. In reality, the trade continues in this way because that is how it has been historically and because the Commission lacks the willpower to deal with it.
I cannot help but feel that, if the public in Spain and Italy had the same degree of awareness of what is involved as people in this country, 1 million of whom signed a petition to limit journey times, then demand would drop. This would bring changes more quickly than anything else. There is still no overall limit on the duration of those journeys, despite the recommendation of the European Food Safety Authority, whose research has shown that above all other species—and there are differences between species—horses suffer severe welfare problems in journeys over that time. Our MEPs have shown their support, the European Parliament has supported the change, yet still—and inexplicably—the Commission so far prefers to go down the line of guidance and enforcement of existing regulations, which are currently not adequately enforced.
We are moving into the Cypriot presidency, during which, I suspect, this issue will have very little priority. However, I understand that Ireland takes over immediately after that and I very much hope we will then see adopted the proposal to reduce the journey time for horses to 12 hours, at the very longest. I hope that the Minister can assure us that pressure will be stepped up. I should like to pay tribute to the Minister, Jim Paice, who on 15 June released an intervention calling for the introduction of that limit, as recommended by the EFSA, and it was accepted by the Council of Europe.
The long journeys from eastern to southern Europe are not, however, the only disturbing feature of what is going in relation to horse transport in Europe. For different reasons, we should all be concerned about the shipments of surplus horses, mostly of very low value, currently taking place between Ireland, France and the United Kingdom. During last year, the provision of abattoirs in Northern Ireland was insufficient to meet the demand for the slaughter of unwanted horses that were, having been bought by UK meat dealers, sometimes waiting for up to six weeks in unsatisfactory conditions before there was the capacity to ship them to England for slaughter. The Horse Trust and other charities did what they could to assist the very limited provision of equine welfare over there, but the volume of abandoned and malnourished welfare cases, which is a combination of the recession and chronic overbreeding, means that humane slaughter on the spot was often the only option.
Low-value horses come every week to the UK from Ireland and France, and go out again. They are not routinely checked at ports of entry and, on occasions, are unfit to travel, or they introduce disease, as the noble Lord, Lord Higgins, pointed out. What on earth was the horse that brought the disease coming here from Romania for? Given that African horse sickness is knocking on our door—with its potentially disastrous consequences for our £3.8 billion equine industry, should it reach us—it is a state of affairs that should worry us all, and every Government.
What this international trade is all about is unclear. There are meat dealers in this country who own literally hundreds of horses of little value, and many of those horses were in a very poor state last winter. It is on a scale that has the equine charities and local authorities that have to deal with the consequences of abandoned horses, fly grazing, welfare cases and escapees, tearing their hair out. These dealers treat the horses as commodities to be sold on, if and when there is a market, but most are poor specimens of little value and no use, save perhaps for meat at some future point. They are the result of indiscriminate breeding, both here and in Ireland. In time of economic difficulty, the numbers are such that all the rescue organisations put together could not begin to take even the worst cases. I have heard reports of local authorities and, indeed, major charities considering that their budgets would not stretch to prosecuting even the worst offenders.
Somehow, people have to be educated, here and in Ireland, not to breed horses unless they have a job for them—and then only to breed from the best—and when they reach the end of the road to do the right thing and put them down at home, not sell them on to the dealer who promises to find a good retirement home. These are the horses that end up on a transporter, being shipped hither and thither to an uncertain end.
What needs to be done right now? The Commission needs to pressed, as it already has been by our Ministers, and pressed and pressed again, until it implements the 12-hour limit. Better guidance and inspections en route, which have been accepted by the Commission, must be implemented. Consumers must be told how the meat has reached their plates in Italy, Spain and parts of France. That is something that I understand World Horse Welfare proposes to do. Horses should bee seen and treated as sentient beings, not mere market commodities. If they are to be eaten at the end, so be it; but it is surely our duty to ensure that in life they are treated with respect and consideration, as should be all our food animals. Despite all the advances and all the talk over the course of my lifetime, too many horses remain the victims of man’s greed.
Baroness Verma
My Lords, I remind noble Lords that this is a time-limited debate and when the clock shows “10”, the 10 minutes are up.
Lord Addington
My Lords, this is one of those debates when you realise that you have jumped into very deep water, so I shall not be paddling far from the banks of my knowledge, which is not extensive. Most of the points that I thought might add to the debate have already been covered by the noble Baroness, Lady Mallalieu. Primarily, the enforcement of good welfare in our nation seems to have been driven by public opinion. If other nations and other bodies, primarily in the EU, wish to drive this on, we must do something to engage public opinion within those nations.
I am assuming that even if we are slightly overly sentimental about horses, other nations do not deliberately go out to hurt them. Most people are not naturally cruel. When animals are transported either for the table or for recreational reasons, they should be treated with dignity. As has been pointed out, there could be bureaucratic reasons behind the economic benefit of transporting a horse for a long period of time. A live animal is probably going to be heavier than the meat of a slaughtered animal and I do not know how that stands with fuel prices, et cetera However, if there is a bureaucratic reason, and the meat can be called a product of Italy because it has been slaughtered and finished there, surely there should be some encouragement for consumers in Italy to have an advantage and not be ripped off like this? Can we make sure that the EU project acts together to defend all the consumers of the EU? That would also benefit animal welfare.
Unless we can bring this to the attention of the public across Europe, progress will be painfully slow. Unless we can enforce regulations and guidance about rest periods, feeding and watering, and make sure that national enforcement agencies regard it as a priority, with people shamed and punished when they break the rules, very little is likely to happen. All nations are full of laws which are a low priority for the authorities. What we have to do is draw this to the attention of the bodies within the countries concerned and encourage them to act. The question for our Government is how do we encourage this? How do we encourage those bodies here and in other nations, such as Ireland, where there is a well-developed respect for the horse, to come together with a Europe-wide message? This will mean that local authorities will have an interest, an advantage and a benefit in taking action. We should never lose sight of the law of self-interest. Unless we can convince our fellow members of the EU that there is something to be gained, very little will be done.
So we have the consumer argument, the welfare argument and there is a political advantage. Am I the only person here who has felt that occasionally it would be the right thing to do, and politically advantageous to raise that point? I do not think so. If we act, we will have a chance of applying some levers to the process. If we merely stand back and say it is a bureaucratic process that should be left alone, nothing is going to change. We must get out and make sure that people understand the problem. The noble Lord, Lord Higgins, has taken a vital step here. We must engage with those outside, and the Government can help by approving this process. It does not have to be active support in the Council of Ministers, though that may be a good thing; it could mean encouraging our public bodies to spread the message wider. That would probably be more beneficial and will lead to quicker results. I hope that the Minister can tell me that this process of building awareness across the whole of Europe is taking place.
My final point is about the tripartite agreement and the movement of animals for leisure purposes. I live in the village of Lambourn, in the valley of the racehorse in Berkshire. I can assure your Lordships that if there was a big problem with the economic movement of racehorses around the country, I would have heard about it, and at the moment I have not heard anything. For anybody who is not familiar with the village of Lambourn, two people out of three are involved in racing. There are not many places where, if you go for a walk in a morning, you have to avoid strings of racehorses on either side of the road going between gallops. I have not heard much about this being a problem, so presumably the racing position is that people are comfortable with it. As for the use of other horses, again I have not heard of problems, but would the Minister look at the danger of disease spreading in? This very valuable industry employing a lot of people deserves protection. Would he assure me that the Government are looking at whether liberalisation has not gone a step too far and is endangering this golden goose?
Baroness Trumpington
My Lords, I am very grateful to my noble friend Lord Higgins for introducing this debate. Apart from the grim reality of the subject before us, it makes a change that this matter is totally politics-free and we can say what we darned well like. In pursuit of that, I pay tribute to the noble Baroness, Lady Mallalieu. For many years, she has loved and protected the horse publicly and privately, including through her chairmanship of the All-Party Parliamentary Group for the Horse, which she mentioned. I thank her for all that she has done and all that she will do in the future.
I said recently at Question Time that I had tried to do something about this disgusting trade but without success. I know that it is not much to talk about, but I was a steward at Folkestone racecourse for 10 years, and I know Lambourn, mentioned by the noble Lord, Lord Addington, and Newmarket very well. The economic situation of a country affects the horse trade as well as everything else to do with the countryside and nature. I do not believe that Lambourn is as peaceful and happy as perhaps the noble Lord thought it was.
I have two requests to make of the Minister. The first is perhaps unusual. Could he persuade the press to display existing photographs of doomed horses in transit together with as much publicity as possible? I do not believe that the public are aware of this situation, and only the press can help. I believe that photographs exist which would horrify people. Secondly, will the Minister explain—I have written to him—why in Italy and Germany horses are transported live instead of being killed, frozen, cooked and then turned into the sausages so beloved?
I await the answers to my two questions. I realise that the first is somewhat unfair, but I am darned if I cannot try to get all the publicity that I can for this matter. I am sure that noble Lords in this House will agree with me.
Lord Dear
My Lords, this debate, which I warmly welcome, follows hard on the heels of a Question that I had the privilege of putting before this House on 14 June, when I tried to concentrate on the transportation of horses. The noble Lord, Lord Higgins, to whom I am very grateful for securing this debate, has already addressed that issue in some depth.
Perhaps I might add to what has been said one or two statistics which have been gleaned by the World Horse Welfare charity, of which—I declare an interest— I am a trustee. Examinations by World Horse Welfare of horses leaving Romania en route to Italy showed that 14% were deemed unfit for that journey at the point of departure. By the time they had arrived in Romania, 37% were deemed unfit to have been transported. A separate tranche of investigations by World Horse Welfare, again in Romania, indicated that of horses transported on that terrible route from Romania to Italy, a quarter were showing at the point of arrival in Italy acute injury which had been inflicted or suffered during that journey.
Other evidence on the transportation route might also interest your Lordships. Anyone who knows anything about horses will recognise that an abnormal stance, or weight-shifting, in a horse indicates pain. Behavioural data from one randomly selected shipment two years ago showed that 94% of horses arriving at the point of reception had an abnormal stance and that 83% were weight-shifting. I shall not labour the point because it has already been made, but those statistics might well be of interest to those who read this debate later in Hansard or elsewhere.
The point is that the trade and transportation of horses across Europe is in a mess. I want to concentrate briefly not so much on the transportation issues which have already been very well illuminated by speakers before me but on the tripartite agreement which bears very much on the situation in this country. I will be going over information that has already been given to the House but I will do it in slightly more detail to make sure that the point is not lost. The tripartite agreement was entered into between three countries—the United Kingdom, France and Ireland—to facilitate the trade of high-quality horses, usually race horses but sometimes eventers and show-jumpers, between those three countries. Other countries in Europe would have a stake and a claim to say that they, too, are involved in high-quality horses but we all know that the majority of the racing industry is centred in those three countries, hence the agreement called the tripartite. It was originally intended to allow for the free movement of registered horses—racehorses and others—between those three countries without the need for a health certificate.
In 2005, as we have already been told, the agreement was extended to include all horses being shipped backwards and forwards between those three countries, other than those that were being transported for slaughter. What we now have is the completely unchecked and unmonitored movement of often low-value horses into and out of the UK from France and the Republic of Ireland. I venture to suggest that the problem is probably greater emanating from France, but it is also there in those that come from Ireland. Animals can enter France, as we already know, from anywhere in the EU. They can remain in France for a long or a short time—often for a very short time indeed—and they can then enter the UK unchecked under the original tripartite agreement and no one will know where they have come from or the premises from which they have been moved.
We know that welfare is compromised through this trade because many of these animals, as I have said, are low-value—they are vulnerable horses, ponies and sometimes donkeys—and the transportation, as we have explored in depth, is often quite horrendous. But because they pass from dealer to dealer with no check at all, mixing with other frequently low-value animals, they are constantly exposed to the risk of disease. We already know from the agricultural industry how bluetongue and Schmallenberg virus can affect sheep. We have already heard mentioned in this debate that African horse sickness has reared its head to a tremendous extent in Romania. Romania keeps cropping up in this debate and I really think that the Commission should pay particular attention to that country. In 2010 we had our first outbreak of equine infectious anaemia, EIA. That, too, was traced back to Romania and now, without any pun being intended, the stable doors are being locked there to some extent because restrictions are in place around that country.
The potential spread of disease across borders into this country will affect a UK equine industry which is pushing close to £4 billion a year. It is going to be seriously compromised unless we go back to the original demands and intentions of the tripartite agreement. The information that I have from World Horse Welfare is that there is no reason whatever why we should not revert to the terms of the original agreement. That can be done, I am confidently informed, without undue deference or discussion with the other two countries. As understand it, we simply go back and insist that the terms of the tripartite agreement are adhered to as they were before 2005. Without flogging this particular horse to death—again, no pun intended—I urge the Minister to look closely at the tripartite agreement, what it was intended to deal with in the first place and the tremendous amount of risk that we are now exposed to because of the position now being adopted, and to report back to the House as soon as he can on whether he has been able to ameliorate that position.
The Earl of Caithness
My Lords, I congratulate my noble friend Lord Higgins on finding time for this debate. Although it is focused on horses, your Lordships will know that the EU regulations on horses also cover other vertebrates, and I am sure that the House would not want to give the impression that it is not concerned about other vertebrates.
I have the honour to serve on Sub-Committee D, and we have been keeping an eagle eye on the transportation of livestock which are subject to EU regulations. The picture, as has been described, is pretty depressing. There was no doubt that the Danish presidency tried hard, with its five working parties, to get some agreement in the EU, but the EU is hopelessly riven. It is clear that it is completely split between those who want some reform, those who want no reform, and it is equally split among those who want some reform. As your Lordships will know, trying to get anything done in the EU when there is not cohesive agreement is almost impossible.
Therefore, I have huge sympathy for my noble friend on the Front Bench, because although we know what is right, if we do not have the support of the majority of the other member states—as we clearly do not—we can never achieve the high welfare standards necessary. Here, I have to be a little practical. Is the ambition of the highest possible standards to be the enemy of the good? Should not be UK be taking, not the highest position, which is what we might like to get to, but, to get a majority in the EU for change, ought we to drop the level of what we are trying to achieve? I know that the Government have been very keen to focus on the young stock that have been travelling. That is hugely important, and the committee supported the Government on that but, overall, if we are to make progress—with a future presidency, we might—perhaps we ought not to try to achieve the ultimate but to work to get a majority.
The EU regulations refer to,
“vertebrate animals transported in connection with an economic activity”.
Does my noble friend have any information on what animals are transported in what is not an economic activity? That might be useful to know. The EU prepared a paper in November. In one paragraph, which is a comparison of the quality of animal welfare during transport before and after the application of the regulation, it claims that,
“animal transport on long journeys has improved”,
but qualifies that by saying that,
“no firm conclusions can be established”.
How can the EU Commission possibly say that if there is no firm evidence? It is very good to give yourself a pat on the back, but that if there is no evidence to do so, you had better be a bit careful.
Turning to the use of navigation systems, again, there has been poor implementation. The use of navigation systems raises a question that runs through the Commission paper: the interpretation of existing regulations varies from member state to member state. Why is there a lack of clarity in the EU regulations? Surely that is a fundamental starting place so that one can get a wording that every country is bound by—they may not agree it, but they are bound by it—because only then can the Commission start to exercise what authority it has.
As has been said, the level of compliance and enforcement is up to each member state, but if there is a variation of interpretation of the regulations and some member states are therefore not complying and enforcing in the way that we do, any statistics are meaningless. You would not be comparing similar things. The basic need is for clarity in the regulations and then we must then ask the EU to make certain that compliance and enforcement are the same throughout every member state.
When it comes to penalties and sanctions, the Commission also says that it is very difficult to get a comparison between the countries, because of the various legal systems and because of the available data. It goes on to say that it considers this to be an unsatisfactory situation,
“and encouraged Member States to provide for more harmonised application of the rules … ‘taking into account the limits of the competence that Member States and the legislators have decided to give to the Commission’”.
I am certainly not one who wishes to give more powers to the Commission—I think it has too many already, as your Lordships will have heard me say on many occasions—but perhaps this is one area where I might back off a little. Can my noble friend tell me whether the Commission is right in putting the blame back on to the member states or does he think that the Commission is not fulfilling the tasks that have already been allotted to it?
This is a very sad subject to have to debate yet again. We should not be doing it but it is clear that there is such diversity of opinion throughout the member states. This Government have done so much, as indeed did the previous Government who also got support from Sub-Committee D. Perhaps my noble friend on the Front Bench can give us some idea of how the Government see this being tackled in the future.
Lord Knight of Weymouth
My Lords, as my noble friend Lady Mallalieu said in her authoritative speech, this is a timely debate because we finally have the opportunity to make some good progress on this important issue. I am delighted to join not only the consensus in congratulating the noble Lord, Lord Higgins, on his opening of the debate but the consensus that seems to be emerging, even from the noble Earl, Lord Caithness, in favour of stronger EU regulation, if only on this particular issue.
I speak as a former Minister for the horse. When I was leafing back through the 2005 strategy that we produced at that time in Defra, I found that some of the stats were worth repeating to show the importance of the horse industry to this country. It had a gross output in 2005 of around £3.4 billion; it employed up to 250,000 people directly and indirectly; 2.5 million people ride in this country; and 11 million people have some interest in the horse industry, 5 million of them having an active interest. The horse population was then certainly at least 600,000 and could total nearly 1 million horses.
Although it is largely left to my wife, I, too, am a horse owner and I would certainly endorse the view that has been put by so many of your Lordships about the remarkable nature of these animals. That nature has of course been celebrated very successfully, first in the novel War Horse by Michael Morpurgo, then in the wonderful stage adaptation and then in the slightly less wonderful but certainly watchable movie of the same name. I am also a patron of a charity called TheHorseCourse, which is doing innovative work with horses in prisons by using one of the remarkable features of these animals: they provide instant feedback to people because of their nature—they are both pack and prey animals. That is proving extremely effective for some of the more difficult offenders, particularly young offenders. I have seen that work at Portland young offender institution.
As the noble Lord, Lord Higgins, said in repeating the excellent Library note from, I think, 2008, we are a nation of horse lovers: hence our concern about transportation and welfare within the EU. This country’s affection for the horse is reflected in the Animal Welfare Act 2006 and especially in the five freedoms that we gave all animals in that Act: a need for a suitable environment; a need for a suitable diet; a need to be able to exhibit normal behaviour patterns; a need to be housed with, or apart from, other animals; and a need to be protected from pain, suffering, injury and disease. We have heard graphically from speakers in this debate how horses are being denied those freedoms in the way in which some of them are being transported around the European Union.
Unfortunately this tradition in our culture is not uniform across EU member states, although I agree with those who say that it is not that citizens of other states want to be cruel; it is just that the culture is different. I am pleased that our tradition is now to some extent reflected in the 1997 revision of the treaty of Rome that happened in the Amsterdam treaty. The wording was changed to:
“Desiring to ensure improved protection and respect for the welfare of animals as sentient beings”—
the first time that animals were recognised as sentient beings in the treaty of Rome. This was then strengthened in the Lisbon treaty, which says:
“In formulating and implementing the Union’s agriculture, fisheries, transport, internal market, research and technological development and space policies, the Union and the Member States shall, since animals are sentient beings, pay full regard to the welfare requirements of animals”.
That is a very important context for legislation and action by the Commission and member states on horse welfare and for concerns about the lack of consistent implementation of current regulations. As a result of those treaty changes, these are now fundamental animal welfare obligations on member states for which the Commission should be held to account. It should in turn be held to account on how it is using its powers to pursue member states that allow the unnecessary suffering of horses that are being transported unnecessary and inhumanely long distances. I am pleased that the Commission is currently focusing its efforts on enforcing the existing regulation and on guidance on its implementation. However, I agree with World Horse Welfare when it says that:
“Enforcement of any legislation is essential and there are certainly areas where guidance could have a positive impact. However, enforcement and guidance alone cannot address the key problem of journey times, which do not reflect current scientific knowledge about the impact of long journeys on horses, and other serious issues such as minimum space allowances which should be increased and vehicle standards, which are in need of improvement”.
We need a maximum journey of 12 hours at the very extreme, and ideally lower; and we need an enforceable regime, as transportation crosses borders so easily. Surely in these days of GPS tracking and other recording technology in vehicles, it must be possible to ensure manageable enforcement across the European Union.
I join my noble friend in congratulating the Government on pressing the Commission on this issue through their intervention last month, and am pleased to see the Council now agreeing to encourage the Commission to act. I look forward to the Minister’s update on the Commission’s response and would gently say to the noble Earl, Lord Caithness, that we should push for what we want, even if inevitably negotiation means that we have to give ground in achieving our ambition. However, I accept from his hand gesture that you can argue that one both ways; it is six of one and half a dozen of the other.
I also look forward to the Minister’s response on the tripartite agreement, which all speakers have mentioned and which was examined in particular detail by the noble Lord, Lord Dear. I support his call for the Government to look at this a little more and to come back to us with an update if they need to. I also support what the noble Baroness, Lady Trumpington, said about getting more publicity if the Government’s obviously legendary spin machine can do anything to raise the profile of this, around which there is considerable public interest.
This is an important issue. The UK has a proud international reputation as a world leader on animal welfare and conservation. I hope that the Government can continue to influence progress on this issue. On that they will have our full support.
Lord De Mauley
My Lords, in view of my own strong feelings in this area, I particularly thank my noble friend Lord Higgins for initiating debate and all noble Lords for participating today. I have a personal relationship with horses that goes back to my childhood. I have ridden under rules and we almost always have horses on the farm at home. My wife and mother are both members of equine welfare organisations and I am president of SPANA, the charity that concerns itself with the welfare of equids in developing countries, so this is a subject I feel strongly about. I applaud the work of World Horse Welfare and the Horse Trust, to which noble Lords have referred today, as well as other laudable organisations working in this field.
As my noble friend Lord Higgins said, there is a special relationship between the British public and horses, and I share the view of those who want to see the best possible welfare standards applied to all equines, both in this country and abroad. However, we have to acknowledge, as did the noble Lord, Lord Knight, that our views are not necessarily shared by all EU countries, many of which regard equines simply as farmed animals. The Government want to see the highest welfare standards for all animals but, to enable us to make the strongest case to those who do not share our views, these standards, particularly in relation to journey times, must be based on the best scientific evidence available. We would prefer to see a trade in meat and meat products or germ plasm rather than a trade in live animals and that animals are slaughtered as close as is practicable to their point of production. But the export of live animals for slaughter, however repugnant we may find it, is a legal trade.
During the peak of live exports 20 or so years ago, the Government and many local and port authorities were thwarted legally when they sought either to ban or curtail this trade. However, the fact that the trade is legal does not mean that we cannot insist that the highest welfare standards, backed up by the available scientific evidence, are applied to it without exception. That is why we have been pressing, are pressing and will continue to press the EU Commission to adopt the recommendation from the European Food Safety Agency that horses going to slaughter should face journeys of no more than 12 hours duration. That would be a significant improvement on the current rules, which allow journeys of up to 24 hours.
At the EU Council meeting on 18 June my right honourable friend Jim Paice, Minister of State for Agriculture and Farming, expressed the Government’s strong disappointment that the EU Commission was not intending to implement the EFSA recommendation on horses going to slaughter. We will continue to push hard for the adoption of the EFSA recommendation at the earliest possible opportunity. What we cannot, unfortunately, do is act unilaterally in an area already covered by directly applicable EU welfare and trade rules.
The current EU legislation on welfare during transport, EU Council Regulation 1/2005, has been in place for more than five years. The Commission’s recent review of the impact of the legislation noted that, while the welfare of animals during transport has benefited overall, significant problems still persist, particularly in relation to enforcement. We want to see the Food and Veterinary Office of the EU Commission taking a robust line against those member states that, five years on, have failed adequately to implement the welfare during transport legislation. We want to see the journey times for all animals, especially but not only those going to slaughter, reviewed to determine whether the current journey time rules are in line with existing and emerging scientific evidence.
In this debate we have mainly been talking about horses, but my noble friend Lord Caithness mentioned other species. We also want, for example, to see a discussion on better protection for infant livestock such as calves. We do not believe that it is right that unweaned calves should face extremely long journeys, sometimes from one end of the Community to the other. Our own research suggests—the noble Lord, Lord Knight, referred to this—that the quality of the transport and the competence of the driver, for example, are as important factors as the overall journey time experienced by livestock.
My noble friend Lord Higgins asked about enforcement and suggested that it was unsatisfactory that this should be entirely in the hands of local authorities. The Animal Health and Veterinary Laboratories Agency and local authorities are responsible for regulation and enforcement action. They inspect livestock transportation on the basis of an assessment of risk and additionally they will investigate claims of illegality or poor transport practices impacting on the welfare of animals. Their inspectors are active at major ports inspecting both imports and exports of horses. They may also inspect horses at the point of loading where they have prior intelligence that there may be welfare concerns. I can tell your Lordships that a successful prosecution involving the export of horses has concluded in Essex in the past few days.
My noble friend pointed to the trade between Poland and Italy and/or Spain. I am grateful to him and to my noble friend Lady Trumpington for calling my attention to a very similar trade between Poland and Germany. These are specific examples of the international trade in horses for slaughter, which is a cause for grave concern. I have looked into it—there was, indeed, a recent TV programme about it—and it looks very much as if my noble friends are tragically right. I have drawn this to the attention of my colleagues at the department and I shall return to the issue in a moment.
My noble friends Lord Higgins and Lord Addington and the noble Lord, Lord Dear, asked whether we will be reviewing the tripartite agreement. Defra has reviewed the risk of importing exotic equine diseases and whether the TPA needs to be amended to mitigate any increased risk. Officials have presented preliminary findings to the Chief Veterinary Officer and to the Animal Health and Welfare Board for England. Following consideration of the AHWBE’s views, proposals will be presented to my right honourable friend the Minister of State, Mr Paice, for consideration.
The noble Baroness, Lady Mallalieu, referred to an increase in the number of unwanted horses as a result of the economic downturn and my noble friend Lady Trumpington also referred to the impact of the economic downturn. I have no doubt that current financial pressure is impacting across all sections of industry. Reported welfare problems include increased dumping of horses and passing horses to rescue centres as they are too expensive to keep. This is directly related to the price of feed. There are also seasonal factors in the reporting of welfare cases: not unnaturally, reports tend to increase during the winter months. Defra remains supportive of the equine industry’s contribution to the economy. The recently created health and welfare strategy group, the equine sector council, will play a valuable role in co-ordinating the views and concerns of the different welfare organisations involved in horse welfare.
The noble Baroness, Lady Mallalieu, my noble friends Lord Addington and Lady Trumpington and, I think, others referred to the importance of public awareness and publicity generally to our case. The EU’s welfare strategy for 2012-15, published earlier this year, stresses the importance of raising public awareness on animal welfare issues. The EU Council has agreed with the Commission about the relevance of communicating to children, young adults and the public at large awareness of the need for respect for animals and promoting responsible ownership. We will be asking the Commission how it intends to take this work forward in future bilateral meetings with it on implementation of its strategy.
I understand that some international welfare organisations have had some success, specifically in targeting major retail chains in France and Belgium and persuading them to stop selling horsemeat from Mexico and Brazil due to the appalling conditions there. Unfortunately—I have been in communication with my noble friend Lady Trumpington on this—this appears to have resulted in a transfer of the source to Argentina, where welfare conditions are, I am afraid, little better. However, it does demonstrate the value of public opinion in Europe and the value of the work of welfare organisations. Of course, this debate is also helping to give airtime to this important subject.
My noble friend Lord Caithness said rightly that member states are deeply divided on the legislation and whether improvements should be made to it. It is true that a small majority supports the decision by the Commission not to press ahead with changes at the present time. We do not agree and want to see the EFSA recommendations introduced. We are not prepared to give up and I do not believe that we are alone.
My noble friend Lord Caithness and the noble Lord, Lord Knight, referred to the European Commission’s November 2011 report on its review of regulation— I do not know whether they referred specifically to it but they referred to its contents—which highlights severe animal welfare problems during transport persisting. They are right. Reports submitted to the Food and Veterinary Office on its inspections of individual member states demonstrate that the level of enforcement of the legislation indeed varies significantly between them. The European Commission’s proposed solution to these problems involves adopting new implementing rules concerning satellite tracking systems, an increase in the number of inspections to improve existing controls, better reporting on compliance by member states, increased co-operation and communication between the competent authorities and NGOs and the dissemination of Commission guidance on the interpretation of the regulation and development of guides to good practice.
It remains to be seen how far the Commission will go. Like the noble Lord, Lord Knight, I have some doubt about the value of non-binding guides. However, at least it is actively working on a solution, and we will continue to monitor this and bring pressure to bear.
In conclusion, we care a great deal about the welfare of all equines—indeed, all animals. We acknowledge the work that the many equine welfare organisations do in caring for abandoned and badly treated animals, and the campaigns that they run to highlight welfare issues and concerns. We owe it to them—as well as, of course, to the animals themselves—to make sure that we do as much as possible at the international level to promote horse welfare. Nearer to home, we look forward to working with the recently formed equine sector council, which we hope will be a fresh and strong voice for the equine sector as a whole.
Lord Higgins
My Lords, I did not notice what time the debate started, so I am not sure whether I am going to be cut off in full flow. I do not propose to detain the House for more than a few moments. I was very fortunate to be able to obtain time for the debate and I am most grateful to all those who contributed, many of them with more expertise and long-standing involvement in these problems than I.
It has been an extremely helpful debate. We are fortunate in having a Minister who clearly has his heart in the right place on this issue. It is very much a question of our encouraging HMG and, in turn, HMG persisting in their efforts within the European Community. I will read again with interest what my noble friend said about inspection of this trade en route. It is not my impression from the evidence that has been produced that the situation is quite as good as he seemed to suggest, even though it may be as far as this country is concerned. We urge him to do all that he can within the complex negotiations in Europe and particularly to give priority to the question of journey times, which is crucial and could perhaps be facilitated by the use of more technology in monitoring what is actually going on.
On the tripartite agreement, it seems astonishing that the original agreement was extended in the way in which it has been. As the noble Lord, Lord Dear, pointed out, all one has to do is to go back to the original intention of that agreement. There is no great drafting problem with that; we simply revert to the original intention. I very much hope that my noble friend will consult the tripartite group to ensure that the other two will agree to go back to the original proposal. It would be a serious risk to the whole equine industry and, indeed, to many horse lovers—not least youngsters in this country—if we were suddenly to find that there was an outbreak of disease which involved the need to cull a large number of horses. I hope that my noble friend will see what he can do within Europe and with the other two signatories to the tripartite agreement.
I am most grateful to all those who have taken part in the debate and to the Minister for his response. We shall continue to encourage him to do all he can to further the needs of the people involved with this trade and horse lovers generally.
Army 2020
(12 years, 5 months ago)
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The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever)
First, I am sure the House will wish to join me in paying tribute to the aircrew from 15 Reserve Squadron, based at RAF Lossiemouth, who were involved in the Tornado GR4 aircraft incident on Tuesday—Flight Lieutenant Hywel Poole, who was killed, and Squadron Leader Samuel Bailey and Flight Lieutenant Adam Sanders, who are still missing and must be presumed dead. My thoughts, and I am sure those of the entire House, are with their loved ones at this difficult time and with the fourth member of the squadron involved in the incident, who is currently in a serious but stable condition in hospital.
In addition, I am sure the whole House will also wish to join me in offering sincere condolences to the families and friends of guardsman Apete Tuisovurua and guardsman Craig Roderick of the 1st Battalion Welsh Guards, and Warrant Officer Class 2 of the Royal Corps of Signals, who were killed on operations in Afghanistan recently. My thoughts are also with the wounded, and I pay tribute to the courage and fortitude with which they face their rehabilitation.
The Statement is as follows.
“With permission, Mr Speaker, I wish to make a Statement about the future structure of the British Army.
I know that I speak for the whole House in expressing our gratitude for the superbly professional job our Armed Forces are doing in Afghanistan and around the world and in paying tribute to their courage, commitment and self-sacrifice in doing it. We have seen again this week, in all too stark contrast, the risks they take on our behalf, both in Afghanistan and at home, and the price that all too many of them pay.
The operation in Afghanistan remains the MoD’s top priority, but our combat role in Afghanistan is coming to an end, and with it, the predictability of the Army’s main effort. Looking beyond 2014, we need to restructure to face an increasingly uncertain world, ready to intervene wherever and whenever to protect our national interest and with an ability to project force and prevent conflict through “agile and adaptable” Armed Forces, as set out in the 2010 strategic defence and security review.
We also need to address the reality of the fiscal situation and ensure our Armed Forces are sustainable and affordable. My predecessor, my right honourable friend the Member for North Somerset, announced to the House last July that, as part of the measures to bring the defence budget back into balance and to eliminate the £38 billion black hole we inherited from the last Government, the future strength of the Army would be around 120,000, including an integrated trained reserve of 30,000—a total trained strength not dissimilar to the pre-SDSR level.
So this Statement is not about the size of the Army; that decision has already been announced. It is about how we structure the future Army and how we support it to deliver the greatest possible military effect with the manpower available.
The Chief of the General Staff could have taken the attitude that a given reduction in regular manpower must inevitably lead to a similar reduction in military capability, but he did not. He has grasped the opportunity presented by the end of the Afghan campaign to fundamentally review the structure of the Army and its relationships with the reserves and its commercial contractors.
A team led by Lieutenant General Nick Carter has produced Army 2020, a detailed plan for a future Army with two distinct elements: reaction forces and adaptable forces. The reaction forces will generate high-readiness contingent capability, trained and equipped to undertake the full spectrum of intervention tasks, including provision of forces for the first phases of any future brigade-scale enduring operation. The reaction forces will be based around 16 Air Assault Brigade and three armoured infantry brigades, and equipped with new or upgraded armoured fighting vehicles.
Given the high readiness of this force, it will be made up predominantly of regular troops. The reaction forces will form a powerful UK contribution to a coalition effort and act as the initial land component of a joint war-fighting operation, alongside air and maritime components. At best effort, it will deliver a division into the field. The remaining infantry and armoured units will form the adaptable forces, a pool of regular and reserve units, commanded by seven infantry brigade headquarters, capable of generating forces for tasks, including overseas capacity building, homeland resilience, the Army’s standing commitments, such as Cyprus, Brunei, the Falklands and ceremonial duties, and, when required, generating the further brigades to sustain any future enduring operation.
Over a full career, soldiers and officers in infantry and armoured units will expect to serve in both reaction and adaptable forces. Both the reaction forces and the adaptable forces will include force troops, the artillery, engineers, signals, REME, logistics, intelligence, medical and other specialist units upon which the Army in the field depends and without which it could not function. To achieve this design while reducing the size of the Regular Army demands a much higher level of integration of the regular and reserve components. In the past, the reserve may have come to be seen by some as an add-on to the Army; in future, the reserve will be a vital integrated component of the Army.
The requirement for greater integration was a principal conclusion of the independent commission set up to review the UK’s Reserve Forces, led by the Vice Chief of the Defence Staff, General Sir Nicholas Houghton. I am most grateful to the members of the commission, including my honourable friend the Member for Canterbury, for their work in producing this invaluable report.
I can tell the House today that we accept the thrust of the commission’s recommendations. In the interest of keeping this Statement to a reasonable length, I have this morning laid a Written Ministerial Statement setting out how we intend to proceed with our plans for enhanced reserves. But I can tell the House that the process of reshaping the reserves for their future role has already begun, and that I have set up an independent scrutiny team to assess its progress, led by Lieutenant General (Retired) Robin Brims, chairman of the council of the Reserve Forces and Cadets Association, who will make his first report in the summer of 2013.
Let me now return to the future structure of the Army. In reducing the size of the regular Army in line with the announcement made last July, there must, inevitably, be a reduction in the number of units. In headline terms, there will be 17 fewer major units as a result of this announcement. These reductions will fall across the various arms and services of the Army.
The importance of the regimental system to the British Army and its contribution to the fighting spirit which delivers a battle-winning edge is very clear. I understand the dismay felt particularly by former members at the withdrawal of units that may have illustrious histories and indeed, antecedents. I understand, too, the attachments of the regions and nations of the union to specific units within the British Army, and their pride in those units.
In designing the new structure, the Army has sought to be sensitive to these issues, but I am also very clear that the Army that emerges from this process must be a forward-looking, modern fighting machine, remaining best of its class, respecting the past and honouring its proud history, but looking resolutely to the future, with its principal focus the brave men and women currently serving, and the units in which they serve.
The Army has approached this task methodically, carefully redesigning the way it delivers force support; building up a whole force concept that not only gives effect to the integration of the reserves, but also the greater use of contractors—sometimes using sponsored reserves—to support operations, maximising the combat effect of the regular manpower available.
I should emphasise to the House that the withdrawal or merger of units is completely separate from the redundancy process. An individual in a unit which is withdrawn or merged is no more or less likely than any other individual with similar skills and service record to be selected for redundancy. When units are withdrawn, their personnel are reassigned to other units, where possible within the same regiment. Nor does anything I shall announce today prejudice the basing review which is looking at the optimum future basing pattern for our Armed Forces units around the United Kingdom. I will list the changes to individual units, starting with the Force troops, where 3-9 Regiment Royal Artillery, 2-4 Commando Engineer Regiment, 2-8 Engineer Regiment and 6-7 Works Group will be withdrawn. In the Army Air Corps, 1 Regiment and 9 Regiment will merge in preparation for equipping with Wildcat. In the Royal Logistics Corps, 1 and 2 Logistics Support Regiments will be withdrawn and 23 Pioneer Regiment disbanded, with its functions assumed by other units. 1-0-1 Force Support Battalion REME, and 5 Regiment Royal Military Police will also be withdrawn.
Army 2020 calls for a greater focus on mobility and the ability to mount expeditionary warfare, based around the air-assault and armoured infantry brigades of the reaction forces. This evolution of our posture still further away from the Cold War lay-down inevitably means a reduction in the size of the Armoured Corps, from 11 units to nine.
After careful consideration of all the factors, including regional distribution and the requirement for a balance of capability, the Army has decided that this will be achieved by an amalgamation of the Queen’s Royal Lancers with the 9th/12th Royal Lancers and a merger between the 1st and 2nd Royal Tank Regiments.
Turning to the infantry, I can confirm that no current regimental names or cap badges will be lost as a consequence of the changes I am announcing today. Five infantry battalions will be withdrawn from the Army’s Order of Battle, all of them from multi-battalion regiments.
In selecting battalions for withdrawal, the Army has focused on the major recruiting challenges it faces in the infantry. It has looked carefully at recruiting performance, not just at a point in time, but over the last decade; at recruiting catchment areas and at demographic projections for the age cohort from which infantry recruits are drawn. It has also considered regional and national affiliations, the merger and disbandment history of individual battalions and existing commitments of battalions to future operations. The overriding objective has been to arrive at a solution which those currently serving in the Army will see as fair and equitable.
The conclusion of this process has been that 2nd Battalion the Royal Regiment of Fusiliers; 2nd Battalion the Yorkshire Regiment; 3rd Battalion the Mercian Regiment; and 2nd Battalion the Royal Welsh will be withdrawn from the Order of Battle.
In addition, the Royal Regiment of Scotland will see one battalion reduced to a single company. Ministers have agreed with the CGS that, in order to raise the profile of the Royal Regiment of Scotland, and of the Army, in Scotland, a public duties company will be created, returning sentries to Edinburgh Castle and the Palace of Holyroodhouse on a permanent basis for the first time in years. Accordingly, the Argyll and Sutherland Highlanders, 5th Battalion, the Royal Regiment of Scotland, will be re-roled as a public duties company.
These withdrawals and mergers, unwelcome as they will be in the units affected, are fair and balanced and have been carefully structured to minimise the impact of the regular manpower reduction and maximise the military effectiveness of the Army. The reduction in regular forces will be offset by the enhanced role of the reserves and the whole force concept, which optimises the use of contractors both in peacetime and on operations.
The Chief of the General Staff and his team assess that this configuration will mean that Army 2020 can deliver the level of capability agreed in the SDSR. That is an excellent outcome given the appalling state of our inheritance at MoD, and I am extremely grateful to the CGS and the senior leadership of the Army for the constructive and intelligent way in which they managed this process. What I have announced today, while difficult and challenging for those directly affected, represents a vision for the future of a balanced, capable and adaptable British Army that will remain best in class.
The British Army has seen several transformations since the end of World War II: from wartime structure to Cold War; from conscription to professional force; and the downsizing at the end of the Cold War in Options for Change and Frontline First. Now it is embarking on another. The values of the Army have endured through previous transformations. They have sustained it through a decade of continuous campaigns. Those same values—courage, discipline, respect, integrity, loyalty and selflessness—will sustain it through this transformation and, no doubt, through many further iterations in the decades and centuries ahead, as this most enduring of British institutions looks confidently to a future in which it continues to adapt to an ever-changing world. I commend this Statement to the House”.
My Lords, that concludes the Statement.
Lord Rosser
My Lords, I associate this side of the House with the tributes paid by the Minister to the three air crew who were involved in the Tornado GR4 aircraft incident on Tuesday and who were killed or are missing, presumed dead; and with the tributes paid to the three members of our Armed Forces who were killed recently on operations in Afghanistan. We, too, extend our sincere condolences to their families and friends at this difficult time. Our thoughts are also with the fourth member of the Tornado squadron, who remains in hospital.
I thank the Minister for repeating the Statement made in the other place by the Secretary of State. We endorse the comments about the commitment and professionalism of our Armed Forces. The Secretary of State’s Statement—true to form—contained two references to the financial situation, one near the beginning and one near the end. Claims about a £38-billion black hole continue to be made. However, this figure has not been supported by the National Audit Office; it appears to assume no increase in financial resources over a 10-year period, when even the Government’s SDSR stated that the defence budget would rise in cash terms; and, despite requests from the Commons Defence Select Committee, the Government failed to produce a breakdown of their figure to show how it had been calculated. One can only draw the obvious conclusion that the figure has no substance.
I will raise a number of points in view of the fact that the announcement today was primarily financially driven. As the Minister said, the withdrawals and mergers will hardly be welcomed in the units affected. The Statement said that it was about how we should structure the future Army and support it to deliver the greatest possible military effect with the manpower available. Later on the Statement says that,
“no current Regimental names or cap badges will be lost as a consequence of the changes”.
Can the Minister say which came first in determining the Government’s plans for the future structure of the Army? Was it the need to ensure that the future Army looked at as a whole would have the greatest possible military effect with the manpower available, or was it the need to ensure that no regimental names or cap badges would be lost?
The Statement indicates, as indeed did the strategic defence and security review, that reservists will play a bigger role in future operations, since the number of reservists is rising while the number of regular troops is being reduced to 82,000, which is well below the figure indicated in the 2010 SDSR. Bearing that in mind, the question of how long a future operation could be sustained is highly relevant, not least in the light of the defence planning assumptions referred to in the SDSR. Reservists may be able to be away from their regular employment for a few months, but there may be greater difficulties over their availability if they are required to be away for longer periods or for regular and sustained periods of a few months. It is not just a case of how long an employer might be prepared to accept the absence of an employee, but from the employee’s point of view it is also about the impact that regular and extended absences might have on career development, including progression within the organisation or company where they are employed.
For how long and how frequently do the Government envisage that reservists will be deployed in support of an extended or enduring operation? The Secretary of State’s Written Ministerial Statement today refers to reservists accepting a liability for up to six months’ deployed service plus pre-deployment training in a five-year period. Is that the maximum commitment that will be expected of reservists under the Army 2020 proposals, even if we are involved in the maximum number of operations and interventions at any one time laid down in the 2010 SDSR? If the role of reservists is to be enhanced, what discussions have there been with employers’ organisations on the implications for them? I understand that the answer may well be, effectively, none.
The Statement the Minister has repeated said that it was not about the size of the Army, but it is when compared with what was envisaged at the time of the strategic defence and security review, which announced cuts of 7,000. Since then the Government have announced an additional 13,000 Army redundancies. The SDSR was based on an assumption that we could undertake one major and two lesser operations at any one time. It said that the Armed Forces in the future would be sized and shaped to conduct an “enduring stabilisation operation” at around brigade level involving up to 6,500 personnel with maritime and air support as required, while conducting one non-enduring complex intervention involving up to 2,000 personnel and one non-enduring simple intervention involving up to 1,000 personnel, or, for a limited time and with sufficient warning, committing all our effort to a one-off intervention of up to three brigades with maritime and air support involving around 30,000 personnel. Does this Armed Forces capability set out in the 2010 SDSR still hold in the light of the Statement today about the future shape and structure of the Army and the further reductions in Regular Army personnel announced since the SDSR, and is it still the situation in the light of the higher percentage of our future Army personnel who will be reservists?
What is the maximum length of time for which we could conduct the “enduring stabilisation operation” referred to in the SDSR in the light of the Statement today and statements made since the SDSR about the size and structure of the Army, and is it a shorter period of time than that envisaged at the time of the SDSR? How long is “for a limited time” for the one-off intervention referred to in the SDSR in the light of the Statement today and statements made since the SDSR, and is that now a shorter period than that envisaged at the time of the SDSR?
The Statement lays out the future structure for the Army, but just how resilient is that structure? There is nothing in the Statement to suggest there has been any risk analysis undertaken in the light of developments in the last couple of years since the 2010 SDSR, despite those two years hardly being ones of stability in the world around us. Neither does there appear to have been a risk analysis of the consequences of our Army relying to a greater degree than before on reservists as opposed to regular troops. The Statement gives every impression of simply driving on from the 2010 SDSR without any obvious regard to the impact of changes and developments that have taken place since the SDSR.
The Statement is about the future shape and structure of the Army. What happens if the 2015 SDSR indicates a need for operations to be undertaken by the Army which are radically different from those indicated in the 2010 SDSR and this Statement? Is this new structure for the Army capable of embracing radically different operations? For example, will the split between reaction forces and adaptable forces still be relevant? Would the split between regulars and reservists still be appropriate, or is this a shape and structure that might not survive the 2015 SDSR? It may be that this Statement is, in reality, the beginnings of the 2015 SDSR. Will the 2015 SDSR be based on an assessment of the threats we face to our security and to our interests, with the numbers of Armed Forces personnel and the shape and structure of the Army being determined by the requirements and capabilities needed to meet those threats? Or will it be the case that today’s Statement on shape and structure sets out the kind of operations, in size and areas of capability, that the Army is geared to meet and that the rest of the 2015 SDSR will have to fit round it?
I sense a real risk in the smaller, reshaped and reconfigured Army that this Statement reveals. It appears to be based on an assumption that, with our withdrawal from Afghanistan, our commitments will reduce and remain at a lower level despite the current uncertainty and instability in the world. It also seems that, while a much heavier reliance will be placed on reservists in future, little has been done to consider and address the likely practical problems that will arise and whether, in reality, we will be able to meet effectively the capabilities that this Statement requires of the Army, including the commitments on the number and types of operation that could be conducted at any one time, as laid down in the 2010 SDSR. There is a strong sense that key parts of this Statement are expressions of hope rather than conclusions based on hard and robust evidence. I hope the Government’s gamble pays off, because if it does not it is our country and our people who will be exposed to the potentially very serious consequences.
Lord Astor of Hever
My Lords, the noble Lord started by talking about the £38-billion black hole. I do not want to score political points at the Dispatch Box but neither will I take any lectures from Labour on the £38-billion black hole. Defence must take its share in helping to reduce the deficit and our debt. Without a strong economy and stable public finances, it is impossible to build and sustain the military required to project power and maintain defence.
We have had to take difficult decisions. I should rephrase that: the Army and the Chief of the General Staff have had to take some very tough decisions. Despite the cuts that have been announced, Army 2020 will deliver approximately 90% of its current combat effect. The Army has produced an excellent paper, Transforming the British Army, which I commend to all noble Lords. In the light of the interest in the changes today, I have asked for copies of it to be put in all Whips’ offices. We are very clear that tradition and history must be respected, but it is also important to look to the future and ensure that the changes are seen as fair by those brave men and women currently serving and risking their lives.
I wrote as fast as I could, but I may not be able to answer all of the noble Lord’s questions. If not, I will certainly write to him. His first question asked what criteria were used to decide which units would be affected. A number of criteria have been taken into account before making final decisions, all of which presuppose the retention of a regimental system largely based on regional connections that continues to serve the British Army so well. These include maintaining balance across the broader armoured corps and infantry regimental structure and the capability roles within it, enabling efficient management of personnel, ensuring parity of opportunity and development for soldiers and officers, balancing regionally based regimental recruiting demand, looking back at the past 10 years’ recruiting performance, looking at the next 10 years’ demographics of regional recruitment pools to retain an effective regimental system, taking account of previous decisions on mergers and deletions, and limiting the number of cap badges affected, thereby ensuring a solution that those serving in the Army will see as fair and sustainable under the circumstances.
The noble Lord asked what underpinned these changes. The 2010 strategic defence and security review set out how the Armed Forces would be restructured to meet current threats, including managing risks before they materialise, and maintain a broad spectrum of defence capabilities. The SDSR also directed that the Army should return from Germany by 2020. Subsequently, further work to balance the books in defence, together with the report of the independent commission on the Reserve Forces, was led by the then Defence Secretary who announced in 2011 a requirement for an Army of 120,000—82,000 regulars, 30,000 trained reserves and 8,000 reserves in training.
The noble Lord asked about the availability of reserves and our discussions with employers. I can assure him that considerable discussions are taking place and have taken place with employers. If this is going to work, we have to integrate the reserves. We realise how important that is. Also, the Government must get off the mark and be part of the solution. He asked whether Army 2020 reversed the SDSR decisions. The answer is no. Army 2020 redesigns the Army to be able to undertake the task specified by the SDSR, but with fewer regulars and an increased number of better integrated reserves.
The noble Lord asked whether the Army is able to adapt. The answer to that is yes, of course. I have spoken to a number of officers and soldiers, and they are all very excited at the changes and are up for the challenge. I have also spoken to a number of reserves who are also excited about the changes and very much look forward to the future challenges. He asked about planning assumptions. Army 2020 still delivers the requirements of existing defence planning assumptions, and we cannot of course predict the findings of the 2015 SDSR. He asked what came first when decisions to make these changes were made. The reductions were driven by the requirements in the new Army 2020 structure, then by consideration of which units were the most sustainable, while avoiding the loss of cap badges.
The noble Lord asked about the five-year period, and I can assure him that there will be no change to the existing reserve mobilisation rules. Finally, he asked: how long is a long intervention? Army 2020 is capable of a long-term enduring operation.
I hope that I have answered most of the noble Lord’s questions, but I will certainly write to him on any others.
Lord Touhig
My Lords, a year ago next Tuesday, the Prime Minister stood up to address the National Assembly for Wales in Cardiff and said he wanted to record his gratitude to the brave Welsh regiments. He went on to say:
“From the trenches of Northern France to the mountains of South Korea they have fought and died in defence of our nation and our values”.
He concluded by saying,
“I will always be an advocate for this country and everything it has to offer”.
Wales can offer no greater sacrifice than the lives of her young men in defence of our country as we have seen in Afghanistan. With the Prime Minister’s words fresh in my mind—and perhaps more in despair than in hope of an answer—what more could we have done in Wales to protect the Welsh regiments from these government cuts, short of threatening a referendum on independence?
Lord Astor of Hever
My Lords, I share the noble Lord’s respect for the Welsh regiments. The CGS, supported by his command team, has made very hard choices in deciding where reductions are made to bring the Army size down to 82,000, and the Army has rigorously applied a set of criteria to make these difficult decisions. They were based on capability, recruiting demography both now and in the future, appropriate national representation and solutions that do not undermine regimental principles, established in the last round of changes in 2004. Previous mergers and deletions were also taken into account, to ensure that decisions were seen as fair by as many people as possible.
Lord Lee of Trafford
My Lords, from these Benches I join the earlier tribute to the Tornado crews lost in Scotland and to those soldiers killed in Afghanistan. Perhaps I may say that just having a few minutes to question this important Statement is extremely unsatisfactory and almost an insult to our Armed Forces. I hope that before too long we will have a proper debate on our Armed Forces and that my noble friend will discuss this with the Leader of the House. It is somewhat ironic, I would suggest, that in the Statement reference is made to “an increasingly uncertain world”, yet today we are talking about reducing significantly the size of our Regular Forces.
On the question of the reserves, I have three specific questions. First, how many members of the Regular Forces does he expect will be involved in training 30,000 new reservists? Secondly, does he believe that in future we will probably need a specific covenant to protect our Reserve Forces from things such as totally unhelpful and unprincipled employers? Thirdly, where will all this new training be done, given that we seem to have a significant problem with our bases? If I interpret correctly the article today in The Times about bringing back our forces from Germany, this seems to be on the backburner, with a question mark over it.
Lord Astor of Hever
My Lords, my noble friend mentioned the possibility of a debate and I would certainly welcome that. I will have a word with our Chief Whip and see if it would be possible later in the year. My noble friend mentioned the reserves and employers. The Ministry of Defence is committed to working with employers to understand their views on its use of reservists, the impact of legislation and a better understanding of what an employer can realistically sustain in future. We will publish a consultation paper in autumn setting out our proposals. Following that, we will be able to make informed decisions early next year on the terms and conditions of service, employer engagement, the Government’s commitments as an employer and any legislation necessary.
My noble friend asked how many people would be involved in training. I cannot come up with a specific figure, but this is a good example of where integration of the reserves with the regular Army will be so important and we will use a number of the reserves to help with the training. As for where they would train, we have not yet decided what will happen in Germany, but there are very good training areas there which we might continue to use after 2020. The SDR talks about bringing all our troops back from Germany by 2020. As my noble friend knows, there are some brilliant training areas in this country. He and I have been to Salisbury Plain, Otterburn and lots of different training areas. In Wales, I spent a lot of my time in the Army at Sennybridge with its beautiful countryside. So there are a lot of training areas and I hope that answers all my noble friend’s questions.
Lord Ramsbotham
I, too, thank the Minister for his reply and declare two lateral interests with regard to the Statement. First, as Adjutant General to the Army, I had to implement the Options for Change instruction to reduce the Army by a third over three years. Let us remember what that meant in terms of all the people who were in the Army. Secondly, Lieutenant General Nick Carter was at one time my ADC and later MA. He, his father and I served together in the same regiment, the Rifle Brigade, whose tie I am proud to be wearing today.
I have two things to say. First, I think like many of us, I deplore the leaking of this Statement during the past few days, because I wonder whether those responsible for it realise the damage that it has done to the morale and well-being of the Armed Forces whom they claim to support. I hope that the Minister will take every possible step to discover who is responsible for this and take appropriate action. It must not be allowed to happen.
The noble Lord, Lord Lee, asked for a debate on defence. I welcome that, because the other thing that I wanted to say was about striking the balance between the Armed Forces. I wonder whether the Army has gone a step further than the other two forces. If there is any restructuring or rebalancing to be done, will the Army be reconsidered in the light of what happens?
My question relates to the last page of the Statement, which says that the vision is that the Army will remain “best in class”. Who else is in that class?
Lord Astor of Hever
My Lords, the noble Lord mentioned General Nick Carter and the Rifles. The Rifles are a very good example of a change that has really worked. All the people I meet who serve in the Rifles are hugely proud of that regiment and of the successful change that it has made.
The noble Lord mentioned the leaks, which did not come from the Ministry of Defence. I was told about these changes only yesterday. A very small group of people in the Ministry of Defence knew of them, so I do not know where the leak has come from. I will certainly go back to the department and see whether we cannot do more to stop such leaks.
We could debate “best in class” all afternoon, but I have met quite a number of officers and reservists in the past 24 hours who are hugely excited about the challenges of the future and really feel that they are up to it.
Baroness Verma
My Lords, I think that it is the turn of the Conservative Benches.
Lord Crickhowell
I fully understand why this is being done and I fear that £38 billion is probably an underestimate. The noble Lord, Lord Ramsbotham, referred to leaks. There is one other feature of this Statement which I regret: it disguises the historic names which are disappearing. My noble friend referred to “current regimental names” and the Statement named the 2nd and 3rd Battalions. However, the 1st Battalion The Royal Regiment of Wales, carries the title “1st Battalion Royal Regiment of Wales (Royal Welch Fusiliers)”. I do not know, now that the 2nd Battalion is to disappear, whether that historic name can be retained or what other historic names can be retained. Luckily, we have retained, I believe, in the Royal Regiment of Wales the historic flash, the hackle and other regimental insignia. I hope that in future Statements an explanation is given of exactly which historic regiments are going and how their traditions are to be maintained as far as possible, because they are of great importance when it comes to pride and to recruiting in the areas concerned.
Lord Astor of Hever
My noble friend makes a very good point. This is not a matter for politicians; it is a matter for the Army. It must decide how these regiments will go forward and whether antecedents will be included. I go back to the point I made about The Rifles and how successful the term “The Rifles” has been and how proud soldiers serving in The Rifles are of that.
I can come up with a better answer for the noble Lord, Lord Ramsbotham, about the best in class. Clearly, we are not able to compete with the United States but the British Army is the partner of choice within NATO for its strength and capability.
Lord Dannatt
My Lords, the Statement quite rightly draws favourable attention to the work of the Chief of the General Staff. I certainly echo that. He and his staff have made a very good fist out of the problem that was passed to them. But does the Minister accept that there are elements of risk that are beyond the capability of the Chief of the General Staff to manage himself within current Army resources? We all know that in the past two years of the current Government major decisions have been made on defence—in shorthand terms, prioritising a number of equipment programmes over manpower. That has brought us today to the announcement of a reduction in the size of the Army by 20%—a very sobering day for the Army, whichever way you look at it. Will the Minister assure the House that he will keep these elements of risk under review?
The risks I point to in particular are whether the noble intention to furnish the size of the Army up by a further 30,000 from the reserve will come about successfully. One hopes it will but there is an element of risk in it. Secondly, the Army’s equipment also carries a fair degree of risk. It lacks a protected manoeuvre capability for those armoured infantry brigades. Protected mobility has come out of Afghanistan with the armoured vehicles that have been provided for that operation but battlefield manoeuvre is woefully lacking and unlikely to be fielded until 2022. So will the Minister assure the House that these areas of risk will be kept under review, particularly in the context of the strategic defence review of 2015?
Lord Astor of Hever
My Lords, I cannot commit any future Government to what comes out of the SDSR in 2015 but I can assure him that we, and I think any sensible Government, will keep all these issues under review. On the noble Lord’s point about risk, I discussed this at some length with the Chief of the General Staff and he is very confident that he is on top of this issue and that we can handle any risk in future.
Lord Anderson of Swansea
My Lords, following on from the point made by the noble Lords, Lord Ramsbotham and Lord Crickhowell, would it be fair to say that the MoD is the only vessel which leaks from the top? Referring to the reserves and the points made, clearly the success or otherwise of the new proposals depend on the enhanced role envisaged for the Territorial Army, and that in turn depends on the co-operation of employees both in the private and the public sector. Is it not a fact that more and more companies are not headed by people with military experience but are foreign-owned and therefore less likely to understand the national needs here? What is the position in respect of those companies, particularly if there are longer periods abroad? As for the public sector, what estimate has been made of the availability of staff to cover shortage areas, such as anaesthetists, at a time when there are increasing pressures on our hospital services? Also, many reservists and particularly their families do not envisage these longer periods of service.
Lord Astor of Hever
My Lords, the noble Lord makes a very good point. Out in Afghanistan at the moment we rely on a lot of reserve medics. I was out in Camp Bastion in March and I met a number of anaesthetists, surgeons and people playing vital medical roles, many of whom are reserves who help the regulars.
The noble Lord talked about leaks. This leak did not come from the Ministry of Defence. I can assure the noble Lord of that.
The noble Lord talked about the enhanced roles of the reservists. In the Statement there was mention of the independent scrutiny team to assess the progress that we are making with the reserves. This is led by General Robin Brims, who is chairman of the Council of Reserve Forces’ and Cadets’ Associations. He will make his first report in the summer of 2013. This is an issue which we are taking very seriously and it is not going to work unless the reserves are fully integrated into the regular Army.
Lord Burnett
My Lords, I was concerned to hear that 24 Commando Regiment Royal Engineers is to be withdrawn. Can my noble friend tell me which formation will fulfil the engineer functions in support of the 3rd Commando Brigade Royal Marines?
The Statement refers to redundancies which are happening and which will follow. As my noble friend said, the British Army has shown the highest standards of professionalism, courage and devotion to duty, particularly over the past 15 years of continuous and hazardous war-fighting. If it is decided that a member of the Armed Forces is to be made compulsorily redundant after 15 years of service, and is offered a financial package actuarially calculated to be worth, say, £100,000, whereas if he or she had served for 16 years it would have been worth £110,000 or, more likely, more, the very least our Government should do is to compensate that person on a pro rata accrual basis.
I know that my noble friend will share my concerns and agree that generosity, fairness and integrity should be the underlying principles in these matters. Will he look into this matter as one of urgency to ensure that the Government’s deeds match their words?
Lord Astor of Hever
I understand that 24 Commando Engineers is an Army regiment that supports the Royal Marines. Although we are withdrawing the regiment, we will leave behind a squadron, which has only 20 fewer people than a regiment, so it will not be a serious change.
On my noble friend’s second question, I will look into the matter, but it is inevitable that some of those selected for redundancy may leave without completing sufficient service to qualify for an immediate pension or equivalent. The Armed Forces pension scheme recognises that, by paying significantly larger tax-free redundancy compensation lump sums to those who narrowly miss out on immediate incomes than to those who qualify.
Any pensions rights that have been earned will also be preserved, meaning that an index-linked pension and further tax-free lump sum become payable at the age of 60 or 65, depending on the pension scheme. Whereas the majority of other ranks normally have to serve 22 years before receiving immediate income, the Armed Forces redundancy scheme has reduced that requirement to 18 years, a concession of four years which will enable many redundantees to receive an immediate income for which they would otherwise not have qualified.
The Earl of Caithness
Will my noble friend tell the House by how much the Royal Regiment of Scotland will be reduced?
Lord Astor of Hever
One battalion, which I think is about 650, will go down to company strength. That will be an integrated company that will perform the ceremonial at Holyrood and Edinburgh Castle and will take soldiers from the rest of the Scottish regiments.
Lord Stirrup
My Lords, if the plans for Army 2020 are to have any chance of success, we shall need a fundamental change in this country of culture, not organisational process, with regard to the status of reservists in society and the workplace. Meanwhile, the Ministry of Defence has just announced a triennial review of the National Employer Advisory Board, a crucial body contributing to the development of reserve policy. Rather than a routine triennial review at this stage, would it not make sense to seize the opportunity to bring together employers, reservists and regulars to work out a plan to achieve the culture change without which Army 2020 simply will not work?
Lord Astor of Hever
My Lords, the noble and gallant Lord makes a very good point about employers. A lot of discussion is taking place with employers. As I have said twice, we attach much importance to our relationship with employers. This will not work unless we bring them on side. A lot is happening, but I would be very interested to hear any suggestions from the noble and gallant Lord.
Sexual Offences Act 2003 (Remedial) Order 2012
Baroness Stowell of Beeston
That the draft order laid before the House on 5 March be approved.
Relevant documents: 19th Report from the Human Rights Committee, Session 2010–12; 1st Report from the Human Rights Committee.
Baroness Stowell of Beeston
My Lords, the purpose of this debate is to consider the two statutory instruments laid in draft before the House by the Government under, or in relation to, the Sexual Offences Act 2003. The first is the Sexual Offences Act 2003 (Remedial) Order 2012, which sets out the Government’s response to the Supreme Court ruling in F and Thompson. The second is a set of regulations that will strengthen the notification requirements for registered sex offenders. This follows a public consultation carried out last summer by the Government. I shall address each instrument in turn.
Currently, where a sex offender is sentenced to imprisonment for a term of 30 months or more under Part 2 of the Sexual Offences Act 2003, they will be subject to indefinite notification requirements for life, with no possibility of a review. In other words, on completion on his prison sentence a serious sex offender is placed on what is commonly known as the sex offenders register for life. On 21 April 2010 the United Kingdom Supreme Court made a declaration, following an appeal to it made by claimants known as F and Thompson, that the requirement for indefinite notification—also known as life on the sexual offenders register—with no opportunity for review is incompatible with Article 8 of the European Convention on Human Rights, which concerns the right to a private life and family life. To put it another way, the Supreme Court ruled that if a person is included on the sex offenders register for life, they should at some point during their lifetime have the right to request that their inclusion on the sex offenders register be reviewed. I stress the word “reviewed”. They have a right to request a review, not a right to be removed from that register.
Our constitutional arrangements are such that when the highest court of the land identifies an incompatibility with the European Convention on Human Rights, the Government of the day, whoever is in power, take remedial action. This is for various reasons, not the least of which is to ensure that the Government are not left vulnerable to further legal proceedings, potentially involving millions of pounds of taxpayers’ money. All that said, in February last year the Home Secretary and the Prime Minister made it clear that the Government would do only what was necessary to remedy the incompatibility declared by the court.
When considering the Supreme Court’s decision, the Government, in deciding what action to take, wanted to ensure that we struck the right balance: putting public protection first and foremost while acknowledging that these offenders also have a right to request a review of the length of time that they spend on the sex offenders register. This approach was reflected in the Government’s initial proposal to make a remedial order to remove the incompatibility, which was laid before this House on 14 June last year. The Joint Committee on Human Rights considered our proposal and published its recommendations in its first report on 13 October last year. Its most significant recommendation was that, in order to ensure a sufficiently independent element to the review process, our proposal should be amended to provide either that the review be conducted by,
“an independent and impartial tribunal”,
by which it meant the courts, or that there be a,
“right of appeal from the decision of the police to an independent and impartial tribunal”,
by which again it meant the courts.
We were grateful to the JCHR for its report, which we considered in detail. As I have said, the Government have been clear throughout that, in removing the incompatibility, public safety remains the first priority. After careful consideration, the Government decided not to accept the JCHR’s recommendation that the review be led by the courts. The Government remain of the view that the police are best placed to carry out the initial assessment of the level of risk posed by the offender, in conjunction with other bodies through the Multi Agency Public Protection Arrangements, otherwise known as MAPPA. We did, however, accept that it was proportionate to amend the remedial order to allow for the provision for a right of appeal from the police decision to the magistrates’ court. After amending the remedial order to include the provision for a right of appeal to the magistrates’ court, the Joint Committee on Human Rights published its second report in May this year. We are pleased that the Joint Committee accepts in this report that our proposal now remedies the incompatibility identified in the Supreme Court’s ruling.
I shall take a moment to explain how the order will work in practice. As I have already said, it applies to individuals who are subject to notification requirements for life, under the 2003 Act. This means, in most cases, those who have committed the most serious offences listed in Schedule 3 to the 2003 Act, which include, for example, rape and sexual activities involving children.
Let me be clear. Offenders will continue to be placed on the sex offenders register for life, just as they are now. They will not come off the register automatically. The remedial order only provides a mechanism by which a sex offender can apply for a police review of whether they should cease to be on the register. The onus is always on the offender to make the application and to demonstrate that they no longer pose a risk. This means that an offender will be required to submit an application to the police seeking a review of their indefinite notification requirements. This will be only once a fixed period of time has elapsed following the offender’s release from custody. For adults, we have proposed that this period of time will be 15 years; for a child it will be eight years.
We know that if an offender is to re-offend after completing their prison sentence, it is in the early years of release when it is most likely that that will happen, the majority of these taking place within 10 years of release. That is why our proposal ensures that no adult sex offender will be able to apply for a review until 15 years after they have been released from custody. That will be their first opportunity.
This remedial order ensures that a robust review, led by the police, in conjunction with other agencies, will be carried out so that a full picture of the risks to the public can be considered before any decision is made on whether to remove an offender from the register. Let me be absolutely clear. Our proposals make sure that sex offenders who continue to pose a risk will remain on the register and will do so for life if necessary.
The second instrument that we are considering today follows a consultation carried out last year on options for strengthening the notification requirements applying to registered sex offenders. Currently, when a person is convicted, or cautioned for an offence under Schedule 3 to the Sexual Offences Act 2003, they will automatically be subject to notification requirements, which, as I stated earlier, is more commonly referred to as the sex offenders register. While subject to these requirements, the offender will be required to provide their local police station with personal details annually, or whenever their details change. The most high-risk offenders are subject to additional further conditions and surveillance by local multi-agency public protection panels.
The police identified vulnerable areas in the current arrangements which could lead to some offenders seeking to exploit gaps in the system. To strengthen and extend current checks, this instrument makes four changes to the current notification requirements which apply to all registered sex offenders. First, they must now notify the police of all foreign travel. Offenders who travel abroad for less than three days will be required to notify in the same way as those who travel for longer must do under the existing regime. Secondly, offenders with no fixed abode must notify the police weekly of where they can be found. Thirdly, offenders must from now on notify the police when they are residing with a child under the age of 18. Finally, offenders must notify the police about their bank account and credit card details and notify certain information about their passports or other identity documents at each notification, thus tightening the rules so that sex offenders can no longer seek to avoid being on the register by changing their name.
ACPO and CEOP have both expressed their support for these changes. They believe that these measures will enhance our ability to protect the public and ensure that our management of sex offenders remains effective in an ever-changing world. In the event that an offender fails to comply with the notification requirements or with the terms of any order restricting their movement or actions, they will have committed a criminal offence and can be imprisoned for up to five years.
In taking these changes forward, ACPO recognises that there will be resource implications to informing the 53,500 registered sex offenders across England and Wales who are subject to these new requirements, and to ensuring that they are all complying with the new requirements when these come into effect. ACPO has been clear throughout that, in calling for these additional changes, it was prepared to meet the additional workload. My officials have been working with ACPO for some months now to help it in its preparations.
Public protection remains a fundamental priority for this Government. The changes made in these two instruments address the incompatibility identified by the Supreme Court but they do so in a way that ensures public protection against these offenders. We have also closed a number of loopholes identified by the police in respect of all sex offenders. These changes mean that we continue to have one of the most rigorous and robust approaches to sex offender management in the world. I beg to move.
Baroness Smith of Basildon
My Lords, I am grateful to the Minister for her explanation and the information that she has given to the House on the two sexual offences orders. I shall take them in reverse order. On the notification requirements order, we are broadly supportive but I have a couple of questions, and I was able to have a brief discussion with the Minister earlier to give some indication of what I wanted to ask. My understanding is that the order applies to England and Wales, because policies relating to sex offenders in Scotland and Northern Ireland are devolved to those Administrations. I would have thought, though, that it was important to have some consistency between England and Wales legislation and that in the devolved Administrations. Are there any differences across the UK and, if there are, what are they and how are they being addressed?
I am happy to be corrected if I am wrong, but I think that Northern Ireland currently retains its three-day loophole, as it has become known, whereby an individual does not have to notify the police of foreign travel of less than three days. Have the Government had any discussions with Ministers in the Northern Ireland Assembly and the Scottish Parliament on this issue? What discussions have there been with other European countries? Do they have similar reporting and notification requirements? What co-operation is there between the UK and other European national police forces? That seems to be an area where greater co-operation between us and EU police forces would make great sense.
I was able to talk briefly earlier to the Minister about notification requirements for online identities. I am not clear how these are covered or whether they are covered effectively. I am aware that online social networks are increasingly used to contact and groom young people for sex offences. There are some quite horrific and frightening examples. Jenny Chapman, MP for Darlington, has taken this issue up very robustly. In her constituency a young woman called Ashleigh Hall, who was 17 years old, was tricked into meeting a 33 year-old convicted sex offender, who posed on the internet as a 19 year-old man, and she lost her life as a result of meeting up with him.
It is clear that convicted sex offenders register different identities online. Given that registered sex offenders have to notify the police of any identity documents that they have—passports, for example—I am not clear how online identities fit into the proposed and current notification requirements. We are all aware that there are sex offenders who are frighteningly clever and devious in stalking and grooming their prey and that it is perfectly possible to set up different, multiple online identities. I am not so naive as to think that telling a registered convicted sex offender that he will have to tell the police about each and every online identity would work on its own, but clearly this is a problem area. Given the information in the impact assessment on the second order about sex offenders’ propensity to reoffend, this area must be monitored, and I am interested in how the Government plan to do so. Maybe that is in other legislation that I am not aware of, but I thought that it might have been in here as we are talking about notification requirements.
If this is helpful, Surrey Police has pioneered—it has been honoured for the work that it has done in this area—innovative software that monitors online sex offenders. I understand that it has successfully trialled this and now uses it to monitor 25 different criminals. This software installs onto their computer software which monitors use and sends alerts if any risky behaviour is detected. It is looking to use that across the country. So there are ways of starting to deal with this. However, I would be interested to know what the current position is, just in case I have missed something and there is something in this order or other legislation that covers the creation of online identities by those who seek to groom young people for sexual abuse, an activity which led, in that case, to murder. Have the Government sought the views and advice of the Child Exploitation and Online Protection Centre? The noble Baroness mentioned that they have its support, but just in the implementation—it is not mentioned in the consultation documents as a consultee. I am sure that the Government will have had some contact and I think its input would have been helpful.
On the second order, the remedial order about reviews, I am far less comfortable that the Government are taking the right position. I am grateful to the noble Baroness, who knows my concerns, for taking time to explain the Government’s views. I have also read the report by the Joint Committee on Human Rights, which is helpful in explaining why the Government are bringing this order forward, following the case of F and Thompson v Secretary of State for the Home Department in which the Supreme Court declared that the indefinite notification requirements in the Sexual Offences Act 2003 were incompatible with Article 8. That happened because, if I understand it correctly, there was not the opportunity for the individual to be treated as an individual and to apply to come off the register.
I am concerned about the Government’s inconsistency on legal judgments. Clearly the Government have been keen to accept the judgment of the Supreme Court on this issue and in legislative terms. Many noble Lords who have been in this House longer than I have will recognise that this legislation has been brought forward quite quickly. However, the Government do not always take this view. In fact, when the European Court of Human Rights ruled on the right of prisoners to vote, the Prime Minister—although he may have been in opposition at the time—said that it made him physically sick. I do not go that far, although I think that one of the consequences of losing one’s liberty through crime is a loss of the vote for the period of incarceration. However, I cannot understand why he does not feel equally strongly about this issue, which has a far greater emotional impact for me.
I also see the order in the context of other changes that the Government are making to legislation involving the registration of those convicted of sexual offences. We have seen in the Protection of Freedoms Act how the definition of a regulated activity—when someone is on the sexual offences register, they cannot work in a regulated activity—is now far narrower than it was. Also, whereas previously someone automatically went on to a register, there is now a gap of around eight weeks and someone can apply to come off the register before they go on it. Whereas before they could apply to come off the register, now they might never go on it, depending on the outcome of the initial review.
At the moment there are around 53,000 convicted sex offenders on the register. More than 29,000 of those are on it indefinitely and, in effect, they are the subject of the order. I have tried to understand the Government’s rationale beyond the Supreme Court decision. I looked at the impact assessment and wondered what other avenues the Government considered. The Government looked at options from doing nothing to a full court-administered review system and plumped for the option before us today, option 4. There are three things to look at—the costs, the benefit and the risk. Page 16 of the impact assessment shows the costs. I understand that if there is going to be a review process it has to be robust and effective. The assessment states:
“The costs associated with this option would be absorbed by the agencies to which they fall and would represent opportunity rather than financial costs”.
Those agencies are the police, currently facing 20% cuts in their budget; social services, also facing cuts in their budgets and struggling; and the probation service, which is also facing cuts in its budget. Yet they are being asked to take on additional responsibilities and the Government are not able to identify what those costs are, other than that they are opportunity costs.
We then come to the transitional costs. The Government say that there will be some costs in the first year for guidance and training, up to an estimated £50,000. However, the impact assessment says that there will be transitional costs for the other agencies, which I assume means the police, social services and the probation service. Regarding those costs the assessment says that it,
“has not been possible to quantify this”.
Under “Cost of a review”, the assessment says that the process,
“would take up approximately 9 hours of police time, including 3 hours of superintendent time as well as 6 hours of involvement from other agencies… estimated at £630”.
That is a fairly conservative estimate. I worry because although the Government have set up this process, I wonder how the agencies that are required to conduct the review will find the resources to do it as effectively as they need to.
Page 17 of the impact assessment discusses the “Continuation/Discontinuation of notification requirements”. As so often on this subject, the assessment says that things cannot be quantified. For example, it says that,
“it has not been possible to quantify the cost of those applying for subsequent reviews”,
in terms of the time involved. The Government do not seem to know what the costs will be. However, they do know that they will not have to pay those costs and that somebody else will. That is a concern.
Lord Lester of Herne Hill
So that I can follow the noble Baroness’s argument, is it the position of Her Majesty’s Opposition that there is some alternative to the view taken by the Joint Committee on Human Rights that these are sensible and proportionate ways of complying with the Supreme Court’s judgment and the relevant law? If she is suggesting that, it would be helpful to know what the alternative would be.
Baroness Smith of Basildon
No, at this point I am not suggesting an alternative. I would like the Government to go away and think about the alternatives. I will come on to this later, but if the Government are going to set up a review system, they will need to have more information about the system they are setting up—about the costs, benefits and risks.
I have looked at the costs. The Government say on page 19 of the impact assessment that the benefits will be similar to those listed in part 3 of the impact assessment, which are relatively minor. The assessment says that,
“it has not been possible to quantify these”—
other than to say that if people come off the list then there will be savings in police time. So the Government are not able to tell us the costs or the benefits.
As for the risks, there are a number of unknowns:
“There are the following unknowns in relation to this policy:
The actual volumes of applications for review;
The impact of the review mechanism …
The volumes of offenders whose indefinite notification requirements will be discontinued as a result of the review process;
The potential impact of ending notification requirements on re-offending rates and detection rates.
The actual costs and savings that will result”.
Is it wise not to quantify the costs, benefits or risks while taking a course of action? If the Government think that this is the right course of action then they should line these things up first.
One risk, of course, is reoffending. The Government’s impact assessment states:
“A number of studies have been considered in the development of this policy which analyse reconviction rates of convicted sex offenders over a follow-up period of 20-25 years. There is no evidence that a point can be reached at which a sex offender presents no risk of re-offending. Approximately a quarter of the previously convicted offenders were reconvicted for a sexual offence within this time period”.
So, within 20 to 25 years, a quarter of those who had been convicted were reconvicted. However, the assessment does tell us:
“We do not anticipate any greenhouse gas impacts as a result of these proposals”.
I thought that that was rather bizarre.
I hope that the Minister can address some of the concerns that I have raised because they worry me enormously. However, there are some specific points about the order on which I am clear. The regulations refer to the “determining officer”, who I take to be the police officer who will make the judgment on the review. Are the Government clear about what rank, experience, training and guidance that officer should have? The order says that any review would have to be signed off by a superintendent. With the increase in workload given the 20% cuts, I am worried that that will make it more difficult for the superintendent. The review by the superintendent is unlikely to be a rigorous process. The rigour has to come from the determining officer who undertakes the review. Clearly the review itself will have to be a vigorous and detailed process, and I doubt that the Government intend that it should be otherwise. However, unless the Government can be assured that those in the review process have the experience, access to information and the relevant good training, any good intentions for rigorous process will not be realised.
What evidence does the Minister envisage will be required to enable someone to come off the register when they apply? Will it be sufficient for them not to have breached their notification requirements? Is the onus on the police to prove that they still pose a risk, or will the convicted person on the register have to prove that they no longer pose a risk? The Government have estimated the number of people who might be eligible for review. Has any risk assessment been undertaken to develop guidance on how many of those who are on the register are still deemed to pose a risk and should therefore stay on it?
Baroness Hamwee
My Lords, the remedial order is one that the House might well have expected to be considering earlier than July 2012. I recall the Statement made by the Home Secretary and repeated in your Lordships’ House responding to the order of the judgment of the Supreme Court in February 2011. “Reacting” might have been a better term than “responding”. I recall the Home Secretary saying that she was “appalled” by the ruling. The end of her Statement laid into the courts and referred to achieving,
“a legal framework that brings sanity to cases such as these”.—[Official Report, Commons, 16/2/11; col. 960.]
A number of us reacted to that reaction.
The Joint Committee on Human Rights has considered the appropriateness of the remedial order and my noble friend Lord Lester of Herne Hill will deal with its report. In February 2011 I recall my noble friend Lord Carlile of Berriew asking why we were not to get amendable primary legislation rather than an order, particularly given the controversial decision that there was to be no judicial procedure. The Explanatory Memorandum to the order says that we have it in this form in order to avoid delay. It seems to me that there has been some delay. Perhaps the delay is a proper delay and we will have a better outcome because of it. The JCHR has considered the matter twice. A Bill is before your Lordships’ House now which could give us the opportunity to deal with amendable provisions.
I recall my instinctive reaction that a review by the police was not appropriate and I have not really varied from that. The police review seems to be an administrative process. The court imposes the original sentence knowing that a sentence of 30 months plus means going on to the sex offenders register. That is mandatory. Perhaps the noble Baroness can tell us more about the procedure. She said that the Government have taken the view that the police are in the best position to make an initial— I think that was her word—assessment of the risk, which seemed to imply that there would be a second stage to the process. Of course, there may be if there is an appeal, but I may have misunderstood her.
I hope noble Lords will understand that I am not seeking to justify the offences, but does the offender get a hearing? That seems to me to be a basic right. What is the arrangement for allowing the two sides, as it were, to be argued? I am also uneasy that a further review may be deferred at this stage for a further 15 years. Very long periods seem to be involved. Can the noble Baroness also tell your Lordships about the form of the appeal to the magistrates? Listening to the debate, I have only just realised that I am very unclear about what form that may take. I am also uneasy about this being an appropriate matter for the magistrates’ court. I know that the JCHR accepts that, but I am a little doubtful whether, in so serious a matter, it should not go to a higher court. The noble Baroness, Lady Smith, asked about numbers. I had assumed that all, or almost all, offenders would seek a review. I am not sure why they should not.
On the regulations, I note that CEOP, ECPAT and others have said that these will close loopholes and enable more effective offender management. The requirements certainly tighten things up quite considerably. When the Government consulted, I wonder whether they had responses from organisations such as the Howard League which are concerned with the rehabilitation of offenders.
The Explanatory Memorandum says that the notification requirements will form an invaluable tool. I latched on to the word “invaluable”, given that the impact assessment has been unable to quantify the benefits. Perhaps that is a cheap point because I can see that it might be difficult to put a price tag on that and one would not want to put a price tag on the offences that might be prevented.
Lord Lester of Herne Hill
My Lords, I speak on behalf of the Joint Committee on Human Rights. I begin by pointing out to the noble Baroness, Lady Smith of Basildon, that on our committee, which was unanimous throughout consideration of this matter, were the noble Lords, Lord Dubs and Lord Morris of Handsworth, the noble Baronesses, Lady Kennedy of The Shaws and Lady Lister of Burtersett, and it was chaired by Dr Hywel Francis with Mr Virendra Sharma, MP. They are all supporters of the Labour Party and all took an entirely different view from that just expressed by the noble Baroness about this order. I am, frankly, astonished by the criticism that has been made on behalf of the Labour Party.
The noble Baroness began by making some remarks about prisoners’ voting rights, contrasting that with the attitude taken with regard to this order. I remind her that under the previous Government, when the right honourable Jack Straw was Secretary of State for Justice and Lord Chancellor, no action was taken to give effect to the judgment of the European Court of Human Rights in the Hirst case and no action was taken in response to the recommendations repeatedly made by the Joint Committee on Human Rights. What is most welcome about the response of this Government to the judgment of the Supreme Court is that a highly emotive issue has been treated in the best possible way, by a process of parliamentary scrutiny of which I, personally, am very proud.
Under the Human Rights Act, a special procedure has been included. Where a court makes a declaration of incompatibility with a convention right, the special procedure allows the Government of the day to proceed by subordinate legislation—by affirmative resolution of both Houses—instead of having the need for primary legislation. This is done in order to bring our legal system into full compliance with European human rights law in an appropriate way, provided always that there is effective scrutiny.
The Joint Committee on Human Rights has the special role of scrutinising draft remedial orders and reporting to both Houses and to the Government as to whether there has been proper compliance. What has happened in this case is extremely welcome. In our first report, we were critical of the first draft remedial order, as my noble friend the Minister acknowledged. Then, the Government responded by listening, and by giving effect to all of our main recommendations. In other words, the work of our committee—an all-party committee, and a beyond-party committee, since it is not controlled by the Government—influenced the Government in reshaping the order which is now before the House for approval today. If one reads the most recent government response to what we have done, dated March 2012, one finds each of our points identified, responded to, and heeded. That is a sign of mature Government, acting in a responsible way, being accountable to Parliament through this watchdog committee, and now in this debate, in both Houses, by affirmative resolution.
The noble Baroness, on behalf of the Opposition, has queried in detail the impact assessment that has been tabled. I take the completely opposite view. I regard the impact assessment statement as admirable. It lists five different options. It explains why one of those five options was chosen. Of course it cannot quantify the benefits of complying with the law of the land, because the main benefit is to secure the rule of law. That is not something that can be measured in monetary terms and it is quite unreasonable to ask the Government to do so. The main thing, with which I should have thought the Opposition would agree, is the need to comply with the judgment of the Supreme Court of the United Kingdom.
Baroness Stowell of Beeston
My Lords, this is a serious issue that needs to be dealt with sensitively. I am grateful for all contributions of noble Lords to the debate. In particular I am grateful to the noble Lord, Lord Lester, for confirming the JCHR’s agreement that this remedial order is compatible, and for the remarks he made about the process.
First, it may be worth repeating some of the things I said to make clear a couple of points before I respond to questions raised and points made in this debate. The crucial point is that convicted sex offenders who have been sentenced to two and a half years or more will still automatically be placed on the sex offenders register for life. This remedial order does not change that. The ruling that led to the order came from the UK Supreme Court. In response to some of the remarks of the noble Baroness, Lady Smith of Basildon, it is worth making it clear that every UK court in the land that heard the claim found in the same way as the Supreme Court before it came out with its final ruling.
As I said, the incompatibility that was found was around the right to a review, not the right to be removed from the sex offenders register. I can see why some listening to the debate—not the noble Baroness—might have misunderstood that. The Government were disappointed with the UK Supreme Court’s ruling, but we take our responsibility to uphold the law seriously, and that includes human rights law. That is why, in deciding how best to respond to the Supreme Court, we put at the front of our consideration the rights of the law-abiding, those who have the right to live without fear of predatory sex offenders.
In line with the comments of the noble Lord, Lord Lester, I was a little surprised at some of the points made by the noble Baroness, Lady Smith. The last Government established the UK Supreme Court and enshrined the European Convention on Human Rights in UK law via the Human Rights Act 1998. That marked a change to our constitution which I am sure that her party would point to as a big step forward. But the other reason I was surprised at her remarks was because, after the Statement that has already been referred to was repeated in this House, her noble friend Lord Hunt of Kings Heath, who is very distinguished, described in an Oral Question he tabled on 17 March 2011 the ruling of the Supreme Court as “eminently reasonable”.
Referring not just to the comments that have been made in the Chamber today but speaking more broadly, none of us likes to be told that those who have done wrong also have rights. I certainly respect people’s anger and disappointment when they first learn about rulings which they feel will entitle people who they think of first and foremost as evil—the word used by the noble Lord, Lord Lester—to rights. However, a responsible Government have a responsibility to respond to that disappointment and anger with a proportionate way forward which meets people’s concerns, and that is what we are doing.
I turn now to some of the specific points that were raised and the questions put. The noble Baroness, Lady Smith, talked about inconsistency. As I have made clear on this remedial order to do with the sex offenders register, every UK court rejected the claim. I am sorry; I will start again by referring to prisoner voting rights, which she used to illustrate her claim of inconsistency. I have already said that every court in this land found in the same way as the UK Supreme Court with regard to the sex offenders register. On prisoner voting rights, every UK court that heard the claim that prisoners should have the right to vote rejected it. The only court that has found in favour of prisoners being given the right to vote is the European Court of Human Rights. There is a distinct difference and we are responding to the UK Supreme Court at this time.
The noble Baroness made several points about the risks associated with offenders having a right to appeal to be taken off the sex offenders register. Perhaps I may cover several issues. The first thing to make clear is that, so far as this process is concerned, the onus is on the offender to come forward and make an application. The offender has to decide that they want to make the application: it will not be done for them automatically. In doing so, they must make clear to the police why they feel they have changed in a way that makes them a suitable candidate for review. In considering their response, the police will naturally consult the other agencies involved when someone is placed on the sex offenders register and will take time to consider each case on its merits.
The noble Baroness, Lady Hamwee, asked about the rank of the officer who would consider this process: perhaps the noble Baroness, Lady Smith, did as well. I can confirm that the review will be carried out by a superintendent. That will be made clear in the statutory guidance on the review of indefinite notification requirements under Part 2 of the Sexual Offences Act, which we will publish once the order comes into force. This will stipulate that the determination as to whether an offender comes off the register or not will be made by an officer ranked at superintendent or above.
The other important point relates in a way to the other statutory instrument being debated, and I will talk about that in more detail in a moment. Sex offenders who are on the register are categorised in different ways and are subject to a great deal of scrutiny and surveillance. This is not something that will be considered in isolation.
The noble Baroness, Lady Smith, asked about what happens if an offender who had come off the register offends again. First, any failure to comply with the register is in itself an offence. Secondly, if the situation she described were to happen, the offender would be reconvicted and sentenced according to the crime they had committed. They would again be subject to notification requirements. There is no question whatever that an offender who has committed a crime will not be required to operate within the terms of the sex offenders register.
Baroness Smith of Basildon
The point I was trying to get at was whether someone who had been on the register as a convicted sex offender and had come off the register but was then convicted of a further sexual offence—but not one that would normally put them back on the register—would be put back on the register automatically.
Baroness Stowell of Beeston
I can follow up in writing if necessary, but these kinds of cases would be considered on their individual merits. If somebody had been on the sex offenders register for life, had succeeded in making an application for review and coming off the register, then committed a crime which would not automatically put them back on the register for life, then I would expect that the authority that made the decision to place them on the register would consider the fact that they were previously on the register for life. Someone who was put on the register for life and is then successful in having their case reviewed and comes off it will have done something which would, had the police known that they were about to do it, have disqualified them from coming off the register in the first place. Anything contrary to that would be surprising to me. If I need to do so, I will follow up in writing, but such a situation would not make a great deal of sense.
The noble Baroness asked about why we had determined 15 years as an appropriate time for an offender to make an application for review. I think that I covered that carefully in my opening speech by explaining that the evidence suggests that a sex offender, if they are likely to reoffend, will do so in the first few years following their release from prison. The longer the period that has elapsed after their release is, the less likely it is that they will reoffend. As the noble Baroness pointed out, the available evidence suggests that there is no specific scientific point at which it can be absolutely guaranteed that someone will not reoffend, but if there is any suggestion that they might do so, they would not be successful in being removed from the sex offenders register in the first place when they made their application for review. We are talking about 15 years after this person has been released from prison.
Baroness Smith of Basildon
The impact assessment states that the figures relating to the reconviction rate of sex offenders covered a 25-year period, during which a quarter were reconvicted of a sexual offence. By the noble Baroness’s understanding, there seems to be a period of less than 15 in which they do not reoffend, but the impact assessment says that a quarter reoffend within 20 to 25 years of conviction.
Baroness Hamwee
My Lords, this is a terribly complicated area and I am sure that noble Lords are, like me, struggling to follow the sequence of events. It would be really helpful if the noble Baroness were to write to us afterwards, because this involves quite technical details and I, for one, am having trouble putting them into the context of the original offence and what the automatic and discretionary consequences of a conviction might be.
Lord Lester of Herne Hill
To be helpful, perhaps I may make another practical suggestion. I forgot to say that in its latest report the Joint Committee on Human Rights asked seven questions for clarification, all of which have been clarified by the Equalities Minister Lynne Featherstone in her letter of 15 June 2012 to the Joint Committee. They are important issues and, rather than trying to get them on the record here, it would be sensible if the letter I referred to or some other letter were copied to those who have taken part in the debate, put in the Library and made part of the public record. I do not want the Minister to have to face yet further questions tonight, given that it has all been dealt with satisfactorily but not widely read.
Baroness Stowell of Beeston
I am grateful to my noble friends. If that solution is satisfactory to the noble Baroness, Lady Smith, that is what I will do.
Let me see if I can make some progress in responding to some of the other important points raised in the debate. The noble Baroness, Lady Smith, raised issues about costs. The straightforward point is that we have developed this policy in complete and full consultation with ACPO, which understands the need to respond to the Supreme Court ruling. There is no additional money available, but ACPO is confident that the aims can be met from existing resources. To return to a point made earlier, we have found it necessary for us to address this incompatibility, and that is what we are doing. It is worth adding that there is no option for the Government to appeal to the European Court of Human Rights against a ruling by the UK’s Supreme Court. This is a finding by the UK Supreme Court. I have described as carefully as I can that we have acted in a way that will address its findings, but in a way that is also mindful of the rights of law-abiding citizens who have every right to be protected from predatory sex offenders. I think those were the main issues raised by the noble Baroness.
My noble friend Lady Hamwee asked why we had taken the course of a remedial order as opposed to primary legislation. My noble friend Lord Lester answered that quite comprehensively, so I will not repeat all that he said. As for my noble friend Lady Hamwee’s concerns about the police leading on this review as opposed to the courts, I have already acknowledged that this has been a point of debate with the JCHR, which has now found that our proposals are compatible. None the less, it is worth stating clearly that we firmly believe that the police are in the best place to carry out this review and to consider an application from an offender on the register. They are familiar with the issues locally and will continue to work closely with the other agencies who are all working hard to ensure the protection of people in their area.
My noble friend asked whether the offender would get an oral hearing. My understanding—and if I am incorrect I shall, of course, write to her—is that they will not get an oral hearing with the police; they will put forward their application and the police will make a decision. However, they have the right to appeal that decision to the magistrates’ court. The noble Baroness also made the point that she expected all offenders to seek a review of their place on the register. In response, I remind the noble Baroness that they are not entitled to do so until they have been on the register for 15 years after their conviction. So even if that was to be the case—and I am sure that many offenders will recognise that their application may not be successful anyway, which might dissuade them from putting themselves forward for a review—they will not all put themselves forward at the same time.
As to the other order before us and the various questions raised, primarily, by the noble Baroness, Lady Smith, about the notification requirements, she asked about consistency with the devolved Administrations. I will restate that this is a devolved matter and Scotland and Northern Ireland are able to reach their own decisions. However, we are liaising closely with the devolved Administrations and ensuring that we seek alignment between the systems of notification. Northern Ireland is taking steps to change the law and we are liaising directly to ensure as much consistency as possible, particularly on this issue of three days, as the noble Baroness raised. As to European Union countries, we took into account aspects of their review mechanisms. In our view the UK very much leads in sex offender management, but we have taken any action that is taken in other countries which we think is appropriate. However, we would rather ensure that our action is consistent with our own standards, to be at the forefront of this matter.
Before I close, perhaps I may respond to the noble Baroness’s comments about online identities. It is already a requirement for all offenders to notify the police of any alias that they use. None the less, the crimes to which she referred are very serious. I would prefer to respond to her separately on the matter of online identities, but the noble Baroness has given me the opportunity in raising it to say that a range of tools is available to the police to manage dangerous offenders, including sexual offences prevention orders, or SOPOs, which are intended to protect the public from the risk posed by sex offenders by placing restrictions on their behaviour. These orders can be made on application to a magistrates’ court. If somebody on the sex offenders register is doing something which gives rise to suspicion that they are about to commit a crime, it is possible for the police to get the necessary authority for them to take action. I wanted to take this opportunity to make that point because there is a risk when we talk, as we have today, exclusively about the sex offenders register that the public might be given the impression that the register is the only way in which we manage sex offenders. It is not—there is a comprehensive set of arrangements.
The Sexual Offences Act 2003 is important legislation that provides police and other agencies with essential tools and powers to ensure that they can effectively manage offenders who pose a risk to the public. I am proud to say that the United Kingdom has one of the most robust sex offender management systems in the world and these changes will ensure that it continues to do so. I commend the order to the House.
Sexual Offences Act 2003 (Notification Requirements) (England and Wales) Regulations 2012
Baroness Stowell of Beeston
That the draft regulations laid before the House on 5 March be approved.
Relevant document: 43rd Report from the Joint Committee on Statutory Instruments, Session 2010–12.
Terrorism Act 2000 (Proscribed Organisations) (Amendment) Order 2012
Baroness Stowell of Beeston
That the draft order laid before the House on 2 July be approved.
Baroness Stowell of Beeston
My Lords, the Government are determined to do all that they can to minimise the threat from terrorism to the UK and our interests abroad. Proscription of terrorist organisations is an important part of the Government’s strategy to tackle terrorist activities. We would therefore like to add the organisation, Indian Mujahideen—IM—to the list of 47 international terrorist organisations that are listed under Schedule 2 to the Terrorism Act 2000. Having carefully considered all the evidence, the Home Secretary’s firm belief is that IM meets the statutory test for proscription and that it is appropriate to exercise her discretion to proscribe it. This is the 10th proscription order amending Schedule 2 to that Act.
Section 3 of the Terrorism Act 2000 provides a power for the Home Secretary to proscribe an organisation if she believes that it is currently concerned in terrorism. The Act specifies that an organisation is concerned in terrorism if it: commits or participates in acts of terrorism; prepares for terrorism; promotes or encourages terrorism, including the unlawful glorification of terrorism; or is otherwise concerned in terrorism. If the test is met, she may then exercise her discretion to proscribe the organisation. In considering whether to exercise this discretion, she takes into account a number of factors which were announced to Parliament during the passage of the Terrorism Act 2000. The factors considered are: the nature and scale of an organisation’s activities; the specific threat that it poses to the United Kingdom; the specific threat that it poses to British nationals overseas; the organisation’s presence in the United Kingdom; and the need to support other members of the international community in tackling terrorism.
Proscription is a tough but necessary power. Its effect is that the proscribed organisation is outlawed and unable to operate in the UK. Proscription makes it a criminal offence for a person to belong to, or invite support for, the proscribed organisation. It is also a criminal offence to arrange a meeting in support of a proscribed organisation or to wear clothing or carry articles in public which arouse reasonable suspicion that an individual is a member or supporter of the proscribed organisation. Given the wide-ranging impact of proscription, the Home Secretary exercises her power to proscribe an organisation only after thoroughly reviewing all the available relevant information on the organisation. This includes open source material as well as intelligence material, legal advice and advice that reflects consultation across Government, including with intelligence and law enforcement agencies. Decisions on proscription are taken with great care by the Home Secretary and it is right that both Houses must approve the order proscribing a new organisation. Having carefully considered all the evidence, the Home Secretary firmly believes that IM is concerned in terrorism. Noble Lords will appreciate that I am unable to go into much detail of the evidence but I am able to summarise.
IM uses violence to achieve its stated aims of creating an Islamic state in India and implementing Sharia law. The organisation has frequently perpetrated attacks against civilian targets, such as markets, with the intention of maximising casualties. For example, in May 2008 a spate of bomb detonations in the city of Jaipur killed 63 and in September 2011 an explosion outside the High Court in Delhi reportedly killed 12 and injured 65. IM has sought to incite sectarian hatred in India by deliberately targeting Hindu places of worship. For example, an attack during a prayer ceremony in Varanasi killed a child in December 2010. The group also targets areas popular with tourists. For example, a shooting incident outside a tourist attraction in Old Delhi wounded two Taiwanese tourists in September 2010. The group also made an unsuccessful attempt to detonate an explosive device at the scene. The organisation has threatened to attack British tourists, so it clearly poses a threat to British nationals in India.
The proscription of IM will contribute to making the UK a hostile environment for terrorists and their supporters and will signal our condemnation of the terrorist attacks this group continues to carry out in India. IM is already banned by the United States, India and New Zealand; thus proscription will align the UK with the emerging international consensus. Proscription is not targeted at any particular faith or social grouping but is based on clear evidence that an organisation is concerned in terrorism. IM has carried out a large number of attacks in India, resulting in large numbers of civilian casualties.
I have already said that the Government recognise that proscription is a tough power that can have a wide-ranging impact. Because of this there is an appeal mechanism in the legislation. Any organisation that is proscribed, or anyone affected by the proscription of an organisation, can apply to the Home Secretary for the organisation to be deproscribed. If refused, the applicant can appeal to the Proscribed Organisations Appeal Commission, a special tribunal which is able to consider the sensitive material that often underpins proscription decisions. A special advocate can be appointed to represent the interests of the applicant in closed sessions of the commission. There is ample evidence to suggest that IM is concerned in terrorism and I believe it is right that we add the organisation to the list of proscribed organisation under Schedule 2 of the Terrorism Act 2000. I beg to move.
Baroness Smith of Basildon
My Lords, as the noble Baroness pointed out, the order before us today proposes that the Indian Mujahideen—IM—joins the list of 47 international terrorist organisations proscribed in the UK. I understand that a much smaller group of organisations operating in Northern Ireland is also proscribed.
It is a very serious matter for an organisation to be proscribed. It makes it an offence to be a member of that organisation, to support the organisation, to invite others to support the organisation or wear the uniform of the organisation. The uniform is not what we might think of in the traditional sense, but to wear clothes which might indicate that an individual supports that organisation. As the noble Baroness said, it is right that a decision to proscribe an organisation is never taken lightly. The consequences of proscription are serious, not least because it potentially criminalises every member of that organisation or group, so it must be reserved for the most dangerous groups, where there is clear evidence of terrorist activity.
Under Part 2 of the Terrorism Act 2000, a group can be proscribed only if the Home Secretary believes that the organisation,
“commits or participates in acts of terrorism”.
I have read the information available about the organisation and listened to the noble Baroness, and we are confident that there is evidence to support proscription of the organisation, so we will support the order.
It is clear that the Indian Mujahideen is a terrorist organisation. The noble Baroness gave examples of the most appalling terrorist attacks that have taken place in recent years. It also shares responsibility for the general decline in security in parts of the Indian subcontinent. The group rose to prominence in 2007, but has been active since about 2001. I was looking at the background and history of the organisation. The noble Baroness will be aware that there are strong links between IM and the Students Islamic Movement of India, which was first identified back in 1977. I am not clear, and I am not sure that there is absolute clarity, about the exact nature of the relationship between the two organisations, but from what I have ascertained, the relationship between them may mean that their membership is fluid—if they are two separate organisations.
That is important because the Government have not included the Students Islamic Movement of India in the order. Was consideration given to including that organisation and do the Government consider that it is also a terrorist organisation? If the membership of those two organisations is that fluid, could members of the IM put themselves beyond the scope of the order by an IM branch or individuals converting back to the Students Islamic Movement of India and just change their membership? I am sure that that is not what the Government intend, but it would be helpful to have assurances that there is no such loophole in the order and that the Government have considered the issue and are confident that terrorists will not be able to evade the force of law through a legal technicality.
As the noble Baroness said, to proscribe an organisation, it is not sufficient that it be involved in terrorism. The Home Secretary has to take account of secondary considerations. She repeated them, and they are in the Explanatory Notes. She said that the Secretary of State announced them in 2000, but the Explanatory Notes state that they were announced in 2001, so we may need clarification that we are talking about the same criteria.
Is the decision to proscribe the organisation now the direct result of evidence suggesting an increase in the scale of IM’s activity? Can she—I appreciate that she may not be able to—say anything about the nature of the threat? I am particularly interested whether there is a specific threat from the organisation to UK citizens abroad or within the UK. Given the strong links, associations and connections between IM and the Students Islamic Movement of India, what is the Government’s assessment of either group’s activity in the UK and whether there is evidence of links between IM and other proscribed groups within the UK?
The final criterion in the Explanatory Notes to the order which the Minister mentioned is the need to support other members of the international community in the global fight against terrorism. The UK has proscribed the organisation now, following action already taken by India, New Zealand and the USA. What discussions have there been with these other countries? Was the UK asked to take this action by India and did the discussions that took place include references to the role of other organisations which I mentioned, such as the Students Islamic Movement of India? Are there also European consequences? I am not aware that any other European countries have proscribed or banned this organisation and I wonder whether the Government are in contact with our European allies on this.
Perhaps I might also ask one brief question about Hizb ut-Tahrir. The noble Baroness will be aware that before I came to this place I was in the other House for 13 years. At one point, during the first two years of Gordon Brown’s premiership, I was his parliamentary private secretary. I recall clearly that on Gordon Brown’s first outing at Prime Minister’s Questions, which is almost five years ago to the day, David Cameron, the then leader of the Opposition, chose proscription as his first topic for Prime Minister’s Questions. What Mr Cameron said then was very critical of the Labour Government. He said that Hizb ut-Tahrir,
“should be banned—why has it not happened?”.
When it was pointed out that evidence was required, Mr Cameron criticised that and said:
“What more evidence do we need before we ban that organisation? … when will this be done? … People will find it hard to understand why an organisation that urges people to kill Jews has not been banned”.—[Official Report, Commons, 4/7/07; cols. 951-2.]
As I said to the noble Baroness, these are very serious issues and it is not appropriate to have shouty debates across the Dispatch Box on them, as we had on that occasion. However, can she confirm whether she knows whether the Prime Minister still holds the view that he held about five years ago? Are we likely to see a further order coming forward concerning that organisation? These are serious matters, and I know that decisions to bring forward such orders are not taken lightly without examining evidence. However, I can tell the noble Baroness that this order has our support.
Baroness Stowell of Beeston
My Lords, I am grateful to the noble Baroness for her comments and very much welcome her support. She obviously made a number of points, which I will endeavour to respond to. However, I am sure she will appreciate that this being the matter it is, there is a limit to what I can say because of the sensitivities of what is under consideration. As I said and as the noble Baroness restated, there is a very clear process in the Terrorism Act 2000 that is followed before any decision is made by a Home Secretary to proscribe a group. The noble Baroness asked, as a point of clarification, whether the other factors that the Home Secretary considers were first stated in 2000 or 2001. I can confirm that they were stated in 2000, so wherever the discrepancy is we will make sure that that is properly addressed and corrected.
Most of the noble Baroness’s comments were linked to the Indian Mujahideen and she suggested some connections between that group and another, the Students Islamic Movement of India, which also goes by the name of SIMI. As she will understand, I am afraid that it is not possible for me to comment on intelligence matters. We keep the list of proscribed organisations under regular review but, if I might give her some assurance, if there is evidence that the IM has reformed itself under a different name, any new name will be subject to the same process of consideration for proscription. The use of an alternative name that is not listed does not prevent the police and Crown Prosecution Service taking action against an individual for proscription offences. There is a body of open-source information on links between IM and SIMI, but this is not necessarily information which we would endorse.
The noble Baroness raised questions about Hizb ut-Tahrir in particular. Before I respond to that specifically, it is worth pointing out that it is essential that when the Government—or any Government—take action to proscribe or ban a group, they have sufficient evidence to ensure that however great the revulsion at what people are doing, action is taken under the letter of UK law and that we have sufficient evidence of that law being breached. If not, when these people appealed, it could be a propaganda coup for them if we were to take action that failed.
Hizb ut-Tahrir is an organisation that the Government have significant concerns about. We will continue to monitor its activities closely. Such groups are not free to spread hatred and incite violence as they please. The police have comprehensive powers to take action under criminal law to deal with people who incite hatred, and they will do so. We will ensure that HUT and groups like it cannot operate without challenge in public places in this country; we will not tolerate secret meetings behind closed doors, on premises funded by the taxpayer. We will ensure that organisations are made well aware of HUT and of groups like it, the names under which they operate and the ways in which they go about their business.
The noble Baroness asked me about consultation with our European partners. The UK has the largest Indian population in Europe, as I am sure she knows. Other EU member states have tended to follow the UK’s lead in matters like this. She asked whether any European Union countries had proscribed IM. None has, but we do not necessarily wait to be led in this context.
I shall see whether there is any issue raised by the noble Baroness that I have not covered, but I think that has covered everything. I repeat my thanks and I welcome her support for the order.
In conclusion, I strongly believe that IM should be added to the list of proscribed organisations under Schedule 2 to the Terrorism Act 2000. IM has carried out a large number of indiscriminate mass casualty attacks in India. It has also sought to incite sectarian hatred in India by deliberately targeting Hindu places of worship. The number of victims of this organisation is over 150 and it is essential that we show our condemnation of its actions.
Fishing Boats (Satellite-Tracking Devices and Electronic Reporting) (England) Scheme 2012
Lord De Mauley
That the scheme laid before the House on 24 May be approved.
Relevant document: 3rd Report from the Joint Committee on Statutory Instruments.
Lord De Mauley
My Lords, the sustainability of global fish stocks is currently a matter of considerable concern. That sustainability depends in great part upon effective control and reliable data to inform the science. The electronic transmission of both satellite position reports—or VMS, vessel monitoring systems—and fishing activity reports in the form of electronic logbooks, forms an essential element of modern fisheries control. It is used more and more throughout the world to monitor fishing activity. The old paper-based systems of logbooks and landing declarations are both cumbersome and time-consuming for fishermen to complete. The input of the data from these paper records on to computerised databases is also resource-intensive for fisheries administrations.
Under EU law, the requirement to have this electronic equipment has now been extended from fishing vessels over 15 metres to fishing vessels over 12 metres. Extension of the technology to smaller vessels will significantly improve the monitoring in real time of fishing activity, as logbook information will be transmitted back to shore on a daily basis, rather than having to wait for the vessel to complete its trip, as at present. It will also greatly increase the risk of detection of attempts to misrecord catches and so contribute positively towards improving compliance and ensuring the sustainability of fish stocks.
The benefits of this new technology are therefore clear. Essentially, though, electronic logbooks and satellite tracking devices are control tools. Because of that, the Government have contributed towards their capital cost in the past. We think it right to continue to do so, and the new scheme therefore provides funding to smaller fishing vessels as required by Community law. It also allows for the funding of the installation of similar technology on vessels below 12 metres, should a decision for that be taken in future.
The Government are pleased to be able to offer financial assistance to fishermen in the purchase of the necessary VMS hardware and electronic logbook software. Similar assistance is being provided by other fisheries administrations in the UK and other member states. In England, the scheme will be administered by the Marine Management Organisation.
For VMS, we have appointed a single supplier of the equipment. However, for the electronic logbook software we have aimed to ensure best value for money by adopting a type approval process under which any software supplier can submit a product for approval. Six software systems have so far been approved. This will offer fishermen a choice of software to meet their own needs and introduce competition between suppliers.
Grant aid will be made available only for approved software systems. I nevertheless recognise that some fishermen may wish to purchase more sophisticated software that contains functions beyond those necessary to comply with our EU obligations. It is therefore reasonable to place a cap on the level of financial assistance that the taxpayer will provide, so we propose to limit the total amount of funding that will be available to English fishing vessels to £4,500 per vessel. On this basis, the overall cost of the funding scheme is not expected to exceed £770,000 for the 170 or so English vessels over 12 metres, and 90% of this is recoverable from Community funds under the EU aid regime, which provides cofinancing for member states’ expenditure on statutory control measures. The remaining amounts will be found from existing budgets.
We believe that the relatively modest costs of this scheme will deliver real benefits to both fishermen and fisheries administrations, so the scheme will provide real value for money. I beg to move.
Lord Knight of Weymouth
From the outset, my Lords, I make it clear that we do not oppose the draft scheme. Following the extension of Council regulation 1224/2009, it is clear that a funding scheme is needed to provide for payment to obtain the necessary equipment, and that the installation of satellite tracking devices and electronic logbooks on board fishing vessels is a positive step in promoting better working practices across the industry. We hope that the transition to an electronic system will provide a more effective and efficient method of determining what fish are caught and what location the stocks are fished from and, potentially, to address the difficult problem of discards, which many of us find repugnant. Any steps that are taken to improve industry standards to ensure the preservation of fish stocks will be wholeheartedly supported on this side, as are any measures for better working standards across the industry.
I do not wish to detain your Lordships’ House. I shall merely ask a couple of questions that were asked by my honourable friend Gavin Shuker in the other place which the Minister who was on duty, James Paice, did not have an opportunity to respond to, and I will be delighted if the Minister wants to respond in writing. When will the scheme be implemented, and have the Government set in place a timetable for the completion of the works? Has the EU set a deadline on carrying out this widening of the regulations, and will the Government be able to meet it? As I said at the beginning, though, we do not oppose this draft scheme and indeed welcome many of the elements of it. Any clarification of the details would be welcome.
Lord Hunt of Chesterton
My Lords, will the information that comes from this system be open or will it be completely secure to the MMO? Will it be possible, for example, to use that information to see all the other ships in our coastal waters coming from different countries in Europe, which causes considerable difficulty?
Lord De Mauley
My Lords, I am grateful to both noble Lords who have participated for their contributions. I am particularly grateful to the noble Lord, Lord Knight, for saying that effectively he agrees to the proposals. As I said at the outset, the use of this technology on smaller vessels will significantly improve the reliability of catch data and reduce the opportunity to cheat for those few who are inclined to do so. This can only be good for fish stocks. The modest costs of delivering these improvements in the way in which fisheries data are gathered are therefore, I suggest, justified.
The noble Lord, Lord Knight, referred to discards. I share his abhorrence of discards. Discussions are under way as part of negotiations towards reform of the common fisheries policy. We hope to conclude these early next year. He asked about timing. All the equipment will be installed by the end of the year. That is a little late, but it is not later than in many other member states. As to the openness of the information, about which the noble Lord, Lord Hunt of Chesterton, asked, for those other nations that need access to the information for purposes of monitoring our vessels in their waters—just as we will need to monitor their vessels in their waters—that information will be so shared. I am grateful to him for his comments and if I can add to that reply I will write to him. I hope that noble Lords can accept this scheme.