Grand Committee
Arrangement of Business
The Deputy Chairman of Committees (Baroness Harris of Richmond)
My Lords, if there is a Division in the House the Committee will adjourn for 10 minutes.
Immigration and Nationality (Fees) Regulations 2013
(11 years, 8 months ago)
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Lord Taylor of Holbeach
That the Grand Committee do report to the House that it has considered the Immigration and Nationality (Fees) Regulations 2013.
Relevant documents: 20th Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Home Office (Lord Taylor of Holbeach)
My Lords, I am sure the Committee will recall that after discussion in Grand Committee I came to the House on 28 January and obtained approval to amend the Immigration and Nationality (Fees) Order 2011, which provides powers to charge for visa, immigration and nationality applications and services. I indicated at the time that I would return to debate the specific fees charged for the applications and services within the scope of that order.
These fees are set out in regulations made under Section 51 of the Immigration, Asylum and Nationality Act 2006. A subset of those fees set above costs is then set out in accordance with the powers granted in Section 42 of the Asylum and Immigration (Treatment of Claimants, etc.) Act 2004, as amended by Section 20 of the UK Borders Act 2007. Noble Lords will have seen the Immigration Minister’s Written Statement of 25 February, and I am happy to take points on any of the fee proposals here today, whether contained in these regulations or in those that will be laid shortly for fees set at or below the cost of processing.
We have sought to limit most increases to 3%, which is in line with recent measures of inflation. The fees that have increased by more than 3% include the following. First, the indefinite leave to remain fee is increasing from £991 to £1,051. The right to stay indefinitely in the UK is the most valuable entitlement provided by any product offered by the UK Border Agency. It is right that the fee for this product should not be exceeded by that for any products for migrants staying temporarily in the UK.
Secondly, for dependants applying to extend their leave in the UK at the same time as the main applicant, their fees were previously set at half the main applicant’s fees. We are reducing the concession on these fees so that those dependants will pay 75% of a main applicant’s fees. This is consistent with our policy to better align fees for applications made in the UK with those made overseas, where all dependants pay the full fee. It also reflects that each individual on an application may receive an independent set of entitlements, which will result in additional administration costs.
Thirdly, on registering for British citizenship, different fees currently apply to applications for naturalisation and those for registration, even though 99% of registration applicants receive the same status: namely, British citizenship. It is fair that those who receive the same entitlements pay the same fee. The fee for applying to register for citizenship will therefore increase to £673 as a first step towards alignment with naturalisation fees.
The fees for some applications have increased to reflect unit costs. These include those for reissues of or corrections to nationality certificates, nationality status and non-acquisition letters, and sponsors’ fees for tier 5 certificates of sponsorship and the tier 4 confirmation of acceptance for studies. It should be noted that some fees have also reduced in line with unit costs, including those for the transfer of conditions, renunciation of nationality and settlement visas for refugees’ dependent relatives.
We are also introducing some new fees. As I said when we debated the fees order, we are amending the way in which fees for applications made in person are structured. The main changes are as follows. A single uplift fee of £375 is payable, in addition to the relevant standard fee for applications made in person. This replaces a large number of public enquiry office fees in the existing regulations. The £375 in-person fee includes £100 payable for the arrangement of an in-person appointment. The fee is being introduced to tackle abuse of the public enquiry office booking system by organisations and individuals who have been making speculative appointments but then failing to attend. Such actions deprive genuine applicants of the opportunity to attend a PEO and damage a legitimate revenue stream for the UK Government.
A priority service fee of £275 for the expedited processing of standard applications via some routes will also be charged within the UK. Initially, this will be offered to selected tier 2 in-the-UK applicants, although we intend a phased rollout of the service to remaining temporary and permanent migration routes in future. In response to requests for such a service from universities and colleges, we are introducing, following a successful pilot, an extension of optional premium services to education sector sponsors in tier 4. Sponsors will pay £8,000 per year for an enhanced level of customer services.
A further £55 charge will be made for applications for documentation from EEA nationals and their non-EEA family members who are exercising free movement rights in the UK. Charging for these documents is common across Europe, and £55 will help the UK Border Agency to cover some of the administrative costs of this facility. Further, an extended-validity visa will be charged at £80 for those involved in the preparation of the Commonwealth Games, which are being held in Glasgow next year.
We have also taken the opportunity to split the fee for the tier 1 exceptional talent route to encourage more people to apply. As a result, migrants will know whether they are considered talented by the competent bodies before making and paying for a leave application. Following recent policy changes and a significant fee reduction, we also expect to see more applications via the graduate entrepreneur route.
The latest published data on UK Border Agency processing show that 91% of all applications received by the agency are processed within service standards. The majority of those applications are for visas for people coming to the UK, and we are exceeding our service standards for non-settlement visas. Where issues have arisen, particularly in the UK, the agency has taken steps to address them and expects that most of the affected application routes will be back within service standards by spring 2013.
Legal migration brings economic, cultural and social benefits to the UK. We shall continue to ensure that fees for immigration and nationality send a clear signal overseas that this country welcomes genuine visitors and the brightest and best migrants. These proposals support that message. We shall continue to monitor the economic, equality and diversity impacts of our changes. We shall ensure that our fees continue to be priced at competitive levels when compared with those in other key countries. These regulations provide a basis for a sustainable immigration system that will command public support, and I commend them to the Committee.
Lord Eatwell
My Lords, I shall refer to the applications-in-person fees that the Minister mentioned in his introduction. The idea that an efficient service is being provided in this case will, certainly in Cambridge, generate hollow laughter. I refer him to the case of a colleague of mine who, as a tier 1 applicant in person, has made a consistent series of applications for a personal appointment in order to secure an extension of tier 1 permission in good time so that she can attend important international conferences that are fundamental to her career and to the performance of her high-quality services here in the UK. Despite numerous telephone calls, hanging on for over an hour on one occasion, she was unable to obtain an appointment for a month. However, she was offered an appointment by a person in Turkey for £3,000. The Minister referred to the abuses that there have been in respect of applications in person, but I ask him why we are imposing a fee of £375 on such applications in person when the person making a profit of £3,000 will regard this as a perfectly good bet.
Why are we not improving the service? One thing that the Minister did not mention in his entire presentation was value for money. The service provided is lamentable. The British public, and indeed people resident here from overseas, are not receiving value for money. He described the fees as competitive with other countries. So what? Why do we not provide a basic service?
Eventually my colleague got an appointment in Cardiff. She went there to have her permission to stay renewed. The UK Border Agency office in Cardiff was deserted, although she had not been able to obtain an appointment. The reason, of course, was that the appointments had been jammed up by those who were illegally making appointments in order to jump the queue, because of the sheer inefficiency of the border agency in managing this process. Can we not say about applications in person that within the UK, for people who as tier 1 applicants are so important for the future of our economy, we will provide a decent service, which we are not doing at the moment, instead of imposing a higher fee upon them?
Lord Rosser
My Lords, I thank the Minister for explaining the effect of the regulations in what appears to be more detail and greater depth than was the case with the Minister in the other place. However, I am sure he will be relieved to know that I still intend to be brief, despite his very thorough explanation.
As we know, the UK Border Agency first conducted a full public consultation on charging for immigration and nationality applications in 2006, and that consultation led to the principle being established that the UKBA should operate a flexible pricing approach to setting fees for immigration services, to take account of wider policy objectives while reducing the contribution made by the taxpayer. As the Minister said, the regulations that we are considering today, which are pursuant to the Immigration and Nationality (Fees) Order 2011, come into force on 6 April and replace similar regulations that have been effective since April last year. They set out the changed fees to be paid for immigration and nationality applications or services, which will also enable a significant part of the costs to be recouped.
We support the principles involved, including premium services that the Government intend to introduce. However, I am sure the Minister will wish to respond to the specific point made by my noble friend Lord Eatwell, which certainly deserves a considered response, about what appears to be a far from satisfactory situation.
Beyond that, I do not intend to say anything further about these regulations. I would simply comment that in the light of a recent Written Answer that I received from the Minister, it appears as though the Home Office might not be having as much success as it would wish in reducing or containing the number of orders and regulations in existence. I had understood that to be a government objective in pursuit of their objective to reduce what they have described as unnecessary regulation. No doubt at some stage in the future we will have the opportunity to consider that question in greater detail.
Lord Taylor of Holbeach
I thank both noble Lords for their contributions. Although different, both were very valuable. I say to the noble Lord, Lord Rosser, that the complexity of immigration rules and regulations is a matter of concern. I am fairly certain that we will have opportunities to discuss these matters in full.
This is a little like Topsy. Successive Governments have tried to deal with the complex issues raised through immigration rules and regulations. They need dealing with. I hope that Parliament can play its part in ensuring that this matter is made much easier to manage. That is no excuse, however, for the situation described by the noble Lord, Lord Eatwell, and there are aspects of the UKBA that are of concern to the Home Office and to the Government in general. While I cannot comment on the specific case in point, I hope that I made it clear in my introduction that we were aware that there was abuse in this area and that false appointments denied people the opportunity of having a personal appointment to deal with their case. It is important to emphasise the value of such personal appointments. They enable key people to make sure that their application is dealt with and to have a face to face encounter.
Much of this is designed, as I think noble Lords will see from the university sponsor’s fee of £8,000, to try to make the UKBA much more consumer focused. The UKBA exists to serve the process whereby people can move in and out of this country and contribute to our economic, cultural and social life, points that I made at the beginning.
Perhaps I may ask the noble Lord whether he would mind documenting for me the case that he described. Government and opposition have a joint interest in making sure that the UKBA achieves, at least in governance terms, what I think we across the House and in this Committee would wish to see. It would be very helpful if the noble Lord could take the time to do that for me.
Lord Eatwell
My Lords, since I was very critical of the border agency in my earlier remarks, I should say that when my friend arrived at the deserted office in Cardiff, she received an excellent service.
Lord Taylor of Holbeach
That is very reassuring. I think that the individual staff members of the UKBA are determined to turn the body around. I am satisfied that the organisation is heading in the right direction, but it is very useful to know where the pinch points are.
As noble Lords will know, we will consolidate regulation because we review the fees on an annual basis. It is right that we review the fees, but primary legislation requires them to be affirmed by Parliament. I hear the concerns expressed by noble Lords, both those of the noble Lord, Lord Rosser, in the generality and those of the noble Lord, Lord Eatwell, in the particular. Meanwhile, I commend the regulations to the Grand Committee.
Guardian’s Allowance Up-rating Order 2013
(11 years, 8 months ago)
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Lord Freud
That the Grand Committee do report to the House that it has considered the Guardian’s Allowance Up-rating Order 2013.
Relevant document: 20th Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, I shall also introduce the Guardian’s Allowance (Northern Ireland) Up-rating Order 2013 and the Tax Credits Up-rating, etc. Regulations 2013. It is the Government’s view that the regulations and orders are compatible with the European Convention on Human Rights.
The regulations and orders before the Committee put into effect a number of reforms to tax credits and child benefit announced at the spending review 2010, the June Budget 2010 and the Autumn Statement 2012. In the spending review 2010, we announced that the basic and 30-hour elements of working tax credit would be frozen for three years from 2011-12. The regulations confirm that policy for 2013-14.
At the June Budget 2010, we announced that the rates of child benefit would be frozen for three years from 2011-12. We also announced that the income disregard, which is the amount by which a family can increase its income within a tax year without a recalculation of its tax credit award, would decrease from £10,000 to £5,000 in April 2013. At the Autumn Statement 2012, we announced that the child element of child tax credit, and the couple and lone-parent elements of working tax credit, would be uprated by 1% for three years from April 2013.
Benefits that help with the extra cost of disability have been protected. The regulations increase the disability elements of tax credits—that is, the disabled child and severely disabled child elements of child tax credit, and the disabled worker and severely disabled worker elements of working tax credit—in line with CPI. The rate of guardian’s allowance will also be uprated by CPI.
The Committee will be aware that the decisions on uprating contained in these regulations are part of a wider package of uprating measures. My noble friend Lady Stowell has already presented the Social Security Benefits Up-rating Order for 2013-14, which increases certain working-age social security benefits by 1%. The Welfare Benefits Up-rating Bill, which confirms the 1% uprating decision for 2014-15 and 2015-16, including for certain elements of tax credits and child benefit, is now entering its Report stage in the House.
I will start by saying that tax credits and child benefit provide valuable support to millions of families, so the decisions to freeze child benefit and tax credit rates or to increase them by less than CPI were difficult. They will mean that the rates will reduce in real terms. However, they are necessary decisions that should be considered in the context of the exceptional fiscal challenge that we inherited: namely, the largest deficit since the Second World War.
The Government are committed to reducing the deficit. Around four-fifths of the total consolidation in 2015-16 will be delivered by lower spending. This is consistent with OECD and IMF research that suggests that fiscal consolidation efforts that are focused on spending are more likely to be successful.
Tackling the unsustainable welfare budget is a key part of addressing our fiscal challenge. From 1997 to 2010, spending on welfare increased by some 60% in real terms, which is equivalent to an extra cost of £2,900 per household in Great Britain. It is an increase from 11% of GDP in 2007-08 to more than 13% today. Welfare now accounts for £1 in every £4 of public spending. Tax credits have significantly contributed to this increase. Under the previous Government, spend increased by an extraordinary 340% compared with the benefits it replaced. Tax credits will cost around £30 billion this year, and child benefit costs a further £12 billion. Together, they make up over 40% of working-age welfare spend.
Freezing the basic and 30-hour elements for three years will save almost £1 billion in 2013-14, while uprating the child, couple and lone parent elements by 1% saves £320 million, and decreasing the income disregard will save £125 million in 2013-14. The three-year child benefit freeze will save an additional £1.25 billion. If these savings were not delivered, this could clearly put additional pressure on spending on public services. While they are tough decisions, they are necessary and will be implemented through these regulations.
I assure noble Lords that while we are taking these tough and necessary decisions on welfare, we are also ensuring that high earners pay their share. The top 20% of households continue to make the greatest contribution towards reducing the deficit. This is true both in cash terms and as a percentage of their income and benefits in kind from public services. Overall, the richest will pay more tax in this Parliament than under the previous Government’s plans. As a result of this Government’s actions, a high earner pays an additional £10,000 on a £100,000 capital gain; pays an extra £60,000 on the purchase of a £3 million house, and an extra £300,000 if purchased via a corporate envelope; loses up to £4,500 a year in entitlement to tax reliefs on annual pension contributions, for an individual previously claiming the maximum annual tax-free pension allowance and paying the additional rate; can no longer benefit from tax relief on contributions to pension pots over £1.25 million in value; and will no longer be able to use income tax reliefs to reduce their tax bill excessively year after year.
These measures clearly affect benefits that are designed to support families with children. I am conscious that there has been much discussion, both in the House and through the media, about the impact that this might have on child poverty. The Government are committed to tackling child poverty and focusing on interventions that transform lives rather than push up benefit incomes to lift people just above a relative income line. We already know that focusing on the relative income line alone yields perverse results. In 2010, 300,000 fewer children were said to be in poverty because the recession had caused median incomes to drop. In other words, people were said to be pulled out of poverty not because anything changed in their lives but because the rest of society had got poorer.
The Government are consulting on a better measurement that includes income, which is of course an important part of tackling child poverty, but goes beyond income to tackle the root causes of poverty, including worklessness, educational failure and family breakdown. I re-emphasise that one of the most important things that we can do to support children is to tackle the nation’s debt and restore economic growth. In doing so, we can create a future of prosperity and opportunity. I simply disagree that what is best for children is to continue spending unaffordable amounts on welfare while building up debts to pay for it.
The Government are prioritising our resources into reforms that really help families with children. We have invested £2.5 billion in the pupil premium for disadvantaged pupils. We have put £1.2 billion into capital investment in schools. We are investing in making work pay through universal credit, sending out a clear signal that we believe that work is the best route out of poverty for parents and their children. As part of universal credit we are spending an extra £200 million to support families with childcare costs, and for the first time this support will be made available for families who work fewer than 16 hours per week. This will mean that 100,000 more working families will be helped with their childcare costs. Of course, we also provide significant support to families through the National Health Service and schools, which, even in these difficult economic times, we have protected the budgets for.
Lord Eatwell
My Lords, I am grateful to the Minister for introducing these statutory instruments. He concentrated, as indeed I will, on the uprating of tax credits. He said little about the guardian allowance uprating, which is the only issue that gives rise to the traditional debate between RPI and CPI, which I shall certainly leave aside. Enough has been said about that to expose the Government’s use of that device to extract money from the welfare system.
The noble Lord pointed out in his introductory remarks that the measures that he described were withdrawing a total of £2.7 billion, I think it was, from the pockets of the poorest in this country. These contemptible measures represent a fundamental economic failure and a fundamental misunderstanding of the role of tax credits and of the security system in our economy. He referred extensively to the idea that this was somehow fair. In particular, when addressing the issue of working tax credits he justified what is being done by referring to the personal allowance change, from which the noble Lord himself benefits; from the fuel duty change, from which the noble Lord himself benefits; and from the freezing of council tax, from which the noble Lord himself benefits.
My point relates not to the motivations of the noble Lord but to the fact that these benefits benefit everybody in the economy. The changed personal allowance benefits 24 million people, which is just about every taxpayer, including the noble Lord and me. These measures are no justification whatever for withdrawing support from those who are on the lowest incomes and who need support the most.
I was struck by the table of the decline in benefits that was attached to the Explanatory Memorandum for these measures. The basic element of tax credits is down by £45 in real terms. The second adult element is down by £25 in real terms. The lone parent element is down by £25 in real terms. For child tax credits, the family element is down by £15, the child element is down by £30 and the disabled child element is down by £30. These may seem trivial sums, but for families who are absolutely on the edge of survival they are absolutely fundamental. The £2.7 billion that the Government are extracting from this part of our community in order to attempt to reduce the deficit is a direct attack on targeted benefits that were actually associated with the poorest in our community.
The Government have also, perhaps unintentionally, weakened a fundamental aspect of the Chancellor’s economic policy. The Chancellor has referred on several occasions to the fact that his measures are designed to attack the structural deficit and not the deficit as it occurs from year to year, as it may be affected by fluctuations in economic activity. There, the Chancellor has pointed out, the effects of any decline in activity are mitigated by what are called the automatic stabilisers: the fact that benefits rise automatically as people become more impoverished and are reduced automatically as the economy grows, although the Chancellor has of course not experienced that. Now we are weakening the automatic stabilisers.
Have the Government calculated the effect on the overall multiplier consequences on government expenditure of the weakening of social security payments that we have before us? Can the noble Lord tell us what the overall impact will be of this reduction in spending for the poor on the level of activity in the economy, now that we know, by virtue of the IMF, that the multiplier consequences of reducing government expenditure are much higher than was contained in either the Treasury’s or the OBR’s calculations? Can he tell us the impact of this on the overall level of activity and the consequential impact on the increase in the deficit that these spending changes will bring about? It is a trivial economic error to look at first-round effects and not to look at subsequent consequences on levels of activity and revenue.
We have before us the first step in a steady attack on the welfare system, which is to be progressed year after year over the next three or four years. I find it a dispiriting image of our country that we are prepared to do this in the most dire economic circumstances, attacking those who are the weakest while simultaneously, from this April, reducing the top rate of tax for those with the highest levels of income, over £150,000, from 50% to 45%. The noble Lord referred to this group, telling us that the top 20% are contributing a major share of tax revenue to the reduction in the deficit. Does he not realise that, arithmetically, that arises because they are so darn rich compared with everybody else?
The distribution of income in this country has deteriorated and become so skewed that the higher tax revenues contributed by those on higher incomes are a direct function of the extraordinarily high pre-tax incomes observed in the top portions of our society. The Minister’s references to the proportion of revenues now being derived from the purchase of £3 million houses, or from the impact on £1.25 million pension pots, will seem like a Hollywood fantasy to the people with whom we are dealing in these measures.
Will the Minister also confirm that the reduction in real incomes of the lowest two deciles in the economy is greater in proportion than that of the top decile, once one takes out the tax increase introduced by Alistair Darling, which the Government always put into their calculations in order to produce the spurious argument that the top decile has contributed most? Once one strips out the measures taken by the previous Labour Government in the March 2010 Budget, the proportionately larger contribution of the top decile disappears.
These measures directly attack the weakest members of our society and reduce the overall welfare budget at a time when it is needed more than anything else. It is not only inequitable but economically illiterate, because it reduces the transfer of funds to that section of society that provides the overwhelming economic benefit of spending every penny it gets, thereby helping to sustain activity in the overall economy. These are vicious measures from an economically illiterate Government.
Lord German
My Lords, I had hoped that we would not have a second round of our debate in the Chamber about the welfare uprating Bill, but clearly we have just had it. It slightly disappoints me because we will be re-rehearsing similar arguments. However, I must say to the noble Lord, Lord Eatwell, that I support interventions that help people in their lives. I support very much the pupil premium, and investing heavily in helping young people, particularly young children, to find a better way of life. I also support the uprating and raising of tax thresholds, because we can raise the bottom tax threshold and adjust other tax thresholds in a different direction.
I note also, by way of a second round in this debate, that I heard no answer to the question about savings, except the £100 million according to the OBR, which was the only example that we heard of another way of saving money. In order to get this concretely in my mind, I would be grateful if my noble friend would say, for the year 2013-14, what the savings will be from the freezing of tax credits and from the elements that are before us in these regulations when they are added together. We can then compare them with the £100 million offer that we have just heard.
I have two further small questions. First, the Government are obliged under the Tax Credits Act 2002 to review the level of tax credit payments. They have done so for 2013-14, but while the review may have been made public it is not very easy to find. Perhaps my noble friend would either point me in the direction of the report or send me a link so that I can have a close look at it. I should add something in response to the noble Lord, Lord Eatwell, who talked just now about the freezing of council tax benefits. I live in a Labour-run authority and my council tax has gone up. It does not benefit me at all. It is also managed by a Labour-run administration.
The second part of my question relates to the guardian’s allowance. I can understand why it has been excluded, given that the majority of people who are guardians will tend to be of an older age. I wonder whether that is the only logic or whether there is another logic behind uprating fully by CPI. I welcome the move, but I just want to understand why it has been taken.
Lord Freud
It is worth just reminding noble Lords that we have to take pretty urgent action to tackle the situation left by the previous Government, which was an unsustainable welfare bill that has been rising and that continues to rise, as I said, from 11% in 2007-08 to more than 13% today.
Lord Eatwell
That is a good point, which I forgot to bring up. Could the noble Lord tell us whether that rise is due to the change in the rate of benefits or to the recession?
Lord Freud
That is a complicated and rather interesting question, so if the noble Lord will accept this I would like to reflect upon it and write to him. One thing is that in the past couple of years we have in effect held level the number of people on out-of-work benefits. It is really quite a complicated question, and I shall go away and try to come back to him with a proper answer.
My noble friend Lord German asked about the 2013-14 savings. The three-year freeze of the basic rate and the 30-hour element of working tax credit have saved £975 million from 2011-12. The three-year freeze of child benefit saves £1.25 billion from 2011-12, and uprating certain elements of tax credits by 1% saves £320 million for the same period.
On the automatic stabilisers, the multiplier that we use is decided by the OBR, which is using a rate of 0.6 for welfare spending. That compares with a fiscal multiplier for capital expenditure of one. Clearly, one of the attractions of moving an extra £5.5 billion into infrastructure over the next two years is that it has that larger multiplier effect. The investments for the next two years are in new roads, science infrastructure, free schools, cutting the rate of corporation tax and increasing the annual investment allowance to £250,000. The OBR has said that it expects the level of GDP to be higher as a result of Autumn Statement policies.
My noble friend asked about the location of the reports on tax credits. I shall send the link to the relevant website. I apologise that it is difficult to find.
On the point raised by the noble Lord, Lord Eatwell, about who pays and about the rich, there are very good reasons for changing the top rate of tax, not least that the analysis of the rise from 40p to 50p, which was meant to have raised £2.5 billion, found that it raised considerably less. HMRC has found that it would raise at most £1 billion, and even less than nothing when indirect effects are taken into account. Clearly, that analysis is of the rising effect; one could look at the argument the other way when one starts to reduce it.
Lord Eatwell
My Lords, can the Minister elaborate on that point? In the Treasury’s initial assessments, and despite what seemed to be the obvious impact of the cut in top-take tax from 50% to 45%, its estimates were far lower than £1 billion. It has therefore significantly increased its estimate of the take; I refer to the estimates published at the time of the announcement of that measure. Will the Treasury publish a full assessment of the impact of the change in tax rates? Will it do so on a rolling basis, because we will know much more in four years about what has really happened during the past year than we know now?
Lord Freud
My Lords, I shall come back to the noble Lord on the plans. I am reporting that HMRC has looked at the projection made at the time of the top rate being raised from 40p to 50p. The projected revenue was £2.5 billion. It is currently saying that the figure is less than £1 billion, with a warning that it could raise less than nothing when indirect effects are taken into account. As the noble Lord said, some of the effects take some time to be realised. I am not sure what the plans are for more reports. Rather than hurrying around to find an answer for what is a detailed point, I will write to him.
Clearly, the freezing and indexation of benefits is not an easy decision to take. Our rationale is that one of the most important things that we can do to support families and children is to bring down the deficit and secure the economic recovery. It is only fair that we tackle the deficit now so that future generations are not burdened with unsustainable debts, higher taxes and diminished public services. I commend the regulations and orders to the Grand Committee.
Guardian’s Allowance Up-rating (Northern Ireland) Order 2013
(11 years, 8 months ago)
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Lord Freud
That the Grand Committee do report to the House that it has considered the Guardian’s Allowance Up-rating (Northern Ireland) Order 2013.
Relevant document: 20th Report from the Joint Committee on Statutory Instruments.
Tax Credits Up-rating, etc. Regulations 2013
(11 years, 8 months ago)
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Lord Freud
That the Grand Committee do report to the House that it has considered the Tax Credits Up-rating, etc. Regulations 2013.
Relevant document: 20th Report from the Joint Committee on Statutory Instruments.
Loss of Tax Credits Regulations 2013
(11 years, 8 months ago)
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Lord Freud
That the Grand Committee do report to the House that it has considered the Loss of Tax Credits Regulations 2013.
Relevant document: 19th Report from the Joint Committee on Statutory Instruments.
The Parliamentary Under-Secretary of State, Department for Work and Pensions (Lord Freud)
My Lords, these regulations were laid on 4 February 2013. I confirm that in my view they are compatible with the European Convention on Human Rights. They support the new powers introduced in the Welfare Reform Act 2012 to enable HMRC for the first time to apply a loss of tax credit penalty to fraudsters.
First I will explain why we need these regulations. Benefit and tax credit fraud has reached a level that is far too high. Around £1.9 billion a year is fraudulently claimed in benefits and tax credits, of which £0.7 billion relates to tax credit fraud alone. The Government have introduced a number of measures to reduce the level of fraud, such as working with credit reference agencies and developing screening technologies to check for potential fraudulent tax credit claims. However, we now need to move towards improving deterrents in order to stop in their tracks those who are thinking about committing fraud. We also need to change people’s perception that tax credit and benefit fraud is acceptable behaviour and worth the risk.
Research conducted by the Department for Work and Pensions shows that 41% of benefit claimants believe that benefit fraud is “easy to get away with”, and one-third thinks that the current penalties are “not too bad”’. Therefore, we need to send a strong message that fraudulent behaviour by tax credit claimants will not be tolerated by the taxpayer or by honest fellow claimants. Our aim is to provide even stronger deterrents to those who set out to defraud the tax credit and benefit systems. We are therefore introducing tougher penalties, increasing the length of penalties, and extending their scope to include tax credits.
The Department for Work and Pensions has already introduced comparable regulations that contain tougher powers to apply a loss of benefit to those making fraudulent benefit claims. These were debated and agreed by your Lordships’ House on 13 February. The draft regulations before noble Lords today support the wider joint DWP-HMRC strategy to reduce benefit and tax credit fraud, which was introduced in the Welfare Reform Act 2012. Jointly they will send a clear message to fraudsters that claiming benefits or tax credits to which they are not entitled will have severe consequences. They will also tackle the perception that tax credit and benefit fraud is too easy to get away with. We also intend to ensure that those who commit the most serious offences, such as organised or repeat offences, will receive the most severe penalties: losing their benefits or tax credits for up to three years. Most claimants are honest and abide by the rules, but to those who are not we want to send a clear message that if they try fraudulently to claim benefits or tax credits, they will face the consequences of their actions.
Noble Lords will be aware that tax credits comprise two elements: child tax credit and working tax credit. Child tax credit provides financial support for families with children whereas working tax credit provides financial support for working families. The Welfare Reform Act 2012 enables HMRC to withdraw payment of working tax credit for those who are convicted or cautioned, or who agree to pay a DWP administrative penalty as a result of a benefit offence. The 2012 Act also provides for the length of the loss of working tax credit period, and the loss of tax credits amount, to be reduced where there is an innocent party in a couple claiming tax credits. Finally, the Act prescribes what constitutes a benefit offence.
The length of time a loss of tax credit penalty is imposed will escalate depending on the number and severity of the offences. It will be applied for four weeks, 13 weeks, 26 weeks or three years. The 2012 Act also introduced provision for an immediate three-year loss of tax credit or benefit penalty to apply where a person is convicted of a relevant offence. “Relevant offence” generally means an offence of serious organised or identity fraud.
Although the loss of tax credit penalty will be applied to working tax credit, I reassure noble Lords that while child tax credit will be a disqualifying payment from April 2013, it is not a payment to which a loss will apply. In other words, although a fraudulent claim for child tax credit will count as an offence, the penalty will be applied only to working tax credit or another relevant benefit. I therefore reassure noble Lords that child tax credit payments will not be reduced or stopped for claimants who receive a loss of tax credits penalty.
On the detail of the Loss of Tax Credits Regulations being debated today, the regulations prescribe that the loss of tax credits penalty will begin from the 30th day after which HMRC is notified of the benefit or tax credit conviction, administrative penalty or caution. The regulations also provide for the payment of working tax credit to be reduced by 50%, not 100%, where there is an innocent party in a couple who have made a joint claim for tax credits. Where both partners are subject to a benefit or tax credit offence, the deduction would be 100% of the payment of working tax credit. This will include any element of working tax credit to which a claimant would be entitled, including childcare costs or disability elements. The regulations provide that the loss of tax credits will apply only to an applicable benefit offence that is committed wholly on or after 6 April 2013. It will not apply to offences committed before that date in relation to which a conviction is obtained after 6 April.
To summarise, in order to send a clear message to those who are thinking about committing benefit or tax credit fraud, we have strengthened the loss of the benefit penalty regime and expanded the scope to include tax credits for the first time. The increase in scope and the length of penalties reflect the seriousness of benefit and tax credit fraud, and aim to provide an effective deterrent. These regulations were referred to the independent Social Security Advisory Committee on 7 November 2012. I therefore seek your Lordships’ support for the regulations here today, and commend them to the Committee.
Lord Eatwell
My Lords, I am grateful to the Minister for introducing these regulations. Broadly, from this side of the Committee, we support them wholeheartedly. However, they raise a number of questions in my mind which I would be grateful if the noble Lord could answer.
On my first, broad-brush, question, the Minister referred to the scale of benefit fraud as £1.9 billion a year. Can he tell the Committee how this compares to the Treasury’s estimate of the losses due to tax avoidance and evasion? I think he will find that the estimate of losses in those areas is many, many times greater than that for benefit fraud, even though there is, quite rightly, a condemnation of benefit fraud.
The specific measure, as the Minister told us, removes benefit from those who have been fraudulently claiming it. Has the department or the Treasury investigated whether those people from whom benefit is being removed actually needed the money, and whether there are those who did not need the money? If a relatively wealthy crook is pursuing benefit fraud, taking the benefit away from them costs them nothing. They have just taken a punt on a particular scam and now they have lost out, so this measure does not really matter very much. However, if they were people who were actually impoverished but for some reason or other were not adequately covered by existing regulations and were then behaving fraudulently, they may not now have anything to live on. What are they supposed to do? Do we have an estimate, among these fraudsters who are depriving us of £1.9 billion, of those who needed the money and those who did not?
I raise this particularly because the Minister’s welcome remarks on child tax credit suggest that there is a feeling, perhaps not in the Treasury but in the department, that people may need the money; the Treasury never thinks that anybody needs any money. I am a bit puzzled as to the nature of this penalty. Of course, if somebody is fraudulently extracting funds from the Government, from the taxpayer, they should be stopped from doing so. However, if it so happens that this person will then be completely impoverished, we must ask what our society will do about them. This comes back to whether they needed the money. How many of these fraudsters are in fact quite well off crooks from whom this is a trivial change, and how many of them are people whose circumstances are so desperate that they are willing to break the law? Of course we should not allow them to break the law, but can we consider what the circumstances of such families might be once the appropriate penalty is applied?
Lord German
My Lords, I, too, welcome these regulations, but again they are a round two as they match the Social Security (Loss of Benefit) (Amendment) Regulations 2013. I have a number of questions. The first relates to what happens under universal credit to the various sets of regulations that we have been discussing today, which also have their mirror in regulations brought forward by the DWP. It may be a bit of a heresy to say this, but if we are to have separate regulations from separate departments, might it not be a little more useful if we were to back to back them in the same slot so that we could at least look at them together and perhaps save a fair bit of time and effort? Universal credit gives us that opportunity, since we will be looking at these regimes in the round.
My second question relates to the three-year sanction, which is the heaviest of all the sanctions, and the use of the words “deliberative or organised offences”. Has that definition of what is a deliberative offence and what is an organised offence been codified in the handbook and regulations given to decision-makers—both those in the Treasury and obviously those who are to be responsible for universal credit—in order that the level of understanding is of a high nature? When someone goes to court and gets a sentence, we can see that being clearly identified. However, there may be occasions when this is dealt with outside the court through an administrative procedure, in which case there needs to be a clear understanding of when these heavier sanctions will be applied.
I understand that the decision-makers will also be given a level of discretion about the boundaries between some of these sanction periods. Can my noble friend say a little more about the nature of that discretion and whether a framework will be given to the decision-makers in each of these cases, so that we have some certainty that the worst and most difficult offenders will be given the heavier sentences? Will there be any form of appeal internally, apart from the normal tribunal case, where someone has appealed against their sanction? Perhaps my noble friend could give us some idea of how that mechanism will work.
Lord Freud
My Lords, let me try to deal with the points raised. There was a rather interesting question from the noble Lord, Lord Eatwell, about the division between what I think he would call the crooks and the desperate. The best way I can approach that is to look at the way in which fraud develops. I think it is right to say that 80% of the fraud develops out of people not informing of a change of circumstance. There is a drift there that indicates that we are not talking about that many who are desperate because, in one circumstance, people were clearly functioning at a certain level of benefit or tax credit. They then got supplemental income elsewhere and kept the extra, to which they were not entitled. That is quite a typical fraud, so on balance we are talking about crooks here. That is the best figure that I can give the noble Lord. I certainly have not seen anything better, and as your Lordships can imagine I see quite a lot of data.
One of the points that my noble friend made at the end of his last question was about discretion. I must make the point that we are now talking not about the conditionality sanctions, which this can often be confused with, but about people who have committed fraud, have usually gone to court and have had a punishment laid down by the court. There is no doubt about that and it is not in the discretion of our decision-makers. That is not true at the margins, where people accept an administrative penalty, which is at a much lower level. However, as you move up the scale, with repeat offences and the serious offences that we are most concerned about, it becomes a court matter and, to that extent, is not a matter of our codification. The serious offences that I am talking about are laid down in regulations. I speak from memory but I think we are talking about £50,000 offences, serious identity fraud such as trying to pass yourself off with a different identity: that kind of thing.
On my noble friend’s last point, we are bringing the regulations on working tax credit closely together with what happens to today’s benefit system, with a view to pulling both of those into the UC sanction regime. They are being pulled together with a view to there being relatively little change in the overall approach and amount when UC comes into effect for particular people.
I think that covers all the issues that have been raised. The amount of money, £1.9 billion, is substantial, and we want to make sure that it is fully realised that this is not acceptable or safe behaviour. I do not have to hand a comparison with our estimates on tax evasion and tax avoidance. Tax avoidance, as the noble Lord, Lord Eatwell, will be fully aware, is a different matter from tax evasion, but our concern about tax evasion is at absolutely the same level—it is the same offence as defrauding the benefits system.
We need to send out a strong message that this type of fraud is not tolerated. We also believe that, although fraudsters must be promptly and severely dealt with, innocent parties should be protected, which is why this relates only to working tax credit and not to child tax credit, and why we will only reduce working tax credit by 50% in households where one member of a couple has not committed an offence.
I seek the support of noble Lords for these regulations. Indeed, I hear that I have it and I commend them to the Committee.
Neighbourhood Planning (Referendums) (Amendment) Regulations 2013
Lord Ahmad of Wimbledon
That the Grand Committee do report to the House that it has considered the Neighbourhood Planning (Referendums) (Amendment) Regulations 2013.
Relevant document: 21st Report from the Joint Committee on Statutory Instruments.
Lord Ahmad of Wimbledon
My Lords, neighbourhood planning is a vital part of the Government’s reforms to help local communities play a much stronger role in shaping the areas in which they live and work and in supporting new development proposals. For the first time, community groups can produce plans that have a real statutory weight in the planning system. Neighbourhood planning is therefore one of the most exciting innovations of the localism agenda.
We are delighted that neighbourhood planning is taking off across the country. Indeed, we are aware of more than 500 places looking to bring forward a neighbourhood plan and to shape the development and growth of their local areas. More than 400 of these have taken formal steps to have their area designated. Three plans have already passed the independent examination stage, and the first to reach a referendum was in Upper Eden, which saw 90% of local people, based on a turnout of 34%, voting in favour of the neighbourhood plan. This was a positive result for the 17 parishes of Upper Eden that are now able to deliver new homes on farms, houses for older people and more affordable housing in a way that suits their local character and needs. Other areas are hot on the heels of Upper Eden and we expect to see many more neighbourhood plans in the very near future. Regulations governing the conduct of neighbourhood planning referendums, of which Eden was the first, were considered last year.
The Localism Act also provided for some areas to be designated as business areas where they are wholly or predominantly commercial in nature. In such areas, non-domestic ratepayers will be able to vote in a business neighbourhood planning referendum. This provides the opportunity for businesses to take the lead in neighbourhood planning. We are already seeing this happen in practice in central Milton Keynes, where it is proposed to develop a dynamic city based on high-quality buildings and spaces. Businesses are also taking the lead in areas such as Trafford Park, central Ealing and Liverpool Innovation Park.
The Neighbourhood Planning (Referendums) (Amendment) Regulations 2013 amend the 2012 regulations to provide for the conduct of “business referendums”, which will be required to be held alongside a “residential referendum” where it relates to whether a neighbourhood plan or a neighbourhood development order should come into force in a designated business area.
I shall briefly summarise the main provisions of the amending regulations. Regulation 4 requires a local authority to fulfil certain publicity requirements relating to the referendum and imposes certain time limits by which notice of the referendum taking place must be given. This is 56 days where a referendum in a designated business area is required to be held, rather than the 28 days where a referendum is held in the residential neighbourhood area. This longer period was the outcome of discussions with the Electoral Commission and local authorities and was considered necessary to allow for the effective registration of non-domestic ratepayers.
In a designated business area, there will be two referendums, one for residents and one for non-domestic ratepayers. Regulation 7 therefore provides for the residential referendum to be held on the same date as the business referendum. As with referendums more generally, a register of those eligible to vote is required. In order to compile this register, a specific registration process is needed. Schedule 1 provides for the creation of a business voting register of all the non-domestic ratepayers who register to vote in a business referendum, for the purposes of that referendum only. The business voting register lists the names of all the non-domestic ratepayers who have registered to vote and the addresses of the premises within the referendum area on which they pay non-domestic rates. In practice, a local authority will send a registration form to each non-domestic ratepayer of which they are aware, and each ratepayer will nominate an individual, which may be himself or herself—the “named voter”—to vote on behalf of the business.
Schedule 2 sets out the detailed rules to be followed when conducting a neighbourhood planning business referendum. This includes the rules in relation to the content of ballot papers and other voting forms, the operation of polling stations, the counting of votes and the declaration of results.
Schedule 3 applies, with necessary modifications to existing electoral law, to the conduct of neighbourhood planning business referendums. In short, the amended regulations will put in place the rules needed to ensure the effective administration of neighbourhood planning referendums in business areas, in which the electorate can have confidence. In large part, they follow a tried and trusted practice. An external group of interested parties has been used to help develop the amended regulations in a manner that ensures that they can be effectively implemented. This particular group includes the Electoral Commission and the Association of Electoral Administrators, both of which have fed into the process and commented in detail, in particular on the business referendum registration forms. I take this opportunity to thank them for their contributions in assisting us to develop these particular regulations. In line with best practice, the registration forms have been tested with business users for design, clarity and impartiality. I am therefore confident that the amended regulations will ensure efficient and effective administration of any neighbourhood planning referendum in a designated business area. I commend the regulations to the Committee.
Lord McKenzie of Luton
My Lords, I start by thanking the Minister for a very full and clear explanation of the order we are considering today. Like the Government, we very much support neighbourhood planning and the engagement of business with that. However, it is important that we do not make the process overly bureaucratic and expensive. In introducing this, the noble Lord referred to the fact that 500 places were developing a neighbourhood plan. How many business districts have been created to date? I am just trying to see the dynamics of that. Can the Minister tell us how the timing works? If a neighbourhood plan is being developed but there is a business district component, or a potential one, how does that all work? If the plan is some way to being finalised, does that preclude a business district coming in? Presumably the idea is to get the business district there at the start. Given that nothing like 500 business districts have been created yet, how does that all work in practice?
I have one or two questions on the specifics of the regulations. It is clear that there is one vote per business, however many separate hereditaments are involved. How does that work within a group? Are separate members of a group separate voters for this purpose or is there some sort of aggregation of that for connected parties or formal group companies? What happens if a business goes into administration? Is it then precluded from participating? Presumably, that depends a little on what stage the administration has reached.
In Part 2, in Regulation 8(2)(c), there is a requirement to specify the rateable value. Why is that? Presumably that itself is not relevant to the entitlement to vote. What happens to a hereditament that is entitled to 100% relief on one basis or another? Does that still create an entitlement to vote under these regulations? I think the question has to be the same for individual voters and a voter on behalf of a business hereditament but perhaps the noble Lord could confirm that.
Obviously, we broadly support the thrust of these regulations but I would be grateful if the Minister could say a little more about the dynamics of how these fit together, how that is working in practice with all this activity in the development of neighbourhood plans and how business districts so far are fitting into that.
Lord Ahmad of Wimbledon
My Lords, first, I thank the noble Lord, Lord McKenzie, for his broad support. I am delighted that we are putting forward these particular regulations. The noble Lord asked how the two are linking up, at a very high level. It is very much the final piece in the jigsaw of how neighbourhood planning comes together, which is allowing neighbourhood planning referendums to happen up and down the country.
There were some very specific questions and I will seek to answer each one in turn. If I do not answer all of them, I will write to the noble Lord in detail on those particular matters. He raised the question of how many business districts have been created. Only three neighbourhood areas have so far been designated as business neighbourhood areas but there are a number of other neighbourhood areas that are seeking to be so designated. I believe it to be at least another seven. There is a particular measure or standard to be met for the designation—that the area is in effect wholly or predominantly commercial—so there are criteria in this regard. The regulations will also allow leading businesses and neighbourhood plans to proceed towards examination and referendum, and provide a powerful opportunity for local residents and businesses to work in partnership to attract investment and to shape the future development and growth of their local areas.
The noble Lord asked how the timing works. As I indicated earlier, I believe that the two referendums will work in parallel to ensure that the results, when they are taken in, are consistent and the decision can be based on the outcome of both together. One of the things I would raise that is linked to that, which was a question I certainly raised when looking at this, was what would happen if there was a variation between the result of the business referendum and the residential one? Bearing in mind the spirit of local neighbourhood plans, it would remain the remit of the local authority to adjudicate on the difference between the two referendums.
The noble Lord also asked about one vote for every business. That is true irrespective of size. He raised a quite specific issue of registered groups of businesses. Speaking with my business hat on—I will seek clarification if what I say is not correct—if it is a separate established entity within that local area, it would be one business, one vote. If there is a single group with a single address then, no matter how large the actual business, there would be one particular vote for that business as well.
The noble Lord raised the issue of what happens if the business goes into administration. It would depend on the exact situation and I will seek clarification on that. I am being told that as long as they are on the non-domestic rating list, they have a vote. However, that is a separate question and, coming back to the issue of whether they have gone into administration, I will clarify that point. If they are in a business that has already gone into administration at the start of that referendum process, I assume they would not be included.
The noble Lord, Lord McKenzie, also asked how companies that have 100% rate relief would be managed. As long as they are on the non-domestic rating list they have a vote as well. He also asked about how and when an area is designated. When designating a neighbourhood area, local planning authorities must consider whether to designate the area as a business area, which is a neighbourhood area that, as I have already said, is wholly or predominantly business in nature. These are areas in which an additional business referendum is required to be held alongside the residential one. He asked about the question that would be posed on the business referendum and the residential one. As far as I understand, bearing in mind that the results would need to be consistent, the question posed would be the same as well.
As I have said to the noble Lord, if there are issues that I need to clarify I will, of course, write to him. However, I think I have covered, if not all, most of the questions he raised.
Lord McKenzie of Luton
I thank the Minister, who has indeed covered a lot of the questions that were posed, but would be grateful if there was anything further that he could say about the dynamics of business districts. If there are 500 neighbourhood plans on the way but only there business districts, clearly business districts are not leading the charge on this. Where a neighbourhood plan is being contemplated by the residents of a designated area and then a business district is created as part of that, which could happen, I am trying to see how it gets its foot in the door in terms of participating in the development of the plan. Is there a risk here, or could the circumstances be such, that the neighbourhood plan is developed by the residents of an area and a business district is created later? I think that a referendum would have to take place at the same time, with the same question, but is the business district the business community’s opportunity to engage in the development of that plan? Perhaps the Minister will write if he is not able to cover that issue today. I thank him for his other answers.
Lord Ahmad of Wimbledon
I will write to the noble Lord specifically in response to that point, although I am sure that he will know from his own experience that the neighbourhood planning issue will remain, in his word, “dynamic”. Input into it, to see how neighbourhood plans can be improved for each local area, needs to be reflected and dynamic in its own nature. Based on the answers that I have given and my earlier comments, and acknowledging the noble Lord’s support, I commend these regulations to the Committee.
Non-Domestic Rating (Levy and Safety Net) Regulations 2013
Lord Ahmad of Wimbledon
That the Grand Committee do report to the House that it has considered the Non-Domestic Rating (Levy and Safety Net) Regulations 2013.
Relevant documents: 20th Report from the Joint Committee on Statutory Instruments.
Lord Ahmad of Wimbledon
My Lords, these regulations put in place the last elements needed for the operation of the rates retention scheme in 2013-14. That scheme, as we have discussed previously, is designed to deliver the Government’s objective of returning an element of business rates to local control in a way that incentivises authorities to work with their local business communities to improve economic conditions in their local areas. It does so through a partial redistribution of business rate resources, taking account of the individual authority’s needs, in order to provide a fair starting point for each local authority. That starting point is fixed until the next reset of the scheme in 2020, and any growth in business rates above this starting position is shared between central and local government and can be used by authorities to support local services and stimulate further growth.
As the Committee will appreciate from looking at these, and earlier, regulations, while the principle of the rates retention scheme can be explained simply enough, the mechanics needed to deliver it are both complex and technical. Therefore, before turning to the detail of the regulations, it may be helpful to the Committee if I first remind noble Lords of the technicalities of the scheme and the mechanics of establishing authorities’ starting positions.
The key to the scheme is the establishment for each authority of two numbers: its baseline funding level and its business rates baseline. Its baseline funding level reflects the level of resources that the authority should have under the rates retention scheme, taking account of its needs and the availability of other resources such as council tax. Its baseline funding level, together with the level of revenue support grant that it will receive, the RSG, represents the authority’s share of general government funding—the 2013-14 equivalent of its formula grant entitlement.
The second number, its business rates baseline, is the estimate of each billing authority’s business rates income in 2013-14, apportioned between that authority, central government and major precepting authorities in accordance with the shares approved by Parliament in the local government finance report. If the authority’s business rates baseline is more than its baseline funding level, it is required to pay the difference to the Government in the form of a tariff. Tariffs are then used to provide top-up funding to those authorities whose business rates baselines are less than their baseline funding levels. Because of the way in which the scheme is set-up, tariffs and top-ups sum to zero and, moreover, are fixed for the duration of the scheme. This provides the fixed starting position against which future growth can be measured and retained.
However, as we discussed during the passage of the Local Government Act 2012, while incentivising growth is vitally important, we all recognise that business rates at the local level are, by their nature, subject to a fair degree of volatility. This is a key issue. As a result, if we did nothing else, in any year authorities could see their resources fall, perhaps quite considerably, and this could leave them with less money than implied by their starting position. Reductions in income could be because of changes to commercial property. To take an example that has recently been in the news, one need only think of the impact on North Warwickshire’s business rates of the closure of Daw Mill colliery to understand the impact of such changes. I know that this is a challenge for local authorities that find themselves in similar situations. It could also be because of successful appeals against rateable values, which lead to an authority having to refund rates in respect of a number of previous years. For whatever reason, we quickly concluded that the scheme needed some way of mitigating the effect of local volatility. Having looked at this and discussed it with the local government sector, we concluded that the best way to do this was through a safety net.
Overall, the rates retention scheme provides authorities with about one-fifth of the general funding available to them through business rates, council tax and revenue support grant. The safety net works by ensuring that the one-fifth available through business rates can never fall by more than 7.5% before the authority receives assistance. The safety net is financed from a levy charged on the most highly resourced local authorities when they see growth in their business rates.
With that preamble, I turn to the regulations themselves. These give effect to the levy and safety net by reference to baseline funding levels and business rates baselines that have already been set out in the local government finance report, and which are set out for each authority in Schedule 2. Importantly, Regulation 5 provides that the baseline funding level is indexed every year so that the level of protection available through the safety net keeps pace with inflation.
The regulations provide for the calculation of levy rates and safety net thresholds in Regulation 6. The safety net threshold is set so that no local authority can see more than a 7.5% reduction from its baseline funding levels. This gives force to the policy that I have just described and ensures that authorities will have reasonable stability of income from which to deliver important local services.
The way that the levy is calculated means that only those authorities that pay a tariff—that is, those that, at the start of the scheme, have more business rates than their baseline funding levels—will ever be levied. Authorities with relatively small business rates bases will never be levied, and will be allowed to keep all of the growth that they achieve.
Regulation 7 means that authorities are able to receive a safety net payment on account during the course of the year. The payment will be based on the authority’s own estimates of the business rates income that it seeks to collect. This provision ensures that authorities do not have to wait for the final outturn figures before receiving safety net assistance, and therefore do not suffer cash flow problems through having to wait for funding.
I do not pretend for a moment that these regulations are not complex; indeed, I said that at the start. However, they have been developed with the working group that we set up to help us work through the finer details of the implementation. They have therefore benefited from the practical help and advice of those in local government finance departments who will have to work with the scheme and with the detailed regulations. We are confident that, with their input and the consultation that has taken place, the regulations will deliver the policy to which the Government are fully committed. I commend them to the Committee.
Lord McKenzie of Luton
My Lords, I thank the Minister for introducing these regulations. As the Minister said, they are quite complex. Holding concepts such as business rates base line, base line funding levels and retained rates income in one’s mind is a challenge—certainly for me—as one goes through the detail, but I think I understand the thrust of what is before us.
Clearly, we support a safety net system, but as we argued during the passage of the primary legislation, we would wish to see the threshold at a level higher than 92.5%. Just as the noble Lord raised the example of the dire consequences of particular closures on the finances of a local authority, we argued when the primary legislation was being considered that, when a local authority is faced with the prospect of the major regeneration of an area, there ought to be arrangements in place so that it would of its own volition see a significant drop in its business rate base for the specific purpose of regenerating an area, and hopefully building a much bigger rate base in the future. I do not think that those circumstances are specifically catered for here. We also anticipated the problem that a local authority might cope with a 7.5% fall for one year, but there is no additional relief should that recur year on year. This may not happen in many circumstances, but the cumulative effect is not catered for here.
What is the overall estimate of levy amounts and safety net payments to be collected next year? I think the noble Lord said that tariffs and top-ups will sum to zero, but for the provisions that are before us—the safety net and the levy—what are the separate estimates of those two amounts for next year?
I have one or two other specific questions. On the safety net, why is the schedule of payments cast in the way that it is under the regulations and what is wrong with a Friday? Apparently, when a payment falls due on a Friday, one is not permitted to send or receive it; one has to wait until the next business day. I am not quite sure why that is. Can the Minister expand a little on the types of adjustment that flow from paragraph 1(4) of Schedule 1—for example, the effect of adjustments made for amateur sports clubs and the circumstances in which deductions are permitted or not? What are the criteria that separate the different categories of arrangements? Subject to those points, I have no further issues to raise.
Lord Ahmad of Wimbledon
My Lords, again I thank the noble Lord, Lord McKenzie, for his support for what the Government are seeking to do. As a general point, I know—and I am sure the noble Lord will share my experience—that when we were looking at introducing the whole issue of business rates and the ability of local authorities to retain the 50% business rate, it was done irrespective of political affiliation. It has been campaigned for long and hard at a local authority level. I am glad that a broad level of support has been given.
The noble Lord raises some general points, particularly in relation to places that struggle to attract growth, which is indeed a driver for increasing the level of business rates. This system of tariffs and top-ups is intended to ensure a stable starting point. There may be some local authorities that fall from year to year below the 7.5%. For them there is additional funding available—for example, the efficiency support grant for those councils that face a loss of more than 8.8% in their spending power.
A few other aspects in this regard are index-linking tariffs and top-ups to RPI, which ensure that councils with low tax bases and high needs see a major part of their income uprated by RPI. Also, the concept of a safety net will ensure that public service provision does not suffer as a result of the local volatility mentioned in my opening remarks. A safety net threshold of 7.5% is the most generous level consulted upon. As the noble Lord acknowledged, this will guarantee local authorities a minimum of 92.5% of their business rates levy.
Lord McKenzie of Luton
I thank the Minister for his answers, but I do not think I asked a question that I intended to ask about the baseline funding level, which is uprated each year. I think I read that it is uprated by the small non-domestic rate multiplier. Why that metric?
Lord Ahmad of Wimbledon
This is the point where I look over my shoulder. I think the noble Lord is correct on this. There may be some elements of local government finance that during my time I sought to understand. He is correct in his interpretation.
Lord McKenzie of Luton
Why is that multiplier used? The Minister can write to me.
Defence: Procurement
(11 years, 8 months ago)
Grand CommitteeRead Full debate Read Hansard Text Read Debate Ministerial Extracts
Baroness Dean of Thornton-le-Fylde
To ask Her Majesty’s Government what are their policies towards and priorities for defence procurement.
Baroness Dean of Thornton-le-Fylde
My Lords, this Question for Short Debate covers a huge area and we are not going to be able to cover it all in one hour, so maybe we need to come back to this issue at a future date. My work for today has been substantially assisted by the helpful report by the House of Commons Defence Select Committee dated 5 February.
Defence procurement has dogged Governments from all sides of the House for many years because of delay, cost overruns and changing capability. Taken together, all of these have often had an impact on the capability of our Armed Forces. Despite many reports from the House of Commons Select Committee, the National Audit Office and others, the problem appears to be intractable and one that Governments somehow cannot get to grips with. In 1997 the incoming new Labour Government were faced with cost overruns and delay on the Eurofighter, Merlin and Tornado programmes, to name a few. So the statement after the 2010 election about the budget deficit being so big and it being down to the previous Government entirely is not quite the full picture; it is an issue that has faced many Governments, including this one. As the Select Committee report says in paragraph 15, “The decision in 2010”— after the coalition Government were elected—
“to change to the carrier variant of the Joint Strike Fighter was … rushed and based upon incomplete and inaccurate policy development. It … led to increased costs to the carrier strike programme and a delay in the in-service date of the carrier”,
as well as,
“the early decommissioning of the Harrier”.
The decommissioning of the Harrier has, of course, attracted an awful lot of attention and, certainly, critical comment from many people who know a lot more about this issue than I do. There has been regret in the services about the early demise of the Harrier jump jet.
However, Ministers in the MoD have been extremely active. We have a report from Bernard Gray, commissioned in 2009 by the previous Government, and the Levene report, to name just two major pieces of work, as well as the National Security Through Technology White Paper. Through those, together with the Defence Committee report, I have been able to gather together information for our debate today. It is impossible to cover all the issues, as I said, but I would like to cover the transition of security and the UK-based skills requirement that it brings with it; the defence procurement structure itself; research; and the defence budget.
On transition, we are witnessing a Government who have moved from a defined list of sovereign capabilities, which we had under the previous defence industrial strategy, to the current approach in the defence and security White Paper—it appears to be reflected in government documents—for off-the-shelf acquisition where that is possible, with a less defined list of sovereign capabilities. That leads me to my first question for the Minister. What are the Government’s plans to ensure that the need for skills and for an affordable programme is met? In industry, transitional periods are always more expensive than a flat state. New skills will be required for this different type of procurement. What are the Government’s plans on that?
For instance, there is a need to ensure that decisions are made about the long-term sustainability of the complex warship build programme and the transition from the Type 45 to the Type 26 programme, which will require key skills, some of which are not there today. That brings with it questions of related affordability and how that impacts on the MoD budget. Decisions are also required on the capability of Typhoon, particularly if we want to maximise our potential for export markets in that area. Another area is the topic of unmanned systems. We are good at this in Britain—we have extremely good skills—but what is government policy in this area?
Those are merely three areas of capability, but all are resource-demanding. What priorities have the Government set across the general board of procurement? Decisions such as these have a profound impact on the defence industry and on provision, so that industry can plan and have the confidence to invest in its workforce rather than making people redundant, providing the right skills to make sure that we can manufacture defence here in the UK. It is an issue to which the Defence Committee report refers as important in its last recommendation, number 198, about the skills base.
The structure of defence procurement is a wide area. The Bernard Gray report talks about changing it. There were two possible models of procurement: an executive non-departmental public body or a government-owned contractor-operated organisation, commonly called a GOCO. At a conference in March 2011, the author of the report, Bernard Gray, said that it,
“seems extremely unlikely this idea, GOCO, will be pursued given the lack of support it received”.
Yet the Government appear to have stopped all work on any other model and are concentrating on GOCO. I thank the Minister for the briefing that we had on that at the MoD. I now ask him where government thinking is on this. What hurdles do the Government anticipate, and how do they intend to overcome them when we are talking about our international allies? How will our allies react to that change to a government-owned but contractor-operated system? Defence procurement is an expensive business, and getting more expensive. It is highly unlikely that any one nation will be able to fund its own defence in future. In fact that is already not the case today; we have to work in concert with our allies.
We have a good research base in the UK. It has worked well for SMEs, academia, the MoD itself and the defence industry. Paragraph 114 of the Select Committee report asks the Government to target 2% of the MoD budget to be spent here in the UK on UK-based research and development. What is the Government’s response to that? Do the Government agree that we should be aiming for that target?
In the Statement on 14 May 2012, the Secretary of State announced that the budget had been brought into financial balance. He also announced that, for planning purposes, it had been agreed with the Treasury that a 1% per annum real increase in the equipment and support budget would apply from 2015. Can the Minister confirm that this additional 1% in real terms for the defence budget will be new money, not money that the MoD has to find from its overall budget? Obviously, a large part of the rest of the budget is personnel spend. Will that increase apply from 2015? In conclusion on the defence budget, it seems odd logic that, whereas all our non-allies—China, North Korea and other countries—are increasing their defence spend, we in the western world are reducing ours, and doing so to an extremely concerning point.
I said that I could not cover all the points in this short debate; I hope that we can return to this topic. It would be helpful if the Minister could answer those questions. On the key issue of GOCO, will the Minister confirm that no final decisions have been taken? I look forward to his reply, and to hearing what the small number of colleagues taking part in the debate have to say.
Lord Palmer of Childs Hill
My Lords, I thank the noble Baroness, Lady Dean, for instigating the debate. We are obviously not the popular debate in this and the other House today. I thank in advance my noble friend the Minister who, as the noble Baroness has said, gives us such good briefings. I am also grateful for the briefings that we get when we have such eminent speakers, which have always been incredibly useful.
The noble Baroness, Lady Dean, has covered a wide area in her 10 minutes. I will try to add a few things, having made notes as I have listened. The sad fact is that defence procurement has for far too long been a drag on our forces’ expenditure and national expenditure. Purchases have proved sluggish and inflexible, delivering equipment and resources late and over budget. That is not only the case now; it has been in the past as well. That is why the coalition Government have been right to challenge the way in which defence procurement has operated. As the noble Baroness has just said, the Government have a full battery of reviews to consider. She mentioned a couple: the Levene review, Bernard Gray’s materiel strategy work and the procurement review of the noble Lord, Lord Currie.
The Government have also had the benefit of what is described as the,
“large number of responses with a wide variety of views”,
to their own Green Paper, Equipment, Support, and Technology. As has been mentioned, there comes a point when decisions must be made, improvements found and efficiencies delivered. One example is the question of the future of defence equipment and security examined in detail by Bernard Gray, as the noble Baroness has just said. His proposals for government-owned contractor- operated procurement created wide ripples, and the Government need to be clear, as the noble Baroness, Lady Dean, said, how they intend to take that forward. That is obviously very important.
How will the Government respond to the broader concerns about the skills required to reform our process of defence procurement: finance, engineering and project management? Above all, the skills of estimating cost, both on expenditure and available resources, must be strengthened. We are pretty weak in estimating the cost of the final bill. Overall, procurement for our forces must meet our responsibilities both to our service personnel under the Armed Forces covenant and to the British taxpayer in securing value for money. The coalition Government have much overdue work to do on both fronts.
How much value, or cost, do we have in store on the shelves, and how often are these stores called upon? Does the MoD just order from suppliers rather than look around the shelves on some stock control system to see what we have? Very often it is easier to ring up your supplier rather than take it off the shelf. What of value do we have on our shelves and would we be wise to seek a buyer, or buyers, for this equipment if it is not moved or even required for a long time?
I thought hard about an example, which came to me because I was talking to some United States Air Force colonels who came to this House a few days ago. I talked to them for 30 minutes. They use Harriers. Do we have spare parts for Harriers? The noble Baroness, Lady Dean, mentioned them when she spoke. If we have spare parts for Harriers, perhaps we should sell them off to the United States Air Force. When we spoke about parts, it said, “We need Harrier parts”. I did not initiate that; it is what it said.
Before the Government go on even a moderate ordering or buying spree, all in the correct defence of the realm, what work is done on estimating what conflicts are likely? Procurement cannot be taken in isolation; it is about estimating what is going to happen. I could give many examples but I do not think you can divorce the discussion on procurement from what is going to happen with Trident, which is a very expensive weapon. I know that a review is being undertaken, supervised by Danny Alexander MP, but the actual cost of Trident is going to weigh down on a lot of our procurement strategy, whether we have it or not and whether we have like-for-like renewal.
Do we want armoured vehicles for hot or cold climates? Should they be for coping with roadside explosive devices? The old vehicles used to get blown up because they could not cope with that. Can we think what conflicts are going to happen and where those vehicles will be needed?
The noble Baroness, Lady Dean, talked about the Armed Forces covenant. Uniforms and other personal equipment are also part of our procurement strategy. Do we need uniforms for the Arctic—there was a piece on television recently showing our forces training in Arctic circumstances—or will they be needed in the desert? We may have the horrible feeling that they are training in the Arctic, as I saw on television, but the next conflict may be on sandy terrain. Perhaps we need to know what equipment and uniforms they will need when a large proportion of them will be based on Salisbury Plain. Salisbury Plain, the Arctic, the desert—we have to make a good guess at where the conflict will be.
The noble Baroness, Lady Dean, mentioned carriers and various other warships. It is no good harking back to the past, but we have two carriers. The expenditure on them gave lots of good employment—but did we need them and do we need them? We do not have the right aircraft to fly off them at this time. Our estimation of what we need is easily exemplified by the fact that the previous Government made a decision to build carriers when we did not have the need for them, the facilities to build them or the aircraft to fly off them. The defence picture facing the United Kingdom is changing rapidly.
Lord Davies of Stamford
I am sorry to interrupt but I cannot let that remark go unchallenged. The previous Government indeed committed themselves to buying two new carriers. We would have continued to have the aircraft to fly off them—the Harriers—and we ordered the F 35s to replace them. It was an entirely coherent, responsible and balanced decision.
Lord Palmer of Childs Hill
I thank the noble Lord for his intervention, but the fact is that we have two carriers that are not well used at the moment, and there is also a story that one of them will be sold off or mothballed. That is the situation now, but I take the point that the decision on aircraft was changed. That had an effect, and the Minister may wish to reply on that point.
To conclude—which is what I was about to do when I took the intervention—the defence picture facing the United Kingdom is changing rapidly, and our Armed Forces demand and deserve equipment that is up to date and responds to the risks and challenges that they face on our behalf. Nothing is more important than working out what conflicts there might be, where we estimate that they will be, what equipment will be needed for them, whether we should buy off-the-shelf equipment manufactured in this country or use the goods we have in store, and whether we should realise the money invested in the goods in store if we are not using them.
Lord Touhig
My Lords, last July the Minister repeated a Statement in your Lordships’ House in which the Government acknowledged the MoD’s historical budgeting woes. By now, most who are familiar with defence procurement agree that the Government underbudgeted and overassigned, that the Civil Service was challenged to manage such complex programmes because of its lack of expertise and skills, and that the policies of procurement unfairly burdened taxpayers. Clearly the Government now want to correct these failings, and it would appear that their preferred option is a privatised, government-owned contractor-operated partnership, about which we have already heard.
When one remembers the G4S security contract awarded for the 2012 London Olympic Games, it would seem that the Government’s record on privatised partnerships leaves much to be desired. I wonder also whether the Olympics security project suggests that even stable private partners struggle with assignments of unpredictable scale. The history of defence procurement over recent years certainly shows that scale is unpredictable. In an interview with the Defence Management Journal on 28 January, ADS chief executive Rees Ward warned that no country, and especially no military superpower, had adopted a government-owned contractor-operated scheme for procurement. In February this year, the Defence Select Committee in the other place expressed worries about GOCO and stated that it was vital that we consult our allies to ensure that there will be no adverse impact on co-operation. This point was made by my noble friend Lady Dean. Indeed, the chairman of that committee, Mr James Arbuthnot, said:
“We expect to be given more detail about the GoCo proposals”.
If the Government pursue this private partnership, that will require aligning with a company or companies that can manage a diverse programme of responsibilities and needs including armaments, supplies, training and the welfare of our nation’s Armed Forces. The partnership will certainly require invalidating or restructuring existing contracts, negotiating new business procedures, determining the Government’s ownership stake and rethinking the role of the Civil Service.
However, the GOCO strategy raises a series of questions that few in government appear to have considered. For instance, do the Government expect to find a private partner of equally diversified expertise in infrastructure—one that can manage acquisitions for Britain’s defence system? Can one partner reasonably manage an entire nation’s defence or will the partnership mean multiple private partners? Restructuring and managing Britain’s defence procurement operations is a project of paramount scale and importance. Considering the G4S summer Olympics embarrassment and the very costly outcome it had for G4S, is defence partnership attractive to the private sector or is the task simply too risky for investment? What happens if the private partner falls short of its commitment, as G4S fell short in 2012 at the Olympics? What happens if needs outgrow the resources of the business partner or, worse, if the partner goes bankrupt? Poorly thought out schemes are risky and the Government have exposed themselves to scrutiny without supportive answers to encourage taxpayers or potential investors.
I have three questions for the Minister. Will the Government consider wealth creation and job opportunities in awarding the defence partnership? Will they maintain a golden share of ownership in any or all of the companies included in the contract to operate the partnership? Will they share a company’s financial burden in partnership, and how will they scrutinise the spending of millions of pounds of taxpayers’ money? The need to ask these questions reflects the Government’s overall indecision and unpreparedness on this matter. Until the Government prepare a more detailed position on procurement, we are simply left with many daunting and outstanding questions.
Lord Rosser
My Lords, I add my thanks to my noble friend Lady Dean of Thornton-le-Fylde for securing this debate on the important issue of defence procurement, on which there are areas of concern and uncertainty, a number of which my noble friend raised. The Government claim to have a balanced budget for defence, but it applies only to the equipment budget, which represents 40% of total Ministry of Defence annual expenditure. The recent National Audit Office report did not even cover that 40% as it did not look at equipment support costs, which make up just over half the total equipment plan cost. The report stated that,
“there is systemic over-optimism inherent in the Department’s assumptions around the costing of risk”,
and that,
“the cost of … procurement projects in the Equipment Procurement Plan has been understated by £12.5 billion”.
The National Audit Office also said:
“Achieving affordability is … contingent on savings being achieved elsewhere in the budget”,
which can only mean the non-equipment budget comprising welfare, housing and manpower.
One of the major outstanding procurement matters, as has already been said, is a decision on the future of Defence Equipment and Support, on which there appears to be some delay. The Government favour moving to a government-owned, contractor-operated organisation, but have not answered many of the points of concern that have been raised, including those raised by the Defence Select Committee in the other place. The opposition position is that private expertise should be integrated in policy-making, since a partnership delivers positive policy outcomes. We have, however, practical reservations about the GOCO model for reform of Defence Equipment and Support. Accountability to Parliament must be retained, and the reasons for outsourcing a £160 billion equipment programme must be much more explicit than is the case at present.
It is not clear with a GOCO what risk is being transferred from the public sector to the private sector. The risk lies with the body or organisation that pays the cost in either financial or reputational terms if equipment is not delivered to specification, to time and within budget. Where that risk currently lies with the Ministry of Defence in the public sector it is not going to be transferred to the contractor-operated but government-owned organisation, not least because no contractor would be prepared to take on such a risk. It is difficult to see what risk at all would be taken on by the contractor. Should the full burden of risk continue to be with the Ministry of Defence, the benefits of the GOCO model and the outsourcing of procurement decision-making become harder to see.
In order to gain or retain an advantage over potential aggressors and enemies, new defence equipment, by definition, will be at the leading edge of technology. That can increase the likelihood of overruns, since new ground is being broken, and, with it, the uncertainties that have to be addressed and the unexpected that may well occur. In that situation the risk has to be borne by the public sector since no company would be prepared to take on such a risk that could well jeopardise their very existence if it materialised.
A private contractor operating a GOCO is presumably going to achieve its return through equipment that is procured rather than through equipment that is not, even though in some cases dropping, or making significant changes to, a project would appear the better option than continuing with it. Under the GOCO proposal with the private contractor, how would the contract incentivise or reward a project manager to meet the time and cost targets of a project if it had become clear either that the costs would be well in excess of what had been estimated or, alternatively, that the specification could no longer be met within the timescale—or, indeed, adequately met at all? We need a broader new culture, with the Government being prepared to return a project to the main gate stage when forecast cost or timescales exceed set targets. Changing specifications and an acceptance of missed targets should not be the norm.
Presumably, under the GOCO, many of the same people as now would continue to be involved in defence procurement, as the TUPE arrangements would apply, with those currently involved being transferred over to the new organisation. If the argument is that a private contractor will somehow be better able to buy in and bring in talented people, then why can the Ministry of Defence not do this? We have a model of private sector management operating an activity in the defence field at Aldermaston. What exactly does the Ministry of Defence feel has been achieved from this that has been beneficial in terms of cost and performance? What experience do other countries have of outsourcing responsibility for defence acquisition? Under the government-owned, contractor-operated scheme, how would the Ministry of Defence retain overall responsibility for UK defence acquisition? Would such a development in this highly sensitive security field have an adverse impact on levels of co-operation with allies?
The greater the extent to which responsibility for UK defence acquisition is outsourced to the private sector then the less knowledge on this vital and security-sensitive area of activity is retained within the military and the Ministry of Defence. There must surely be an argument for nurturing and developing these skills within the Ministry of Defence and providing opportunities for worthwhile and satisfying careers within defence acquisition, rather than seeing defence acquisition as a step on the ladder to another career within the military field. This would help to ensure that the expertise and knowledge are acquired to work with maximum effectiveness with both manufacturers and suppliers, as well as within the Ministry of Defence and the military. We need to be able to offer a permanent professional career choice in procurement, ending two-year stints.
This is surely an area of activity where the Ministry of Defence must retain real knowledge and expertise, bearing in mind the sensitive security nature of defence acquisition, the sums of money involved and the need for a defence industrial strategy which supports appropriate national sovereignty. The House of Commons Defence Select Committee stated in its recent report that,
“the absence of a defence industrial strategy which supports appropriate national sovereignty puts the UK at a disadvantage against competitor countries”.
Procurement power should be used to provide certainty, support supply chains, increase transparency and establish an active industrial strategy in partnership with business. Since the Government seem to regard buying off the shelf as their default position, it is increasingly important to give industry greater certainty—and that means being explicit in the capabilities the Government intend to purchase off the shelf and those they regard as sovereign.
When an effective market exists, competition is the best procurement policy. The reality, though, is that there is seldom a viable market for major defence projects. There must be a case for considering how certain value-for-money tests might be taken into account, including wider employment, industrial or economic factors. Given the social and economic impact of defence procurement, it should be looked at on a cross-departmental basis. Defence decision-making could be made more transparent through the MoD publishing the cost-benefit analysis that provided the basis for awarding contracts, while respecting commercial sensitivities and any classified security issues. This would also add greater accountability, something that was exposed as necessary during the Department for Transport’s west coast main line franchising debacle.
I hope that the Minister will be in a position to provide more information on the Government’s intentions and reasoning on future defence procurement. Defence procurement is technical, and reform to Ministry of Defence internal structures is necessary, but we should surely always remember that the goal and objective for procurement is about delivering equipment when and where it is needed on the front line in order that battles can be won, lives can be saved and operations brought to a successful conclusion.
The Parliamentary Under-Secretary of State, Ministry of Defence (Lord Astor of Hever)
My Lords, I thank the noble Baroness, Lady Dean, for securing this debate to discuss the important issue of defence procurement. It is a privilege to wind up in such an informed debate, and I am very sorry that the noble Lord, Lord Davies of Stamford, was not able to speak, because I always enjoy hearing his contributions.
Lord Davies of Stamford
The Minister is very kind. I was not intending to intervene in his speech, but I take this opportunity to apologise to the Committee for having got the timing so badly wrong and arriving late for this debate, which I thought was going to start a little later than it did.
Lord Astor of Hever
The noble Baroness suggested that we should have another debate on this issue, and I would very much welcome that. A lot of noble Lords have mentioned the GOCO issue in particular. When the situation is clear on that, maybe we could return to it in a more detailed debate.
Today’s debate provides me with an opportunity to explain our policies and priorities for defence procurement and to set them in the wider context of our ongoing defence transformation programme. The noble Baroness has spoken many times in support of our Armed Forces and demonstrated her steadfast concern for the welfare of our service men and women and their families. I know that those concerns are also shared by other noble Lords here today, so I start by paying tribute to the men and women who serve in Her Majesty’s Armed Forces, who provide the ultimate guarantee of our security and independence. That is also why defence procurement, particularly defence equipment acquisition and support, is vital. We need to be able to adapt and configure our capabilities to address tomorrow’s threats and to build more agile forces for the future. Support operations will always be our first priority.
Our approach to defence acquisition is a key element in delivering military capability and ensuring future operational success. The Government’s strategic priority remains to bring the national deficit under control. In defence, we must play our part in meeting that objective. However, we must also meet the commitment in the 2010 strategic defence security review to deliver well resourced and well equipped Armed Forces. To achieve that, the Ministry of Defence is in the process of delivering its largest and most far-reaching transformation programme. We are reforming defence procurement to ensure that we do it better in future and derive better value for money from the defence budget in so doing. We continue to contribute to the goal of reducing the deficit by looking for ways to conduct our business more efficiently, and expect to make £13.5 billion of efficiency savings over 10 years.
As announced in May last year, we have addressed the black hole in the defence budget. Through implementing changes flowing from the SDSR, we have brought the budget into balance. That means that, for the first time in a generation, our programme is affordable within the resources that we expect to have available to us. It provides a necessary foundation for our future approach to defence procurement and the implementation of the reforms recommended by the noble Lord, Lord Levene.
Having established a core equipment programme last year, we are now concentrating on its delivery. We will spend around £160 billion on equipment over the next 10 years, covering our current commitments, the major equipment programmes announced in the SDSR, and deterrent and equipment support costs. In January this year, we published for the first time a detailed summary of our equipment plan, setting out priorities and budgets for equipment procurement and support over the next 10 years. This was accompanied by a National Audit Office assessment of its affordability, and we are delighted that, in its report, the NAO recognised the progress that we had made in putting in place the changes needed to achieve and maintain affordability.
The core programme delivers the major force element set out in the SDSR. This, with the headroom and contingency provision that we have built in to protect the programme from emerging risks, will provide us with the flexibility to determine our procurement priorities in accordance with operational priorities and not simply on the basis of immediate affordability. It will also provide the defence industry with greater clarity on which to plan for the future.
Through the equipment plan we will deliver significant enhancements to our fighting capabilities, including completion of the two Queen Elizabeth class aircraft carriers, significant investment in the Lightning II aircraft—which together will provide a high-end power projection capability for decades to come—completion of the Astute class attack submarine programme, an upgrade to our fleet of Warrior infantry fighting vehicles, continued development of the Scout and significant enhancements to air transport through the new A400M aircraft.
Our first priority for defence procurement has therefore been to establish a solid foundation from which we can deliver the necessary capabilities for our Armed Forces to do their job. We have made good progress in this and, as an ongoing priority, will continue to apply rigorous management to ensure that the budget remains in balance in the years to come.
I would highlight that the latest NAO Major Projects Report, published in January this year, stated that annual cost increases for our 16 biggest programmes in the financial year 2011-12 were only one-seventh of what was in the comparable report two years earlier. Although we have much more to do, we are moving in the right direction.
We have also sought to reform our approach to how we conduct procurement. In February last year, the Government published their White Paper, National Security Through Technology. This provides a framework for equipping our Armed Forces with the best possible capabilities that we can afford through the equipment plan and, in so doing, for achieving the best possible value for money.
We will seek to fulfil the UK’s defence and security requirements through open competition in the domestic and global market and buy off the shelf, where appropriate, to take full advantage of the competitive international market. However, where capabilities are essential to our national security, such as nuclear submarines and complex weapons, we will seek to protect our operational advantage and freedom of action. We will also maintain our investment in science and technology. In taking this approach, we recognise the important part played by the UK defence industry. Our policy, through the White Paper, is designed to provide the catalyst for making UK industry competitive and therefore able to win a large proportion of additional orders within the global market through successful exports. A healthy and competitive defence industry in the UK is able to sustain many UK jobs and thus make a vital contribution to growth and a rebalanced economy. We are also opening up opportunities for small and medium-sized enterprises. In the last financial year, some 40% of contracts by volume were awarded to small and medium-sized enterprises, and there is scope for this to increase still further.
Looking to the future, reforming the acquisition system is a key priority and a core element of our work to transform defence. We will take a major step forward in April, when the new defence operating model goes live and the newly empowered service and joint forces commands assume responsibility for setting equipment and support requirements. This is an important part of our work to implement the recommendations of the defence reform report of the noble Lord, Lord Levene.
Major structural reform of defence equipment and support organisation is also central to this process. It will ensure that we have the structures, management and skills necessary to deliver the right equipment to our Armed Forces at the right time and at the right cost. Preliminary work undertaken to date has identified a government-owned, contractor-operated entity known as GOCO as the preferred future operating model for defence equipment support. This needs to be tested further before any final decisions are made. A decision will be made shortly on whether to move into an assessment phase. If agreed, this would see the GOCO model tested against a robust public sector comparator. This would work towards producing a final business case that will recommend a future operating model for defence equipment and support. We would expect a decision to be made in 2014.
A lot of very important questions were asked. I will do my best to answer them, but I am conscious that I may not be able fully to answer all of them, so in some cases I will write to noble Lords in more detail. The noble Baroness and other noble Lords asked about GOCO and whether a compelling case had been made for reform. Proposals for an assessment phase are currently being considered. If approved, the assessment phase will involve developing GOCO options through negotiations with potential private sector partners. A robust public sector comparator will be developed in parallel. As I said, a decision will be made shortly.
The noble Baroness asked whether a final decision on GOCO had been made. The answer is no. We are currently considering whether to move into an assessment phase that will allow us to make a comparison between GOCO and an in-house comparator. It will look at how far defence equipment and support can be improved in the public sector. The noble Baroness also asked about our allies’ views on GOCO. We are working closely with our international partners to assess the impact of any potential changes and will continue to do so.
The noble Lord, Lord Touhig, asked whether one partner could cope. We envisage that there is likely to be a consortium to cover a diverse range of activities. He asked whether there was an appetite in the private sector. We have engaged with potential partners throughout, and they seem keen. He asked about bankruptcy and falling short. We will ensure that procurement activity does not collapse.
The noble Baroness asked whether there was a government plan to ensure both skills and an affordable programme, and what new skills would be required. The noble Lord, Lord Rosser, also asked about skills and apprenticeships. For defence equipment and support, we are ensuring that we have the necessary skills to ensure that safety is not compromised. We place the highest priority on filling safety-critical posts with suitably qualified people. We continue to recruit apprentices, for example in the field of engineering, to continually refresh our skills base and ensure that we will have the right skills in future to support our Armed Forces.
The noble Baroness asked about the 1% rise from 2015. This applies to the equipment part of the budget, which is 40% of the overall defence budget. It is not a 1% year-on-year increase from 2015. We have taken what we thought was adequate for the equipment budget and increased it by 1% from 2015. The equipment programme is now affordable within available resources.
Finally, the noble Baroness asked about science and technology. A White Paper, National Security Through Technology, recognises the importance of science and technology. The Government are committed to sustaining investment in science and technology at a minimum of 1.2% of the defence budget. The publication of our 10-year equipment plan will enable industry to plan future investment with greater confidence.
I have run out of time. I am aware that I have not been able to answer every question, but I will write to noble Lords.