House of Commons

Tuesday 2nd July 2013 Commons Chamber

Tuesday 2 July 2013

The House met at half-past Eleven o’clock

Prayers

Tuesday 2nd July 2013 Commons Chamber

[Mr Speaker in the Chair]

Business before Questions

London Local Authorities and Transport for London (No.2) Bill [Lords]

Consideration of Bill, as amended, opposed and deferred until Wednesday 10 July at Four o’clock (Standing Order No. 20).

Hertfordshire county council (Filming on Highways) Bill [Lords]

Second Reading opposed and deferred until Wednesday 10 July at Four o’clock (Standing Order No. 20).

Oral Answers to Questions

Tuesday 2nd July 2013 Commons Chamber

The Secretary of State was asked—

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

1. What steps he is taking to reduce the cost and quantity of claims for compensation for whiplash injuries.

[The Parliamentary Under-Secretary of State for Justice (Mrs Helen Grant)]

Earlier this year, the Government consulted on proposals to reduce the number and cost of whiplash claims. We will publish our response after we have considered the Transport Committee’s report, which we expect to be published before the summer recess.

[Mr Ward]

Car insurance premiums in Bradford are the highest in the country. The Institute and Faculty of Actuaries has released information showing that the number of third-party whiplash claims rose by 5% in the year 2010-11, although the number of accidents fell. According to the institute’s chairman, 60% of the claims were exaggerated, misrepresented or fraudulent. Will the Secretary of State look again at the period within which claims can be made? At present, a claim can be made up to three years after a whiplash accident.

[Mrs Grant]

We have no plans to change the law on limitation, but I assure my hon. Friend that the Government are absolutely committed to tackling fraudulent whiplash claims, while also ensuring that those with genuine neck injuries receive the compensation that they need and deserve. Making the system fairer for defendants does not, of course, compromise access to justice for claimants, and we will seek to restore balance to the civil justice system.

[Helen Jones (Warrington North) (Lab)]

As the Minister knows, the vast majority of claims are genuine. Rather than being obsessed with this issue, should not the Government be targeting some of the practices of the insurance industry, such as cold-calling victims or referring them to its in-house lawyers in the hope of settling claims cheaply? Why are the Government not doing that? Is it because, again, they are on the side of the big battalions rather than the consumer?

[Mrs Grant]

The hon. Lady has got it absolutely wrong. We know that the Government, the insurance industry and claimant lawyers must all work to tackle fraud, because it is completely unacceptable. We fully expect the industry to pass on the considerable savings that it will make to the public in the form of reduced insurance premiums.

[Mr Julian Brazier (Canterbury) (Con)]

Having suffered a severe whiplash injury after someone shunted my vehicle many years ago, I have great sympathy for genuine victims, but there is widespread evidence that gangs have moved into what they see as a profitable business, generating deliberately fraudulent claims, and that that is driving up premiums for ordinary motorists.

[Mrs Grant]

I agree. Unfortunately, a compensation culture was allowed to develop under the last Government, and we are having to deal with it now. Our reforms will ensure that meritorious claims will always be possible, while also ensuring that unnecessary claims are avoided.

[Ms Margaret Ritchie (South Down) (SDLP)]

Given that the cost of car insurance is very high in Northern Ireland, particularly in relation to whiplash injuries, and given that the issue was referred to the Competition Commission last year, will the Minister tell us whether she has received any progress reports from the commission?

[Mrs Grant]

I personally have received no progress reports, but I am happy to look into the matter for the hon. Lady. The Automobile Association recently reported a 4.1% reduction in premiums, which it attributed to the impact of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 and the Government’s other reforms, but it is clear that much more needs to be done.

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

2. What assessment he has made of the use of restorative justice on the secure children’s estate.

[The Minister for Policing and Criminal Justice (Damian Green)]

The Ministry of Justice and the Home Office have commissioned an evaluation of a number of restorative justice pilot schemes, some of which have involved young people, but there has been no specific evaluation of the use of restorative justice on the youth secure estate.

[Stephen Gilbert]

We know that reducing the unnecessary criminalisation of children should be a key priority, and clearly children within the secure estate are particularly vulnerable. We also know that restorative justice approaches deliver better outcomes for all involved. Will the Minister commit to introducing a specific study on the use of restorative justice in the secure children’s estate?

[Damian Green]

I entirely agree with the hon. Gentleman’s underlying point. Restorative justice has proved to be an extremely successful method; evaluation has found that 85% of victims who have participated in it said that they were satisfied with the experience. We will certainly keep a close eye on how it can be used most effectively for young people.

[Mr Elfyn Llwyd (Dwyfor Meirionnydd) (PC)]

Last year the Justice Committee visited Northern Ireland to see how restorative justice was working there. It is a mainstream means of disposal in Northern Ireland, and it works extremely well. Would the Minister care to look at the way in which it works in Northern Ireland in order to inform his decisions?

[Damian Green]

I would be very happy to do that. I am aware of the work that has been done in Northern Ireland, which has been extremely successful, and I should remind the right hon. Gentleman that the Crime and Courts Act 2013 places pre-sentence restorative justice on a statutory footing for the first time, so I very much share his underlying thoughts on this.

[Damian Hinds (East Hampshire) (Con)]

3. What assessment he has made of the contribution that financial inclusion programmes can make towards reducing reoffending rates.

[The Lord Chancellor and Secretary of State for Justice (Chris Grayling)]

Alongside our probation reforms, it is important to look at other areas in which we help offenders when they leave prison. It is often the basic things, like having a bank account, that they need help with to avoid slipping back into a life of crime. We recognise the importance of financial inclusion, which is why we grant-fund Unlock, a programme that helps prisoners establish a relationship with a commercial bank. Indeed, the prisons Minister, my hon. Friend the Member for Kenilworth and Southam (Jeremy Wright), is doing a lot of work at the moment with the banks to try to ensure we can offer financial services to those who leave prisons, so they can get their lives back together.

[Damian Hinds]

Does my right hon. Friend agree that credit unions can play a unique and valuable role not only in providing the nuts and bolts of banking, but in improving financial capability and promoting savings to increase financial resilience?

[Chris Grayling]

I am a great fan of the credit unions. I have seen their work both in my previous role as employment Minister and now as potential contributors to the process of rehabilitating offenders. I absolutely agree with my hon. Friend that we should support and encourage the work of credit unions. They can make a huge difference for those who cannot access financial services through other means.

[Steve McCabe (Birmingham, Selly Oak) (Lab)]

In terms of reducing reoffending, will the Secretary of State look urgently at the case of John Cronin, a convicted sexual predator who was originally given a life sentence? He has now been released on licence and has broken the terms of that licence, and apparently has not been returned to jail and cannot be put on the sex offenders register. He is a very dangerous man. Will the Secretary of State look urgently at that case?

[Mr Speaker]

Order. He is indeed, by all accounts, a dangerous man, but it is not immediately apparent what the relevance of his case is to the issue of financial inclusion programmes—

[Steve McCabe]

I was talking about reoffending.

[Mr Speaker]

Indeed, but not financial inclusion, which was the purport of the question. However, the Secretary of State is a dextrous fellow, and I am sure he can respond appropriately.

[Chris Grayling]

Well, Mr Speaker, I simply say that I will take a look at the case.

[Mr Speaker]

Indeed.

[Keith Vaz (Leicester East) (Lab)]

4. If he will introduce mandatory drug testing for prisoners on entry to and exit from prison.

[The Parliamentary Under-Secretary of State for Justice (Jeremy Wright)]

The right hon. Gentleman knows that we already have a system of random and intelligence-led drug testing in prisons. He knows, too, that we are not persuaded of the merits of adding further testing for all prisoners at the fixed points of arrival and departure from custody. However, we are working with the Department of Health to test an end-to-end approach to tackling addiction from custody into the community, which includes looking at which prisoners should be tested and when.

[Keith Vaz]

The Minister is right: I do, in fact, know all that. However, it does not deal with the problem. The problem is that 35% of those in prison have a drug addiction and 6% acquire that addiction once they are in prison, so more come out with an addiction than went in with one. Why do the Government not feel that mandatory testing on entry and exit will help break the cycle of drug dependency?

[Jeremy Wright]

We are in agreement, because I knew all that, too, but it is worth saying to the right hon. Gentleman that we have one or two issues with the suggestion he and his Select Committee make in what is, I concede, an excellent report that makes a substantial contribution to this debate. The concerns we have are that if tests are done at a fixed point of exit, particularly from custody, the offender knows that is coming and can do things to try to mitigate the effect of the test. We think it is important to test on a random, and perhaps frequent, basis. We entirely agree with him and his Committee, however, about the importance of extending our testing to include prescription drugs as well as illegal drugs, because of the widespread abuse of those drugs, and I hope he will support the private Member’s Bill of my hon. Friend the Member for Stourbridge (Margot James), which will achieve exactly that.

[Andrew Bridgen (North West Leicestershire) (Con)]

What assessment has my hon. Friend made of the effectiveness of drug recovery wings in prisons?

[Jeremy Wright]

We are very much in favour of the approach that attacks this problem in an intensive way and makes sure that prisoners understand that they need to get off drugs and stay off drugs. Drug recovery wings are extremely effective in that regard, and of course prisoners have an opportunity to move on to another wing thereafter, where they will be able to stay drug-free. That is an extremely important approach.

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

If the Government cannot control the taking of unlawful drugs in a prison—a completely controlled environment—what messages does the Minister think that sends out to the rest of society for reducing the drug problem?

[Jeremy Wright]

It is important to recognise that the rate of mandatory drug testing producing a positive result has dropped considerably, from 25% or so in 1996-97 to about 7% now. So it is not that we are without success, but the hon. Gentleman is right to say that there is no cause for complacency. We do everything possible to prevent the influx of drugs into our prisons, but that is an extremely difficult exercise. It is important to attack demand as well as supply, and to make sure that prisoners come off drugs and stay off them.

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

I warmly welcome last week’s announcement of a new prison to be built in north Wales. Will the Minister undertake that from the moment the new prison opens it will be 100% free of illegal drugs?

[Jeremy Wright]

I suspect it would be unwise for me to make such a pledge, but we will make sure that in all our prisons we do everything we can to restrict the inflow of illegal drugs, by whatever means. As I said, we will also make sure that we provide the maximum effort to get prisoners off drugs and keep them that way.

[Mark Tami (Alyn and Deeside) (Lab)]

5. What progress he has made on his plans to reform the probation system.

[Paul Goggins (Wythenshawe and Sale East) (Lab)]

6. What his plans are for the future of the probation service.

[The Parliamentary Under-Secretary of State for Justice (Jeremy Wright)]

We will open up rehabilitation to a diverse range of organisations and introduce new payment incentives for providers to focus relentlessly on reforming offenders. We plan to commence the competitive process for our new providers at the end of this summer. We will also create a new national public sector probation service, which will work to protect the public.

[Mark Tami]

Given the magnitude of the proposed changes, why is the Minister not piloting this scheme?

[Jeremy Wright]

It is a myth that there is no learning already available to the Government on payment by results; learning is available across government activities, and a number of pilots within the probation field have begun. Not all of them have been completed, but, as the hon. Gentleman will recognise, it is possible to learn something from a pilot even if it is not completed. We are confident that payment by results is the right way to approach this matter. It is also the right way, of course, to release the savings we need to pay for an additional 50,000 offenders who currently receive no supervision. If he has a better way of doing that, we look forward to hearing it.

[Paul Goggins]

The Minister is in the unusual position of wanting to both privatise and nationalise the probation service at the same time. Will he explain to the House why the probation service is to be trusted with the supervision of the most dangerous, but will not be allowed to bid to work with less serious offenders?

[Jeremy Wright]

We think that a combination of approaches will work best. We think that the probation service has particular skills in dealing with the most dangerous and high-risk offenders, so we want to give it the opportunity to concentrate on those offenders. We also think that there is a huge range of innovation and good ideas among bodies of all sorts, in the voluntary sector as well as in the private sector, and we want to bring those ideas to bear on what has been an extremely intractable problem—driving down reoffending rates.

[Priti Patel (Witham) (Con)]

Despite record spending on prison and probation services, reoffending rates are still far too high. Will the Minister give an assurance that the new probation reforms will seek to address that issue, while also delivering value for money for the taxpayer?

[Jeremy Wright]

I can give my hon. Friend that assurance. She is right to say that reoffending rates are far too high; 50% of those released from custody reoffend within 12 months. That is unacceptable, and people within the probation service know that. We need to bring those rates down, and the best way to do so is to unlock the innovation I spoke about a moment ago and to have a system where, if people succeed in driving down reoffending rates, they receive the maximum reward and if they do not, they will not.

[Gareth Johnson (Dartford) (Con)]

One of the biggest weaknesses of the criminal justice system has been a failure to engage with short-term prisoners. Does the Minister therefore agree that probation assistance with that group of offenders is vital to curb reoffending rates?

[Jeremy Wright]

Yes, I agree with my hon. Friend. He puts his finger on a big gap in the system up to this point in that those offenders who receive a custodial sentence of 12 months or less receive very little or no supervision at all. It is very important that they should, because that is the group with the highest rates of reoffending. Some 60% reoffend within 12 months. We need to address that and we will do so.

[Jenny Chapman (Darlington) (Lab)]

Highly respected former chief inspector of prisons Lord Ramsbotham has called on the Justice Secretary to withdraw his plans for probation as they are too complex to be achieved safely. Concerns about public safety meant that not a single Cross Bencher voted with the Government on his amendment in the Lords. The timetable is unrealistic, the IT is not ready and the Department’s risk assessment states that the proposal is unlikely to work. Is it not time for the Government to take stock and rethink before they waste any more resources on this rapidly unravelling plan?

[Jeremy Wright]

The hon. Lady will not be surprised to learn that I do not agree with her. This is an important and urgent reform. She must recognise that every single year 600,000 offences are committed by people who have previously committed an offence. Until we start to address reoffending effectively, that number will not come down and we will not avoid the creation of tens of thousands of new victims every year. That is why this is urgent. As far as I understand the position of the hon. Lady’s party, she agrees that reoffending rates are too high, that something must be done about that and that there is a problem with the group with sentences under 12 months, yet we hear nothing from her about what she would do about that if it was not what we propose to do. If she has an alternative, let us hear it.

[George Hollingbery (Meon Valley) (Con)]

7. What assessment he has made of the effect on barristers of his proposed changes to legal aid.

[The Lord Chancellor and Secretary of State for Justice (Chris Grayling)]

Our analysis, based on applying our proposals to the cases handled by the Legal Aid Agency last year, suggests that overall the majority of criminal advocates would either be better off or see their income unchanged as a result of the fee proposals, while civil barristers affected, who generally receive higher fees than other civil advocates, could see their income reduced.

[George Hollingbery]

Could the proposals not have been centred around a fixed-fee per case, salami-slicing budget cuts across the board or restructuring? Will not this arrangement protect the incomes of lower paid barristers?

[Chris Grayling]

My hon. Friend is absolutely right. That was part of our objective. Some people argued that we should go for one case, one fee, but that would in my view do deep long-term—if not total—damage to the Bar. We chose not to go down that route. We have put together a package of proposals that, on the basis of the case mix carried out last year by junior barristers, should leave a substantial proportion of them either with an unchanged income or a slightly increased income.

[John Healey (Wentworth and Dearne) (Lab)]

19. If legal aid cannot be paid unless permission is granted for a judicial review, does the Justice Secretary accept that lawyers will be unable to take on some of the strongest cases such as when local authorities might refuse to recognise their duty to house a homeless family? Those are exactly the kind of cases where they will offer an early settlement or a no-cost settlement.

[Chris Grayling]

I am afraid that I think the current situation is unacceptable, whereby we are obliged to provide legal aid to anyone who starts a judicial review regardless of the strength of their case. If an individual has a strong case with their lawyer against a local authority, they should seek to recover their costs from that local authority. It is not the job of the taxpayer to bank-roll all cases.

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

Has the Lord Chancellor heard from the Bar Council since the Law Society sent me a letter yesterday describing the constructive progress that had been made in discussions? Does he recognise the genuine concern that when a fundamental change is made in the relationship between the two sides of the profession, it has to be after very careful consideration?

[Chris Grayling]

My right hon. Friend makes an important point. Over the past few weeks, I have had very constructive engagement with the Law Society and I welcome the counter-proposals it has put to us. We have recognised many shared objectives in that and it has behaved with professionalism over this matter. I was very disappointed that when the Bar Council submitted its report and recommendations to us in response to our consultation it did not contain the same degree of constructive engagement. I am due to meet the Bar Council later today and I hope we will see that change.

[Karl Turner (Kingston upon Hull East) (Lab)]

Now that the Lord Chancellor concedes that client choice is integral to the criminal justice system, when will he announce that price-competitive tendering has been dumped once and for all?

[Chris Grayling]

The hon. Gentleman needs to realise that the concept of competitive tendering in criminal legal aid was originated by his own party. Now we are hearing the Labour party oppose the things for which it argued for years, and it is typical of this Opposition that they will say one thing when in government, and when in opposition will say something completely different. I am proud to be part of a party that is defending health budgets and taking tough decisions in other areas; the hon. Gentleman is part of a party doing the opposite.

[Mr Philip Hollobone (Kettering) (Con)]

Although legal aid is no longer available for most family litigation, it is still available for family mediation, yet many mediation services have seen their inquiries halve since April because clients are under the mistaken belief that it is caught up in the changes. Given that mediation is often better than litigation, what can the Secretary of State do to advertise the fact?

[Chris Grayling]

I am very concerned to pursue that. I am aware of the issues that my hon. Friend mentions. It may well be down to the fact that there was a surge in cases prior to the legal aid changes that came into effect in April, but I can give him an assurance that this is very much on my radar, and I intend to pursue it.

[Mr Andy Slaughter (Hammersmith) (Lab)]

Last week, the Lord Chancellor was telling some of the 16,000 respondents to his legal aid consultation that their responses had been automatically deleted, but he must have read some of them, as they provoked his embarrassing U-turn on choice of solicitor yesterday. Will he now also U-turn on forcing small firms out of business and on giving cash incentives for guilty pleas, and will he abandon the further cuts in civil legal aid that will, according to the Parole Board among others, cost several times the £6 million he claims they will save?

[Chris Grayling]

Labour Members really do not get it, do they? Government Minister consults on proposals, listens, makes some modifications, and gives an early decision to help people, so they are not attacking proposals that have changed. Labour Members never listened to anybody when they were in government; they just ploughed ahead regardless.

The hon. Gentleman is the person who said, in 2011, that the Government should look for

“efficiencies in the criminal legal aid system,”

to

“save…money”.—[Official Report, 2 November 2011; Vol. 534, c. 958-9.]

We are now doing that; they have changed their minds. It is shambolic.

[Andrew Stephenson (Pendle) (Con)]

8. What representations he has received from smaller law firms on his proposals to reform criminal legal aid.

[The Lord Chancellor and Secretary of State for Justice (Chris Grayling)]

The recent consultation “Transforming Legal Aid” generated around 16,000 responses, which, contrary to reports, have been read extensively by individuals, including many by myself. Many were from smaller law firms or those who work within a smaller law firm. I have personally attended events organised by the Law Society where I met many solicitors who practise with smaller firms. I met a number of people from smaller firms in the north-west last week, and we will continue to talk to all the representative bodies in the weeks ahead.

[Andrew Stephenson]

I thank the Secretary of State for his answer. On 24 May, when I met a number of solicitors and barristers from across Pendle, they raised several concerns with me. However, principally they believe the savings that my right hon. Friend is planning to make have already been made, and the figures the Government are using are out-of-date legal aid totals. What reassurance can he provide to them?

[Chris Grayling]

I can give my hon. Friend my assurance that that is not the case. There are a number of false rumours floating around. The figures that we used for the recent consultation were based on the criminal legal aid spend in 2011-12, which were the most up-to-date figures when we published the document. When developing these proposals, we have also taken fully into account the savings that came out of the Legal Aid, Sentencing and Punishment of Offenders Act 2012, which were presaged by the previous Government, who set in train the initial process towards cutting legal aid costs. However, given the continuing pressure on public finances, we do, I am afraid, still need to bear down on the cost of legal aid.

[Jeremy Corbyn (Islington North) (Lab)]

Could the Secretary of State assure the House that none of the e-mailed responses to his consultation has been deleted? To make everybody happy, will he ensure that every single one of them is published, because there seems to be a story out there that somehow or other his Department is not interested in the response to the consultation process, and therefore it has been deleting unwanted e-mails? I am sure that is not the case, but could he assure the House that it is not so?

[Chris Grayling]

My understanding is that that is not the case, and if there is any suggestion that it is the case, we will ask the people who sent the e-mails to resend them. However, I can assure the House that as far as I am aware, every submission is in our hands, is being read, and will be considered properly.

[Tessa Munt (Wells) (LD)]

All of us understand the need to control costs, but I wonder how the Secretary of State will ensure that the creation of a single fixed fee, payable regardless of whether an individual pleads guilty, will not create a direct conflict of interest between the legal representative and his or her client.

[Chris Grayling]

It is clearly in our interests to have a system where we encourage people who are guilty to plead guilty early. That saves money. It is the right thing to do for society. I do not believe or accept that we would be in a position where any qualified lawyer would try to encourage someone to plead guilty when they were not guilty, but of course we are listening to all the responses from the consultation and will bring forward further proposals in due course.

[Sadiq Khan (Tooting) (Lab)]

May I say, in the most courteous way, to the Justice Secretary that he should revisit some of the answers on legal aid he has given today? He is just wrong on a number of points. There is now a general consensus that his Department’s reform of court translation services was a shambles—the Select Committee on Justice, the National Audit Office and the Public Accounts Committee all agree. What differences are there in his plans to reform legal aid to avoid repeating the mistakes made in the previous set of reforms?

[Chris Grayling]

Let us be clear: it is no secret that the handling of contracting of translation services could have been better, and lessons have been learned. However, that service is now delivering to a very high standard and saving the taxpayer millions of pounds. The Opposition simply do not get that we have to take tough decisions to save money to deal with the mess they left behind.

[George Eustice (Camborne and Redruth) (Con)]

9. What assessment he has made of the effectiveness of the small claims procedure.

[The Parliamentary Under-Secretary of State for Justice (Mrs Helen Grant)]

In April, the Government increased the limit in the small claims track from £5,000 to £10,000, with the aim of ensuring that more claims are resolved in a way that is accessible, proportionate and cost-effective.

[George Eustice]

I am grateful for that answer and welcome the raising of the threshold from £5,000 to £10,000, but a constituent of mine has highlighted some of the difficulties people have enforcing some judgments. My constituent had a judgment in his favour for £475 against a tradesman who failed to complete a task, but never received the money; he found that his only remedy was to incur further legal and court costs. Does the Minister agree that we need to review enforcement in such cases where payment is not made?

[Mrs Grant]

My hon. Friend makes a good point. Our “Solving disputes in the county courts” consultation considered reforms to the attachment of earnings order and the third party debt recovery order. We support those reforms and will implement them as soon as resources allow. Changes have been made to the charging order and order for sale procedures, which will help both creditors and debtors.

[Ian Mearns (Gateshead) (Lab)]

10. What steps he is taking to reduce reoffending.

[The Parliamentary Under-Secretary of State for Justice (Jeremy Wright)]

Under our “Transforming Rehabilitation” reforms, every offender released from custody, including those sentenced to less than 12 months in custody, will receive statutory supervision and rehabilitation in the community. We are also putting in place an unprecedented nationwide through-the-prison-gate resettlement service, whereby most offenders are given continuous support by one provider from custody into the community.

[Ian Mearns]

The Minister has already referred to the number of offenders who reoffend within 12 months, and we know that prisoners are spending an awful lot of time banged up in their cells, when what many of them really need is education, because all too many failed in or were failed by the education system before embarking on a life of criminal activity. Will the Minister undertake to ensure that more time in prison is devoted to prisoners’ education, so that they are better prepared for life outside and for employment?

[Jeremy Wright]

The hon. Gentleman is right: education is extremely important, especially for offenders who have very low levels of educational attainment before going into custody, of whom there are many. We are working on that. More prisoners are now doing education courses—more this year than last year. Of course, it is also important that prisoners go to work while they are in custody, and more hours were worked last year than the year before. I hope very much that that trend will continue.

[Kate Green (Stretford and Urmston) (Lab)]

Just last week, I met the Prisoners’ Education Trust and was told that much prison work is low skilled and does not in any way improve employability on release. What will Ministers do to ensure that prison work increases people’s qualifications, improves their CVs and gives them a genuinely better chance of taking up work following release from custody?

[Jeremy Wright]

The hon. Lady will understand that there are restrictions on the types of work that can be offered in a custodial environment, but there are jobs that will contribute to prisoners’ qualifications and experience. However, there is a wider point, which is that, for a great many prisoners, who simply have no experience of the world of work, the softer skills they need to be employable—working in a team, getting up in the morning and going to work for a full day—are valuable, too, and we will seek to extend those skills as far as we can.

[Nigel Adams (Selby and Ainsty) (Con)]

11. If he will take steps to ensure that in cases where a person has disappeared and is presumed dead, their family and loved ones are better able to deal with the practical and administrative issues that arise. [R]

[Caroline Dinenage (Gosport) (Con)]

13. If he will take steps to ensure that in cases where a person has disappeared and is presumed dead, their family and loved ones are better able to deal with the practical and administrative issues that arise.

[The Parliamentary Under-Secretary of State for Justice (Mrs Helen Grant)]

We are working with the General Register Office to create the rules and regulations necessary to implement the Presumption of Death Act 2013, which will create a single certificate of presumed death equivalent to a death certificate.

[Nigel Adams]

I welcome that response, and so will the family of missing York woman Claudia Lawrence. We have certainly moved on in the past few months and I am very grateful. Can my hon. Friend confirm that a Bill will be put before the House to deal with the issues around guardianship, and will she tell the House the likely time scale for that?

[Mrs Grant]

A consultation on guardianship will be launched this year, with a view to taking a final decision on guardianship next year.

[Caroline Dinenage]

Leading Seaman Timmy MacColl went missing while in Dubai with the Royal Navy last May. He leaves behind a wife and three small children. The Royal Navy is now seeking to get a certificate of death without any face-to-face consultation with his wife. On top of the emotional strain, this casts a question mark over the family’s financial future and where they will live. To what extent can the Ministry of Justice liaise with the armed forces in such cases and ensure that the family are much more involved in these decisions?

[Mrs Grant]

I know that my hon. Friend cares deeply about these issues and has worked tirelessly in assisting this family in her constituency whose loved one has gone missing. The Ministry of Defence has its own procedures for presuming missing service personnel to be dead and does not liaise with the Ministry of Justice in individual cases, but if my hon. Friend would like some further information on the involvement of family members, I am happy to make representations to the Defence Secretary on her behalf.

[Mr William Bain (Glasgow North East) (Lab)]

12. What his policy is on whether the UK should continue to be a contracting party to the European convention on human rights.

[The Minister for Policing and Criminal Justice (Damian Green)]

The Government remain committed to the European convention on human rights and to ensuring that those rights continue to be enshrined in UK law. We are also closely involved in the process to reform the Strasbourg Court.

[Mr Bain]

The Foreign Secretary promised that there would be no downgrading of human rights under this Government, so can the Minister explain why the Justice Secretary and the Home Secretary believe it is right to end 60 years of strong human rights protection drawn up by British lawyers and politicians, which have served both the United Kingdom and Europe so well?

[Damian Green]

Every member of this Government is concerned with making sure that human rights remain one of the bases of a good democratic society. There is no secret about the fact that the two parties in the coalition Government may have slightly different views about how to enhance human rights in future. I am happy to assure the hon. Gentleman that on behalf of my party I am leading work to make sure that human rights do not get devalued by being exploited, particularly in the courts, by those who should not be exploiting the legislation for their own ends.

[Miss Anne McIntosh (Thirsk and Malton) (Con)]

I thank my right hon. Friend for this reply. Is he aware that one interpretation of the European convention on human rights could be that people are prevented from exercising freedom of conscience in relation to same-sex marriage in practising their profession while wanting to maintain their religious beliefs?

[Damian Green]

There are clearly a number of areas—my hon. Friend has mentioned one—in which the potential interpretation of the existing human rights legislation could lead to effects which many in this House and outside would regard as perverse. That is precisely the sort of area which we are looking at very carefully so that human rights can remain something that we all unquestioningly support.

[Dr Julian Huppert (Cambridge) (LD)]

I and my colleagues very much welcome the Minister’s commitment that this Government will stay within the ECHR. Does he agree that those who wish to leave ought to make it clear which articles of the convention they have a problem with, and which aspects they do not agree with? Are there any that he does not agree with?

[Damian Green]

Again, every member of the Government has made it clear that the original convention was written well and expresses views that all of us in the House share. Members in all parts of the House, even in the Labour party, might admit that the way the legislation is now being used brings human rights into disrepute and that we need to do something about it. That is the work that I am leading on behalf of the Conservative party.

[Mr Dominic Raab (Esher and Walton) (Con)]

14. What steps he is taking to improve literacy among prisoners.

[The Parliamentary Under-Secretary of State for Justice (Jeremy Wright)]

Part of a prisoner’s induction involves screening for literacy needs, and where such needs are identified, prisoners are offered teaching and support as a priority. Improving prisoners’ literacy is a key objective of the learning and skills service in custody. Improving literacy skills means that a prisoner has a greater likelihood of getting and holding on to a job when released, which helps to reduce reoffending.

[Mr Raab]

According to a recent Ministry of Justice survey, one in five prisoners needs help reading and writing. Charities such as Shannon Trust have pioneered peer mentoring and synthetic phonics to improve literacy rates. What steps is the Minister taking to expand such innovative programmes, and does he agree that they are absolutely crucial to equipping offenders with the skills they need to go straight on release?

[Jeremy Wright]

I agree with my hon. Friend. He is right to cite the Shannon Trust. Its Toe by Toe project is an extremely good example of what we are discussing. We will help it in any way we can. I hope that he will hear a little more about that over the rest of the summer. The important changes we have made to the incentives and earned privileges scheme go beyond simply what we may take away from prisoners; they are also about the incentives we give them to help other prisoners. In order to reach the enhanced level of the scheme, a prisoner will have to help someone else in prison. That is a good opportunity for more mentoring and more learning coaching of the type he describes.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

How supportive is the Minister of creative agencies getting into prisons to help improve language and literacy, and is he aware of any barriers they might have experienced to running workshops in prisons?

[Jeremy Wright]

I am certainly in favour of anything that can be demonstrated to assist in reducing reoffending, but there is another test that needs to be applied: a public acceptability test. The public have certain expectations of what should and should not happen in prison, so we need to apply that filter, but I am certainly interested in imaginative ideas that will help to drive down reoffending rates.

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

Can the Minister assure the House that improving literacy among prisoners is provided equally across the United Kingdom? What consultation has he had with the Minister of Justice in the Northern Ireland Assembly?

[Jeremy Wright]

I understand the hon. Gentleman’s point. I think it is important to learn from good practice wherever it happens across the United Kingdom, and we will continue to try to do that.

[John Pugh (Southport) (LD)]

15. What impact assessment he has conducted on the potential effect of his proposed changes to legal aid on the quality and equity of legal representation in criminal cases.

[The Lord Chancellor and Secretary of State for Justice (Chris Grayling)]

Although we are clear that we must continue to bear down on the cost of legal aid, under our proposals, and indeed under any actions we take, quality legal representation will still be available to all who need it.

[John Pugh]

I congratulate the Government on having the political maturity to rethink their proposals. Does the Secretary of State agree that we cannot compromise the quality of British justice, even in a time of austerity?

[Chris Grayling]

I agree with my hon. Friend. Of course, I regard the qualifications available to both the solicitors’ profession and the Bar in this country as of a high international standard. If a qualified solicitor or barrister is available to help somebody in a legal predicament, that is a sign that we are doing the right thing to support them and that will not change.

[Derek Twigg (Halton) (Lab)]

Why, then, did the Secretary of State think it was a good idea to limit whom a person can pick to be their solicitor?

[Chris Grayling]

My key concern is to ensure that we have universal coverage, even in tough times. I have consulted the legal profession, put forward ideas and listened, which I think is what they hoped a Government would do. I have made a modification, but nobody, and certainly not the Labour party, should be under any illusions: we have to meet financial targets and tough decisions lie ahead. The question is whether the Opposition support those changes, because I have heard no suggestion that they would reverse them.

[Mr Andrew Turner (Isle of Wight) (Con)]

My right hon. Friend and I have already spoken about this subject. I believe that there would be very great difficulties for people in need of legal aid on the Isle of Wight. The travelling times and the difficulty and cost of accessing legal advice on the mainland would be of a completely disproportionate magnitude to those experienced elsewhere in the country. Will he outline how he plans to address that problem?

[Chris Grayling]

One of the comments from colleagues in the House and elsewhere, which we must clearly factor in when developing the next stage of the proposals, is what we will do in areas that are rural or have particular geographical issues. That is something I am very mindful of—

[Karl Turner (Kingston upon Hull East)]

It is a mess.

[Chris Grayling]

It is all very well for Labour Members to say that it is a mess, but we are making changes that they recommended and said were necessary. We are making a financial decision to sort out a mess they left behind. [Interruption.] Where do they stand?

[Mr Speaker]

Order. The hon. Member for Kingston upon Hull East (Karl Turner) should not keep prating noisily from a sedentary position. When he was practising at the Bar, he would not have behaved like that in the courts. Due decorum should be observed by the hon. Gentleman.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

This Government’s handling of the proposed changes to legal aid has been absolutely shambolic. Not only are they proposing to restrict access to legal aid—a right that goes back to Magna Carta—but their proposal will actually cost more. When will the Minister get a grip?

[Chris Grayling]

Sometimes, Mr Speaker, you have to pinch yourself when you hear Labour Members. It is true that we are going to limit access to legal aid to people who have a net disposable income of more than £3,000 a month after tax, national insurance, mortgage payments, food, council tax, and child care. My view is that if people have that much disposable income, they can make a contribution. Labour is only a party for the rich these days.

[Mark Menzies (Fylde) (Con)]

16. What assessment he has made of recent trends in the development of judicial review.

[The Parliamentary Under-Secretary of State for Justice (Mrs Helen Grant)]

There has been a significant growth in the number of judicial review claims, increasing by 86% between 2007 and 2012. Judicial review will continue to play an important role in holding Government and others to account.

[Mark Menzies]

Does the Minister agree that too much time and money are being spent on weak and unmeritorious cases, and that this needs to be addressed with some urgency?

[Mrs Grant]

My hon. Friend makes an excellent and astute point. Judicial review is a crucial check on the power of the state, and it will remain so. However, it is also subject to abuse—stifling innovation, frustrating reforms and incurring considerable cost. Our reforms will tackle the burden while maintaining the benefits of the rule of law and access to justice.

[Robert Flello (Stoke-on-Trent South) (Lab)]

Aside from the near impossible job of getting the Attorney-General to quash an inquest, the only route that families have to challenge a coroner’s decision is through judicial review. The Government have already stopped bereaved families having a proper coroners appeal system. Is not the restriction of judicial review a further kick in the teeth for bereaved families?

[Mrs Grant]

I do not agree with the hon. Gentleman. He is well aware of the actions that have been taken for bereaved families. I will not go into too much detail now, but I will say, picking up the point about judicial review, that these proposals strike the right balance and a fair balance, and they are proportional and targeted. The system is already subject to abuse. The reforms that we will put forward will not restrict access to justice or the rule of law, nor the right to a fair hearing.

[Kelvin Hopkins (Luton North) (Lab)]

T1. If he will make a statement on his Departmental responsibilities.

[The Lord Chancellor and Secretary of State for Justice (Chris Grayling)]

My hon. Friend the Member for Bury North (Mr Nuttall) has already referred to the new prison in north Wales, and I thought it might be helpful to update the House on our plans. The purpose-built institution that we are planning will hold about 2,000 prisoners and bring about 1,000 jobs and a £23 million boost each year to the region’s economy. We expect work to start on the build in summer next year, with the aim of being fully operational by late 2017.

I want to put on record my thanks to the Welsh Government and the local authorities in the region for their co-operation in helping this, the first prison in north Wales, to become a reality. We will announce the specific set of sites in due course. I believe that this is the right thing for this part of the country and the right way to meet prison capacity demands. New prison builds represent much better value for money for the taxpayer, but as the recent report from Policy Exchange recognised, they are also the right way for us to cut this country’s stubbornly high reoffending rate. That is another reason why the announcement of this Government investment is such welcome news.

[Kelvin Hopkins]

Only two years ago the probation service was awarded the British Quality Foundation Gold Medal for Excellence and was lavishly praised by the then responsible Minister, who was later sacked to be replaced by hard-line privatisers who are now determined to force more public money into private pockets, whatever the consequences. Is not that the simple truth?

[Chris Grayling]

It is important that Labour Members understand what they are saying when they oppose these reforms. Every day of every week, a young person, very often somebody who has grown up in the most difficult circumstances and found themselves with a short sentence in jail, is walking back on to our streets with £46 in their pocket and no support, and the majority reoffend. That is a scandal, it needs to stop as quickly as possible, and that is what we are aiming to do.

[Mr Gary Streeter (South West Devon) (Con)]

T2. May I commend my right hon. Friend for his courage in trying to tackle the legal aid budget, which certainly does need to be addressed, and thank him for the genuine consultation exercise on which he has embarked? May I gently suggest to him that, in particular, the plans for large criminal law legal aid contracts in rural areas need to be looked at? I am concerned about the decimation of specialist firms in Plymouth. I support his approach, but could he please look again at that issue?

[Chris Grayling]

I can give that assurance. As I said a moment ago, this is one of the things that has come out of the consultation—it is a genuine consultation, although I know that Labour does not believe that it should be genuine—and we are listening and I will review it over the next few weeks.

[Sadiq Khan (Tooting) (Lab)]

And all said with a straight face!

It is a statement of fact that the Justice Secretary’s plans for the probation service will lead to serious sexual and violent offenders being supervised by the likes of Olympic security and Work programme experts G4S, A4e and others. Why has he refused my freedom of information request to see the risk register for these plans?

[Chris Grayling]

Labour simply will not accept the need for change and for those under-12-months prisoners to be supervised. As the right hon. Gentleman knows, when his party was in government he did not publish risk registers, either. This is another example of Labour doing one thing in government but wanting the rules to change the moment it moves into opposition. It is very unedifying.

[Sadiq Khan]

May I gently advise the Justice Secretary to seek advice from the Leader of the House, the former Secretary of State for Health, about how that movie ended for him?

The rest of us saw leaks of the risk register in last week’s media. What would the risk register need to say for the Justice Secretary to change his plans, or does he really not care?

[Chris Grayling]

Again, the right hon. Gentleman has conveniently forgotten what the purpose of a risk register is: it is a management document designed to ensure that we look at all the issues a project should address when formulating its plans and that we take the necessary steps to ensure that the process runs smoothly. That is what we are doing, and we are doing it because there is a large group of mostly young people on our streets who are likely to reoffend and have no support at all at the moment. I think that that is a problem worth sorting.

[Sir Nick Harvey (North Devon) (LD)]

T3. May I pursue a little further the point made by my hon. Friend the Member for South West Devon (Mr Streeter) about the impact of these legal aid changes in rural communities? Does the Secretary of State recognise that in remote communities like my North Devon constituency all this work is currently undertaken by small firms that will not be big enough to tender for contracts, and that if they are not able to keep the critical mass of work in this area, they will not be there to be subcontracted to by bigger firms? How far will my constituents have to go for legal representation in the future?

[Chris Grayling]

We need to ensure two things. We have to bring down the cost of criminal aid, so no change is not an option. We have consulted on a package of proposals and there will have to be change in the solicitors sector. The Law Society itself accepted that in a letter to the Select Committee yesterday. However, as I have said, one of the issues that arose from the consultation related to rural areas and we will consider it very carefully.

[Jeremy Corbyn (Islington North) (Lab)]

T4. In answer to questions asked by my hon. Friend the Member for Glasgow North East (Mr Bain) and others a few minutes ago, the Secretary of State and his colleagues were less than clear about the European convention on human rights. Which part of it do they object to and want to change, and are there plans to leave the convention altogether?

[The Minister for Policing and Criminal Justice (Damian Green)]

I am sorry that the hon. Gentleman did not hear my answer. There is genuine discontent about the way in which the perfectly reasonable articles in the convention have been misused in this country’s legal system, such that in many cases people who should not be able to use them misuse them in order to abuse this country’s hospitality by staying here when they have no right to do so and generally bring the whole concept of human rights into disrepute. The hon. Gentleman and I would agree that human rights ought to be the bedrock of a democratic society, but the problem with the current system is that that is in danger of no longer being the case. I would have hoped that he would welcome our attempts to reform it.

[Mr Philip Hollobone (Kettering) (Con)]

T5. If it is true that there are still almost 11,000 foreign national offenders in our prisons, what steps are being taken to negotiate compulsory prisoner transfer agreements with other nations so that these people can be sent back to secure detention in their own countries?

[The Parliamentary Under-Secretary of State for Justice (Jeremy Wright)]

My hon. Friend is absolutely right that that is the right objective. We have negotiated a compulsory prisoner transfer agreement with Albania, which is a high-volume country. That was concluded in January. We are making better use than ever before of the European Union prisoner transfer agreement. My hon. Friend will be pleased to hear that some 200 cases are currently processing through that method. We will remove as many as we can because, as my hon. Friend has heard me say before, the right place for foreign national offenders is their own country, not ours.

[Andy Sawford (Corby) (Lab/Co-op)]

T6. Is the spoof Twitter account @FailingGrayling a reference to the failing Work programme or to the rushed probation reforms, which are sure also to fail?

[Chris Grayling]

The Work programme is not in my remit now, but Members will have noticed that in the past couple of weeks we have published figures showing that more than 300,000 people have started work through the Work programme and that 132,000 of them have completed lengthy periods in work, all at a fraction of the cost of the programmes that we inherited from the previous Government.

[Mr Laurence Robertson (Tewkesbury) (Con)]

T8. The Secretary of State has expressed his concern recently about the use of cautions for people who commit burglary. What progress has he made on strengthening sentences, particularly for those who have been convicted of burglary, because it remains a serious offence?

[Damian Green]

I share my hon. Friend’s concerns. He will know that burglars now face sentences of up to 14 years and that those who commit a third domestic burglary face a minimum sentence of three years’ imprisonment. I am also happy to inform him, and those who are chuntering on the Opposition Front Bench, that the number of burglaries is clearly going down. Over the past 12 months, the number of burglaries has fallen by 3,000. That is an example of how our police reforms are working and how crime is falling in this country.

[Mr William Bain (Glasgow North East) (Lab)]

T7. The Conservative party has always claimed to be suspicious of an over-mighty state. Why, then, do the Justice Secretary’s plans for judicial review reform strengthen the role of the state at the expense of the rights of individual citizens?

[Chris Grayling]

I do not believe that anyone should just be able to make a case, find a lawyer and have the initial application paid for. That is what we are going to change.

[Ian Swales (Redcar) (LD)]

T9. In its court translation services, Capita is delivering only 90% compliance against a contract level of 98%. Will the Minister tell the House the overall cost of that failure to the Courts Service and the total amount of the penalties that have been levied on Capita?

[The Parliamentary Under-Secretary of State for Justice (Mrs Helen Grant)]

The were difficulties and teething problems at the beginning, but the contract is now running at a very good success rate. The contract saved the taxpayer £15 million in the first year. I believe that it will be more effective, accountable and transparent than the previous version.

[Ian Mearns (Gateshead) (Lab)]

T10. There are significant questions of confidence relating to the Justice Secretary’s plans to privatise courts, not least from the Lord Chief Justice, and the Justice Secretary’s own officials have little confidence in his plans to privatise the probation service. Does anyone in the criminal justice system have any confidence in the Justice Secretary?

[Chris Grayling]

I am grateful to the hon. Gentleman for giving me the chance to make it clear that I have no plans to privatise the Courts Service. I have every intention of giving it additional commercial freedoms so that it is able to charge a proper rate from those who can afford to pay it. For example, when Russian oligarchs come to London to use our courts, it is right and proper that they should pay a significant amount for the job, as well as their substantial legal fees. I am sorry to hear that the Labour party is championing low bills for the rich and not the right job for this country.

[Mr Henry Bellingham (North West Norfolk) (Con)]

Will the Secretary of State refute again the ridiculous scare stories? Does he agree that even combined courts in the counties can be more flexible, efficient and innovative, and that any talk of privatisation is ridiculous?

[Chris Grayling]

My hon. Friend is absolutely correct. What we are hearing from Opposition Members throughout this sitting is that they are the same old Labour party: they have no answers to any of the problems, they oppose any change and they oppose savings. Frankly, they are not fit to be an Opposition, let alone a Government.

[Ann Coffey (Stockport) (Lab)]

The appointment of registered intermediaries is an underused special measure for child witnesses. Because children do not hear or understand language in the same way as adults, they can find cross-examination very confusing. What more can Ministers do to encourage the appointment of registered intermediaries to help children give good quality evidence in court?

[Damian Green]

The hon. Lady is right that registered intermediaries do an extremely good job. On the wider front, I hope she is aware of the measures that we are taking to protect vulnerable witnesses and young vulnerable witnesses in particular. We have announced the reform that will allow them to give interviews by video link, so that they do not have to be in court; we are looking at ways to avoid unnecessary multiple cross-examinations by barristers; and we are piloting ways of allowing them to give evidence by video in advance. We have a number of ways to protect such witnesses.

[Duncan Hames (Chippenham) (LD)]

I understand the need to bear down on costs that is driving the Lord Chancellor’s legal aid reforms. Given the disproportionate cost of defending corporate fraud cases, will he consider other ways to make savings, such as requiring those costs to be met out of companies’ public liability insurance?

[Chris Grayling]

I am all in favour of making anyone involved in our court system make greater use of insurance, as they do in Germany. However, it is a difficult place to get to if we are asking victims of crime to contribute to the cost of prosecuting that crime.

[John Cryer (Leyton and Wanstead) (Lab)]

Further to Topical Question 1, will changes to the probation service mean that reoffending rates rise or fall? I am not asking for another paean for privatisation—will reoffending rates be cut or will they rise?

[Chris Grayling]

Evidence from where we have put such changes into practice in Peterborough—we have just published the first findings of the kind of mentoring approach I am talking about—shows a noticeable drop in the level of reoffending. I am confident that the reforms will deliver that. It is much needed.

[Graham Evans (Weaver Vale) (Con)]

What plans does my right hon. Friend have to improve the number of court cases that go ahead on the day that has been scheduled, in order to reduce the upset caused to victims and witnesses?

[Damian Green]

My hon. Friend is right to identify that problem. We have just published a wide-ranging transformation of the criminal justice system, which will include much better use of technology to ensure that information available to the court helps the case go ahead on the day. There is also the use of more specialist courts for high-volume regular business that can be taken out of magistrates courts. That will enable magistrates to use their expertise where it is used best—in more complex cases—and enable cases to go ahead more often on the day planned, for the greater convenience of victims.

[Fiona Mactaggart (Slough) (Lab)]

Will the Secretary of State promise the House that if he were to close a women’s prison, he would ensure that some of the savings that arose went towards preventing women from going into prison in future?

[Chris Grayling]

The answer is yes. Our probation reforms will also involve greater mentoring support for those who receive community sentences. Our aim is to stop people going to prison in the first place, and help prevent them from going back if they do end up in prison.

[Gavin Barwell (Croydon Central) (Con)]

My constituents expect prison to be a place of punishment and rehabilitation, not to provide a more comfortable lifestyle than the one inmates enjoy on the outside. Will the Minister explain how the incentives and earned privileges scheme will operate in the new prison planned in north Wales, and say whether daily life will be significantly different from elsewhere?

[Jeremy Wright]

My hon. Friend will be pleased to hear that the incentives and earned privileges scheme will operate in all our prisons from 1 November. It will mean that prisoners have to earn their privileges by doing more than just keeping their nose clean, and by engaging in their own rehabilitation. That is good for combating reoffending, and is the sort of process that people would expect to happen in our prisons.

[Several hon. Members]

rose—

[Mr Speaker]

Order. I would love to hear from more colleagues but we must move on.

Afghanistan and EU Council

Tuesday 2nd July 2013 Commons Chamber

12:32

[The Prime Minister (Mr David Cameron)]

With permission, Mr Speaker, I would like to make a statement on Afghanistan, and also report back on last week’s European Council.

I visited Afghanistan on Armed Forces day, to pay tribute to the extraordinary men and women who risk their lives every day to serve our country. We should remember in particular the 444 who have lost their lives in Afghanistan. I hope the whole House will welcome the decision to use money from banking fines to build a permanent memorial at the National Memorial Arboretum in Staffordshire so that our generation—and every future generation—can remember and honour the sacrifice that they have made for us.

We are in Afghanistan for one reason: to protect our national security by stopping that country being used as a base from which to launch terrorist attacks against our people and our allies around the world. That requires a security response: resisting Taliban insurgent attacks, driving out al-Qaeda, and training Afghan forces to take on that task for themselves. It requires a political response: supporting the Afghans to build a more peaceful, democratic and prosperous future, including a peace process. It also requires a diplomatic response, working in particular with Pakistan, which has a vital role in fighting terrorism in the region. Let me take those three points in turn.

On security, four years ago three quarters of the most serious terrorist plots against the UK had links to Afghanistan and Pakistan. Today, it is less than half. British and international forces have stopped Afghanistan acting as a safe haven for al-Qaeda, and Afghan forces are taking the lead on security right across the country. At the weekend I went to Camp Bastion, Lashkar Gah and the forward operating base at Durai. The British forces I met are absolutely clear about the capability, confidence and leadership of the Afghan forces. Afghan forces already deliver 90% of their own training, and all the 1,000 police patrols in central Helmand each week are now conducted alone without international security assistance force support. It is that growing capability that enables us to draw down our troops. Our numbers in Afghanistan have already reduced from 9,500 to 7,900. By the end of this year, they will be about 5,200. Until recently, we were in 137 different bases. We are now in 13 bases and by the end of the year it will be four or five bases. By the end of next year, when Afghan forces take on full security responsibility, there will be no British troops in any kind of combat role at all. Beyond 2014, small numbers of British troops will remain to help the Afghans deliver their national army officer academy, and this was a request from the Afghan President himself. We will also contribute £70 million a year as part of international financial support for Afghan security beyond 2014.

A strong security response must also be accompanied by a strong political response. In Helmand, we have been working for many years to support the development of better governance, local justice, public services and the chance for Afghans to build sustainable livelihoods that do not involve drugs. Some 130,000 children are now in school, including 30,000 girls—something that would have been impossible under the Taliban—and 80% of the population can now get health care within 10 km of their home. At the national level, the political process is moving forward too. At the weekend, President Karzai assured me of his commitment to the first peaceful democratic succession of power in living memory, following next year’s elections at the end of his second and final term. More than 50,000 new voters have already registered, including over 10,000 women. Britain is supporting this with £4.5 million of aid targeted specifically to increase women’s participation.

The progress in Afghanistan is a challenge to the Taliban. The combination of the successful build-up of the Afghan national security forces and progress on the ground demonstrates that the way to a role in Afghanistan’s future is not through terror and violence, but only by engaging in a political process. So I welcome plans to begin direct talks with the Taliban. The peace process must be Afghan led, but we should do all we can to support it. That does not signal any weakening of our security response, but if we can persuade people that there is a legitimate political path for them to follow, we should do so.

We also know that the problems in Afghanistan will not be solved in Afghanistan alone. The support of neighbouring countries such as Pakistan will be vital. On my visit to Pakistan, I was greatly encouraged by the commitment of the new Prime Minister, Nawaz Sharif. His election was the first ever democratic transition in that country from one elected Government to another. I believe that that represents a precious sign of progress in Pakistan. We discussed our trade, economic and cultural ties. We also agreed to work together in countering extremism and radicalisation, investing in education, tackling poverty and dealing with all the issues that can fuel terrorism. Building on the trilateral process I have been leading between the UK, Afghanistan and Pakistan, I welcomed the Prime Minister’s commitment to working with Afghanistan in defeating terrorism across the region.

Let me turn to last week’s European Council. This was rightly focused on sorting out Europe’s economy by doing what we are doing in Britain: getting a grip on spending and supporting private enterprise to create jobs and growth. On spending, the Council finalised, with the European Parliament, the seven-year budget deal we successfully negotiated in February. This agreed new flexibilities between different years and between different budget headings. Crucially, the deal delivers, for the first time, a real-terms cut in the credit card limit for EU spending for the next seven years. There was no change to the February deal, which set total payments at €908.4 billion across the next seven years. That compares with €943 billion in the past seven years. However, in this process there was a further attempt to unpick the British rebate. In February, after repeated attempts to water down the rebate, we reached a clear deal that it would remain unchanged. This was reflected in the Council conclusions that I reported back to this House. The discussion that took place was not necessary and frustrating, and it was frankly unacceptable that we had to go through it all over again. The proposal to remove our rebate on agricultural spending in new member states would have cost the British taxpayer more than £1.5 billion. That has now been categorically rejected. We will continue to get the rebate in the years ahead on the same basis that we do now. It is fair, it is right, and, unlike the previous Government, this Government will not agree to weaken it or give any part of it away.

At the Council there was a particular focus on tackling youth unemployment by supporting the private sector to create jobs and tackling burdens that hold back our businesses competing in the global race. [Interruption.] What we did—to answer the shadow Chancellor—was agree that the European Investment Bank would increase its lending by 40%, with more finance for small and medium-sized businesses. We agreed to do more to help young people not working to acquire the skills that the private sector needs through proper educational training—very much along the lines of Britain’s £1 billion Youth Contract. We also agreed to scrap unnecessary EU regulation, which ties up our businesses in red tape when they should be growing and creating new jobs. To give additional detail and urgency to the Commission’s work, in the UK we will establish a new business task force with six of our best business leaders to take a fresh and ambitious look at the impact of EU regulation on our companies.

It is vital that we expand our trade and increase overseas investment into the UK. That is one of the reasons I was the first serving British Prime Minister to visit Kazakhstan on Sunday and Monday. Since 2000, that country has seen growth at an annual rate of between 8% and 9%. Per capita income has doubled and Kazakhstan has the potential to be the sixth largest oil and gas producer in the world. My business delegation signed deals worth over £700 million, all of which will help to create and sustain jobs right here in the United Kingdom.

Finally, the Council welcomed Croatia, which became the newest member of the European Union at the weekend. We also agreed to start negotiations on accession with Serbia, and on a stability and association agreement with Kosovo. When we remember what happened in the Balkans within our political lifetimes, it is a remarkable achievement that these countries are now joining or preparing to join the EU, with a sense of peace and stability. Britain is proud to support them.

Each of these steps at the Council was about doing what is right for Britain and right for Europe. It is in our national interest to get spending under control, to make Europe more competitive and to expand EU membership to the Balkan states. Openness, competitiveness and flexibility are vital elements of the fresh settlement that I believe is needed for the European Union. We want more of a say for national Parliaments and powers to flow back to member states, not just away from them. This is a new settlement that I intend to put to the country in a referendum within the first half of the next Parliament—a referendum that will give the British people the in/out choice they want and which my party will offer at the next general election. It is a referendum that my party will be voting for in this House on Friday, and I commend this statement to the House.

12:42

[Edward Miliband (Doncaster North) (Lab)]

May I start by associating myself with the Prime Minister’s remarks about Afghanistan? I join him in paying tribute to our troops for the extraordinary job they have done over the last decade. I join him, in particular, in remembering all those who have lost their lives—and their families and loved ones as well. It is right that the Government have set a date for the withdrawal of our forces from Afghanistan, but it is also right that the international community, including the UK, continues to make a contribution to Afghanistan’s long-term security post 2014.

Let me ask about post-2014 arrangements, political stability in Afghanistan and co-operation with Pakistan. On the arrangements for 2014 and after, can the Prime Minister provide a bit more detail on the specific nature of the UK forces’ role? Can he say whether, beyond officer training, there will be further responsibilities for any UK forces? Can he say at this stage what objectives will determine the length of stay of any residual UK force? On political reconciliation in Afghanistan, I agree with him about the importance of a proper political process. Can he tell us what the prospect is, in his view, of getting the political talks on track—including with the Taliban, which he mentioned in his statement—and on what timetable that might be possible, given the end-2014 deadline for our combat forces?

Turning to relations with Pakistan, I join the Prime Minister in recognising the vital bilateral relationship between Pakistan and the United Kingdom. I also join him in expressing the belief that the UK will need to build strong working relationships with the newly elected Pakistani Prime Minister, Nawaz Sharif, especially with regard to the future of Afghanistan. There is wide support across this House not just for an inclusive political settlement in Afghanistan, but for a regional settlement involving Afghanistan’s neighbours. That was the reason for the Prime Minister’s Afghanistan-Pakistan Chequers summit five months ago. In the communiqué there was a commitment to building

“a peace settlement over the next 6 months.”

Can the Prime Minister say what progress has been made since and what more can be done to achieve that goal?

Let me turn to the European Council. I join the Prime Minister in welcoming Croatia’s entry into the EU, the start date for EU-Serbia accession negotiations and the association agreement with Kosovo. On the European budget, the House was right to vote for a real-terms cut last October, and we support the recent agreement on the European budget and rebate, including the European Parliament’s agreement. It would be a shame to let this occasion pass without quoting the Prime Minister’s flowery words at his press conference last week. I am sure the House will be interested to hear that he said that

“in this town you have to be ready for an ambush at any time, and that means lock and load and have one up the spout”.

I have to say that that sounded more “Carry On up the Council” than “High Noon”, but let us leave that to one side.

Let me turn to the discussions on youth unemployment, which was supposed to be the main subject of the summit but which formed only a small part of the Prime Minister’s statement. There are 26 million people looking for work in the European Union, and nearly 6 million unemployed young people. Nearly 1 million of those young people—one in six across the European Union—are here in Britain. Targeting any extra resources at tackling youth unemployment is welcome, but does the Prime Minister really believe that the response was equal to the scale of the challenge?

At the press conference after the summit and again today, the Prime Minister said the Council had agreed to take action

“very much along the line of Britain’s…youth contract”.

That is worrying news. Last year, the Prime Minister launched the Youth Contract, which he said was

“going to do enormous amounts on youth unemployment”.—[Official Report, 9 May 2012; Vol. 545, c. 24.]

So will he explain why a survey of 200 employers last week revealed that none of them—not a single one—had used the Youth Contract to hire a young person? The Youth Contract is not the solution to Europe’s unemployment problem. Frankly, the summit did not mark the long-overdue recognition that the current economic approach across the EU is leaving millions of young people without employment or prospects, and fearing for their future.

Of course we should look at EU regulation, as the Prime Minister proposes, but does he seriously believe that that is the solution to youth unemployment, including in Britain? The European economy is struggling and the British economy has not grown as the Government promised. That is why nearly 1 million young people are still looking for work here in Britain. That is also why long-term youth unemployment is up by 158% since he took office and why his Youth Contract is failing. The truth is that the Prime Minister can hardly argue effectively for action in Europe on youth unemployment when he is so transparently failing here at home.

[The Prime Minister]

I am grateful to the right hon. Gentleman for his response. Let me take his questions in turn.

First, on the post-2014 position in Afghanistan, we have not taken any decisions beyond those that I have described on the officer training academy and the force protection that will go with that, and on the funding of the Afghan forces going ahead. In terms of other commitments, I would make the point that this country has played a very big part but we have also paid a very big price. So I think it is right to focus on the one thing we have been asked to do by the Afghans, and we will take pleasure in running the officer training academy rather than looking for ways to go beyond that.

On the political process, the timetable is urgent and we want the meetings to take place as rapidly as possible. I spoke to Mr Rabbani, who runs the High Peace Council and who is ready to meet and speak to the Taliban. We have to accept, however, that the opening of the Doha office and the way in which that was done and advertised have caused a setback and are deeply unpopular in Afghanistan. Nevertheless, the idea of a peace process, and of getting them to talk, is right, and I believe that it will happen.

I agree with what the right hon. Gentleman said about Pakistan and the democratic transition. I also agree with what he said about the trilateral process, which has helped to move the agenda forward. Since Chequers, for instance, there has been progress on the release of prisoners so that talks can take place, and other discussions on conferences, borders, police and military co-operation have also made progress.

The right hon. Gentleman talked about the EU, and mentioned my rather “flowery” language. The point I was trying to make is that we have to recognise that 27 other countries want to get rid of the British rebate, and we can add to them the European Council President and the European Commission. That is why you have to make sure that you take a tough approach and that you are ready for anything. We know that Labour’s approach is to go in with their hands up and waving a white flag. That is what you get. The difference between us is that we have kept the rebate while they gave so much of it away. That is the truth.

The right hon. Gentleman talks about youth unemployment. Let me point out to him that youth unemployment in the UK is down by 43,000 this quarter and down 60,000 since last year, but we are not in the slightest bit complacent. He asked about the Youth Contract, and 100,000 young people have used work experience, which has got many of them off benefits and into work. Our Work programme, according to the figures announced yesterday, has seen 320,000 people getting work. That makes it almost twice as successful as the flexible new deal.

In terms of international comparisons, over the last year youth unemployment fell faster than in the USA, Germany, Canada, France and Italy. [Interruption.] The right hon. Gentleman asked about the Youth Contract, and I have already told him that 100,000 young people are getting work experience. I know that Opposition Members think that that is not worth while, but we on the Government side think it is worth while.

What I thought was interesting about the right hon. Gentleman’s response was that we heard not a word about the referendum that we are going to discuss and debate on Friday. I think I know why. The right hon. Gentleman has said that he is not in favour of a referendum; the shadow Chancellor has said that it is pretty stupid not to have a referendum; his chief adviser has said that it is conceivable that they might have a referendum—mind you, his chief adviser thinks all sorts of things are conceivable. Now the Labour leader has a new approach, announced in The Sunday Times—that Labour is not going to talk about a referendum. I think I can sum up the right hon. Gentleman’s policy in three words: weak, weak, weak.

[Sir Peter Tapsell (Louth and Horncastle) (Con)]

May I ask the Prime Minister a question that I have asked other Ministers over the years? To which central authority will the Afghan national army owe its allegiance? As the army is mainly recruited and officer-led by Tajiks and Uzbeks, with the Pashtun very unrepresented, what is more likely than that there will be a civil war between the old Northern Alliance and the Taliban after 2014, which will put Afghanistan back into the chaos that existed when the Russians withdrew?

[The Prime Minister]

Let me try to answer all my right hon. Friend’s questions. In terms of the Afghan national security forces, which are getting towards the number of 340,000—a sizeable investment that the international community has made—the Afghan army will be accountable to the Afghan Government and the Afghan President. That is how it should work. My right hon. Friend is right to say that we still need to work on the balance of the different ethnicities in the Afghan national army, but Pashtuns are being recruited to it. I recently had the great honour of speaking at the passing-out parade of new officers at Sandhurst, and I gave an award to a Pashtun from Helmand who had passed out of Sandhurst and was about to serve in the Afghan national army.

My right hon. Friend’s point about the need to avoid a splintering of Afghanistan is absolutely right. We want to avoid that, and I think the Afghans want to avoid it. That is why it is so important that we continue, long after our troops have left the combat role, to fund the Afghan national security forces, as well as continuing to fund Afghanistan. If we do that, and if the successor to President Karzai properly balances and understands the different pressures in the country, I see no reason why it cannot stay together.

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

The Afghan forces have improved their capability year on year, but there are still challenges in logistics and equipment. I am told that there are no plans for us to pass over or gift any equipment to the Afghans—even some of the more theatre-specific equipment that we have acquired over the years. If all the ISAF countries adopt the same attitude, how are those challenges going to be met after the draw-down of the combat mission?

[The Prime Minister]

First of all, we look at all the equipment we have and at individual Afghan requests to see whether it is something that we can make available. The right hon. Gentleman is absolutely right to say that the capabilities of these forces have increased. As he knows, in talking to our forces out in Afghanistan, it is striking to find out that we are talking to people on their second or third tour, who have seen a radical improvement in what is available. One of the challenges is making sure that the Afghan army has all the enablers and all the assistance it needs—and the Americans are specifically looking at that problem. What has been noticeable about the recent attacks on Kabul is that they were dealt with entirely by the Afghan national security forces—and dealt with very effectively.

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

May I commend the Prime Minister for his decision to ensure that a proper memorial will be created at the National Memorial Arboretum—a decision that I am sure the whole House would welcome?

In the course of his discussions with the new Prime Minister of Pakistan, was there any consideration of the problems caused by the border tribal areas, which have been used in the past as a safe refuge for those elements of the Taliban determined to thwart the efforts of NATO and, indeed, to bring down the Karzai Government? So long as the borders remain porous and these particular areas provide safe havens, it will be very difficult indeed to achieve the objectives that our Prime Minister and the Prime Minister of Pakistan obviously agreed upon.

[The Prime Minister]

I am grateful to my right hon. and learned Friend for his question. The memorial at the National Memorial Arboretum is the right move and I think it is important that some elements of the very moving memorial at Camp Bastion are transferred to the arboretum so that there is real continuity.

The problem of the tribal areas in Pakistan, this problem has dogged the country for decades. I did discuss the issue with both the Afghan President and the Pakistan Prime Minister. The simple point is this: it is in both countries’ interests that the danger of Talibanisation is dealt with. It is a threat to Pakistan that there are Pakistan Taliban in Afghanistan, and it is a threat to Afghanistan that there are Taliban in Pakistan. Both countries need to understand their shared interest in dealing with both these threats. They need to recognise the importance of dealing with them together, so that we have a safe, stable and democratic Pakistan and a safe, stable and democratic Afghanistan.

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

When the Prime Minister discussed issues with fellow leaders at the weekend, did he mention to them his Bill on the referendum on Friday? In particular, what view was taken of the fact that he required the good offices of one of his Back Benchers to bring it forward as a private Member’s Bill and not a Government Bill?

[The Prime Minister]

I did not explain all the intricacies of parliamentary procedure, but during the very good debate on the future of economic and monetary union, which was one of the sessions of the European Council, I made clear the view that I have often made clear in this House—that, just as the countries within the eurozone need change and need to integrate more, so countries such as Britain, which in my view will not and should never join the eurozone, need changes, too. We need to make the European Union flexible enough to include both sorts of countries. I think there is a growing recognition that this is the case.

[Several hon. Members]

rose—

[Mr Speaker]

Order. Given that Ministers were originally proposing to have their names on the private Member’s Bill, it is probably as well that the Prime Minister was not seeking to explain the intricacies of parliamentary procedure to his European colleagues.

[Richard Ottaway (Croydon South) (Con)]

I quite agree with the Prime Minister that the correct message to the Taliban is that stability is best achieved not through violence, but through negotiations. Further to questions from the Leader of the Opposition, will my right hon. Friend say what the prospects for the talks are? To what extent are regional players going to be involved, and will Pakistan be a part of that regional settlement?

[The Prime Minister]

I think the overall prospects for talks between the Taliban and the High Peace Council—the right body in Afghanistan to hold these talks—are good. We have to recognise, however, that the way in which the Doha office was established, when it advertised itself as the Islamic emirate of Afghanistan, has caused a setback, and that is rightly deeply unpopular in Afghanistan. As I discussed with President Karzai, the sense is that it is in the interests of Afghanistan for all Afghans to see a Government and a future in which they can have confidence and for the Taliban to lay down their arms and stop fighting. That is in their interests, so although there has been a setback, the underlying logic of what needs to happen is still there.

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

When the right hon. Gentleman was in Islamabad, did he discuss with our high commissioner the operation of the entry clearance office, which is currently preventing the mother of a constituent of mine who is dying of cancer from visiting him in Manchester before he dies? Did he discuss with Nawaz Sharif the American drone attacks on Pakistan, which violate Pakistan’s sovereignty, kill very large numbers of innocent people and are a war crime, violating international law?

[The Prime Minister]

I did not discuss any specific cases with our high commissioner, but I did discuss with him the important operations of our visa processing and the very important work that he does. I think this is a good moment for me to pay tribute to our high commissioner and to his hard-working staff.

As for the second issue raised by the right hon. Gentleman, nothing was off the table during my discussions with Nawaz Sharif. I think that the right approach is to maintain a very tough security response to terrorism. There is no doubt that the presence of al-Qaeda in both Afghanistan and Pakistan has been radically reduced in recent years and that that has made us safer here in the United Kingdom, but we must ensure that such reductions are accompanied by the proper combating of terrorism in all its forms, which means ensuring that we deal with the underlying narrative on which the terrorists depend. It is with that combined approach that we will succeed.

[Mr William Cash (Stone) (Con)]

On the proposed EU-US trade deal, will my right hon. Friend tell us what are the contents and the areas covered by the negotiating mandate which was agreed behind closed doors last weekend? It is governed by a qualified majority vote of which the UK has only 12%, and it is an exclusive competence controlled by the European Commission. Can my right hon. Friend explain why the European Scrutiny Committee, which is looking into these matters, has not been supplied with the mandate, and can he tell us when we will receive it?

[The Prime Minister]

I can tell my hon. Friend that the discussions are going ahead on the basis of the maximum level of inclusion of all topics. I think it has been announced in the House that there is a reserve on audio-visual matters, as there has been with all the EU mandates for trade talks, but in this case, uniquely, there is the opportunity to opt back in to discussing those matters as well.

As for my hon. Friend’s point about the European Scrutiny Committee, I shall have to look into that and see whether there is anything I can do to help.

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

I welcomed the Prime Minister’s visit to Afghanistan, and I pay tribute to the bravery of our troops who are fighting terrorism there. While we must never forget the sacrifice made by those who have died in the field of conflict, can the Prime Minister assure us that the troops who return home—many of them wounded both in body and in mind—will receive all the attention they need?

[The Prime Minister]

I certainly want to give the hon. Gentleman that assurance. I think it is clear from the advances that have been made in recent years in the availability of defence medicine—in Afghanistan, in aircraft transporting troops back from Afghanistan, and here in the UK, at Queen Elizabeth hospital in Birmingham and then at Headley Court—that it is second to none, and that we can be proud of what we make available. However, we must think about what happens next as well, and that is what the centres of expertise around the country are all about. It is also important for us to proceed with the work on the military covenant that is being done by the Armed Forces Covenant Sub-Committee—chaired by the Minister for Government Policy—and to continue to channel resources into these vital areas.

[Mr James Gray (North Wiltshire) (Con)]

Most of the injured and the 444 British dead to whom the Prime Minister referred were brought home either through his constituency or through Royal Wootton Bassett in mine. The people of Britain are hungrily looking forward to the end of combat operations, and will welcome the withdrawal from a large number of forward-operating and patrol bases in Afghanistan that the Prime Minister has announced today. However, can he bring us up to date on what will happen to Camp Bastion once we have left Afghanistan? Will it remain as some kind of strategic base, or will we simply abandon it?

[The Prime Minister]

Let me first, through my hon. Friend, pay tribute to the people of Royal Wootton Bassett, and also to people in Carterton and Brize Norton in my own constituency, who I think have shown the best side of Britain in welcoming back, sombrely and properly, those who have fallen in combat operations in Afghanistan.

No final decision has been made about Camp Bastion, but it is likely that it could be used as one of the bases led by the Americans for the purpose of their continued presence in Afghanistan. That would obviously be quite helpful in terms of the timetable governing the return of our resources. However, as those who visit Camp Bastion will see, a great deal of work is being done to return kit to the UK now.

[Kate Hoey (Vauxhall) (Lab)]

Did the Prime Minister have any opportunity in the margins to discuss, even informally, the deteriorating situation in Zimbabwe, especially in the light of the EU’s removal of some of its restrictive sanctions? Will he continue to urge South Africa, and the Southern African Development Community generally, to send more international monitors to the country as soon as possible? If that is not done, we shall see another stolen election.

[The Prime Minister]

The hon. Lady speaks about this issue with great expertise. I did not discuss Zimbabwe at the European Council, but we did hold a National Security Council meeting relatively recently, at which our high commissioner in Zimbabwe was present. We have been working out how best to maximise the leverage and influence that we have in order to secure a proper election and a proper democratic transition, and that is why we have taken the steps in the European Union to which she referred. However, we keep all these matters under review to ensure that we do all that we can to assist the transition that Zimbabwe so badly needs.

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

If western work in Afghanistan is not to unravel after next year, one of two things must happen. Either the Taliban must be persuaded that they made a terrible mistake in giving house room to al-Qaeda, or the Americans must retain one or more strategic bases to dissuade them from offering it house room in the future. Does the Prime Minister know whether either of those things has happened or will happen?

[The Prime Minister]

I may be a little more optimistic than my hon. Friend, but I think the most likely outcome is that both those things will happen. One of the reasons why I think a peace process can get under way is the fact that, in recent statements, the Taliban have effectively said that they do not want Afghanistan to be used to harm other countries. I believe that the decoupling of the Taliban from al-Qaeda is well under way, and I think that that is positive.

I also do not believe that America, NATO, ISAF or any of us are walking away from Afghanistan, and I think that that is positive as well. As I have said, we will maintain the officer training academy and our funding of the Afghanistan national security forces, and I think it likely that the Americans will maintain a presence in the country—to be negotiated, of course, with the Afghan Government.

Obviously we want to see a peace process succeed, but, as we have always had to explain, our security response of training the Afghan national army and police force is the key part of making sure that the country will not fall back under Taliban or al-Qaeda control, and, having observed the effectiveness of those forces, I think we can be confident that they are capable of ensuring that that happens.

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

Will the Prime Minister take this opportunity to praise the skill, persistence and dedication of the European Union’s High Representative, Cathy Ashton, and her staff in securing the welcome agreement between Serbia and Kosovo on normalisation on 19 April? Will he also take this opportunity, while he is supporting further enlargement of the EU, to explain why we are in favour of other countries joining the EU, but many members of his party want us to leave?

[The Prime Minister]

Let me first pay tribute to Cathy Ashton and the very good work that she does in the European Union, which I see at first hand. We work very closely together, and I know that she works very closely with my right hon. Friend the Foreign Secretary. While some of the dossiers for which she is responsible must be immensely frustrating—I am thinking particularly of the Iranian negotiations—there is no doubt that she can take a huge amount of credit for the opening of accession negotiations with Serbia and the completion of the process of accession for Croatia. I made that very clear at the European Council meeting.

As for the hon. Gentleman’s comments about my party, let me point out that the Conservative party has always been in favour of the widening of the European Union. We have been arguing for that for decades. Indeed, we were arguing for it, and delivering it, in the 1980s, when the hon. Gentleman’s party stood on rather a different ticket.

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

For the many of us who supported the expulsion of al-Qaeda but opposed the morphing of the mission into one of nation building, this has indeed been a long and sad road, and that has been compounded by the fact that we should have been holding talks with the Taliban a long time ago. Will the Prime Minister therefore use his best offices to ensure that talks with the Taliban are truly unconditional? This has been a stumbling block in the past, particularly with the Americans.

[The Prime Minister]

Since the very first day on which I took office as Prime Minister in 2010, I have pursued the agenda of a peace process and a political process, and I have been discussing it with the Americans and others for all that time. Of course historians will argue about whether the Berlin peace conference of 2001 was established in the right way, but let us leave that to the historians; we should be dealing with the here and now.

I do not agree with my hon. Friend on one point. I think that a very important condition needs to be fulfilled. As my hon. Friend the Member for New Forest East (Dr Lewis) pointed out, there must be an understanding that the Taliban do not believe that Afghanistan should be used as a base for foreign attacks and that they will not allow it to be so used.

[Angus Robertson (Moray) (SNP)]

I am delighted that the Prime Minister finally acknowledges that the right place for a European nation with a population of 5 million is as an independent member state of the EU. However, on the issue of EU competitiveness, this week there was some good news about mobile phone roaming charges that I think Members on both sides of the House will welcome. That was a great success for the EU, although curiously the UK Government have published a report suggesting that somehow the old charges will remain in a sovereign Scotland. That has been reacted to by the Prime Minister’s deputy chairman in Scotland as “silly”, by Tory donor John McGlynn as “puerile”, and by his favourite Conservative commentator Alan Cochrane as “tripe”. Will the Prime Minister show some leadership and end these puerile, silly scare stories?

[The Prime Minister]

What the hon. Gentleman cannot hide from is the fact that the legal advice is absolutely clear—clear from the Government and clear from the European Commission. Of course, his party said it had legal advice, yet it had absolutely none, but the legal advice is clear. If Scotland votes to become independent it will have to queue up behind Serbia, behind Macedonia and behind Kosovo in order to get back into the European Union. That is the truth, inconvenient though it may be for the hon. Gentleman.

[Sir Tony Baldry (Banbury) (Con)]

Does my right hon. Friend agree that the country will not understand if Members of Parliament fail to engage in this Friday’s debate on the need for us to renegotiate our membership of the EU and to let the people decide in a referendum whether they want our membership of Europe on that renegotiated basis? This is not an issue that Parliament and Members of Parliament can run away from.

[The Prime Minister]

My hon. Friend, who has a long track record of support for the EU, makes a very sensible point, which is that when it comes to this Bill on Friday, and when it comes to the issue of a referendum, people can either be in favour of holding an in/out referendum or they can be against holding an in/out referendum, but surely they must have an opinion. My hon. Friends and I will be voting for that Bill; we will be voting in the Lobby on Friday. What is Labour going to do? Is it simply going to decide it does not want to talk about this issue? I think the whole country will find that completely feeble.

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

Is it not surprising that, in view of the considerable concern that has been expressed abroad over US intelligence operations against friendly European countries, including EU offices in Washington and New York, there was apparently no discussion of that at the European Council? Surely it is an item that should have been considered, and perhaps the Prime Minister can give us his views about what the US has been doing.

[The Prime Minister]

I say the same thing publicly and privately, and in the European Council and this House, which is that I do not comment on national security and intelligence matters as I think that would be wrong, but I think it is important to remember that our security services operate under the law. We do not use co-operation with foreign intelligence services to get around our own procedures here in the UK, and it is worth remembering that the intelligence and security gathering we do is of huge benefit to those partners, including many in the EU, with whom we share it. It helps to keep us safe and it helps to keep them safe, and we should praise what our intelligence and security services do on our behalf.

[Sir Malcolm Bruce (Gordon) (LD)]

Will the Prime Minister say how the women of Afghanistan may be represented in any talks with the Taliban, and what assurances can he give to the women of Afghanistan that their hard-won advances in terms of the right to education for girls and the right to a livelihood for women will be sustained in the 2015 settlement and thereafter?

[The Prime Minister]

My right hon. Friend asks an important question, and the answer to it is that the Afghan President and Government are absolutely clear that any discussions need to proceed on the basis of the Afghan constitution, which has safeguards on those and other issues. It is important to note that whereas in 2001 there were almost no girls in school in Helmand, there are now over 30,000.

[Keith Vaz (Leicester East) (Lab)]

I was pleased to hear from the Prime Minister, in answer to my hon. Friend the Member for Ilford South (Mike Gapes), that he is still a passionate champion of enlargement, but does he agree that it is not sufficient just to welcome countries like Croatia into the EU, as we need to support them to ensure they are of benefit to the EU, rather than a burden?

[The Prime Minister]

I agree: we should support Croatia, and we have agreed to the use of the European budget to make sure Croatia gets its receipts from the EU as well as making its payments into the EU. The strength of widening the EU is not only that when those countries come in they become even greater trading partners and investment partners for Britain, but that as part of the process of preparing to join they have to put their own houses in order to tackle corruption, improve the rule of law and so forth. We have seen that in Croatia, we are seeing it in Serbia, and it is very welcome.

[Mr Peter Bone (Wellingborough) (Con)]

Last night I had a phone call from Afghanistan, from my son. He wanted to express to this House how much the serving members of our armed forces who are out there appreciate the efforts of the Prime Minister in coming out there and speaking to them personally. I hope the Prime Minister will accept those thanks.

[The Prime Minister]

May I, through my hon. Friend, thank his son for his service in Afghanistan? We have been there for many years now, and we come across people now who are on their second or third tour of Afghanistan—people who have spent many months of their lives working under very difficult conditions. We can be proud of the fact that when we sit in a room with our armed forces and ask them about the job they are doing, the morale is high; they are enthusiastic about the capabilities of the Afghan security forces, and they are also enthusiastic about the kit they receive. There are still issues we need to deal with—more access to wi-fi and one or two other things—but generally speaking I found people in high morale who are enthusiastic about the job they are doing.

[Yasmin Qureshi (Bolton South East) (Lab)]

The Prime Minister’s usual advisers are gentlemen in uniform, but may I ask him to reconsider the use of drones in Afghanistan and Pakistan, because a consistent body of evidence has shown that drones have killed far more civilians than al-Qaeda operatives, and with countries such as Pakistan openly objecting to the use of drones, that is also a violation of their sovereignty? Please will the Prime Minister therefore take a thorough relook at this whole issue of drone use?

[The Prime Minister]

As this issue relates to Pakistan, it is an issue for the United States and Pakistan, although what I have said about the huge damage that has been done to al-Qaeda is beyond debate; it is a fact. On Afghanistan, I think it is important that we give our armed forces every protection they can possibly have, and the use of ISTAR drones and other cameras and the like have done a huge amount to keep our armed forces safe and to make sure we defeat the Taliban insurgency.

[Richard Drax (South Dorset) (Con)]

What exactly does the Prime Minister mean by “fundamental renegotiation” of our relationship with the EU?

[The Prime Minister]

As I set out in the speech I made at the end of January this year, I believe we need to recognise that change is taking place in the EU. That means the single currency countries will have to integrate further, but it should be available to non-single currency countries to see powers flow back to them. I gave one example my hon. Friend might be interested in: I think the phrase “ever closer union” should be disapplied from the United Kingdom. I do not think it is ever something we in this country were comfortable with. It was something we never really wanted to sign up to in the 1970s. I think we do need that different sort of European Union, and then to give people the choice about whether they want to join or leave it.

[Jeremy Corbyn (Islington North) (Lab)]

Can the Prime Minister help me by telling us what he really thinks about Afghanistan? We have been there for 12 years, we have lost over 400 soldiers, thousands of others have died, £17 billion has been spent, an illegal drone war is going on in Pakistan and neighbouring countries, and now there are talks with the Taliban in Qatar. Does he not think it is time to reassess the whole question of intervention, what it does in terms of the hatred between this country and others around the world, and what it does to the peace of the world as a whole?

[The Prime Minister]

Where I take such a different view from the hon. Gentleman is that we know what non-engagement with Afghanistan leads to, because that is what happened after the end of the fall of the previous regime. There was a process when the world looked away from Afghanistan, and we paid the price in a civil war that went on for years, with plummeting living standards, rampant poverty, and a country that went backwards in every regard, and then became, under the Taliban, a haven for al-Qaeda extremists who carried out plots, killing people on our soil, in America, and in other parts of the world. That is what happens when we do not engage.

Of course, the state of Afghanistan is not perfect, but after all the investment and the sacrifice we can at least say, “Here is a country where there are not active plots against Britain being hatched. Here is a country that is making economic and social progress. Here is a country with an elected President that is looking forward to a democratic transition. And here is a country that has got security forces which have a good prospect of maintaining Afghanistan into the future.” That is the result of engagement. We know the results of disengagement, and I know which I think is better.

[Jason McCartney (Colne Valley) (Con)]

The Yorkshire Regiment will be marching through Huddersfield later this month on a freedom parade. Does the Prime Minister agree that freedom parades are a fitting way for our communities to pay tribute to our brave servicemen and women for their contribution in Afghanistan?

[The Prime Minister]

My hon. Friend makes a very good point, which is that there is a yearning in this country to find new ways to recognise what our armed forces do and all they represent. For some years in the past—this is not a political point; I think that the last Prime Minister recognised this—we did not really do enough and we were not quite sure how to show our appreciation. Armed Forces day was a good step forward and the military covenant is a good step forward—[Interruption.] The hon. Member for North Durham (Mr Jones) says it was a Labour achievement, but I think he will find that the military covenant was put into law by this Government. I was attempting not to make a political point, but he made me diverge. I also think these parades are a great way, on a cross-party basis—on a no-party basis—of everyone turning out on to our streets and saying thank you.

[Paul Flynn (Newport West) (Lab)]

Will the Prime Minister seek to change the rules of this House so that the names of the fallen can be honoured by being read out in this Chamber—the same Chamber that sent them to their deaths? What lasting achievements have there been in Afghanistan that justify £37 billion of taxpayers’ money and 444 deaths?

[The Prime Minister]

We do read out the names of those who have fallen, and we rightly pay tribute to them because they have made the ultimate sacrifice on behalf of our country and our security. The hon. Gentleman asked what this has achieved, and the point I make is that before 2001 Afghanistan was a haven for terrorists who were plotting actively to do harm to people in this country and elsewhere, but since 2001—he can ask the security services about this himself if he wants—there have not been major, serious plots hatched in Afghanistan and carried out against us. That is a big and important achievement, but we also have to look at the capacity Afghanistan has today to continue to deliver that. When I first visited Afghanistan in 2006, there were no Afghan security forces in Helmand province; they did not exist. They have been built from scratch. I do not think we honour those who have paid this price by talking down, in any way, the extraordinary achievements that we have seen there. That is not to say that things are perfect—of course they are not—and it is not to say that there is not more that needs to be done, but on the ledger of Britain’s engagement in Afghanistan, we should correctly identify the good points as well as the difficulties that still remain.

[Jeremy Lefroy (Stafford) (Con)]

I welcome the focus on tackling youth unemployment at the European Council. What confidence does my right hon. Friend have that that will not be just a one-off declaration, but a determined and long-term effort to defeat this scourge?

[The Prime Minister]

I am grateful for my hon. Friend’s question. Of course the €6 billion package is important, and €400 million of that is available for spending in the five regions of the UK with the highest rates of youth unemployment. But there is a growing recognition in the European Union that simply spending money on schemes is not going to be enough; it is the structural changes that we need, because the European Union contains countries, such as Germany or Holland, with youth unemployment rates of about 9%, and countries, such as Spain, where the rate is more than 50%. The structural reforms and the flexibility of the labour markets also need to be addressed.

[Diana Johnson (Kingston upon Hull North) (Lab)]

The Prime Minister said that £4.5 million was being made available to increase women’s participation in Afghanistan. Can he spell out how that will be used to ensure that women’s voices really are heard in the direct talks with the Taliban?

[The Prime Minister]

That specific piece of money, which is part of an overall large Department for International Development budget, is simply about getting women to register to vote. At the moment, the new electoral registration laws are being passed through the Afghan Parliament, and it is very important that women register to vote in the forthcoming presidential election in April next year.

[Neil Carmichael (Stroud) (Con)]

I certainly welcome the news that the European Investment Bank is going to increase its investment in small and medium-sized businesses by 40%. I would like to see the same in some other banks. Is there any genuine appetite to include energy in a more competitive framework, perhaps a single market?

[The Prime Minister]

First, Britain supports the EIB. Our policy has always been one of saying, “Look, on fiscal policy we do have to take tough and radical actions, but on monetary policy we should be looking at all the ways we can help to get money from banks and other institutions into businesses.” That is what the funding for lending scheme is all about and what this EIB expansion should be about. On energy, we continue to push for the completion of the energy single market, where progress has been made, but it is an ongoing battle.

[Jonathan Ashworth (Leicester South) (Lab)]

The Prime Minister is right to say that we need to expand trade and overseas investment, and I am pleased that he discussed trade with the Prime Minister of Pakistan. Does he think that his efforts on trade will be helped or hindered if the Home Secretary imposes a £3,000 visa bond on visitors from India and Pakistan?

[The Prime Minister]

What the Home Secretary is looking at is the idea of using bonds in some immigration circumstances to make sure we do what needs to be done and what the previous Government did not do, which is to differentiate between people who want to come here to contribute, for example, by studying at a British university and those who want to come here simply as economic migrants. We need an immigration policy that really does have an emphasis on quality and on control, and that is exactly what we have. One of the points I was able to make in Pakistan, as I made in Kazakhstan and as I have made before in India, is that under our rules there is no limit on the number of overseas students who can come to study at a British university. There is no limit at all; they just have to have an English language qualification and a place at a British university. That is what is required. But, at the same time, we have shut down about 180 bogus colleges that were operating while the hon. Gentleman was assisting his Government.

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

I join the Prime Minister in again paying tribute to our armed services. Many of us, including me, did that at the armed services events in our communities at the weekend. Against the welcome background of the knowledge that our troops are going to come home and that there will be a conflict resolution process involving the Taliban, will the Prime Minister say what role he envisages for UK troops or civilians, and people from neighbouring states to make sure that the elections in Afghanistan in 2014 are peaceful, democratic and respected?

[The Prime Minister]

My right hon. Friend makes a good point about these important elections. Obviously, security in Afghanistan is now provided predominantly by Afghan national security forces, as are patrols, so they should predominantly provide security during the elections, in comparison with the last set of elections in 2009 in which we were more engaged. As for how we make sure they are as good a set of elections as they can be, obviously all sorts of international bodies will want to engage and we need to make sure that the elections are properly monitored.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

Khalsa Diwan Afghanistan, based in my constituency, has raised with me and with representatives of the Foreign Secretary its concerns for the welfare of minority Sikhs and Hindus in Afghanistan, and for the rights and representation of women. What commitment has President Karzai given in discussions with the Prime Minister to maintain women’s political representation and minority rights?

[The Prime Minister]

The commitment President Karzai has given me on this issue is that he remains committed to the Afghan constitution and he believes that any discussions with the Taliban should take place on the basis of a commitment to that constitution.

[Henry Smith (Crawley) (Con)]

At last week’s EU Council meeting, the greater mobility of young people was discussed as a way of tackling youth unemployment across the EU. Can I have assurances from my right hon. Friend that that will not lead to greater benefit tourism in this country?

[The Prime Minister]

I can give my hon. Friend that assurance. This Government are engaging with others in Europe to try to cut down on benefit tourism and to look at what we can do to make changes to the habitual residence test so that people can come to work but cannot come to claim benefits. It is also worth making the point that as new members join the EU, such as Croatia, this Government will put in place the transitional controls that should have been put in place when members joined under the previous Government.

[Hugh Bayley (York Central) (Lab)]

When we, on both sides of the Atlantic, bring our troops home from Afghanistan, one of the knots that ties the transatlantic relationship together will inevitably loosen. So may I ask the Prime Minister to comment not on the security matters, but on the political implications of the allegations in the newspapers about electronic eavesdropping by the United States on the EU? Will he say specifically what Britain can do to help to heal that rift between the US and other countries in the EU?

[The Prime Minister]

On the hon. Gentleman’s first point, I do not believe that the ending of combat operations in Afghanistan will in any way loosen the bonds between Britain and America. I think the Americans are deeply appreciative of the fact that we have been the second largest troop-contributing nation, understand the very high casualties that we have taken and also welcome the role that we play at the heart of the command structure. The commander of ISAF is an American general and the deputy commander is a British general, Nick Carter, with whom I spent some of the weekend. On the second issue, I have said all that I want to say. I do not comment on intelligence and security matters, but in this country we operate very clearly under a legal process.

[Rehman Chishti (Gillingham and Rainham) (Con)]

I congratulate the Prime Minister on being the first international world leader to visit Pakistan and meet Prime Minister Sharif, which clearly shows our two countries’ close collaboration and links. Will the Prime Minister clarify one point? Were discussions had with Prime Minister Sharif about reforming the madrassahs, the religious schools, in Pakistan, which have often been seeing as a recruiting ground for extremist and radicalised organisations? Does the Prime Minister agree that we need to ensure there is a wide spectrum of education in Pakistan, so that students can move away from ethnic and radicalised violence in the country?

[The Prime Minister]

In my discussions with Prime Minister Sharif, he made it very clear that his three priorities were the economy, energy and extremism. On combating extremism, I think that we agree not only that there is a need for a tough security response, but that we need to drain the swamp of extremism, including by reforming education. He particularly praised the work that British aid has delivered in the Punjab, where his brother is the Chief Minister. Sir Michael Barber—a well-known British civil servant—has worked his socks off making more than 30 visits to the Punjab and delivering a programme that has meant that millions of Pakistani children have had schooling that they otherwise would not have had. That is all down to his hard work and to British aid.

[Jim Shannon (Strangford) (DUP)]

I thank the Prime Minister for his statement. I had the opportunity two years ago to visit Afghanistan and, in particular, to visit Lashkar Gah, where the police recruits were being trained. The US Government have invested $6 million in their training college. The policing training might be rudimentary, but it is very important. Will the Prime Minister update the House on how many police officers are trained each quarter and whether they are on target to deliver sufficient police officers for all of Afghanistan?

[The Prime Minister]

I do not have the specific figures for police officer training, but in our monthly update to Parliament, which I instituted, Members can see the police training numbers, the army training numbers, the overall national security force training numbers and the retention numbers. This is a good moment to pay tribute to all those from Britain, including those from Northern Ireland, for the role that they have played in helping to train the trainers in those important programmes.

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

Does the Prime Minister agree that the accession of Croatia yesterday will increase the burden on the EU budget, as it will be another net recipient of EU funds?

[The Prime Minister]

That obviously puts a little extra pressure on the budget, which has been reflected, but it is a pretty modest additional amount. It is in Britain’s interests that the EU continues to enlarge and expand. Croatia has been added to what is already the world’s largest single market, and Britain as a trading nation will have all sorts of opportunities to increase our trade with and investment in Croatia. We will put in place the transitional controls available for new nations—the Government have already made that decision.

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

I welcome the Prime Minister’s leadership on deregulation in Europe. The Commission has been worse than useless at understanding the burdens that it places on our smallest businesses. How do Britain’s 5 million small and medium-sized enterprises input into the new taskforce that he set up last week?

[The Prime Minister]

I thank my hon. Friend for his question. We must recognise that the Commission has made some progress and we will probably get further if we credit it with that but push it harder for more, which is my tactic. It has consulted business on the top 10 most burdensome regulations. For the first time, it has committed to exempt micro-businesses with fewer than 10 employees from new EU proposals and has also looked through the forthcoming regulation and removed 17 new regulatory proposals. Overall, the burden on business is down by some 25% in recent years. There is some progress, but it is not going fast enough, which is why I am setting up a regulation review panel comprising Marc Bolland from M&S, Ian Cheshire from Kingfisher, Glenn Cooper from ATG Access, Louise Makin from BTG, Dale Murray, who is an angel investor, and Paul Walsh, the former CEO of Diageo. That is a list of very senior businessmen and women, and small businesses can write to them and send in their ideas for what they want changed.

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

I, too, am pleased that my right hon. Friend has been able to establish an early and productive relationship with the new Prime Minister in Pakistan. May I urge him to keep high on his agenda the treatment of the Hazara community, which continues to face severe persecution?

[The Prime Minister]

I am grateful to my hon. Friend for his comments. One of the advantages of getting in there early as the first Prime Minister to go and meet Prime Minister Sharif is that we can have that sort of dialogue. We have a full strategic partnership with Pakistan and a national security dialogue, so all these issues can be raised.

[Andrew Stephenson (Pendle) (Con)]

I congratulate the Prime Minister on being the first western leader to visit Nawaz Sharif following his election and the first peaceful and democratic transition of power in Pakistan since its independence in 1947. A lasting stable peace in Afghanistan cannot be achieved without the involvement of Pakistan, but trade, energy, relations with India and a whole range of other issues will be higher up Prime Minister Sharif’s agenda. What can our Prime Minister do to ensure that momentum on Afghanistan-Pakistan relations is not lost?

[The Prime Minister]

My hon. Friend makes a good point. This democratic transition is an incredible moment for Pakistan, and I believe that it should use it as a moment to get the world to look afresh at this remarkable country, which has an enormous population and great economic prospects for the future if it makes the tough and necessary decisions. We must accept that Prime Minister Sharif has many priorities. He needs to deal with energy shortages, to get his economy on track and to deal with extremism. It is in dealing with that last element where we need to work together to demonstrate that the extremism suffered in Pakistan cannot be addressed without addressing the extremism from which Afghans are suffering, too. If we can try to achieve joint working between the President and the Prime Minister and the two Governments, that is the key.

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

Does my right hon. Friend agree that the best way to tackle the scourge of youth unemployment across the EU is through the creation of jobs and growth and that the best way to do that is to raise our vision above the horizon of the EU and look to countries such as India and China, where two fifths of the world’s population live, to rid ourselves of burdensome regulation and to make Europe a more competitive environment?

[The Prime Minister]

I agree that the creation of private sector jobs is absolutely key, particularly for those countries that have large budget deficits. We have seen the decline of public sector jobs, but perhaps three times as many private sector jobs have been created. To achieve that, we need to rebalance our economy and to trade more, so, particularly as the European Union is a low-growth area—or a no-growth area in terms of the eurozone—we must look for new trading partners. That is why we should be look at countries such as Kazakhstan, where we are the second largest investor but where trade volumes are quite low. That is why we need, as I have put it, to compete in the global race and forge partnerships with all of the fastest growing countries of the world.

[Gavin Barwell (Croydon Central) (Con)]

The Leader of the Opposition rightly mentioned youth unemployment, which has fallen by 15% in my constituency since Labour left office. One way to drive it down further is to expand the single market, so I welcome what the Prime Minister said about accession negotiations with Serbia. Does he agree that the long-term aim should be an EU from the Atlantic to the Urals, but that if the EU is to include more diverse countries, it needs to change fundamentally?

[The Prime Minister]

I absolutely agree with what my hon. Friend says. Britain has always believed in a wider, looser Europe and it is that that we should be fighting for. As he says, if we want it to be that sort of Europe, it must make changes and must be more flexible. The countries in the eurozone will need greater integration, but if we are to be attractive to other countries as a European Union, we must be more flexible and competitive.

[Mr Philip Hollobone (Kettering) (Con)]

rose—

[Mr Speaker]

I have been saving up the hon. Member for Kettering (Mr Hollobone) so that the House can savour him.

[Mr Hollobone]

My right hon. Friend will know that there are almost 11,000 foreign national offenders in our prisons, many from EU countries. There is an EU-wide compulsory prisoner transfer agreement, but only the United Kingdom and 12 other member states have ratified it. If it was not discussed at this EU Council, will the Prime Minister use his best endeavours to ensue that it is on the agenda for the next EU Council, ahead of the removal of transitional immigration controls from new entrant countries?

[The Prime Minister]

My hon. Friend makes a very good point. This prisoner transfer agreement is absolutely in Britain’s interests. We have held specific National Security Council discussions about prisoner transfers and about foreign national offenders, because I think that we need to do much better in getting people out of our jails and back to the countries where they belong. We are making some progress, but it is hard work. This European Union agreement is a potential benefit for us and we have to do everything we can, both at the European Council and bilaterally with other countries, to get them to sign and implement. That is a programme that the Government are very much working on.

Stop and Search

Tuesday 2nd July 2013 Commons Chamber

13:39

[The Secretary of State for the Home Department (Mrs Theresa May)]

With permission, I would like to make a statement on the powers of the police to stop and search members of the public.

Police officers have been given the right to stop and search people by several Acts of Parliament, although most searches are conducted through the Police and Criminal Evidence Act 1984 and the Misuse of Drugs Act 1971. These Acts say that officers must have “reasonable grounds to suspect” that the subject is guilty of some form of criminal behaviour before they are allowed to conduct a search. Owing to the sensitivity of stop and search, officers are required by law to record various pieces of information about each search they undertake.

I would like to start by making it clear that the Government support the ability of police officers to stop and search suspects. It is an important power in their daily fight against crime, and it is especially important in relation to combating gangs, knife crime and drug offences. For example, in the last 12 months, stop and search in London has resulted in 45,000 criminals being arrested, including 3,212 criminals carrying weapons and guns, 7,287 criminals in possession of suspected stolen goods and 1,484 criminals in possession of tools used to steal or cause damage.

As long as I am Home Secretary, the police will maintain their right to stop and search. But as important as stop and search undoubtedly is, we have to be frank about widespread public concern regarding its use. Official statistics show that more than 1 million stop-and-search incidents are recorded every year. But on average only about 9% of those incidents result in an arrest, and that figure prompts me to question whether stop and search is always used appropriately. In fact, the search-to-arrest ratio varies considerably across forces: in Cumbria, the figure is 3%; in Kent, it is 19%. In London, where most stop-and-search incidents take place, it is 8%; in Greater Manchester, it is 8%; and in the West Midlands, it is 7%. Now, of course, we should not expect all stop-and-search incidents to lead to arrest, but those percentages are far too low for comfort.

The Government are concerned about the use of stop and search for two reasons. First, it must be applied fairly and in a way that builds community confidence in the police rather than undermining it. Secondly, given the scale of recording requirements placed on the police, when stop and search is misapplied, it is a waste of police time.

I want to deal first with fairness and community confidence. The official statistics show that, if someone is from a black or minority ethnic background, they are up to seven times more likely to be stopped and searched by the police than if they are white. Now we should not rush to conclusions about those statistics, but everybody involved in policing has a duty to make sure that nobody is ever stopped just on the basis of their skin colour or ethnicity. The law is clear that in normal circumstances, stop and search should only ever be used where there is a reasonable suspicion of criminality—and that is how it should be. I am sure we have all been told stories by constituents and members of the public about what it is like to be a young, law-abiding black man who has been stopped and searched by the police on more than one occasion. If anybody thinks it is sustainable to allow that to continue, with all its consequences for public confidence in the police, they need to think again.

The second reason that I am concerned about stop and search is that if it is being used too much or with the wrong people, that is a dreadful waste of police time. It is estimated that a police officer spends 16 minutes conducting a stop and search and then completing details of the incident in compliance with the law. Given that there are just under 1.2 million stop-and-search incidents every year, we are talking about a total of 312,000 hours per year—the equivalent of 145 full-time police officers.

Since the election, I have made it a priority to cut red tape and free up police time, and the changes that we have made, including changes to stop-and-search recording, should save up to 4.5 million police hours a year—the equivalent of an extra 2,100 officers on the streets. There is no point in making all those changes if police officers then spend their time conducting pointless stops and searches, with all the bureaucracy that goes with them.

In London, the Metropolitan Police Commissioner, Sir Bernard Hogan-Howe, has changed the Met’s guidance, improved training and set a target that at least 20% of stop and searches in London should result in an arrest or drugs warning; and since then, they have made good progress. The latest figures suggest that in the last year 18.3% of stop-and-search incidents in London led to an arrest or drugs warning. In Hackney, it was as high as 26.3%, and the overall use of stop and search in London has fallen, too, from 500,000 to 350,000 in the past year.

That shows that it is possible to make changes to stop and search without jeopardising public safety. So, too, do the changes I made in March 2011 to the operation of stop-and-search powers under the Terrorism Act 2000. Then, I introduced a much more limited power that enables the police to stop and search people and vehicles without reasonable suspicion, but only in exceptional circumstances where there is a real threat of terrorist attack. This power has not been used outside Northern Ireland since it was introduced in March 2011, and there has been no effect on public safety.

Last year, I commissioned Her Majesty’s inspectorate of constabulary to conduct a comprehensive inspection into the use of stop-and-search powers. Its report is due to be published next Tuesday. I have not seen it yet, but the report should provide us for the first time with a comprehensive evidence base of how stop and search is used and recorded across the country.

However, on an issue as important as stop and search, it would be wrong to consult HMIC and work with the police without also consulting the public. So I can tell the House that today I am launching a consultation, lasting six weeks, that will give members of the public the chance to have their say about the future use of stop and search. Copies of the consultation document will be made available in the Library.

By the end of the year, the Government will respond formally to both the HMIC report and the public consultation. That response will then inform our work with HMIC, the College of Policing and police forces up and down the country to make sure that stop and search works fairly and in everybody’s interests. I want to see stop and search used only when it is needed; I want to see higher search-to-arrest ratios; I want to see better community engagement; and I want to see more efficient recording practices across the country.

At its best, stop and search is a vital power in the fight against crime; at its worst, it is a waste of police time and serves to undermine public confidence in the police. It is time to get stop and search right, so I commend this statement to the House.

13:46

[Yvette Cooper (Normanton, Pontefract and Castleford) (Lab)]

I thank the Home Secretary for her statement. She has not given me a copy of the consultation, so I have not seen its proposals, but I do welcome the principles behind it. I agree with the Home Secretary that the stop-and-search powers are important and can help the police tackle serious problems. However, the way in which they have been used has raised serious concerns about, for example, the scale of use, the lack of intelligence-led approaches and the disproportionate use against ethnic minorities and the potential waste of money.

Stop-and-search powers are useful for the police—for example, enabling them to search for weapons or stolen goods without needing to arrest someone. The Home Secretary knows about Operation Blunt, run by the Met in 2009, which delivered a 13% reduction in knife crime and a 23% reduction in youth killings and seized over 1,000 knives and which did use intelligence-led stop and search as part of that strategy. People have been arrested for possession of guns, knives and other offensive weapons as a result of stop and search, too. But where stop and search is used inappropriately or too widely, it can cause a very wide range of serious problems.

Given the relatively low proportion of searches that lead to arrest, I welcome the work that has been done to reduce the number of stop and searches, which has fallen since 2008. I welcome the work by my right hon. Friend the Member for Kingston upon Hull West and Hessle (Alan Johnson), the former Home Secretary, to restrict inappropriate use, which helped deliver an initial 10% reduction in stop and searches. I also welcome the decision by the Home Secretary to restrict and change section 44 stops and searches. I welcome the decision of the Met commissioner, Bernard Hogan-Howe, to restrict section 60 stops and searches and some of the work that he has done since then.

However, I think that it is right to go further, especially in the light of the Equality and Human Rights Commission report on stop and search three years ago. The Home Secretary knows that that report found that

“some forces are using their powers disproportionately suggesting they are stopping and searching individuals in a way that is discriminatory, inefficient, and a waste of public money.”

It also found:

“The evidence points to racial discrimination being a significant reason why black and Asian people are more likely to be stopped and searched”.

It concluded:

“A reduction in disproportionality does not have to result in a rise in crime—on the contrary in the case of both Staffordshire and Cleveland”

where the EHRC worked with those forces,

“it has gone hand in hand with reduced crime rates and increased levels of public confidence in the police.”

Will the Home Secretary set out what has been done since the EHRC reported in 2010 to address the concerns that it raised?

The Home Secretary announced after the 2011 riots that she had asked the Association of Chief Police Officers to review stop and search. Has that review happened and will she publish the results?

Does the Home Secretary share my concern that that proportion of stops and searches that lead to an arrest has fallen, not risen, in the past five years? Previously, 12% of searches led to an arrest; now, a proportion of 9% is more likely. The right hon. Lady did not set out any specific proposals in her statement. What proposals in her consultation might make a difference to those figures and tackle the problem of searches being disproportionately targeted at ethnic minorities? Some of the figures that she quoted are seriously worrying. She will know that the EHRC examined evidence to see whether there are any explanations for those figures and found none sufficient to justify the disproportionate number of searches. The EHRC made specific recommendations for individual forces and for policing as a whole. Three years on, have those recommendations been implemented and what results have been delivered? Can she assure the House that her proposals will not jeopardise the recording of whether ethnic minorities are being targeted disproportionately? Clearly, we need to have that information.

I welcome the intention behind today’s statement and the consultation. The Home Secretary is right to support the principle of stop and search and right also to say that practice needs to be reformed to make sure that there is no discrimination and that it does not waste money or cause more problems in communities. However, it would help if she were more specific about her consultation proposals and how she plans to address the concerns.

[Mrs May]

I welcome the shadow Home Secretary’s support for the consultation on stop and search going ahead. As she says, there has been a number of reports on the operation of stop and search. The EHRC, whose report was published a matter of weeks ago, looked again at the issue in five forces, including the Met and Thames Valley police. It identified that it had been possible for those forces to reduce the number of stop and searches, perhaps by targeting them better on an intelligence-led basis, and that doing so had also had an impact on the search-to-arrest ratio, but no discernible effect on public safety. The EHRC reinforced the view that we can get stop and search right; that if we get it right, it can be the valuable tool we want it to be; but that we can reduce the number of stops and searches without having an impact on public safety.

I did indeed ask ACPO to look at stop and search and best practice across the country, and it has done so. I also asked HMIC to do a piece of work across forces on how stop and search is used and recorded. I think that that report, which comes out next week, will, by providing information on the practices used on the ground, give the best evidence base on which to look ahead.

The right hon. Lady asked about recording. At a very early stage, we made changes to the amount of information that needs to be recorded on stop-and-search forms, but we retained, for example, ethnicity as one of the matters that should be recorded. We were able to reduce bureaucracy somewhat, but it remains the case that if a stop and search is undertaken when it is not necessary—when there is not reasonable suspicion—it can be a waste of police time.

The right hon. Lady’s main accusation seemed to be that, in my statement, I had not set out any firm proposals on stop and search, but the whole point of the public consultation is to go out and ask members of the public what has been their experience of stop and search, how they feel it should be used and what changes, if any, they think should be made. The consultation will include questions such as whether local communities should be more involved in working out how stop and search should be used in their area. There are some good examples, including in the London borough of Brent, of work being done with the local community. The point of the consultation is to ask people what they think; then, we will look the results alongside the evidence base in the HMIC report and come to the House in due course with firm proposals that I believe will enable us to get stop and search right.

[Sir Edward Garnier (Harborough) (Con)]

My right hon. Friend said that the percentage of stops and searches that led to arrest were far too low for comfort. What figure would make her comfortable?

[Mrs May]

My hon. and learned Friend will know that I am not naturally inclined to set targets in these matters, and I do not think it would be appropriate at this stage if I were to state a figure. The Met Commissioner has done so, having set a 20% target, and, as I said, recent figures have been far closer to that 20%. But let us look at the evidence base and hear what the public have to say about how stop and search should operate.

[Keith Vaz (Leicester East) (Lab)]

This is an excellent statement, which I warmly welcome. The Home Secretary gave us a figure of 7%; in fact, under section 60, a black or Asian person is 25 times more likely to be stopped and searched than a white person. It cannot be right that, in Britain, anyone should be targeted because of the colour of their skin.

It is also important to look at the diversity of the police force, and I urge the right hon. Lady to read the report of the Select Committee on Home Affairs, to be published on Monday. If the public are to have confidence in the police, the police need to reflect the public as a whole.

Finally, I hope that the consultation will not be merely a paper exercise, but that the Home Secretary and Ministers will go our major cities themselves. I am happy to invite her to Leicester, where we could sit on the same side of the table, rather than on opposite sides, as we do during Select Committee meetings. Rather than have just an online consultation, it is important that Ministers hear what communities have to say about this practice.

[Mrs May]

The right hon. Gentleman is right about the number of times members of black or minority ethnic communities are stopped and searched under section 60; the number is significantly higher than for white people. The Met police have already looked at their planned section 60 authorisations and significantly reduced the number—from 103 in June 2011, to just six in June last year, for example.

The right hon. Gentleman tempts me with an invitation to come to Leicester and to stand on the same side as him and listen to the community. Nearly two years ago, I visited a charity involved with the Met that works on getting young people more involved with the police and improving their interaction. I remember that stop and search was raised by two members of the group of young people I met on that occasion. As the right hon. Gentleman says, it makes an impact when one hears people who have been subject to stop and search talk about their concerns and their feelings about the police as a result of how it was conducted.

[Richard Fuller (Bedford) (Con)]

I welcome my right hon. Friend’s statement and her recognition of how corrosive it can be to the spirit of young people when they are stopped and searched for no better reason than the colour of their skin. I echo the Chair of the Home Affairs Committee in encouraging my right hon. Friend to have an extensive consultation. Can she provide some examples of how she will engage communities in the consultation? It is a fantastic initiative, but it must have teeth if it is to bring real hope to people who have suffered from prejudice for far too long.

[Mrs May]

There will be a place for responses to the consultation on the gov.uk website, but we intend also to hold a number of consultation meetings with people who are involved in the issue. Obviously, we want to speak with those who administer stop and search, as well as groups who have commented on it in the past, but I am sure that there will be opportunities to hear directly from people who have been subject to stop and search, as well as from communities about how they feel stop and search should be used in their community.

[Ms Diane Abbott (Hackney North and Stoke Newington) (Lab)]

The Home Secretary will be aware that no single police activity causes more unhappiness and antagonism between the police and young black people than stop and search. That goes all the way back to the 1980s and the Brixton riots. Even after the 2011 riots, when I spoke to young people in Hackney about what triggered the riots, they said, “Stop and search.”

Will the Home Secretary join me in welcoming the work of Chief Superintendent Matthew Horne at Stoke Newington police station, who is responsible for the improved figures on the efficacy of stop and search in Hackney? Does she appreciate that it is not just that respectable young black men who get stopped on a weekly basis do not like it? What they object to is not the simple fact of being stopped and searched, but the way the police talk to them. There is a lot to be done in training. Stop and search is an important weapon for the police, but proper training should stop its being used in a way that is detrimental to community relations.

[Mrs May]

The hon. Lady rightly speaks from experience of an issue that I know she has spoken about on a number of occasions in the House, and I am happy to commend the work of the chief superintendent at Stoke Newington who has been working to ensure a different approach and those different figures in Hackney. She is also right—when I talk to police officers, they will often say it is how they do it as much as what they are doing that can be the issue for those who are being stopped and searched. That is why there is some very good practice across the country, and also good practice with communities, explaining why stop and search is being undertaken in a particular community at a particular time so that people understand it, rather than feeling that it is something that is just being done to them within the community.

[Jessica Lee (Erewash) (Con)]

I welcome my right hon. Friend’s statement. Does she agree that what the public are seeking is consistency in the conduct of the police across the country? In my constituency, Erewash, the police work hard to get the right balance between keeping residents safe and respecting citizens going about their business. A review of the guidelines can only help to achieve that consistent practice that the public expect.

[Mrs May]

I thank my hon. Friend for her comments. She is right. People expect such powers to be used fairly and consistently. There are many good examples where the police are working hard in the application of the powers but, sadly, the figures show us that we need to look at the guidance that is being offered and at the training of police officers—I did not respond on training to the hon. Member for Hackney North and Stoke Newington (Ms Abbott)—to ensure that stop and search is always used fairly and properly.

[David Simpson (Upper Bann) (DUP)]

I thank the Home Secretary for her statement. I am glad to see that the police will retain the power of stop and search. Of course there needs to be fairness. It should not be the case that someone is stopped because of the colour of their skin. But does the right hon. Lady agree that at the height of the troubles in Northern Ireland stop-and-search powers saved many lives from terrorists?

[Mrs May]

Yes, I absolutely agree with the point that the hon. Gentleman makes. As I said in my statement and as he acknowledged, stop and search, properly used, at its best, is a vital tool for the police, and long may that continue.

[Dr Julian Huppert (Cambridge) (LD)]

Stop and search has far too often been misused, weakening trust in the police, particularly among those from black and ethnic minority backgrounds, so I welcome the Home Secretary’s statement, although it is a slightly novel approach to launch a consultation the week before the evidence base comes out. I assume that there are reasons for that. Does she agree that when the police do ask people for information, such as name and address, they should make it clear whether compliance with the request is a requirement or purely voluntary?

[Mrs May]

My hon. Friend talked about the launch of the public consultation this week. This is a different thing from the report that Her Majesty’s inspectorate of constabulary will be producing, which will provide an evidence base. We have figures already that I think make it right for us to question whether stop and search is always used appropriately. It is therefore right to say to the public, “We think this is a matter on which we want to hear the public’s views.” On the matter of what information needs to be recorded and what information will need to available under any changes that are made to the guidance and so forth, I can assure my hon. Friend that we will, of course, make it clear where information is required and where it is voluntary.

[Seema Malhotra (Feltham and Heston) (Lab/Co-op)]

I thank the Home Secretary for her statement. I think all Members of the House will welcome the consultation, which I hope will put an end to the experience of many young people of repeated stop and search. But as we are approaching the summer break, can she explain the timing of the consultation and why she thinks six weeks might be long enough, bearing in mind that people may be going on leave? It gives very little time for extending the consultation out into our communities.

[Mrs May]

I encourage the hon. Lady to do just that, and I hope she will be able to ensure that in her constituency people are aware of the consultation and are able to respond. I think six weeks is an appropriate length of time for us to be able to undertake the consultation. We will then be able to come back to the House in the autumn on the basis of both the consultation and the HMIC report, and make firmer proposals to the House on stop and search going forward.

[Mr Philip Hollobone (Kettering) (Con)]

I am obliged to declare my interest as a special constable of the British Transport police and, in that role, as someone who has conducted stops and searches. May I urge the Home Secretary to use this opportunity to clear up the law with regard to face coverings? If there were a riot in Parliament square and, under section 60AA of the Criminal Justice and Public Order Act 1994, an inspector or above banned the covering of people’s faces with a balaclava, the British Transport police in Westminster tube station would not, as I understand it, be able to stop and search people for having a balaclava on their person, and if they did discover such balaclavas, they would not be able to remove them. That is an anomaly which could be addressed by the consultation.

[Mrs May]

I commend my hon. Friend for the work that he does as a special constable, and the limited number of Members of this House who are special constables both with the Met and other police forces and with the BTP. I am happy to look at the issue that he raised. We are looking at a number of matters in relation to the various powers of the police more generally and of the British Transport police, looking to iron out any anomalies, so I will certainly take that on board and have a look at it.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

Does the Secretary of State have figures for the search-to-arrest ratios for the Welsh police forces?

[Mrs May]

I do not have the figures to hand for the ratios for the Welsh police forces. I am happy to write to the hon. Gentleman in relation to that matter.

[Andrew Stephenson (Pendle) (Con)]

I welcome today’s statement and the public consultation. Owing to the sensitivity of stop and search, it is important that we balance genuine public concerns about the effect that that has on public confidence in the police’s legitimate need for stop-and-search powers. In my area, Lancashire police formed a group within the community to act as an advisory group to help monitor police actions and provide them with community feedback, which I warmly welcome. May I urge my right hon. Friend to ensure that, in addition to community meetings, details of the consultation are sent to all mosques and faith-based groups across the country so that we can ensure that all parts of the community are able to respond in good time?

[Mrs May]

My hon. Friend raises an interesting point. We will make sure that knowledge of the consultation is as widespread as possible to enable all those who may have a great interest in responding to do so. The example that he referred to in Lancashire, of the work being done with the local community, is a good example—and there are others across the country—where police have actively tried to work with the community to explain the purpose of stop and search so that communities become more responsive to it and more willing to accept it when it takes place.

[Jim Shannon (Strangford) (DUP)]

I, too, thank the Secretary of State for her statement. Every time I come to Westminster the news records yet another vicious knife attack, and often a fatal attack. Many people feel that stop and search is a necessity and must continue. The Secretary of State mentioned that 3,212 criminals were stopped and found with weapons, and many people in the community feel that that should continue. Will she give an assurance to those who wish to see stop and search continue that that will happen?

[Mrs May]

Yes, I am absolutely clear that stop and search, when used properly, is a vital tool for the police and it is right that it should continue. As I said in my statement, as long as I am Home Secretary it will continue. But when we see half a million stops and searches in the Metropolitan police area and an arrest-to-search ratio of 9%, with 45,000 criminals being arrested as a result—the numbers for the Metropolitan police in terms of arrests have been increasing and the number of stops and searches reducing—it is right that we ask whether it is always used as appropriately as it should be. However, it should stay as a tool.

[Gavin Barwell (Croydon Central) (Con)]

In the past my party has not taken seriously enough the concerns of London’s black and minority ethnic communities about the way in which they are policed. It reflects huge credit on the Home Secretary that she is addressing this ongoing concern. Given that policing in this country is based on the principle of consent, does she agree that stop and search is a technique that can protect young people, but that it must be done with respect, it has to be based on intelligence and it has to enjoy the support of those who are being policed?

[Mrs May]

My hon. Friend has neatly put his finger on the issue. Stop and search is a valuable tool, but it must have the confidence and support of the community. It can be a vital tool in the protection of young people, as he says, but it has to be dealt with on a basis of respect and intelligence, and with the support of the community.

Letting Agents (Competition, Choice and Standards)

Tuesday 2nd July 2013 Commons Chamber

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

14:09

[John Healey (Wentworth and Dearne) (Lab)]

I beg to move,

That leave be given to bring in a Bill to establish a national mandatory licensing scheme for letting and managing agents, with established standards and redress for landlords, tenants and leaseholders, and prohibition of letting and management agent fees; to enable local authorities to administer and enforce the scheme; to require that tenants, landlords and leaseholders have written agreements; and to empower local authorities, either alone or in partnership, to trade as letting and managing agents.

The Bill is unfinished business for me. As Housing Minister in the last year of the Labour Government, my priorities were driven largely by the extraordinary economic circumstances we faced: helping people keep their homes, preventing the collapse of private house building and launching a new wave of social house building, especially council housing, to kick-start the economy in the wake of the global financial crisis. All of that we did successfully.

However, I ran out of time to reform the private rented sector and, in particular, deal with the growing problem of the housing market middle men who answer to no one—letting and managing agents. The detailed plans for reform that I set out in 2010, following the Rugg review, did not make it into legislation and were all dropped by coalition Ministers. I am now making the case for change anew, with cross-party support and backing from housing charities and industry bodies.

There is a silent crisis in the private rented sector. More than 9 million people now rent their home from a private landlord, a higher proportion than at any time for almost half a century. It is no longer just the young and mobile biding their time until they can buy their own home; half of those in private rented homes are over 35 and more than 1 million families with children are basing their lives on landlords who can evict them at a month or two’s notice.

“Generation rent” has no organised voice and little market muscle. We have better consumer rights when buying a fridge or hiring a car than we do when renting a home. Now that the majority of private tenancies are let through agencies, anyone can set up as a letting or managing agent, even if they have a bad track record or a criminal record. There is no system of licensing or standards, no requirement for a money protection scheme or a system of redress, and no legal right to a written tenancy contract.

In addition, tenants are often hit by huge and hidden up-front fees. Multiple charges for administration, inventories, references, credit checks, deposit handling, contract preparation and tenancy renewal are common. In our local area in Rotherham, the council reckons that tenants are being asked to pay hundreds of pounds for such fees. Research recently released by Shelter reveals that the average cost of up-front fees charged by letting agents is almost £350, and Which? reported last year that none of the 32 letting agents it surveyed had information about their fees on their website. One lady in Shelter’s report speaks for all private renters. She was charged £540 in administration fees alone. She said:

“The rental market is a horrible place right now… While I’m not on the cusp of poverty, this sort of thing could easily spiral. Frankly it is terrible that the government does not see this sort of thing as a priority matter.”

She is right. This affects not only people on low incomes, but people like her on middle incomes.

However, it would be a mistake to think that only tenants suffer from sharp practice. Landlords often report letting or managing agents failing to provide the services expected or hitting them with hidden and excessive charges. Even people who own their own home as leaseholders can suffer when managing agents acting for the freeholder adopt the same high-cost, low-standards business model that plagues so many other parts of the sector.

The worst drag down the reputation of the rest, which is why many of the legal changes I propose are backed by the associations representing letting agents, managing agents and landlords. The Association of Residential Letting Agents, the Association of Residential Managing Agents, the Southern Landlords Association and the British Property Federation have all joined Shelter, Crisis, Which? and the National Union of Students to support my call for regulation to raise standards in the sector. Self-regulation has failed. Legal regulation is required to improve choice, competition and standards in the market. That is exactly what my Bill would do.

The Government were recently forced by Labour in the Lords, led by Baroness Hayter, to agree to introduce a redress scheme. That is widely seen as necessary but nowhere near sufficient. It will only offer help after the damage has been done. Therefore, the legal changes in my Bill would include a legal right to a written tenancy agreement, a ban on agency charges beyond a deposit and rent in advance, a comprehensive redress scheme when things go wrong, and mandatory national licensing for all agents, with core standards and a “fitness to practise” test. For those rightly concerned about the cost of regulation, the Royal Institute of Chartered Surveyors has used the Department for Business, Innovation and Skills impact assessment model to show that such basic legislation would have an initial cost of £46 million but would bring net benefits of over £20 million a year.

However, the changes simply cannot be done from the centre. Local authorities must be at the heart of improvements in the lettings market. That is why my Bill would also give councils strong enforcement powers and new powers to set up their own local letting agencies as public sector comparators and competitors to their private sector counterparts. That model of market challenge by the public sector already works well for low-end rented properties in places such as Derby, Lewisham and Newham. I believe that a new system of mid-market local letting agents, run by the public service, would help drive up standards and drive down fees. Councils could run such operations under their existing trading powers, so local tenants and landlords would benefit and local council tax payers could too.

Our home is our biggest financial outlay, whether we buy or rent. The basic regulation now in place for estate agents is still missing for letting and managing agents. The private rented market is now failing too many despairing tenants who feel let down by low standards and ripped off by high fees. This sector has been called the property market’s wild west. It is high time Parliament brought the rule of law to bear on the cowboys, and my Bill would do just that.

Question put and agreed to.

Ordered,

That John Healey, Mr Gareth Thomas, Lucy Powell, Sir Peter Bottomley, Andrew George, Lilian Greenwood, Ian Mearns, Mr Steve Reed, Clive Efford, John Pugh, Derek Twigg and Natascha Engel present the Bill.

John Healey accordingly presented the Bill.

Bill read the First time; to be read a Second time on Friday 18 October, and to be printed (Bill 83).

Finance Bill

Tuesday 2nd July 2013 Commons Chamber

[2nd Allocated Day]

Further consideration of Bill, as amended in the Public Bill Committee

New Clause 7

Restrictions on interim payments in proceedings relating to taxation matters

‘(1) This section applies to an application for an interim remedy (however described), made in any court proceedings relating to a taxation matter, if the application is founded (wholly or in part) on a point of law which has yet to be finally determined in the proceedings.

(2) Any power of a court to grant an interim remedy (however described) requiring the Commissioners for Her Majesty’s Revenue and Customs, or an officer of Revenue and Customs, to pay any sum to any claimant (however described) in the proceedings is restricted as follows.

(3) The court may grant the interim remedy only if it is shown to the satisfaction of the court—

(a) that, taking account of all sources of funding (including borrowing) reasonably likely to be available to fund the proceedings, the payment of the sum is necessary to enable the proceedings to continue, or

(b) that the circumstances of the claimant are exceptional and such that the granting of the remedy is necessary in the interests of justice.

(4) The powers restricted by this section include (for example)—

(a) powers under rule 25 of the Civil Procedure Rules 1998 (S.I. 1998/3132);

(b) powers under Part II of Rule 29 of the Rules of the Court of Judicature (Northern Ireland) (Revision) 1980 (S.R. 1980 No.346).

(5) This section applies in relation to proceedings whenever commenced, but only in relation to applications made in those proceedings on or after 26 June 2013.

(6) This section applies on and after 26 June 2013.

(7) Subsection (8) applies where, on or after 26 June 2013 but before the passing of this Act, an interim remedy was granted by a court using a power which, because of subsection (6), is to be taken to have been restricted by this section.

(8) Unless it is shown to the satisfaction of the court that paragraph (a) or (b) of subsection (3) applied at the time the interim remedy was granted, the court must, on an application made to it under this subsection—

(a) revoke or modify the interim remedy so as to secure compliance with this section, and

(b) if the Commissioners have, or an officer of Revenue and Customs has, paid any sum as originally required by the interim remedy, order the repayment of the sum or any part of the sum as appropriate (with interest from the date of payment).

(9) For the purposes of this section, proceedings on appeal are to be treated as part of the original proceedings from which the appeal lies.

(10) In this section “taxation matter” means anything, other than national insurance contributions, the collection and management of which is the responsibility of the Commissioners for Her Majesty’s Revenue and Customs (or was the responsibility of the Commissioners of Inland Revenue or Commissioners of Customs and Excise).’.—(Mr Gauke.)

Brought up, and read the First time.

14:19

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

I beg to move, That the clause be read a Second time.

New clause 7 makes changes to the procedure for the granting of interim payments in common law court claims relating to taxation matters. Its effect will be to limit the circumstances in which interim payments may be granted in the rare tax cases originating in a common law claim as opposed to appeal through the tax tribunal. The new clause will bring the treatment of tax cases under the two routes into closer alignment. It will simplify the process and lessen administrative burdens for the Revenue and for claimants.

I should like to set out some of the background to this change. It corrects a difference in treatment with respect to the granting of interim remedies on tax disputes that arise depending on whether the claim is appealed to the tax tribunal or originates before the High Court, or the Court of Session if in Scotland. Generally speaking, appeals against a decision by Her Majesty’s Revenue and Customs on a tax matter are appealed to the tax tribunal. This system is provided for in statutory tax legislation and is the standard route of appeal for a taxpayer who disagrees with a decision by HMRC.

There is no procedure for the granting of interim payments under this system. Instead, tax is paid or repaid as appropriate when a decision is made on the case. This is a sensible arrangement. The interim award procedure was not designed to be a remedy in a tax dispute. Its common application is to victims who have suffered serious injury to their health but the long-term prognosis leaves it unclear how much they should receive. An interim payment allows them to have enough money to make adaptation to their homes and to pay for care. Clearly, the complex adjudication of a tax dispute is a very different circumstance unsuited to the application of anticipatory payments in advance of final judgment. It is therefore right that the normal practice in tax disputes is not to grant an interim payment.

However, difficulty arises where a tax claim originates in common law. In such circumstances, it would currently fall outside the scope of the tribunal system and would therefore be appealed instead to the High Court. Here claimants may obtain interim payment before the matter is finally settled. Such payments may then need to be returned to the Revenue as the direction of jurisprudence changes at different stages of litigation. This back-and-forth process is administratively burdensome on both parties and adds to the cost of the litigation. Furthermore, it exposes the Revenue to a risk of non-recovery in the event that the taxpayer becomes insolvent after obtaining an interim payment that it is later required to hand back.

Let me set out a little more detail on the new clause. The measure will operate by limiting the power of a court to grant an interim payment to a claimant whose application for such payment is founded, at least in part, on a point of law which has yet to be finally determined. The court will, however, still be able to grant an interim payment to whatever extent is necessary to fund the ongoing litigation, as well as in some other defined circumstances where there is a strong case for granting such award. The measure relates only to those rare tax cases that fall outside the scope of the tribunal system. It is a procedural matter, not a change in tax policy.

[John Healey (Wentworth and Dearne) (Lab)]

The Minister said that such cases are rare. How many are there each year, and how quickly will they be dealt with under the system proposed in new clause 7 as compared with now?

[Mr Gauke]

How quickly a particular case will be dealt with depends on the length of time it takes to be resolved. The right hon. Gentleman will know from his considerable experience as a Treasury Minister that some of these cases can take a number of years. It is worth pointing out that, by and large, large corporates tend to be involved in this type of litigation. The length of time it will take for a case to be resolved is ultimately unaffected by these changes. Their only significance is that there will not be interim payments in these rare cases.

The right hon. Gentleman asked how many cases there are per year. I cannot give him the number straight away, but it is very low. In the vast majority of cases, disputes are taken through the tax tribunal. As I say, this is about making common law cases consistent with tax tribunal cases. It is difficult to give the precise number of cases per year, but we are talking about low numbers.

[Catherine McKinnell (Newcastle upon Tyne North) (Lab)]

I thank the Minister for responding to my right hon. Friend’s useful question. Will he clarify why the Government are proposing this change as a new clause to the Finance Bill? What has come to light between the initial drafting of the Bill and this stage in the proceedings, which is clearly very late given that the Bill is due to receive its Third Reading today?

[Mr Gauke]

We have introduced it at this point because recent jurisprudence has crystallised our view in this regard. As I say, we want consistency between common law cases and tax tribunal cases. A degree of volatility has been created in terms of tax revenues that none of us should welcome. In short, the answer to the hon. Lady’s question is that the reason is recent jurisprudence.

Let me give the right hon. Gentleman a little more detail in response to his question about rare cases. HMRC is aware of fewer than 10 strands of litigation where tax issues are being handled through the High Court. That is not to say that they would necessarily all involve interim payments, but I hope that that gives some sense of the scale of the issue. As I say, it is a procedural matter.

[John Healey]

It is helpful of the Minister to give the House an indication of the scale in terms of the number of cases. Can he also indicate the scale in terms of the amount of tax at stake in such cases?

[Mr Gauke]

The first point to make is that this does not ultimately change the amount of tax at stake, because a litigant will either win or not win. If a litigant who ultimately wins has not had access to an interim payment as a consequence of this measure, that does not change what they will ultimately receive. Some of these cases involve large sums of money, sometimes many millions of pounds. In some cases, interim payments have been very significant. However, I stress that this does not ultimately change how much money will end up in the pocket of the litigant. It is a question of timing and ensuring that we have some consistency.

Turning to why we are doing this now, it follows recent jurisprudence of the Court relating to the application of the interim awards procedure. This jurisprudence has crystallised our view that the interim payment procedure is not suitable for complex tax disputes. There is also an element of risk management in this. HMRC is routinely involved in litigation where the tax at stake may be for very high sums of money. The granting of payments on an interim basis before a final decision has been reached contributes to the volatility of tax revenues. By limiting the application of the interim payment procedure in common law court claims relating to taxation matters, and bringing the system into better alignment with what is standard practice in the tax tribunal, the new clause will cut down on complex work associated with calculating claims on a contingent basis before matters relating to liability and quantum have been resolved by the judiciary.

[Catherine McKinnell]

The information being provided by the Minister is very helpful. The impact note states that the change will have no Exchequer impact, but that Her Majesty’s Revenue and Customs will benefit from reduced administrative costs and burdens. Is the Minister able to put a sum on that economic benefit to the Treasury?

14:30

[Mr Gauke]

That is a fair question and there will be a benefit to HMRC, but it is difficult to put a sum on it. I do not want to overstate the argument—we are not talking about an administrative saving of many millions of pounds—but clearly these cases are difficult to deal with. They involve the additional complexity involved in large-scale litigation matters that are taken through the courts. There is a saving, but I do not want to overstate it. The hon. Lady raises a perfectly fair question, but it is difficult to provide a precise number.

At a time when there is considerable pressure on resources, it is difficult to justify the considerable additional work that the interim payment procedure creates for the Revenue by adding stages to the litigation process. We have, therefore, taken the decision to legislate now in order to achieve better alignment between the treatment of different tax cases at the earliest opportunity. The Government believe that this will help bring an end to misalignment whereby the availability of interim payments in the context of tax differs depending on whether claims are brought in the court system or the tribunal system.

[Catherine McKinnell]

I thank the Minister for his comprehensive account of new clause 7 and for responding to our queries. As he has said, the Government want to introduce a number of new clauses and amendments to the Bill. Could you clarify, Mr Deputy Speaker, whether we are dealing with just new clause 7 at this stage, or are we taking any other amendments?

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Just new clause 7.

[Catherine McKinnell]

Thank you, Mr Deputy Speaker; I appreciate that clarification.

New clause 7 makes changes to the procedure for the granting of interim payments in common law claims relating to taxation matters so that the treatment of tax cases commenced under common law court claims and tax tribunals will be more closely aligned in future. We support this simplification process, and the Minister’s response to our probing questions during his generous explanation of the new clause has clarified the issue.

[Harriett Baldwin (West Worcestershire) (Con)]

Is it appropriate, Mr Deputy Speaker, that I now speak to amendments 52 and 53, tabled in my name?

[Mr Deputy Speaker]

No.

Question put and agreed to.

New clause 7 read a Second time, and added to the Bill.



Clause 175

Election to be treated as domiciled in the United Kingdom

[Mr Gauke]

I beg to move amendment 1, page 105, leave out lines 4 to 13 and insert—

‘(3) Condition A is that, at any time on or after 6 April 2013 and during the period of 7 years ending with the date on which the election is made, the person had a spouse or civil partner who was domiciled in the United Kingdom.

(4) Condition B is that a person (“the deceased”) dies and, at any time on or after 6 April 2013 and within the period of 7 years ending with the date of death, the deceased was—

(a) domiciled in the United Kingdom, and

(b) the spouse or civil partner of the person who would, by virtue of the election, be treated as domiciled in the United Kingdom.’.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

With this it will be convenient to discuss Government amendments 2 to 7 and 35 to 51.

[Mr Gauke]

These Government amendments make important changes to the UK’s inheritance tax rules.

Amendments 1 to 7 will bring in greater flexibility and provide more individuals with the option to elect to be treated as UK domiciled for the purposes of inheritance tax. They demonstrate the Government’s willingness to listen to the views of external interested parties and act where there is a principled case for change.

Amendments 35 to 51 are being made as a result of comments by interested parties. They clarify the technical interpretation of the legislation and change the commencement provisions with respect to certain liabilities.

Let me turn first to amendments 1 to 7 to clause 175. The clause reforms the inheritance tax treatment of transfers between UK-domiciled individuals and their non-UK-domiciled spouses or civil partners. The changes allow individuals who are not domiciled in the United Kingdom but who have a UK-domiciled spouse or civil partner to elect to be treated as domiciled in the UK for the purposes of inheritance tax.

The amendments are being made following comments from two key interested parties—the Chartered Institute of Taxation and the London Society of Chartered Accountants—about how the Finance Bill as drafted amends the inheritance tax treatment of spouses and civil partners not domiciled in the UK. Their further representations since the publication of the Bill in March have helped us understand the concerns raised in more detail. Considering the points raised has taken time, but the amendments will resolve these issues.

The clause as drafted stipulates that a person must be non-UK-domiciled and married at the time they make an election. Consequently, a person who has recently become UK domiciled would not be able to make a retrospective election that would cover a period when he or she had been non-domiciled. Effectively, they are trapped if they are not aware of the possible IHT consequences at the point just before they become UK domiciled—for example, if they decide to remain in the UK indefinitely after having children here. This might be especially harsh in situations where the original UK-domiciled spouse dies suddenly having made potentially exempt transfers to the surviving spouse.

Similarly, the Bill as drafted requires a person to remain married to, or in a civil partnership with, the UK-domiciled spouse or civil partner throughout the “relevant period” preceding the election, which can be up to seven years. Therefore, in circumstances where the marriage or civil partnership has been dissolved and the person is a non-domiciled individual, they are prevented from making an election retrospectively and hence prevented from gaining access to spousal relief for the period when they were married in return for their overseas assets being brought into IHT. That was not the intention of the policy.

Amendments 1 to 7 remove the condition that a person must be non-UK-domiciled at the time of making an election. They also remove the requirement that the person making the election is married or in a civil partnership with the UK-domiciled individual throughout the relevant period. The amended clause stipulates instead that they were married or in civil partnership at any time during the relevant period.

As a result of these amendments, individuals who are domiciled in the UK but who were previously domiciled elsewhere will be able to make a retrospective election. Similarly, the amendments will also enable individuals previously married or in a civil partnership to make a retrospective election following divorce or dissolution. This will ensure that changes in domicile or marriage status do not restrict the ability of individuals to elect to be within the UK inheritance tax system.

Amendment 1 simply removes a sub-paragraph that is no longer required as a consequence of amendments 2 to 6, while amendment 7 provides clarity that the provision for revoking an election applies only to the person who made the election and not to that person’s personal representatives.

Let me now turn to amendments 35 to 51 to schedule 34. Clause 174 and schedule 34 reform the inheritance tax treatment of outstanding liabilities. They introduce new conditions and restrictions on when a liability can be deducted from the value of an estate.

The current rules allow almost all outstanding liabilities at death to reduce the value of an estate, irrespective of how the borrowed moneys have been used, or whether the loan is repaid following the death. That creates opportunities for avoidance and can lead to decisions and arrangements being made purely for tax reasons. A range of contrived arrangements and avoidance schemes on the market seek to exploit the current rules. The number of those is expected to grow as other avoidance routes are closed off.

There is an inconsistency in how the current rules treat liabilities that are used to acquire assets that qualify for relief, but that are secured against different types of assets. That creates an advantageous tax position and distorts decision making by encouraging individuals to secure business loans against their personal property where there may be no need to do so. The Government believe that the tax system should neither encourage nor penalise the choice of one form of security over another.

Clause 174 and schedule 34 address those opportunities for avoidance and inconsistency in three ways. First, deductions will be disallowed where the loan has been used to acquire excluded property—that is, property which is excluded from the charge to inheritance tax. Secondly, where the loan has been used to acquire relievable property—that is, property which qualifies for a relief—the relief will be allowed against the net value of the property after deducting the loan. Thirdly, the loan will generally be allowable as a deduction only if it has been repaid from assets in the estate.

The Government are making those changes to improve the integrity and fairness of the inheritance tax system, close avoidance opportunities and remove the inconsistency in the treatment of loans.

Following the publication of the Finance Bill in March, Her Majesty’s Revenue and Customs has received comments from representative bodies, practitioners and individuals that have highlighted sections of the legislation that could be clarified. Interested parties have also expressed concern that the new provisions will apply retrospectively where individuals have secured business loans on their non-business property for commercial reasons, rather than for avoidance purposes, before the changes were announced. Those individuals would face a higher IHT bill if they died before the debt was repaid.

Amendments 35 to 49 clarify the interpretation of the legislation to ensure that it works as intended, and address some of the technical issues identified in feedback. If a loan has been used to acquire excluded property, which later becomes chargeable to IHT, amendment 37 will allow the deduction for the liability. Conversely, if chargeable property subsequently becomes excluded property, the amendment will deny the deduction.

Where a loan has been used to acquire relievable property and that property is given away before death, amendments 41 and 42 will ensure that the liability is not deducted again against other types of property if it has already been taken into account. Amendment 45 will widen the meaning of “estate” to allow the liability to be repaid from property that is usually treated as being outside a person’s estate for IHT purposes, such as foreign property that is owned by an individual who is not domiciled in the UK. Where a loan has not been repaid and the deduction is disallowed, amendment 47 will make it clear that the liability will not reduce the amount that would be eligible for the inheritance tax exemption for transfers between spouses or civil partners.

The Government recognise that some lenders may require security in the form of personal assets and that individuals who have secured existing loans against their personal property to finance business investment may not be able to restructure the loan or unwind the arrangements. Amendments 50 and 51 will therefore amend the commencement date so that the new rules dealing with liabilities incurred to acquire relievable property will apply only to new loans taken out on or after 6 April 2013. That will mean that someone who took out a business loan in the past secured against their other assets will not be affected by the new provisions.

The commencement date for the other provisions in schedule 34 will remain unchanged as the date of Royal Assent. Those provisions will apply to other liabilities, irrespective of when they were incurred.

[Catherine McKinnell]

The Minister is again providing a thorough explanation of the Government amendments. He may recall that the Chartered Institute of Taxation expressed concerns that clause 174 and schedule 34 were “profoundly anti-business” and did “not recognise economic realities”. Will the Minister provide reassurance that the Government are confident that those concerns are addressed by today’s amendments?

[Mr Gauke]

We have sought to address many of the concerns that have been raised. It is perhaps worth outlining the policy objective of limiting the deduction for liabilities. It removes a tax advantage that certain schemes and arrangements seek to achieve. It removes an anomaly in the current rules that may distort business financing decisions. The measures will ensure that the value of an estate that is subject to IHT reflects the normal economic consequences of incurring a liability. They support our policies on anti-avoidance and fairness.

14:45

We have demonstrably listened to the concerns that have been raised. We are seeking not to prevent or deter individuals from starting a business or investing in an existing business, but to close down an avoidance opportunity. The change will not prevent a business from securing a loan against non-business assets or disrupt business activity. It will only remove the anomaly that can provide a tax advantage for restructuring debts in one way over another.

The amendments will improve the inheritance tax rules. They will bring greater flexibility and provide more individuals with the option to elect to be treated as UK domiciled for the purposes of inheritance tax. They will ensure that the new provisions in clause 174 and schedule 34 reduce potential tax losses and reduce the role of inheritance tax in business financing decisions, while minimising the impact on legitimate arrangements.

[Catherine McKinnell]

Amendments 1 to 7 will make technical changes to clause 175, which introduces provisions by which an individual who is or has been married to or who is or has been in a civil partnership with someone who is domiciled in the UK can elect to be treated as UK domiciled for inheritance tax purposes. The Minister has set out in detail the reasons for the changes and the expected impact.

I have one additional question. The impact note that was published with the amendments states that there will be a negligible impact in this year, but that in future years there is expected to be a £5 million negative impact on the Exchequer. Will the Minister clarify how and why that negative impact will be realised?

Amendments 35 to 51 will alter schedule 34 and clause 174 on the treatment of liabilities for inheritance tax purposes. Understandably, the Minister focused on those proposals for the majority of his remarks, because they have been the subject of significant concern from a number of quarters. As he explained, the clause was drafted in response to avoidance schemes and arrangements that sought to exploit the inheritance tax rules that allow for a deduction for liabilities owed by the deceased against the value of an estate, regardless of whether the debt is paid after death.

HMRC has outlined some of those arrangements. Some involve contrived debts that are subsequently not repaid, so there is no real reduction in the value of the estate. Others involve loans that are used to acquire assets that are not chargeable to inheritance tax or which qualify for a relief so that the value of the estate is doubly reduced. The policy intention of the measure is to remove the tax advantage that such schemes and arrangements seek to achieve through the exploitation of that loophole. Obviously, that is an aim that the Opposition support.

The impact assessment shows a net positive return to the Exchequer of £5 million in 2013-14, rising to £20 million in 2014-15, then falling and remaining steady at £15 million after 2017-18. It is obvious why the impact will be lower in 2013-14, but it would be helpful if the Minister would clarify why the return is expected to peak at £20 million and peter down to £15 million on an ongoing basis. Presumably, individuals who are aware of the changes will, as executors, adjust their tax planning behaviour, but it would be interesting to understand why we expect that increase in 2014-15, and why the return will continue at £15 million on an ongoing basis. Is that return expected to continue indefinitely in terms of tax protected by the Exchequer?

A number of concerns about this measure were raised in Committee, and also expressed by several external organisations that the Minister mentioned. Most notably, there is concern that the new rules are too broad and may unintentionally catch genuine existing arrangements, rather than solely avoidance behaviour. It is welcome that amendments 35 to 51 seek to focus the new rules more tightly, and clarify the legislation where appropriate to minimise the impact on those with innocent arrangements. Despite the amendments, there are still a number of concerns about clause 174 and schedule 34. I have already asked the Minister whether he is confident that those concerns have been addressed, because even despite the amendments, concerns continued to be raised. It would be helpful if the Minister would provide comfort to the House, members of the public and tax professionals who are concerned about the clause.

The key concern expressed by the Chartered Institute of Taxation relates to debts that are not discharged from the estate of a deceased person. New provisions in clause 174 appear to mean that if a debt has not been discharged directly out of an estate, it will not be deductible for inheritance tax purposes. For example, if the deceased’s estate contains a house subject to a mortgage, the mortgage debt might be repaid from the proceeds of an insurance policy, payable directly to the beneficiary. Although a spouse or civil partner would not be subject to inheritance tax under such circumstances, a cohabitee or orphan child would be. Alternatively, if there is no insurance to pay off the mortgage, the beneficiary might take on the mortgage debt. In either case, as liability will not have been discharged directly out of the estate, which is a requirement of the new provision, it appears that it will not therefore be deductable.

I understand that HMRC intends to deal with such scenarios in its guidance, but it would be helpful for the Minister to clarify the position in his response. The Chartered Institute of Taxation previously expressed concerns that the measures are “profoundly anti-business” and do “not recognise economic realities”. Indeed, it went so far as to state

“we can hardly think of a more counter-productive measure than to deny relief for lending related to business.”

I am sure the Government will want to respond to that strong concern, given current economic conditions and their stated desire to stimulate economic growth. I am sure it is not their intention to enact measures that could be counter-intuitive to that desire.

The Government’s amendments mean that new rules on liabilities incurred to acquire a relievable property will apply to loans taken out or varied on or after 6 April 2013. That is important because of the retroactive nature of schedule 34, which has been criticised given the significant implications for business loans taken out many years ago and secured against a person’s house.

The Chartered Institute of Taxation continues to be concerned that the amendments do not provide adequate protection for small businesses. If a business loan was taken out many years ago but is varied after 6 April 2013, the transitional protection offered by the amendments falls away. That could trap small business owners into existing loans, or hinder anyone whose loan comes to an end, where the bank wants to alter the terms, or if the individual wants to refinance. Ultimately, the Chartered Institute of Taxation fears that that could result in people facing an unenviable choice between selling the family home and selling their business if the business owner dies. I would be grateful to hear the Minister’s comments on those concerns.

To return briefly to my comments on amendments 1 to 7, the impact assessment states that the proposed changes could impact on small businesses. There has been no consultation with small firms or any other groups, so perhaps the Minister will confirm that both sets of changes will not have the detrimental impact on small businesses and business lending that many tax professionals are concerned about.

[Mr Gauke]

I will try to address the hon. Lady’s points. First, on inheritance tax and non-domiciled spouses, she correctly mentioned the costs of the policy, which are largely due to an increase in the lifetime limit set out in the Budget documents. Clause 176 increases that limit from £55,000 to £325,000—it has not been increased since 1982, and we wanted to address that to be fair to non-domiciled spouses. That is the reason for the cost.

The yield from measures in clause 134 and schedule 34 comes from two main types of avoidance scheme that will be closed by these provisions. The main impact on one will be relatively short-lived. The hon. Lady is right to point out that we expect tax agents providing tax avoidance schemes to move on to new schemes in other parts of the tax code, and that will have a behavioural impact. That explains the peak in one year—2014-15—and the £15 million yield for subsequent years.

The hon. Lady mentioned the impact on business and I refer her to my earlier remarks—as you will have noted, Mr Deputy Speaker, I covered quite a lot of ground in a fairly lengthy speech. Estates will continue to get a deduction for loans or liabilities, provided they are not used to acquire assets that are not chargeable to inheritance tax and are repaid after death, unless there are genuine commercial reasons for non-repayment. Business and investment decisions are made on a range of factors, including tax. One of the Government’s key principles for good taxation is that the tax system should be efficient. It should neither favour nor penalise one form of lending or security over another. The new provisions will ensure that this is the case.

15:00

The hon. Lady referred to a point raised by the Chartered Institute of Taxation that debts not discharged directly out of the estate will not be IHT deductable. The definition of “out of estate” will be extended by amendment 45 to include indirect assets not normally included in the estate, such as excluded property. Otherwise, no deduction will be due, but this reflects the economic consequence of incurring a liability and repaying it. It would disadvantage the Exchequer to provide for relief where debts are not repaid and do not reduce the inheritance tax being passed on.

On whether that will harm business, and whether the amendments deal with concerns that have been raised, it is worth pointing out that independent research published in the SME Finance Monitor suggests that the majority of business overdrafts and loans are unsecured. Where security is provided, it is typically in the form of a charge on business property, such as commercial mortgages. That is supported by a review of recent IHT returns. Most estates with such liabilities will therefore be unaffected by the changes.

On consultation, the provisions are designed primarily to tackle avoidance schemes, such as those involving debts between connected parties. As is normal practice for such measures, there was no consultation and draft legislation was not published in advance. To do so would have exposed the avoidance schemes to greater publicity, potentially encouraging more schemes to be set up. Following the publication of the Finance Bill, the Government, as expected, received comments from interested parties and are responding to the many concerns raised by tabling amendments on Report to clarify and improve the Bill.

[Catherine McKinnell]

I appreciate the Minister’s point, but I question the reference to how the majority of small businesses manage to secure funding. Small businesses in particular are struggling to obtain funding from banks.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We are wandering away from the amendment, and I know the hon. Lady just wanted to make a point on the amendment.

[Catherine McKinnell]

My point relates specifically to the amendment, Mr Deputy Speaker. Many businesses that manage to obtain funding are often required to provide their home as security. If this provision has a detrimental impact on small businesses and puts family homes in jeopardy, will the Government keep it under review?

[Mr Gauke]

I can appreciate why the hon. Lady raises that point, but recent evidence from inheritance tax returns suggests that the majority of business overdrafts and loans continue to be unsecured. There may well have been changes to the balance between secured and unsecured business overdrafts and loans in recent years, but it remains the case that the majority are unsecured. Where security is provided, it is typically in the form of a charge on a business property. I understand why she raises the point, but the evidence suggests that this will not cause the concern that she anticipates. All measures are kept under review and this will be no exception, but we believe that we have got the balance right. This will address a distortion and an avoidance opportunity. I therefore hope that these proposals, as refined by the amendments, will become part of the Bill.

Amendment 1 agreed to.

Amendments made: 2, page 105, leave out lines 39 to 43.

Amendment 3, page 106, line 4, leave out ‘spouse or civil partner’s’ and insert ‘deceased’s’.

Amendment 4, page 106, line 7, leave out from first ‘date’ to end of line 19 and insert—

‘if, on the date—

(a) in the case of a lifetime election—

(i) the person making the election was married to, or in a civil partnership with, the spouse or civil partner, and

(ii) the spouse or civil partner was domiciled in the United Kingdom, or

(b) in the case of a death election—

(i) the person who is, by virtue of the election, to be treated as domiciled in the United Kingdom was married to, or in a civil partnership with, the deceased, and

(ii) the deceased was domiciled in the United Kingdom.’.

Amendment 5, page 106, line 21, leave out ‘spouse or civil partner’ and insert ‘deceased’.

Amendment 6, page 106, line 27, leave out ‘or (4)(b)’.

Amendment 7, page 106, line 41, leave out ‘a lifetime or death election’ and insert

‘an election under section 267ZA(1)’.—(Mr Gauke.)

Schedule 2

Tax advantaged employee share schemes

[Mr Gauke]

I beg to move amendment 8, page 144, line 34, at end insert—

“(10A) For the purposes of subsection (10) it does not matter if the general offer is made to different shareholders by different means.’.

[Mr Deputy Speaker]

With this it will be convenient to discuss Government amendments 9 to 16.

[Mr Gauke]

Clause 14 and schedule 2 provide a wide-ranging simplification of the four tax advantaged employee share schemes, following recommendations by the Office of Tax Simplification. The Government are introducing amendments 8 to 16 to provide further clarity on the rules that apply where company events involving “general offers” take place. When clause 14 was discussed in Committee, we highlighted some of the improvements that we are making to simplify the tax advantaged employee share schemes, and I shall provide hon. Members with some background on the specific provisions relating to these amendments.

Current legislation allows employees affected by certain company events, such as takeovers, to exchange their original scheme shares or options for shares or options in the acquiring company. The schedule also creates new rights for participants to realise scheme shares or exercise options without tax liability in the event of a cash takeover of their company.

Earlier this year, a tax tribunal hearing a particular case published a decision on what constitutes a “general offer” for the whole of the ordinary share capital of a company. Following this decision, and a number of requests from taxpayers and advisers, the Government consider it desirable to clarify the scope of what constitutes a “general offer” for the purposes of the provisions. The amendments clarify the position across all four tax advantaged employee share schemes, and confirm the rules as they have been consistently applied by HMRC. Our aim is to remove any uncertainty for advisers and taxpayers, consistent with the general simplification theme of the changes. The amendments, alongside the changes that already form part of the Bill, demonstrate the Government’s commitment to simplifying and clarifying the tax rules where possible.

[Catherine McKinnell]

These are technical amendments tabled in response to concerns about the operation of the share incentive plans in section 498 and schedule 2 to the Income Tax (Earnings and Pensions) Act 2003. The amendments will clarify save-as-you-earn option schemes. We support the clarification of the rules that apply when general offers take place.

Amendment 8 agreed to.

Amendments made: 9, page 144, line 45, after ‘“(7)’, insert—

‘For the purposes of sub-paragraph (5) it does not matter if the general offer is made to different shareholders by different means.

(8) ’.

Amendment 10, page 146, line 20, at end insert—

“(3DA) In subsection (3D)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (3D)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person.

(3DB) For the purposes of subsection (3D)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.’.

Amendment 11, page 147, line 16, at end insert—

‘(1A) After sub-paragraph (3) insert—

(3A) In sub-paragraph (3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person.

(3B) For the purposes of sub-paragraph (3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.”

(1B) A SAYE option scheme approved before the day on which this Act is passed which contains provision under paragraph 37(1) of Schedule 3 to ITEPA 2003 by reference to paragraph 37(2) has effect with any modifications needed to reflect the amendment made by sub-paragraph (1A).’.

Amendment 12, page 147, line 37, leave out sub-paragraph (1) and insert—

‘(1) In Part 7 of Schedule 3 (exercise of share options) paragraph 38 (exchange of options on company reorganisation) is amended as follows.

(1A) In sub-paragraph (2)(c)—

(a) after “982” insert “or 983 to 985”, and

(b) after “shareholder” insert “etc”.

(1B) After sub-paragraph (2) insert—

“(2A) In sub-paragraph (2)(a)(i) the reference to the issued ordinary share capital of the scheme company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the scheme company does not include any shares already held by the person making the offer or a person connected with that person.

(2B) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.”’

Amendment 13, page 149, line 34, at end insert—

“(2HA) In subsection (2H)(a) the reference to the issued ordinary share capital of the relevant company does not include any capital already held by the person making the offer or a person connected with that person and in subsection (2H)(b) the reference to the shares in the relevant company does not include any shares already held by the person making the offer or a person connected with that person.

(2HB) For the purposes of subsection (2H)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.’.

Amendment 14, page 150, line 31, at end insert—

“(3A) In sub-paragraph (3)(a) the reference to the issued ordinary share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (3)(b) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person.

(3B) For the purposes of sub-paragraph (3)(a) and (b) it does not matter if the general offer is made to different shareholders by different means.’.

Amendment 15, page 151, line 6, leave out sub-paragraph (1) and insert—

‘(1) In Part 6 of Schedule 4 (exercise of share options) paragraph 26 (exchange of options on company reorganisation) is amended as follows.

(1A) In sub-paragraph (2)(c)—

(a) after “982” insert “or 983 to 985”, and

(b) after “shareholder” insert “etc”.

(1B) After sub-paragraph (2) insert—

“(2A) In sub-paragraph (2)(a)(i) the reference to the issued ordinary share capital of the scheme company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the scheme company does not include any shares already held by the person making the offer or a person connected with that person.

(2B) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.”’.

Amendment 16, page 151, line 13, at end insert—

‘Enterprise management incentives

30A (1) In Part 6 of Schedule 5 (company reorganisations) in paragraph 39 (introduction) after sub-paragraph (3) insert—

“(4) In sub-paragraph (2)(a)(i) the reference to the issued share capital of the company does not include any capital already held by the person making the offer or a person connected with that person and in sub-paragraph (2)(a)(ii) the reference to the shares in the company does not include any shares already held by the person making the offer or a person connected with that person.

(5) For the purposes of sub-paragraph (2)(a)(i) and (ii) it does not matter if the general offer is made to different shareholders by different means.”

(2) The amendment made by this paragraph comes into force on such day as the Treasury may by order appoint.’.—(Mr Gauke.)

Schedule 9

Qualifying Insurance Policies

[The Economic Secretary to the Treasury (Sajid Javid)]

I beg to move amendment 17, page 205, line 7, after ‘(g)’, insert ‘or (4A)’.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

With this it will be convenient to discuss the following:

Government amendments 18 to 29.

Amendment 52, page 213, line 2, at end insert—

‘(aa) the policy has an annual premium of £3,600 or less.’.

Amendment 53, page 213, line 2, at end insert—

‘(ab) the policy is subject to capital gains tax.’.

[Sajid Javid]

Amendments 17 to 29 make a number of technical changes to schedule 9 and clause 25 to ensure that the qualifying insurance policy regime works as intended. Let me set out some brief background to these changes. The qualifying policy regime was introduced in 1968 to preserve pre-existing tax treatment for traditional moderate value, long-term, regular premium savings policies that contain a significant element of life insurance.

No upper limit was set for the investment premiums that could be paid into a QP, which allowed individuals to obtain unlimited relief from higher rates of income tax. In the 2012 Budget, the Government announced a restriction to the tax relief available for QPs. Clause 25 and schedule 9 introduce an annual premium limit of £3,600 on qualifying life insurance policies. This restriction limits the amount of premiums payable into QPs for an individual to no more than £3,600 in any 12-month period, with effect from 6 April 2013.

This measure supports the Government’s objective of promoting fairness in the tax system by ensuring that tax reliefs for QPs are correctly targeted. Consultation since the Bill was introduced has continued and identified the need for Government amendments to clause 25 to deal with points of detail in 13 areas. None of these represents a change of policy; as I have said, they are technical adjustments to ensure that the rules operate effectively and as intended. The amendments have been discussed with industry representatives and have benefited from the comments received.

Let me briefly explain the amendments in slightly more detail. The purpose of the changes is to provide flexibility to deal with potential future exclusions from the non-assignment rule and potential future exclusions from the circumstances under which beneficiaries must make statements, to extend the period by which an individual must first make a statement and to clarify what information an insurer must provide and obtain from a policy beneficiary and what an insurer must provide to HMRC. In addition, a number of amendments make minor corrections or consequential changes to the more material changes that I have described.

If I may, Mr Deputy Speaker, I will speak to amendments 52 and 53, standing in the name of my hon. Friend the Member for West Worcestershire (Harriett Baldwin), at the end of the debate.

[Harriett Baldwin]

I rise to speak to amendments 52 and 53, standing in my name and the names of my hon. Friends the Members for City of Chester (Stephen Mosley) and for Finchley and Golders Green (Mike Freer).

I tabled these amendments to schedule 9 after being alerted recently to the consequences of the proposed changes to the life insurance qualifying policy regime for a small business in Malvern in my constituency, which is a market maker in traded endowment policies. The business provides a price at which it will both buy and sell an endowment policy, which creates welcome liquidity in these financial instruments. The firm has been recognised for its work with a Queen’s export award for industry.

The Association of Policy Market Makers estimates that the traded endowment policy market involves about 7,000 policies a year, out of the 20 million policies outstanding, and has a value estimated at approximately £150 million. The reasons why someone might want to sell an endowment policy vary. The most significant reason —accounting for 20%—is poor investment performance, although someone might be selling their house or trying to get some equity release. People sell endowment policies when they want to reduce their mortgage or improve their home—perhaps at retirement or when they lose their jobs, are bereaved or are getting divorced. Someone might want to buy a second-hand endowment policy to get a better rate of return than cash without a stock market risk. Endowment policies are also popular products with people with lump sums—such as victims of accidents who receive large payouts—because they have capital protection at maturity and tend to be priced to beat inflation.

The market is in natural decline, as endowment policies are no longer very popular and the existing 20 million policies have a finite end date. Nevertheless, there are thought to be seven such small businesses in the UK, employing about 200 people, including in the constituencies of my hon. Friends the Members for City of Chester and for Finchley and Golders Green. These firms worry that they will be put out of business by the change of tax treatment for these policies contained in schedule 9.

15:15

I completely understand, support and appreciate the Chancellor’s desire to restrict tax relief for higher-rate taxpayers to £3,600 a year for all new policies that are issued. What I am raising is the impact on existing qualifying policies, which have hitherto been subject to capital gains tax after they change hands. However, the tax treatment might now become so unattractive that the secondary market will dry up. I fear that the Chancellor and the Exchequer will lose out on the potential capital gains tax created by future transfers of such policies. The potential capital gains from the industry as a whole are estimated at £750 million, depending on how much changes hands and the rate of capital gains tax at the time. That is a not inconsiderable sum of money.

In setting the £3,600 annual limit for new policies, the Treasury needs at the same time to limit the number of qualifying second-hand endowment policies that any one individual can buy. My amendments simply seek to set the same annual premium limit for existing policies as that for new policies under this legislation. That would create a fair and level playing field between new policies, which are being restricted, and any outstanding existing policies that might change hands. I know that the Minister would not want to close down small financial services businesses because of this change in the tax treatment of policies issued many years ago. I think that we can all agree that that would be excessive and retrospective.

I hope that by considering my amendments the Government will find a way to restrict the tax relief on new policies in the future—while still allowing the secondary market in existing qualifying policies to continue—and continue to allow those capital gains tax revenues for the Exchequer. I appreciate that we are talking about a small, specialised secondary market—I was not aware that it existed until 10 days ago. I also appreciate that the industry was not able to feed into the consultation at the end of the year—it was not alerted to the potential change—but it has now fed into the process, via the business in my constituency. I hope that by giving serious consideration to my amendments—and, I hope, accepting them—the Government will allow the industry and the endowment policy market to die of natural causes in due course, as the policies mature, rather than killing it off suddenly with the Bill.

[Sajid Javid]

Allow me now to turn to amendments 52 and 53, in the name of my hon. Friend the Member for West Worcestershire (Harriett Baldwin). I recognise that she speaks from experience and in support of concerns raised by her constituents. I have listened very carefully to those points, and I welcome the opportunity to debate this issue. In providing some additional background to the annual premium limit, I hope that she will be reassured by the safeguards that we have introduced—and the reasons for introducing them—and will consider not pressing her amendments. Amendments 52 and 53 ask that the Government exclude assignments that make a policy non-qualifying where either the policy has an annual premium of £3,600 or less, or the policy is subject to capital gains tax.

Let me respond to some of the points raised by my hon. Friend. She commented that seven small businesses selling second-hand endowment policies could close as a result of the change to the tax treatment of qualifying policies. We recognise that these policies are likely to sell for less on the market where the purchaser is an individual who is a higher or additional rate taxpayer, due to the income tax charge when the policy matures. Let me reassure her that there is currently no bar to the sale of non-qualifying policies on the market and that research from the industry shows that non-qualifying policies are currently sold in the market. We envisage that this market might actually increase as a result of fewer QPs being available for sale.

Let me reassure the House that any adverse impact of the tax changes will be limited to those purchasers who are higher or additional rate taxpayers. Where a second-hand endowment policy is bought by a corporate investor or a basic rate taxpayer, there will be no impact on the tax position of the buyer when the policy matures. As a result, the loss of QP status will not make these policies any less attractive for those investors.

My hon. Friend made a point about capital gains. Previously, the purchaser of a traded endowment policy would have been liable to tax under the capital gains tax regime. That tax treatment was based on the maturity proceeds, less what the purchaser paid to acquire and maintain the policy. Capital gains tax treatment was more favourable, in that no additional tax would be payable unless the gains exceeded the annual exempt amount. In practice, it is likely that higher or additional rate taxpayers structured their affairs so as to ensure that little or no capital gains tax would be payable by using their full annual exempt allowance for a tax year. For 2013-14, that amount is £10,900. There is an additional safeguard for basic rate taxpayers who fall into the higher tax bracket as a result of the policy maturing. If that happens, the individual will get top-slicing relief, which reduces any additional tax payable. The relief is not available if the taxpayer is already a higher or additional rate taxpayer when the policy matures.

My hon. Friend has stated that her amendments would set the same annual premium limit for traded endowment policies as that set for new policies and existing policies. The annual premium limit of £3,600 applies to each individual rather than to a single policy. The effect of amendment 52 would be to exclude a policy from the limit if it had an annual premium payable of £3,600 or less. Purchasers of traded endowment policies will already have an annual premium limit of £3,600 applying to their own policies. As a result of that amendment, they would also be able to acquire as many traded endowment policies as they could afford, so long as each of those policies had premiums payable under the threshold. That would put an individual who had taken out a qualifying policy from the outset at a disadvantage to an individual who later acquired a policy. Amendment 52 would not result in a level and fair playing field. Rather, it would inadvertently create an unfair advantage for purchasers of these traded endowment policies.

My hon. Friend understandably referred to the restrictions on assignments for consideration, which are an essential part of the policy. The aim of our measure is to help to promote fairness in the tax system by limiting the tax relief available to higher rate and additional rate taxpayers. Without this restriction, individuals in a financial position to purchase traded endowment policies would be able to acquire qualifying policies without limit, while everyone else would be subject to the £3,600 annual premium limit. That would put an individual who had taken out a qualifying policy from the outset at a disadvantage to an individual who later acquired a policy, which would be unfair and inconsistent.

My hon. Friend considers that there is an element of retrospection about applying the annual premium limit to any QPs existing before 6 April 2013. Let me reassure her that there is no element of retrospection. The sale of a traded endowment policy on or after 6 April 2013 is treated no differently from an individual varying an existing policy after that date either to change the term or to vary the annual premiums payable. In all those cases, an individual will have made a conscious decision with regard to an existing product in full knowledge of the tax consequences resulting from that decision. The Government’s position is therefore that it would be unfair, inconsistent and disproportionate to allow all pre-6 April 2013 policies to remain qualifying following assignment to maintain the secondary traded endowment market.

The Government have listened to my hon. Friend’s concerns, however. As a result of the representations made, we would like to remind her that amendment 19 proposes giving HMRC a power to deal, in regulations, with any additional circumstances for which exclusion may be appropriate. I will ask officials to meet my hon. Friend’s constituents and to work with the industry to ensure that the annual premium limit remains proportionate as it beds in. I want to reassure her that if the evidence shows that the impact of the annual premium limit would prematurely bring to an end the traded endowment market, as she fears, the Government would consider using their power in amendment 19 to address the matter in a proportionate way, following discussions with interested parties. I hope that that provides her with a degree of reassurance that the Government are listening, and I respectfully ask her not to press her amendments to a vote.

These important technical changes enjoy the broad support of the life insurance industry. They will provide a more effective and more proportionate regime for the operation of the annual premium limit on QPs, and help to ensure that tax reliefs for QPs are appropriately given. I therefore commend Government amendments 17 to 29 to the House.

Amendment 17 agreed to.

Amendments made: 18, page 206, line 32, after ‘(g)’, insert ‘or (4A)’.

Amendment 19, page 213, line 25, at end insert—

“(4A) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that sub-paragraph (2) does not apply if prescribed conditions are met in relation to the assignment.

“Prescribed” means prescribed by the regulations.

(4B) Regulations under sub-paragraph (4A) may—

(a) make different provision for different cases or circumstances, and

(b) contain incidental, supplementary, consequential, transitional, transitory or saving provision.’.

Amendment 20, page 213, line 27, after ‘(3)’, insert ‘or (4A)’.

Amendment 21, page 213, line 48, after ‘(g)’, insert ‘or (4A)’.

Amendment 22, page 214, line 33, at end insert—

“(6A) The Commissioners for Her Majesty’s Revenue and Customs may by regulations provide that an individual is not required to comply with sub-paragraph (2) if prescribed conditions are met.

“Prescribed” means prescribed by the regulations.

(6B) Accordingly, if by virtue of regulations under sub-paragraph (6A) an individual is not required to comply with sub-paragraph (2), sub-paragraph (3) does not apply because that individual does not comply with sub-paragraph (2).’.

Amendment 23, page 214, line 42, leave out ‘Finance Act 2013 is passed’ and insert—

‘first regulations under paragraph (c) below come into force’.

Amendment 24, page 215, line 12, at end insert—

“(8A) Sub-paragraph (8B) applies in relation to a policy if the obligations under the policy of its issuer are at any time the obligations of another person (“the transferee”) to whom there has been a transfer of the whole or any part of a business previously carried on by the issuer.

(8B) In relation to that time, in sub-paragraph (2) the reference to the issuer of the policy is to be read as a reference to the transferee.’.

Amendment 25, page 215, line 13, after ‘sub-paragraph’ insert ‘(6A) or’.

Amendment 26, page 221, line 38, leave out from ‘regulations’ to end of line 9 on page 222 and insert ‘—

(a) requiring relevant persons—

(i) to provide prescribed information to persons who apply for the issue of qualifying policies or who are, or may be, required to make statements under paragraph B3(2) of Schedule 15;

(ii) to provide to an officer of Revenue and Customs prescribed information about qualifying policies which have been issued by them or in relation to which they are or have been a relevant transferee;

(b) making such provision (not falling within paragraph (a)) as the Commissioners think fit for securing that an officer of Revenue and Customs is able—

(i) to ascertain whether there has been or is likely to be any contravention of the requirements of the regulations or of paragraph B3(2) of Schedule 15;

(ii) to verify any information provided to an officer of Revenue and Customs as required by the regulations.’.

Amendment 27, page 222, line 10, leave out ‘(2)’ and insert ‘(1)(b)’.

Amendment 28, page 222, leave out lines 20 and 21.

Amendment 29, page 222, leave out lines 29 and 30 and insert—

‘“relevant person” means a person—

(a) who issues, or has issued, qualifying policies, or

(b) who is, or has been, a relevant transferee in relation to qualifying policies.

(6) For the purposes of this section a person (“X”) is at any time a “relevant transferee” in relation to a qualifying policy if the obligations under the policy of its issuer are at that time the obligations of X as a result of there having been a transfer to X of the whole or any part of a business previously carried on by the issuer.”’.—(Sajid Javid.)

Schedule 34

Treatment of liabilities for inheritance tax purposes

Amendments made: 35, page 424, line 36, leave out ‘subsection (2) or (3)’ and insert ‘subsections (2) to (3A)’.

Amendment 36, page 424, line 38, leave out ‘excluded property’ and insert ‘property mentioned in subsection (1)’.

Amendment 37, page 425, leave out lines 11 to 14 and insert—

‘(3) The liability may be taken into account up to an amount equal to the value of such of the property mentioned in subsection (1) as—

(a) has not been disposed of, and

(b) is no longer excluded property.

(3A) To the extent that any remaining liability is greater than the value of such of the property mentioned in subsection (1) as—

(a) has not been disposed of, and

(b) is still excluded property,

it may be taken into account, but only so far as the remaining liability is not greater than that value for any of the reasons mentioned in subsection (3D).

(3B) Subsection (3C) applies where—

(a) a liability or any part of a liability is attributable to financing (directly or indirectly)—

(i) the acquisition of property that was not excluded property, or

(ii) the maintenance, or an enhancement, of the value of such property, and

(b) the property or part of the property—

(i) has not been disposed of, and

(ii) has become excluded property.

(3C) The liability or (as the case may be) the part may only be taken into account to the extent that it exceeds the value of the property, or the part of the property, that has become excluded property, but only so far as it does not exceed that value for any of the reasons mentioned in subsection (3D).

(3D) The reasons are—’.

Amendment 38, page 425, line 19, leave out ‘excluded’.

Amendment 39, page 425, line 20, leave out ‘subsection (3)(a)’ and insert ‘this section’.

Amendment 40, page 425, line 23, at end insert—

‘“remaining liability” means the liability mentioned in subsection (1) so far as subsections (2) and (3) do not permit it to be taken into account;’.

Amendment 41, page 426, leave out lines 12 to 19.

Amendment 42, page 426, line 37, at end insert—

‘(7A) Subject to subsection (7B), to the extent that a liability is, in accordance with this section, taken to reduce value in determining the value transferred by a chargeable transfer, that liability is not then to be taken into account in determining the value transferred by any subsequent transfer of value by the same transferor.

(7B) Subsection (7A) does not prevent a liability from being taken into account by reason only that the liability has previously been taken into account in determining the amount on which tax is chargeable under section 64.

(7C) For the purposes of subsections (1) to (4) and (7A), references to a transfer of value or chargeable transfer include references to an occasion on which tax is chargeable under Chapter 3 of Part 3 (apart from section 79) and—

(a) references to the value transferred by a transfer of value or chargeable transfer include references to the amount on which tax is then chargeable, and

(b) references to the transferor include references to the trustees of the settlement concerned.’.

Amendment 43, page 426, line 45, after ‘162A(1)’, insert ‘or (3B)’.

Amendment 44, page 427, line 13, after ‘162A(1)’, insert ‘or (3B)’.

Amendment 45, page 427, line 22, after ‘estate’, insert—

‘or from excluded property owned by the person immediately before death’.

Amendment 46, page 427, leave out lines 32 to 34 and insert—

‘(b) securing a tax advantage is not the main purpose, or one of the main purposes, of leaving the liability or part undischarged, and’.

Amendment 47, page 427, line 42, at end insert—

‘( ) Where, by virtue of this section, a liability is not taken into account in determining the value of a person’s estate immediately before death, the liability is also not to be taken into account in determining the extent to which the estate of any spouse or civil partner of the person is increased for the purposes of section 18.’.

Amendment 48, page 427, line 43, leave out from ‘(2)(b)’ to end of line 46.

Amendment 49, page 428, line 9, after ‘162A(1)’, insert ‘or (3B)’.

Amendment 50, page 428, line 19, leave out ‘The’ and insert—

‘(1) Subject to sub-paragraph (2), the’.

Amendment 51, page 428, line 21, at end insert—

‘(2) Section 162B of IHTA 1984 (inserted by paragraph 3) only has effect in relation to liabilities incurred on or after 6 April 2013.

(3) For the purposes of sub-paragraph (2), where a liability is incurred under an agreement—

(a) if the agreement was varied so that the liability could be incurred under it, the liability is to be treated as having been incurred on the date of the variation, and

(b) in any other case, the liability is to be treated as having been incurred on the date the agreement was made.’. —(Sajid Javid.)

New Clause 10

Impact of the Spending Round 2013 on tax revenue

‘The Chancellor shall publish, within six months of Royal Assent, a review of the impact on revenue from rates and measures in this Act, resulting from the Spending Round 2013. He shall place a copy of the Review in the House of Commons Library.’.—(Catherine McKinnell.)

Brought up, and read the First time.

[Catherine McKinnell]

I beg to move, That the clause be read a Second time.

The Opposition’s new clause 10 challenges the Chancellor to publish, within six months of Royal Assent, a review of the impact of last week’s spending review announcements on tax receipts. Should the Government agree to undertake such a review, as we hope they will, we suspect that its conclusions would be pretty short, given the Chancellor’s comprehensive failure to deliver the economic boost that this country so desperately needs. It was a dead duck of a spending review, and it was even more disappointing, given the context in which it was made. The Chancellor did not want to come to the House to announce a spending review last week, but he was forced to announce a further £11.5 billion of spending cuts in 2015-6. Why? Because his economic plan has utterly and categorically failed.

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

Is the hon. Lady suggesting that the Government should be borrowing even more billions of pounds than is already the case, or that they should make further cuts? If it is the latter, she should not be surprised if she gets some support from the Government side of the House.

[Catherine McKinnell]

I am pleased to hear the hon. Gentleman suggesting that those on the Government Benches are considering supporting our proposal. I wonder whether he has realised that his Government are borrowing £245 billion more than they planned, because they have failed. Their economic plan has failed—it has failed on living standards, on growth and on getting the deficit down. The Chancellor promised in 2010 that by 2015 he would have balanced the books, yet he is borrowing £245 billion more than he planned—and those books will not get balanced in the time frame that he promised.

[Andy Sawford (Corby) (Lab/Co-op)]

I support new clause 10 because it is really important to see whether the measures in the spending review will increase tax receipts. My hon. Friend is highlighting the failure over the last three years to get the economy growing and the impact of that on tax receipts. That explains the reality of the further and deeper cuts that the Chancellor promised us we would not have to face.

[Catherine McKinnell]

I thank my hon. Friend for that interjection, which gets to the crux of the matter. The Chancellor had to come here last week to announce further spending cuts in 2015-16, planning for future failure, because he is failing to deal with the economic reality that we face today. Ultimately, we are tabling this new clause because we hope that the Government will take stock of the situation in which they are leaving households up and down this country. The price of the failure of the Chancellor’s economic plan is not being paid by those at the top. We debated at great length yesterday the fact that the top-earning taxpayers are getting a tax cut from this Government, while it is ordinary families that rely on public services that are paying the price for this economic failure throughout the country.

15:30

Despite the pain being meted out to those who are least able to bear it, the coalition’s self-defeating economic policies have resulted in the Government failing their own economic tests. They are borrowing more than they planned and they are not going to balance the books by 2015. Rather than spending his time planning how to boost jobs and growth now, the Chancellor is planning for failure in 2015. He should be laser-focused on injecting a stimulus into the economy to secure jobs and growth now, so that we no longer need to plan for failure and for further cuts in 2015. It is common sense.

[Andy Sawford]

My reading of the new clause is that the review would have to be placed in the House of Commons Library within six months. Is it my hon. Friend’s intention to urge the Government to look at infrastructure spending in the review and, specifically, to include the figures on the impact of cutting capital investment again, year on year, in the spending review and what that does for our economy?

[Catherine McKinnell]

Indeed, it is very much the hope that the Government will shine this laser focus on measures to boost spending and boost jobs and growth now in order to stimulate the economy, get people into work and get the welfare bill down. We know that that bill is rising as a result of the failure of the Government’s economic plan. They should focus on infrastructure spending, which is not just what we say, but what the IMF says, too.

[John Pugh (Southport) (LD)]

How does the hon. Lady think she could work out the true implications and effect of the spending review in only three months? Why did she choose three months rather than six months, nine months or one year?

[Catherine McKinnell]

That is an interesting question because the new clause suggests that the review should be published “within six months”, so I wonder whether the hon. Gentleman has simply misread our new clause. We feel that there is no time to lose, but that six months is a reasonable period to give the Government time to consider the likely impact of the spending round in 2013 on tax receipts. Ultimately, if we are to balance the books and get borrowing down, we are going to have to increase our tax receipts into the Exchequer.

[John Pugh]

Does the hon. Lady recognise that one of the biggest effects of the spending review will be on local government expenditure, which of course has to be dealt with in the following May—falling outside the six-month period? Some of the greater impact of the spending review will be felt after she has asked the Government to produce the report.

[Catherine McKinnell]

I am pleased that we have the hon. Gentleman’s support in principle for the fact that the Government need to take stock of the impact of these spending decisions and his acknowledgement of the devastating impact of the cuts to local authority projects, which we have rehearsed many times here, particularly in areas such as the one I represent. We will not see the impact straight away; we will see it in six months, 12 months, 18 months or two years’ time. The Government have imposed cuts without allowing the economy time to grow, create jobs and consolidate the debt in a responsible way, so we will face the consequences of this economic approach for many years to come. I am pleased, as I say, that the hon. Member for Southport (John Pugh) recognises that.

[Andy Sawford]

My hon. Friend has mentioned local government cuts. According to my reading of the spending review, capital spending in the budget of the Department for Communities and Local Government is to be cut by 35.6%. Could the review take account of that, although it will be some time before we are aware of its full impact on the economy?

[Catherine McKinnell]

The purpose of the proposed review is to encourage the Government to become laser-focused on the impact of their spending review. My hon. Friend is certainly laser-focused—not just on the impact of the cuts on local authority budgets, but on their impact on jobs and economic growth up and down the country.

Common sense tells us—well, it tells everyone but the Government, it would appear—that boosting growth and living standards this year and next would bring in tax revenues and reduce the scale of the cuts that will be needed in 2015, but nothing in the spending review will boost the economy over the next two years. It seems incredibly complacent and counter-intuitive to come to the House and simply plan for the consequences of economic failure in 2015. We believe that the Chancellor should have used his spending review to concede that he has got it wrong and has failed to secure growth. He should be proposing genuine investment in infrastructure this year.

[Debbie Abrahams (Oldham East and Saddleworth) (Lab)]

My hon. Friend is, again, making a powerful speech. Is it not the case that 1% growth since 2010 would have generated an additional £335 billion in the economy? As a result of this incompetent economic policy, however, the Government are having to come back and ask for more.

[Catherine McKinnell]

My hon. Friend has made a very good point. I should be interested to hear the Minister’s response to the figures that she has given, and to what she has said about the lost opportunities for growth. Those opportunities, moreover, have not just been lost over the last three years; the Government are planning on the basis of a further two years of lost economic growth, which simply defies common sense. According to the International Monetary Fund, they should be investing in infrastructure this year to boost economic growth and the housing market, and to encourage job creation and increased tax receipts. The Government seem to be ignoring not only what we are saying, but what the IMF is saying.

[Mel Stride (Central Devon) (Con)]

The hon. Lady has referred several times to the impact of Government policy on jobs. Does she not recognise and welcome the fact that under the present Government there are more people in work than at any other time in our history? We have created more than 1 million private sector jobs—three for every job lost in the public sector.

[Catherine McKinnell]

I acknowledge what the hon. Gentleman has said, but I do not think that it can be linked to the economic reality—the reality of what households and people are experiencing. Many people are in insecure work, many are on zero-hour contracts, and many are self-employed. People all over the country feel that their living standards are being squeezed to such an extent that they cannot afford to pay for what they need by the end of the week.

[Debbie Abrahams]

The fact is that the employment rate is lower now than it was in 2008. Absolute numbers mean nothing. The rate is lower now than it was before the recession.

[Madam Deputy Speaker (Dawn Primarolo)]

Order. The debate is, to put it politely, starting to go a little wide of the new clause. Perhaps we could focus—in a laser fashion!—on new clause 10.

[Catherine McKinnell]

Thank you, Madam Deputy Speaker, but I think that my hon. Friend has made an important point. What we needed to hear from the Chancellor last week was a plan for economic growth that would boost tax receipts and increase the number of jobs. Ultimately, that is how we can balance the books and reduce the deficit: by getting people into work and reducing their dependence on welfare.

My hon. Friend made a powerful point: the Government should not be so complacent about the unemployment situation in this country, and in particular the long-term unemployment situation.

[Mr Gauke]

On a point of clarification, if the hon. Lady’s party was in government, would it be cutting VAT?

[Catherine McKinnell]

Well, I am pleased that the Minister is engaging with the need to review his own Government’s spending plans so they can take stock of precisely how those plans are working to resolve the unemployment situation and the lack of economic growth in this country. If the Minister could provide some reassurance that his Government are focused on reducing the debt, that would be very helpful.

[Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op)]

My hon. Friend was speaking about the spending review’s failure in respect of living standards, and that is crucial. Real wages are set to fall by 2.4% over this Parliament, meaning people will be worse off at the end of the Parliament than they were when this Government came to office. That is the real story: it is a spiral of lower wages, lower living standards and lower tax receipts, and then ultimately more debt, more borrowing and a higher benefits bill. Does my hon. Friend agree that that is the spiral we are in?

[Catherine McKinnell]

Yes. My hon. Friend makes a powerful point, and it highlights the complacency of this Government. They feel it is a case of “job done” as some jobs have been created in the private sector, but ultimately the reality families are facing is that they cannot afford to pay for heating and buy food and what they need for their children and their families because living standards are being so desperately squeezed.

[Mr Gauke]

I just want to give the hon. Lady another opportunity to answer the simple question I asked. The position of her party has for some time now been to favour a cut in VAT. We do not support that approach, but does she support it? Does the Labour party still believe that, at this precise moment, VAT should be cut to 17.5%?

[Catherine McKinnell]

The Government clearly do not support that approach because one of the first things they did when they came to power was increase VAT and the costs for ordinary families up and down the country. We have said all along that we would not have taken those decisions. We would not have chosen to give a tax cut to those on the highest incomes. We would not have slapped a 2.5% charge on poor families who are struggling to make ends meet. We have made that very clear, but the Government have ignored that call. We think the Government should be taking action now to try to stimulate the economy and put some money back into very hard-pressed families’ hands.

[Nic Dakin (Scunthorpe) (Lab)]

My hon. Friend is stating the case for this new clause very clearly. Does she agree that the increase in VAT took a lot of individuals’ spending power out of the economy and also took out a lot of confidence, and that that is what has led to the decline in growth?

[Catherine McKinnell]

Yes, it was a huge blow for families across the country to see costs spiral overnight. This Government seem incredibly complacent about the impact their spending decisions have had, not only on families but on economic growth. We need to look at the facts. The Chancellor promised growth of 6% in 2010. He also promised that he had asked the country for all he would ask for and would not come back for more, but there he was last week, planning for more cuts in 2015 and completely failing to recognise both that his economic plan has resulted in 1% growth, not the 6% he promised, and that his increase in VAT was very much a part of the reason for that.

[Mel Stride]

May I press the hon. Lady for a third time on the question my hon. Friend the Minister has been asking? At this moment in time, given where we are with VAT at 20%, would she advocate, as her party has in the past, that it now be reduced to 17.5%? Also, is her party still in favour of the five-point plan for growth, of which the VAT reduction is but one part?

[Catherine McKinnell]

It is very strange that Government Members, who are in power and making the spending decisions that are having such an impact on families, are solely obsessed with what Labour would be doing. We are in opposition. The hon. Gentleman can speak to his Minister and implore him to make the necessary changes that will bring economic growth back to this country. That is what the Government need to be focused on. The Chancellor is so obsessed with his own economic failure—a failure to recognise that his plan has completely failed—that the Government simply obsess about and focus on what we would be doing, but we are not in government.

15:45

[Andy Sawford]

I came in to support my hon. Friend in pushing for new clause 10, which focuses on the impact of the spending review on the economy and, in particular, on tax revenue, so I am a little surprised at the nature of the debate. However, would she envisage the review examining the implications of the tax cut for millionaires on the economy over the past few years? Would it examine the impact of giving the richest people in our country a tax cut, as that is an actual policy?

[Catherine McKinnell]

To be fair, and to stay laser-focused on the new clause, I should say that we hope and envisage that the Government’s review would look at the impact of the spending review they announced last week. We heard more promises of action from the Government last week, but we did not hear about action that will take place next week, next month or even next year. We heard the Government pledging action on infrastructure investment in two years’ time.

That would be bad enough even if the Government had a proud record, or indeed any record at all, on delivering on the infrastructure projects they announced three years ago. As we have heard a few times—it bears repeating because the figures are so shocking—just seven out of 571 so-called “priority” projects identified by the Government in 2011 in their national infrastructure plan have actually been completed; 80% of the projects announced have not even got off the ground. Despite all the hype, if we delve into the figures, we find that the Government are cutting investment in infrastructure in real terms by 1.7% by 2015. Instead of an urgent boost to jobs and growth, which this country is crying out for, by bringing forward long-term investment in infrastructure, as advocated not only by us but by the International Monetary Fund, all we got was a series of empty promises for two years’ time—and some for beyond that—from a Government who lack all credibility on this issue.

[Andy Sawford]

My hon. Friend rightly talks about how few of the Government’s priority infrastructure projects have begun. Does she hope the review would also examine progress on the Government’s priority school building programme? I understand that there are 261 projects, and I wonder whether she has had time to consider how much progress has been made on them.

[Catherine McKinnell]

That is another absolute failure in terms of the promises made by this Government that are simply not delivered. I hope that the Government will agree to undertake the review we are calling for today and that the House will, by voting with us, acknowledge that the economic plan the Government have so far pursued is failing and that they need to examine what last week’s spending review will deliver. I hope that there will be a recognition that they promised to rebuild, again as part of a “priority” programme, 261 schools and only one project has begun. It is devastating, not just for the children who need those new schools, but for the communities that need those jobs and the small businesses that need to supply the construction industry, which, as we know, has been brought to its knees by this Government’s failure to invest in infrastructure. Instead of investing in affordable homes, improving transport links and repairing Britain’s broken roads, which would give the country the short, medium and long-term returns that we are looking for, the Government are cutting capital spending in 2015. Announcing infrastructure projects for two years’ time will not create a single job today.

[Stephen Doughty]

My hon. Friend is making a crucial point about the impact on jobs. I had hoped that the spending review would consider jobs in the construction sector, where 84,000 jobs have been lost since the Tory Government came to power—that is, between the second quarter of 2010 and the first quarter of 2013. That is a shocking figure: 84,000 jobs have been lost when we should have seen 84,000 jobs created in the construction sector.

[Catherine McKinnell]

My hon. Friend makes his point very powerfully. It is a fact that a number of jobs have been lost in the construction industry that should have been created if the Government were taking not just our advice but that of the IMF and investing in infrastructure projects now. If they did so, tax receipts would improve this year and next year and we would not have to plan for failure in 2015, which is what the Chancellor came here to do last week.

[Andy Sawford]

My hon. Friend is right when she talks about the implications of the Government’s failure to invest in house building and construction in this country on the revenue from rates. Does she think that the review placed in the Library ought to consider the implications of the lack of receipts from house building in the Government’s vaunted programmes, such as the community infrastructure levy and so on, as well as of the business rates raised from firms in the construction industry? Is scepticism not one reason behind this request for a review? Four major housing announcements have been made in the past three years, and there have been 300 announcements, four launches and no action, and the lowest house building in 2012 for 70 years, so is there not some scepticism behind it?

[Catherine McKinnell]

My hon. Friend tempts me to suggest a less than honourable motive for our tabling the new clause. I appreciate that there may be some scepticism about the Government’s commitment to investing in infrastructure and growth and that last week’s announcement was simply about planning for more cuts to public services rather than a genuine attempt to try to look for opportunities for growth. It must be said, however, that the spending review, which plans more cuts in 2015 and was accompanied by an infrastructure announcement on Thursday that was mostly reheated—I think my hon. Friend the Member for Nottingham East (Chris Leslie) described it as a “microwave statement” as its announcements had been reheated so many times—failed to impress anybody.

Liberal Democrat Members in particular should be concerned by statements from the Deputy Prime Minister. He has commented that

“the gap between intention, announcement and delivery is quite significant”.

He puts that rather mildly, and I would hope that by supporting our new clause the Government could take stock of the impact mot just of the 2013 spending round they announced last week but of the delay in delivering any of the projects that have already been announced, as well as the delay pursuant to the announcements that have been made for 2015. This is an important opportunity for the Government to take stock and consider why their economic plan has so catastrophically failed. That would mean that rather than planning for failure in 2015, they could take the steps necessary now to bring forward infrastructure investment and put into play the infrastructure investment that has already been announced so that we can start to create jobs and opportunities for communities up and down the country that are suffering from stagnation in the economy.

[Mel Stride]

The hon. Lady has made the link between infrastructure and its impact on the construction industry and jobs. Does she therefore welcome the recent survey by the ManpowerGroup of more than 2,000 companies in the construction sector, which concluded that we have the best outlook for construction job creation for five years?

[Catherine McKinnell]

I would welcome any signs of positivity in economic growth from any sector of our economy, especially the construction industry, which has suffered catastrophically from the cuts and stagnation in the economy over the past three years. I would indeed welcome that small piece of good news. It is a step in the right direction, but our amendment calls on the Government to take stock and do more.

[Andy Sawford]

I think construction is an incredibly important part of the economy, so I think it is right that the hon. Member for Central Devon (Mel Stride) suggests that the review six months after the spending review would look at construction. I hope it would explore the figures that I have seen, suggesting that the volume of new construction orders fell by 10% between quarter 4 of 2012 and quarter 1 of 2013. Construction is going in the wrong direction at the moment, and we need to know from the review whether the measures in the spending review will actually make that worse.

[Catherine McKinnell]

My hon. Friend makes an important point. Ultimately, it is about what we hear in our communities when talking to businesses about confidence—the confidence to invest, the confidence to take seriously the Government’s commitment to investing in infrastructure and growth. The reality on the ground is deeply worrying. Members of the public will be concerned about the complacent tone that the Government adopt towards the economic situation. The Government are apparently ignoring the fact that they promised 6% growth and delivered only 1%, that they promised 576 infrastructure projects and have delivered only seven, that they promised 261 rebuilt schools and have only put spades in the ground in one. Members of the public will be worried to hear how complacent this Government seem to be. That is why we tabled the new clause—to give the Government the opportunity not just to make the announcement and walk away, hoping that nobody will notice that they are doing nothing about economic stagnation, but to spend some time reflecting on what these announcements will mean in real terms in respect of expected tax receipts.

There is one key Government Department that is capable of increasing tax receipts to the Exchequer, and that is Her Majesty’s Revenue and Customs. Indeed, without the receipts that HMRC collects, there would be no funding to invest in public services. HMRC’s capacity and resources are therefore absolutely critical, and it is widely accepted that it can make a pretty impressive return on investment. Last year, senior HMRC officials brought in £16.7 billion over and above what was returned voluntarily by businesses and individuals.

[Andy Sawford]

I am very pleased to hear my hon. Friend highlight the important role that HMRC plays in our economy. Whatever the review shows about the implications of the spending review, one of the key aspects is HMRC’s effectiveness in bringing in tax revenue. Will my hon. Friend therefore urge the Government, in this review, which I hope they will support, to look at the implications of underpayment of wages to people, particularly minimum wage avoidance issues? HMRC recently sent a team to my constituency, and found that £100,000 was owing to local workers. There are huge implications for receipts at HMRC.

[Catherine McKinnell]

My hon. Friend raises a very important point. I have tabled several parliamentary questions to the Minister on that subject, and I look forward to his response outlining what action the Government are taking, alongside HMRC, to ensure that it not only collects tax throughout the country but ensures that employers abide by the national minimum wage legislation to ensure that employees do not fall short despite the fact that they are working. It is imperative that HMRC has the Government’s support and also has the correct resources to ensure that workers are not exploited in the way that my hon. Friend suggests is prevalent in his part of the country and which I have no doubt is a phenomenon that impacts on hard-working people countrywide.

Despite the headlines suggesting that everybody is avoiding tax, we are generally a tax-compliant nation—I believe the current figure is approximately 93%. Of course, it is the 7% for which HMRC needs extra support and resources to get the returns. The Association of Revenue and Customs estimates that a senior tax official earning £50,000 a year can expect to generate additional yield of at least £1.5 million a year—a return 30 times greater than the cost of their salary. That is a good investment, I think most would agree.

16:00

When the Chancellor announced a further £11.5 billion of cuts to public expenditure, what did that mean for HMRC, a department already faced with a net reduction in funding of £2 billion over this Parliament and the loss of an additional 10,000 staff? Well, the right hon. Gentleman announced that HMRC’s target for additional revenues raised, including from tax avoidance and evasion, would be increased to £24.5 billion in 2015-16—£1 billion more than the 2014-15 target and £10 billion more than the 2010-11 target. According to the spending round report, HMRC will be required to contribute

“to deficit reduction through the collection of an additional £95 million in tax credit debt on an innovative payment by results funding basis.”

However, under the funding settlement announced by the Chancellor last week, at the same time as it is required to bring in those additional revenues, HMRC must cut its costs by a further 5% in 2015-16, on top of the significant efficiency savings and cuts it has already been expected to make. Can the Minister confirm, for the benefit of the House and as part of the review for which we are calling, precisely how much funding will have been cut from HMRC between the coalition coming to power in 2010 and the end of financial year 2015-16? A clear picture of the figures would be useful. Also, will he confirm the total number of HMRC posts that are expected to have been lost during that period?

[Andy Sawford]

My hon. Friend’s question to the Government is incredibly important and I hope we hear an answer. Does she share my concern that some of the measures in the spending review will have serious implications for tax collection unless HMRC has sufficient resources? For example, the director of the Institute for Fiscal Studies said of the shares for rights policy that it has “all the hallmarks” of another tax-avoidance opportunity, and Lord Forsyth, the former Conservative Employment Minister, said it

“has all the trappings of something that was thought up by someone in the bath”.—[Official Report, House of Lords, 20 March 2013; Vol. 744, c. 614.]

HMRC will have to be very alive to these issues of tax avoidance.

[Catherine McKinnell]

My hon. Friend makes an important point. The Bill Committee debated at some length the fact that the Government like to talk the talk on tax avoidance, but have created another tax-avoidance opportunity in the hare-brained shares for rights scheme. I think we all agree with Lord Forsyth.

[Mel Stride]

The hon. Lady talks about the importance of clamping down on tax avoidance, and the hon. Member for Corby (Andy Sawford) talks about tax avoidance in the context of share transactions. Does she, as I do, condemn the £1.65 million donation to her party by John Mills using precisely that type of scheme—a share donation—as means to “tax efficiently” avoid tax?

[Catherine McKinnell]

The hon. Gentleman seems to be expressing some consternation about his Chancellor’s new shares for rights scheme. I am not sure I heard him express the same concerns when this House debated and voted on that scheme. He knows that any donations made to the Labour party are made within all the rules on donations, and any tax due on those donations will be paid. I think he can rest assured that that is in hand.

Returning to the point made by my hon. Friend the Member for Corby (Andy Sawford), it is vital that when additional tax avoidance opportunities are created, HMRC has the resources to deal with them, and that it does not take its eye off other aspects of its activity, such as enforcing national minimum wage legislation and general customer service. We know that the National Audit Office report on HMRC’s customer service performance, which was published in December last year, contained some worrying figures on HMRC’s ability to handle customers.

We hope that the review that we are calling on the Government to undertake will look at HMRC’s ability to recover tax receipts and ensure that its customers, many of whom are not customers by choice, get the support they need in order to pay their tax—not just individuals, who are often dealing with tax credits and find that they need support from HMRC, but small businesses that need support in order to pay the right tax. It is not right that individuals and small businesses in particular, but large businesses too, are left struggling to pay the tax that they wish to pay HMRC voluntarily. The Government should be aware that there is a limit to the extent to which HMRC can do more with less, as they are asking of it in the spending review.

[Mel Stride]

Given the hon. Lady’s response to my previous intervention, I wanted to clarify the issue of John Mills and his donation to the Labour party. Does she accept that his donation is a case of tax avoidance—yes or no? [Interruption.]

[Madam Deputy Speaker (Dawn Primarolo)]

Order. Mr Sawford, I do not need your help in chairing the debate in the Chamber today. I have done enough Finance Bills to know what is in order and what is not in order. The question that has been put is about tax receipts, excluding the reference to individuals, and that is in order.

[Catherine McKinnell]

It is open to the Government to support our proposed review of spending round 2013 and the impact that that may have on tax receipts. If the hon. Member for Central Devon (Mel Stride) wants to support our motion today and the Government in undertaking such a review, it is open to him to do so. We have not specified exactly what should be included in that review and it is open to the Government to look at whatever avoidance opportunities they consider relevant to ensuring that we protect future tax receipts.

I know from written answers that I have received from HMRC recently that staff numbers were projected to fall from 88,875 in March 2009 to 58,464 by March 2014. Will the Minister provide an update on those figures, and in particular what HMRC’s headcount is expected to be by March 2016, following last week’s spending review and the additional resource reduction flowing from it? It is concerning that despite much-publicised announcements about increased investment in tax avoidance and evasion activity, the number of HMRC staff working in enforcement and compliance was expected to fall from 34,762 in March 2009 to 26,905 in March 2014.

I assume that given the Government’s much-stated commitment to getting tough in this area, the predicted fall in staff numbers is no longer going to happen and that we will see a rise in the number of HMRC staff dedicated to enforcement and compliance work. It would be helpful if the Minister could confirm that for the House and tell us how many HMRC staff will be working in this area between this year and 2015-16.

In conclusion, the Government had the opportunity last week to boost tax receipts by announcing measures that would provide the short and medium-term boost our economy needs while providing a long-term return for the country, yet despite the catastrophic failure of their economic plan to date, the Chancellor came to the House and announced that he would continue ploughing the same infertile furrow he has been on since 2010. He just cannot bring himself to admit that it has gone badly wrong. We believe that conducting the review set out in new clause 10 might just help the Government to take stock and note the error of their ways to date. I therefore urge all Members to support the new clause, not only for the sake of their constituents, but for that of our country’s finances.

[John Pugh]

I will try to say something positive about new clause 10. It is quite laudable, in a way, because it would link spending to taxation and get us to engage in retrospective analysis, and frankly we do not do enough of that in this place. We talk about policy a great deal, but the long-term effects are often hidden from us. It can be quite counter-intuitive. We had an interesting debate yesterday on the 50% tax rate, the Laffer curve and the effect that such a rate might or might not have. There are plenty of other examples where the effect of taxation needs to be adequately scrutinised. In Committee we debated what tax avoidance measures would do to people’s behaviour, what petrol taxation would do to people’s behaviour and to the revenue we get, what landfill tax would do to councils’ behaviour, and what the video games industry would make of the various changes that will affect it.

My problem with what the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) is saying is that I think Parliament should do what she is suggesting. It seems to me that Parliament does not have enough good, accessible data and that we make no real effort to examine the whole business of tax revenue yields in any systematic, thorough, regular or routine way. When it comes to spending, there is a very similar picture. There is no real scrutiny of spending in this place. The scrutiny we do is not even as good as that which might be found in a local council. We have the big events, such as the announcement of the spending review, but there is no detailed examination of expenditure.

If Members do not believe me, they should come along to estimates day tomorrow and see the examination of estimates that is imposed in this place. The last time we had an estimates day, I was actually ruled out of order by the Deputy Speaker—not you, Madam Deputy Speaker—for talking about the estimates, which was thought improper.

We do not examine the non-controversial, everyday departmental expenditure that goes on from year to year and the errors that occur in it. The Public Accounts Committee does a very good job of looking at the controversial stuff, but there is no rigorous, effective or ongoing examination of expenditure. We do not do enough of that and we do not know enough about what tax policy actually does, how Departments spend and what the profile of a Department is on a day-to-day, month-to-month and year-to-year basis.

Arguably, somebody in the basement of the Treasury knows the spending profile of Departments, but they would probably be unable to give the hon. Lady the answer she wants in three months, and probably not in six months. I think she has to recognise that she is making a hard ask and, in my view, probably a futile one, because if we do not do any real scrutiny of taxation in this place—we scrutinise policy, but certainly not outcomes—beyond headline figures and big grandstanding days such as the announcement of the spending review, then what we are essentially doing with the Government finance is firefighting.

What takes place in this place is not effective financial scrutiny. We do not look at the boring, pedestrian, routine and important spending, which is massive. The new clause asks the Treasury to mark its own work, and I am sure that it would be perfectly happy in some contexts to do so, but what we really need is to get Parliament to do the work and to give us an answer that would satisfy us, including the hon. Lady.

[Nic Dakin]

It is a pleasure to follow the hon. Member for Southport (John Pugh), who began by underscoring how important it is to have retrospective analysis, which is exactly what the new clause asks for. It is difficult to see how it can be argued against. It says:

“The Chancellor shall publish, within six months of Royal Assent, a review of the impact on revenue from rates and measures in this Act, resulting from the Spending Round 2013.”

That would assist good governance and assist the people out there whom we come here to represent. Indeed, so far the arguments have been supportive, although there has been useful interrogation of the issues as the debate has progressed, which everybody has welcomed.

16:15

The economy expands and responds positively to acts by the Exchequer or the behaviour of individuals, the Government or business. At the time of the 2010 election, our economy was not in great health but was steadily moving in a positive direction. There was growth and good stimulus in the economy through, in particular, the strong infrastructure spending that was driving it forward. The then Government were, properly, using their resources to drive forward spending, confidence and movement in the right direction. This Government came into office in a state almost of panic and switched off the tap of infrastructure spending. The figures now show that infrastructure spending is much less than it would have been if the plans that were in place and were helping to drive the economy forward had been continued.

That has had an impact on business confidence. We have already highlighted the crucial importance of construction as a driver of the economic health of the nation. Construction businesses have been having a torrid time over the past few years. Sadly, a serious number of subcontractors have gone out of business. Local construction companies tell me that the difficulty they are having in getting sufficient credit from their builders merchants to do the jobs which are now beginning to emerge in the economy presents another structural problem. The root cause of that is the fact that so much Government infrastructure spending was taken out of the economy in 2010, 2011 and 2012.

Many businesses have struggled and lacked confidence. Some do have reserves, but they are wisely holding on to them for a rainy day. They are not spending and making the investments in the future direction of their businesses that they might otherwise have done because they do not have the confidence to do so. The Government are not spending, businesses are not spending, and, equally, individuals are lacking confidence and not spending. When we debated VAT earlier, the Minister posed an interesting question, and rightly so. However, the reality is that putting up VAT when his Government did had an immediate hit on individuals’ spending confidence which has helped to create this downward spiral.

The new clause would ensure that there are marks in the ground to show where the Government must come back to the House to account for the impact of their policies. When the Chancellor set out his policies in his emergency Budget, which has led us to the sorry pass we are in today, he was confident that we would be in a completely different place. If he had implemented the provision in new clause 10 at that time, that would have assisted him in rethinking his policies. It would also have assisted the British people in not having to suffer the consequences of those policies for so long, because he would have reappraised the situation.

The new clause is needed to help every Member carry out one of our fundamental duties on behalf of our constituents, namely taking action to improve the nation’s economic performance and to build the confidence of businesses and individuals.

[John Pugh]

Every Budget begins with the Chancellor giving a résumé of the implications of his policies. I cannot remember that ever being greeted with wholesale acclamation from all parties. What the hon. Gentleman is asking for is more of the same, is it not?

[Nic Dakin]

The hon. Gentleman makes a good point. Chancellors sometimes glance back at the effect of their Budgets with rose-tinted glasses instead of seeing the real effects of their economic policies, including the decisions made in 2010, 2011 and 2012.

I congratulate the Government on moving their rhetoric to the right place: suddenly, words such as “growth” and “investment” are as prominent in their lexicon as they always should have been. However, as my hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) has pointed out, their promise on infrastructure spending is to spend tomorrow—most of it in 2014, 2015, 2016 and even 2017—rather than now. It is spending decisions taken now that will have an impact on the lives of people today, rather than waiting and hoping for things that may happen at a future date.

Boosting growth and living standards this year and next year would bring in more tax revenues and reduce the scale of the cuts needed in 2015. Taking action now to boost economic growth—by, for example, bringing infrastructure plans forward so that they happen now rather than tomorrow—would make a real difference. That is why the new clause would be helpful: it would test the impact of the spending round on tax receipts and, as my hon. Friend has said, do so in time to make any necessary adjustments to improve not only the economy, but people’s lives and living standards.

The figures revealed by the Government last week showed another cut of 1.7%—or nearly £1 billion—to capital investment in 2015-16. One would not have thought that to be the case on hearing the announcement, but having looked at the plans I know that that is what they reveal. Capital spending is down by 1.7% in education, by 2.3% in defence and by 17.6% in the Home Office. In the Department for Communities and Local Government, including housing, it is down by a massive, staggering 35.6%, and by 57.6% in the Department for Culture, Media and Sport. Those are large figures and we need to know whether their impact on the economy’s behaviour will be beneficial or, as I fear, not.

[Jonathan Edwards (Carmarthen East and Dinefwr) (PC)]

The coalition has more or less mirrored the capital spending plans of the former Labour Chancellor, the right hon. Member for Edinburgh South West (Mr Darling), so is the hon. Gentleman saying that he was wrong in his allocation of capital spending?

[Nic Dakin]

If we move away from the rhetoric and look at the facts, we will see that in their first three years this Government have spent £5.6 billion less in capital investment compared with the plans they inherited from Labour. That amounts to a £5.6 billion cut to spending that would have taken place had this Government continued with the plans they inherited from the previous Government. What has happened illustrates the importance to the health of the economy of continuity in large infrastructure projects. It is difficult to get that right between the parties, but we must recognise that there are plans for infrastructure spending so that the tap cannot be turned off easily, as the Government did with the Building Schools for the Future programme. If that programme had been carried forward, it would have assisted economic development, as well as continuing to revolutionise the learning environment of children up and down the land.

In the three months to April 2013, output in the construction industry was 4.7% lower than in the same period a year earlier. Construction output is down by 11.2% since the 2010 spending review. Construction—that energetic sector that drives the economy—continues to struggle. That is why we need to check, three months down the line, the effect on the economy of the decisions that are being made today to ensure that we are moving in the right direction.

The volume of new construction orders fell by 10% between quarter 4 of 2012 and quarter 1 of 2013. That is a massive dip. The number of new orders for infrastructure fell by 49.8% over the same period—the largest fall since 1987. The value of public sector infrastructure orders fell by £2 billion between quarter 4 of 2012 and quarter 1 of 2013. Those are significant contractions of demand in the economy.

That clearly has an impact on jobs. At the end of the day, jobs are what transform people’s lives. There is unanimity about that across the Chamber. The construction sector has lost 84,000 jobs since the Government came to power. That has an impact on the well-being and quality of life of individuals, as well as on the economy and the livelihoods of people beyond the construction industry.

There is much more that I could say, but I will return to the essence of this simple, helpful, concise new clause. I can see no argument for the Government not accepting it. It would help us all if they accepted it gracefully so that we can move forward together in harmony.

[Debbie Abrahams]

It is always a pleasure to follow my hon. Friend the Member for Scunthorpe (Nic Dakin). I agree with him totally and will speak in support of new clause 10.

The points made by the Institute for Fiscal Studies last week when the comprehensive spending review was published support what we are trying to do with the new clause:

“The documentation and explanation accompanying yesterday’s spending review announcements was woeful”.

It went on to say:

“Publishing such a small amount of information with little explanation is not an exercise in open government.”

That warning says it all. It reflects the Government’s total incompetence on the economy.

Last week’s spending review was further evidence that the Government’s economic policies are failing. They were warned by my right hon. Friend the Member for Morley and Outwood (Ed Balls) that cutting too far and too fast would smother growth, and that is just what has happened. The Chancellor promised that he would deal with the deficit by 2015. That will not happen. He promised that his emergency Budget and his first comprehensive spending review in 2010 would deal with the nation’s finances and put the country on the road to recovery. Again, that has not happened.

[Mr Brooks Newmark (Braintree) (Con)]

It is interesting to hear the hon. Lady refer to the right hon. Member for Morley and Outwood (Ed Balls). She is critical of our Government’s policy, but does she support increasing the debt? She criticises not bringing down the deficit faster, but if she followed her right hon. Friend’s policy, I am afraid the deficit would be going up, as would the debt.

16:30

[Debbie Abrahams]

I am afraid I totally disagree with the hon. Gentleman, but I thank him for his intervention. Perhaps I could mention that his right hon. Friend the Chancellor said:

“We have already asked the British people for what’s needed.”

He promised that he would not come back asking for more, yet last week we were here again. I hate to draw parallels with Oliver Twist, but it is a little like him coming back for more. In three years, the Chancellor has managed to hollow out the economy. He has not sorted out the City, and he is passing it off as everybody else’s fault, rather than his own.

[Mr Newmark]

There is a thing called “chutzpah”. Is the hon. Lady saying that her party bears no responsibility whatsoever for the enormous debt legacy and deficit the country was left with? The Government are making progress. More men and women are in work than ever before and the deficit is down by a third. Yes, the debt is not going down as fast as possible—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. Mr Newmark, this is not an opportunity for you to make a speech; it was an intervention on new clause 10, and we would like it to be relevant.

[Debbie Abrahams]

On the hon. Gentleman’s final point, there is more to come in my speech: “And there’s more”, I promise—I never did a good impersonation of Frank Carson. On employment, however, the hon. Gentleman is wrong. Employment is lower than in 2008 and I will come on to that—those are official statistics, so he cannot refute them. At the end of 2010, our economy was growing, yet we have been bumbling along the bottom for three years. We had a double-dip recession and barely escaped a triple-dip recession. Growth has been downgraded at every turn.

[Mel Stride]

Will the hon. Lady give way?

[Debbie Abrahams]

No, I will not give way now, as I want to carry on with my argument. There may be an opportunity later.

Amazingly, just a few months after the Chancellor delivered his autumn statement, he had to halve his estimates for growth this year. We will be borrowing £245 billion more than planned since 2010, and as we have heard, the deficit will not be eradicated as the Government promised in 2010. In spite of being told how important austerity was for economic confidence and low interest rates, the triple A rating has been downgraded by not one but two credit rating agencies. The Government tried to blame everybody except themselves and said that austerity was the only way, only to receive an embarrassing rebuke from the chairman of the Office for Budget Responsibility who said that public spending cuts wiped 1.4% off growth last year. The International Monetary Fund followed suit shortly afterwards.

Should anyone wish to know how we relate to the rest of the world, we come 18th in the G20, due to our appalling economic performance. Even after the IMF revised its multiplier, the Chancellor remains steadfast. I could go on—[Interruption.] I am tempted. Our rate of inflation is way above the Bank of England’s 2% target. Employment is lower now than in 2008 and one in 10 people are underemployed. Whatever economic indicator we use, the Government are failing. By all accounts, the public are now starting to see that. Earnings are falling in real terms by 2%, and a recent poll showed that four out of five people feel that austerity is not working. As we have heard, the Chancellor is resolute and sticking fast. The Chancellor and the Prime Minister have also tried to pass this off as everybody else’s fault, but we need to examine the arguments put forward to explain why we are in this mess.

The previous Labour Government have been blamed, but that ignores the fact that this was a global financial crisis. We should remember that at the time the Chancellor and the Prime Minister failed to suggest that our financial institutions required more regulation. The Chancellor has tried to suggest that it is a public spending issue, but public spending as a percentage of GDP was 36.5% in 2007, compared to 42.5% in 1997. In other words, the Labour Government did repair the roof when the sun was shining. We brought down the deficit when we were in power, and it is outrageous to suggest anything else. After injecting funds into our banks, public spending rose to 60% of GDP, but the City’s debt was 245% of GDP. For this Government to pass the crisis off as a sovereign debt problem is absolutely outrageous. This was a problem in our financial institutions that they said nothing about when they were in opposition. They are still failing to grapple with this major issue. They have not managed to improve it.

The Government are trying to distract attention away from our financial institutions and blame what they refer to as shirkers and scroungers. Their attack on the social security budget is outrageous. We must not forget that 43% of social security is paid to older people through old age pensions. This attack is on our pensioners, and that is disgraceful. Growth of just 1% a year since 2010 would have generated £335 billion more. If growth had been 2% a year, that figure would have been £551 billion. Many economists have said that the lack of growth as a result of the failure of economic policy may not be recoverable.

On the areas taking the biggest hits in the spending review—I have just alluded to the Department for Work and Pensions—we must not forget local government. What will the cuts hit? They will hit our social care budget—the budget for the most vulnerable in our society. That is outrageous. Although the NHS budget has been protected, the Institute for Fiscal Studies predicts that job losses are likely to continue. We have already seen 300,000 people lose their jobs in the public sector. It is estimated that another 300,000 will lose their jobs in the next two years. The indirect effect of cuts to work and pensions, local government and the NHS will be to hit our pensioners and increase the number of children growing up in poverty, which will affect the rest of their lives, to more than 1.1 million. We are also seeing, for the first time in decades, life expectancy coming down in certain areas. I could go on, but I will finish there.

[Mr Gauke]

New clause 10 asks for a review of the impact on tax revenues of the measures set out in the 2013 spending review. I note that the Labour party again seems to be interested in discussing matters that are not in the Bill as such. Rather than discussing the Bill, Labour Members want to discuss the spending review—although given how the spending review went for the Opposition, they might have done better to spend last week debating the Finance Bill.

Let me explain briefly why new clause 10 is unnecessary. The House will be aware that in 2010 this Government created the Office for Budget Responsibility in order to ensure that the impact of Government policies is independently scrutinised. The OBR routinely publishes economic and fiscal outlooks, which provide a transparent and independent assessment of the impact of Government policy on the public finances, including receipts, and the economy. The impact of the policies announced in the 2013 spending round will be reflected in the OBR’s autumn forecast, which will be published alongside the autumn statement, so there is no need for a parallel review, which is what new clause 10 would involve.

We have had an interesting debate about the measures in the spending review. At times I have been somewhat confused about the Opposition’s position. I had understood that they accepted the spending review envelope, although it certainly did not sound like it from what the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) said. She described local government spending cuts as “devastating”, so we assume that she opposes that measure. She was not quite clear about where further cuts would be made to compensate for that, but no doubt she will enlighten us in future.

We also heard the Opposition make the argument that we should take steps to boost growth now, rather than focusing on 2015-16. That was not an endorsement of changes such as planning deregulation, which can help growth, or a more competitive tax system. Indeed, we have tried to work out exactly what Labour believes in this area, but it was not clear. We have consistently heard about a five-point plan from the Opposition, including a cut in VAT, which was the flagship of that plan. On three occasions the hon. Lady was asked whether Labour still favoured a temporary cut in VAT under the current circumstances; on three occasions that question was evaded. I will happily give her the opportunity to intervene now if she wants to provide an answer. Do the Opposition believe in cutting VAT now? [Interruption.] She is not going to answer that question. I think we have seen the abandonment of the five-point plan—

[Andy Sawford]

rose—

[Mr Gauke]

Unless the hon. Gentleman is going to bring it back.

[Andy Sawford]

One of the frustrations for my constituents is hearing the Government give highly political answers when they are being held to account. New clause 10 is important because it seeks to look at the impact of the measures in this spending round. The Minister says it is unnecessary, but if he looks at the contrast between the OBR forecast at the time of the 2010 spending review and real growth in the economy, he will see that it was wide of the mark and that our economy has been flatlining for the last three years. That is why we need to know the real implications.

[Mr Gauke]

If the hon. Gentleman accepts the OBR numbers, he really ought to accept the OBR analysis of why what he describes has not happened.

However, let me not go into that. Rather, let me turn to what appears to be the panacea coming from the Opposition, which is to say that we should borrow more in order to invest in capital infrastructure. It ignores the fact that the Darling plan—Labour’s plan to address the deficit partially—involved substantial cuts in capital spending. It also ignores the comments made by the right hon. Member for Edinburgh South West (Mr Darling) about some of the challenges of using infrastructure for pump-priming purposes. The argument also ignores the fact that we will be spending more on capital infrastructure as a proportion of GDP in this decade, a period of austerity, than in the previous decade, when the Government were throwing money around. It also ignores the measures that we have set out for delivering the biggest programme of road investment since the 1970s, for updating our rail networks, for securing our energy infrastructure, for investing more in science and innovation, for building new homes and schools, for establishing the single local growth fund, for expanding digital coverage and for investing in our flood defences.

16:45

[Catherine McKinnell]

Will the Minister give way?

[Mr Gauke]

I will give way, to get the hon. Lady’s answer on VAT. Does she favour cutting it or not?

[Catherine McKinnell]

I was hoping to leave the Minister time to respond to some of the serious concerns that we have raised, but this complete fantasy-land account of the Government’s record on infrastructure investment has prompted me to jump to my feet. Will he confirm that his Government are investing less in infrastructure than was proposed under the Darling plan? They are investing 1.7% less in real terms over the course of this Parliament, and again in 2015-16. They are also borrowing more.

[Mr Gauke]

It is clear that the balance of our plan has focused much more on current spending, as compared with capital spending, than did the plans that we inherited.

I want to turn to the issue of HMRC, which the hon. Lady rightly raised. I can assure her that, as a consequence of the measures we are taking, HMRC’s yield is going up compared with what we inherited. By 2015-16, yield will have increased by approximately 70%, which represents a staggering increase in the performance of HMRC under this Government. Yes, staff numbers are falling but, when it comes to enforcement and compliance, staff numbers will be higher in 2015-16 than they were under the previous Government. We should not always focus on inputs; we should focus on outputs. The record on outputs is very good. If the hon. Lady wants to focus on inputs, however, she should be aware that the record of the previous Government involved the number of staff working in enforcement and compliance falling by 10,000. Under this Government, that number will be increasing.

I have run out of time, but I believe that the spending review is evidence of a Government who are prepared to take the difficult decisions that we need, and a Government who have economic credibility. The contrast with Labour could not be greater.

Question put, That the clause be read a Second time.

16:47

Division 40

Ayes: 234

---

Labour: 217
Scottish National Party: 6
Democratic Unionist Party: 3
Plaid Cymru: 3
Independent: 2
Alliance: 1
Green Party: 1
Social Democratic & Labour Party: 1

Noes: 303

---

Conservative: 256
Liberal Democrat: 44
Independent: 2

Clause 38

Real estate investment trusts: UK REITs which invest in other UK REITs

[Cathy Jamieson (Kilmarnock and Loudoun) (Lab/Co-op)]

I beg to move amendment 57, page 15, line 16, at end insert—

‘(2) Notwithstanding the provisions of paragraph 13 of Schedule 18, that Schedule shall come into force after the Chancellor has conducted, and placed in the House of Commons Library, a review of the operation of the interaction of REITs with the Housing Market. The Review shall consider—

(a) tax measures in place to support house building; and

(b) what steps HM Government have taken to support house building.’.

[Madam Deputy Speaker (Dawn Primarolo)]

With this it will be convenient to discuss Government amendments 30 to 34.

[Cathy Jamieson]

I am tempted to start by saying that I am sure this is the part of this afternoon’s proceedings that everyone has been waiting for, and that there is much excitement about the prospect of talking about real estate investment trusts, and that many Members will want to contribute on this very important issue.

Amendment 57 is another amendment that I have regularly described as very mild-mannered. It proposes that the Government must ensure that the impact of their policy is examined and reported on, and that all Members are subsequently able to access information on its impact from the House of Commons Library. In this amendment, we are asking for that information to be examined and made available before schedule 18 is implemented.

The amendment also asks that the Government conduct a review of the interaction of real estate investment trusts with the housing market and that the Government consider in particular measures that are in place to support house building and what measures they have taken to support house building. I suspect that the Minister may well say this is not necessary because everything is always kept under review so far as the Government are concerned, but he will be aware—because he has heard me say this before both in Committee and on the Floor of the House—that I think Governments always tend to say things are under review, but there is a great difference between something that sits on a shelf that may be dusted down and had a look at if someone asks a parliamentary question or writes to a Minister, and something that is a proactive review, whereby policy is examined and modelling work is done and different facts and figures are placed in the House of Commons Library so that we can all benefit from that information. That is really why we have tabled this amendment now. I keep making this plea to the Minister to take up, at least once, the opportunity to look more favourably on such reviews.

In last year’s Finance Bill Committee and once again this year, we have had important discussions about real estate investment trusts, or REITS. For hon. Members who have not followed the Committee musings over the two years or had the opportunity to read in Hansard the record of the excellent contribution from my hon. Friend the Member for Nottingham East (Chris Leslie), who said just a few words about REITs during those deliberations, I shall outline briefly what this is about and why our amendment is so important.

REITs are securities that sell like a share on stock exchanges and invest in real estate directly, either through properties or mortgages. As of September 2012, 34 nations had REIT-like regimes in place. REITs are tax-advantaged vehicles set up to encourage investment in the property sector. I will, of course, be developing that theme, and people may wish to consider my comments in the light of the need for the review. REITs are exempt from corporation tax on profits and gains arising from their property rental business as long as profits are distributed. In that way, taxation of income from property is moved from the corporate level to the investor level. REITs have been given tax advantages to encourage diverse investment in the property sector, where fellow investors can have a different tax status.

We seek to amend a simple, one-line clause introducing schedule 18, which of course contains considerable detail. I am sure the Minister will speak to the Government amendments in some detail in due course, but these provisions would allow UK REIT income derived from investing in other UK REITs to be treated as income of its tax-exempt property rental business. Until now, REITs have predominantly invested in commercial properties—for example, office and retail properties. We had lengthy discussions about that when debating a previous financial Bill. According to Treasury consultation documents published in April 2012, there are more than 20 UK REITs, with a market capitalisation of more than £20 billion, so this is obviously an important issue.

As I said, the Committee discussed in detail why it is important to reform the REIT regime. We did not oppose clause 38 in Committee and we are not seeking to do so now; we are simply seeking this review and reporting back. My hon. Friend the Member for Nottingham East recognised that REITs are important investment vehicles that have changed the investment scene relating to property and those financial instruments. He spoke about that in Committee, also acknowledging that the Government appeared to be proposing relatively sensible pieces of housekeeping on the cash flow and investment profiles of the REITs. He further acknowledged the argument that REITs could make better returns on such cash if they were allowed to invest short term in other REITs. That was seen as promoting greater liquidity in the property market and potentially attracting additional investment income, particularly into the built environment. However, at that time my hon. Friend also raised a number of specific points with the Minister. For example, he asked what the policy’s effect would be on revenues to the Exchequer. He probed further the broader impact on tax treatments and also sought to discover whether HMRC had done any modelling on how the arrangement might affect yields.

My hon. Friend was interested in what the REIT vehicles are investing in and in how they are linked to commercial property arrangements and the circumstances in which residential property REITs exist. In Committee, he also sought further information from the Minister on the impact of REIT arrangements on the residential property market and its prices, given that there has been some concern in various quarters about the Government perhaps looking more at the demand side of the housing market equation than at the supply side.

I shall say a little more about the housing market later, but in Committee my hon. Friend specifically pressed the Minister on whether the Treasury had analysed the general impact of REITs on property prices in the residential sector and whether there was any overlap between the Help to Buy arrangements and investment in REITs.

The Committee also heard during that debate that although the Government originally consulted on the idea of using REITs as a vehicle to support social housing investment, they decided not to take that forward. There was no REIT vehicle arrangement to help with what the Opposition believe to be the priority—that is, of course, dealing with the need for social housing and affordable housing. I shall say something further about that in due course.

To be fair to the Minister, he advised the Committee that only 15 written responses to the Government’s consultation were received and that there was consensus that amending the tax treatment of REITs would generate positive benefits for the industry and his Government’s wider objectives, as he saw them.

In response to the questions from my hon. Friend, the Minister referred to the tax information and impact note that, as he pointed out, states that

“the provision will have a negligible impact on the Exchequer”.

He went on to explain:

“It removes a barrier that has prevented REITs from investing in REITs, which has generally not happened because it has been an inefficient structure. As a result, the cost of the change to the Exchequer will be negligible.”

That is all fair and proper, but his response to the question on the impact on house prices was perhaps less definitive. At that stage, the Minister suggested that the Government could not

“yet assess the impact on house prices as there are not yet any substantial residential REITs on the market, so the answer is that they have not had an impact on house prices.” ––[Official Report, Finance Public Bill Committee, 4 June 2013; c. 318-19.]

Although I can see the logic in that argument—it comes from a factual perspective—my hon. Friend was probing a question on which I invite the Minister to say more today. Has the Minister considered whether he would use some of the extensive resources at his disposal to do some further modelling work, not just to consider what is happening now but to make projections for the future? That would give us some idea of the advantages and disadvantages of the proposal, particularly as regards the impact on house prices, and would allow us to identify the concerns and, if any were identified, to see how they could be mitigated. That was what my hon. Friend was seeking and is part of the reason why we have tabled the amendment once again.

17:15

The Minister, in Committee, responded to questions by my hon. Friend the Member for Nottingham East on issues relating to the wider policy and REITs and the Help to Buy scheme. At that stage, the Minister drew a clear distinction between what he saw as the policy on REITs and the policy on Help to Buy. He stated:

“There is nothing to prevent REITs from investing in residential property”.

He did acknowledge that

“currently returns are not high enough to attract investors.”

At that stage he also advised the Committee:

“Responses to the consultation suggest that the need for further changes to the REIT regime to support social housing…was seen as not particularly pressing.”

It would be helpful if the Minister would say a bit more about that, because he also said in Committee:

“For some stakeholders, the changes to the REITs regime in the Finance Act 2012 were already sufficient to enable them to set up a social housing REIT.”

I would be interested to hear what discussions have taken place, and how the Minister intends to work with the sector to see whether it is feasible, and whether it is advantageous, to try to set up something in that regard, because other interested parties currently not considering establishing a social housing REIT were concerned that housing at social rents alone would be unable to generate sufficient returns to attract investors. I hope the Minister will say something more on that. For those parties, further additional changes to the REIT regime, such as the removal of the listing requirement, would be unlikely to make any difference to the thinking. The thrust of the Minister’s argument was:

“Essentially, we did not believe that the various ideas that we looked at to encourage social housing REITs would be effective”.—[Official Report, Finance Public Bill Committee, 4 June 2013; c. 318.]

In Committee, we heard the Minister acknowledge that dealing with REITs was a relatively small part of the much bigger picture of the housing market. That is absolutely correct, and he was right to say that. I have laid out several areas where it is important to look further at some of those issues for the future and to do some of that work and report back to the House in due course. Our amendment provides the vehicle to do that.

The Minister was absolutely correct to acknowledge that the REIT regime was a relatively small part of that much bigger picture, so let me spend a few minutes looking at that bigger picture. This also relates to the part of our amendment that would provide for further work to be done on the tax implications of different regimes, and on what the Government are seeking to do to support house building and create further housing opportunities for those who need them. It is therefore relevant to our amendment.

I do not think it is overstating the case to say that we face the biggest housing crisis in a generation. The Opposition recognise the seriousness of the issue. We know how crucial house building is to economic recovery. Whether it is a young family seeking an affordable home in which to bring up their children, or whether it is those at a different stage in life, seeking to downsize or to change their accommodation as their needs develop, it is of course important that a range of housing options is available, and at a cost that people can afford at that stage in their life. That is key.

For the three years that I have been in this place, Opposition Members have consistently called for action on housing, especially affordable housing. I praise my hon. Friend the Member for Birmingham, Erdington (Jack Dromey) for his conviction and clarity on housing policy, and his understanding of the impact of what is happening in the real world on those who are trying to get on the housing ladder, or trying to obtain their first tenancy in a social housing situation.

Yesterday I quoted some comments by both the Prime Minister and the Chancellor on taxation, and there were some groans and some cheers. If the House will allow me, I shall continue that pattern for a moment and quote once again, but this time from the Prime Minister and the Deputy Prime Minister, who are all in it together, of course.

In the foreword to the Government’s housing strategy, they wrote:

“The housing market is one of the biggest victims of the credit crunch: lenders won’t lend, so builders can’t build and buyers can’t buy.”

They continued:

“it is right for government to step in and take bold action to unblock the market.”

We do not disagree, because of course the Government must act and deliver bold action, but in practice, yet again, the rhetoric does not match up with the reality. In housing, as in so many other things, this Government have promised much but delivered very little on the ground. Housing investment is well short of what Labour was proposing; house building has fallen; rents are rising; home ownership is becoming harder to achieve; and homelessness has risen. The Government’s record offers little hope to hard-working families who are trying to do the right thing and aspire to better things, but who are held back by the combination of the squeeze on their incomes and the lack of suitable affordable housing that is available to them.

One of the reasons I came into politics is that way back in 1979, when I was a student, I spent some time living in London and working for a project for homeless people. I recall all the improvements made in subsequent years during Labour’s period in office to enable homeless people and those who were living on the streets to obtain accommodation and support to get back on their feet. I never thought I would see in my lifetime some of the things that are happening now to people who have lost or are at risk of losing their home. Although I am straying somewhat from the amendment, let me say that I am worried about the impact the Government’s policy on the bedroom tax is having on many decent people.

The amendment, which would ensure that the Government review and produce further work on the housing market and taxation, is important. Perhaps we should not be surprised by the Government’s poor record on housing. We heard in the previous debate about their warm words but weak action on infrastructure. My hon. Friend the Member for Newcastle upon Tyne North (Catherine McKinnell) pointed out that just seven of the 576 projects in the 2011 infrastructure plan have been completed, and that five of those were started under Labour; and that despite their warm words, the Government are cutting capital infrastructure spending by 1.7% from 2014-15 to 2015-16. She also gave a stark reminder that of the 261 new school building projects the Government have said will be delivered, only one has started.

We have had hollow promises to kick-start the economy, hollow promises to get growth going, and hollow promises to balance the books in this Parliament. When the British people, right across the country, look at this Government’s record, they understand that this Government have failed to deliver, time and again.

[Stephen McPartland (Stevenage) (Con)]

Does the hon. Lady accept that there are some success stories? In my constituency, for example, the Government are giving almost £2 million for a purpose-built homeless shelter, which will serve a large part of Hertfordshire, and we have provided the funds to build the first council houses in Stevenage in 30 years. As for infrastructure, my local hospital redevelopment is part of a £150 million hospital rebuilding scheme, and a section of the A1M is being widened. It is not all as bad as the hon. Lady makes out.

[Cathy Jamieson]

I appreciate what the hon. Gentleman says, and I am sure his constituents will appreciate the fact that he has raised the matter in the Chamber today. The people who make use of that homeless shelter no doubt welcome the fact that it is there for them but, with respect, that does not get away from the wider need to ensure that we have good quality, affordable housing right across the country. Although his constituents may be benefiting at present, sadly I see in the places that I visit and right across the country that there are areas where that level of investment is not happening. People are finding their living standards squeezed and they are finding it extremely difficult not only to balance their own household budgets, but to plan for the future.

The hon. Gentleman’s intervention leads me neatly on to the subject of house building, although I suspect that that is not what he intended to do. None the less, it gives me the opportunity to move seamlessly into that part of my speech. The Government have had four major housing launches in three years and they have made more than 300 announcements on housing. Some areas would have welcomed 300 houses, never mind 300 announcements. We know, notwithstanding the hon. Gentleman’s comments, that house building is at its lowest level since the 1920s, and research by the House of Commons Library confirms that no peacetime Government since the 1920s have presided over fewer housing completions than this Government have in the past two years. So for all the launches and all the statements, are things going to get any better on this Government’s watch? That is a question that the Minister has to answer.

[John Mann (Bassetlaw) (Lab)]

Is my hon. Friend aware that of even that paltry number of housing finishes, the Labour Government were responsible for many of them? For example, the Strata Homes development in Retford in my constituency was started under the Labour Government only because of a capital grant given to get it going, and given as a present to this lousy coalition.

[Cathy Jamieson]

I could not have put it better myself. My hon. Friend speaks with great passion and I know that he always seeks to do the best for his area, but he makes important points that the Government would do well to take into account.

Is the situation going to get better? From what we know already, it is getting worse rather than better. Housing starts fell by 11% in 2012 to below 100,000. The construction sector has been hit particularly hard by the Government’s policies, which are hurting rather than helping. An estimated 80,000 construction workers are out of work and there has been an estimated 8.2% fall in construction output, despite recent signs of the beginning of change. Even in respect of home ownership, which one imagines this Government of all Governments would advocate, there are 136,000 fewer home owners than when the Government came to power. Home ownership has fallen from 67.4% to 65.3%. Crucially, on affordable homes, the official figures from the Homes and Communities Agency show that the number of affordable housing starts collapsed in 2011-12 by 68%.

I referred earlier to my own experiences when I worked on a homelessness project while I was a student in London back in 1979, which was one of the reasons that I got involved in politics in the first place. It is appalling that homelessness and rough sleeping are up by a third since the election. The Government must take responsibility for some of these awful situations.

The number of families with children and pregnant women being housed in bed-and-breakfast accommodation for six weeks or more has risen by more than 800% since the coalition Government came to power. A staggering 125 councils have had to house families in B and Bs for six weeks or more. [Interruption.] My hon. Friend the Member for Bassetlaw (John Mann) is right: it is a waste of taxpayers’ money. It is not only a waste of money, which is important, but a human tragedy for the families living in those conditions. I ask hon. Members to pause for a moment and reflect on how they would cope if life events meant they had to live like that. What if they were uprooted from somewhere they had been staying and had to pack up their belongings? What if they found themselves, perhaps with children, having to live for an extended period in one room in bed-and-breakfast accommodation, with nowhere to keep their belongings, nowhere to call home, and nowhere to do all the things that we take for granted with our own families?

17:30

Let us take a closer look at the Government’s so-called bold action plan. If the Housing Minister’s claims are to be believed, the new homes bonus will deliver an additional 400,000 properties by incentivising growth in planning permissions for new housing and the output of new homes, but the figures show that fewer homes are being delivered, not more. In reality, their flagship scheme has delivered a reduction in both permissions and outputs since 2010. In 2010, residential planning permissions totalled 135,000, but they were down to 115,000 in 2011, to just 95,000 in the first nine months of 2012, and in 2012 they fell by 11% to below 100,000.

A National Audit Office report stated that the Government’s assumptions about the new homes bonus were “unreliable”, “unrealistic” and

“contained a substantial arithmetical error”.

The report found little evidence that the new homes bonus is increasing house building or approvals for housing and that it is rewarding behaviour that would have happened anyway. It also found that the Government are not even monitoring the impact of the £1.3 billion of taxpayers’ money, which is another reason why it is important that we have the review.

[Graham Jones (Hyndburn) (Lab)]

Does my hon. Friend also accept that the heat map for the new homes bonus is completely unfair, because it affects the ability of local authorities to spend on other projects such as house renovations, rather than new build? It is a Treasury policy that is not working.

[Cathy Jamieson]

My hon. Friend makes an important point. New build is of course important, but so too is bringing existing dwellings up to modern standards and ensuring that families have decent accommodation. That is a useful point to which I hope the Minister can respond.

Given that the National Audit Office report was so damning, by no stretch of the imagination could the new homes bonus be called a success. If we couple that with the rest of the record I have described, we might even call it unforgiveable.

Then there is the Help to Buy scheme, which the Treasury Committee dubbed a “work in progress”. It took us some time to get any real answers from the Minister when we probed how the scheme would work in practice. The Opposition desperately want to help first-time buyers, but the Government are making the crisis worse. As I have said, affordable house building is down. Indeed, many commentators, including those the Government might well have assumed would be on their side, are concerned that the scheme is pricing people out of the market. The Government need to take action on the supply side by building more affordable homes, just as the International Monetary Fund has been arguing. I wonder whether the Minister agreed with the IMF when it said:

“There is a risk that, in the absence of an adequate supply response, the result would ultimately be mostly house price increases that would work against the aim of boosting access to housing.”

Let us take a look at how well the affordable rent programme has worked. Labour invested £8.4 billion in the three years from 2008 to 2011, while the Tories will invest just £4.5 billion in the four years from 2011 to 2015. The Government have cut the budget for new affordable homes by 60%. No doubt they will try to argue that they are getting more for less and that this is all about lean Government, but that is not borne out in reality. Affordable housing starts have collapsed—not stalled, not flatlined, but collapsed. The Government like to claim that they are going to deliver 170,000 affordable homes by 2015, but the NAO report confirms that despite the relentless spin, over 70,000 of those were commissioned by the previous Labour Government.

[Sheila Gilmore (Edinburgh East) (Lab)]

If it is about getting more for less, the result will be to push up rents, so these so-called affordable homes will not be affordable. That, in turn, will push up the cost of housing benefit, which will undermine many of the other claims the Government are making on reducing the housing benefit bill.

[Cathy Jamieson]

My hon. Friend makes an important point. She spent a long period working on housing issues in Scotland and taking forward a number of very positive policies in her previous life at Edinburgh city council, so I always listen carefully to what she has to say, and I hope that the Minister does the same. We have to ensure that policies have no unintended consequences. That is why, in this very mild-mannered amendment, we are suggesting a review to look more broadly at the impact of these policies as regards taxation and the Government’s record on housing, to produce information, and to put it in the House of Commons Library so that we can all be aware of it in looking to the future.

This Government appear to care more about spin than substance. Even with a record that shows they have failed on issue after issue, there is more, because their failure to deliver also extends to the NewBuy scheme. So far, 12 months in, the scheme has delivered fewer than 2.5% of the promised 100,000 mortgages. At this rate, they will not meet their target until 2058. In September last year, the Government announced £10 billion-worth of housing guarantees that were due to open for bids in April 2013. However, as the Financial Times reported recently, the plans are in disarray because no financial group has come forward to run the scheme.

On right to buy, the Government extended the discounts, promising one-for-one replacement. Notwithstanding the rhetoric, the reality is that since the extension of right to buy, 3,495 homes have been sold but just 384 homes have started to be built or have been acquired as replacement stock.

[Graham Jones]

My hon. Friend raises an important point. People were promised that there would be one-for-one replacement in social housing. The fact that it was not like-for-like replacement was another folly in the Government’s policy. It should be put on the record that it is not one for one but one for nine, and that is a tragedy.

[Cathy Jamieson]

My hon. Friend puts his point powerfully on the record. His phrase, one for nine, will perhaps hit home more vividly than my expressing it as 3,495 homes sold but just 384 starting to be built. It is also right to say that those houses that are being built should meet the needs of people who are seeking either to get their first home or to move.

I do not want to spend too much time on the bedroom tax, but it is sad that the Government constantly say that people are living in homes that are far too big for their needs. I know from my own area and the work I did before coming to this place that many people who live in such housing are rooted in their local community. They do not want to move to another town, village or even another street. If homes of a decent standard that met their needs were available in their area, perhaps they would be prepared to move in order to free up some of the larger family houses.

[John Mann]

Does my hon. Friend agree that if we built environmentally friendly, small, local authority bungalows with a little bit of garden, like we used to, many people would queue up to move into them? If only the Government would get their act together and provide the funding to build them.

[Cathy Jamieson]

My hon. Friend makes another very good point. I know of areas where elderly people would welcome such an opportunity. Indeed, I know of some elderly people who have been persuaded, because they felt it was the right thing to do, to move into good-quality housing where everything is on the flat and they have a small garden, a common area and locally provided services. It is also important that such housing is environmentally friendly and has affordable heating and rent.

[Graham Jones]

Elderly accommodation is a chronic problem in my constituency and other areas. Does my hon. Friend know whether the Government, as part of their housing strategy, have undertaken any assessment that has identified the need for accommodation for the elderly?

[Cathy Jamieson]

I cannot answer for the Government, but I would have thought that any Government reflecting on the needs of citizens throughout the country—particularly given the number of elderly people in our communities and the fact that people are living longer—would want to undertake a proper and thorough assessment of future needs and that its projections would be translated into a comprehensive housing plan for the future. If such a plan is in place, I am sure the Minister will enlighten us on it before the end of this debate.

This is about people’s homes, but Government Members seem to think that it is about the number of bedrooms and do not really understand the emotional link that people have to the home that they may have been born and brought up in, that they may have raised their family in, or that they may be set to retire in in their later years. Surely any compassionate society should take that into consideration. We should also take every possible step to ensure that people do not become homeless; we must not let that become another scandal.

I will finish soon because others wish to speak on this important issue. Ministers promised last summer that the Government were on course to smash their ambition to release enough land for 102,000 homes, but they have now conceded that they are only a third of the way towards that target. I will not give into the temptation to go back over every Government failure, but they have missed target after target. After all the warm words, hot air and relaunches, it is clear that this Government are making the housing crisis worse, not better.

People who are out in the cold looking for their first home, looking to move, or looking for somewhere to live out their later years in comfort without having to worry whether it is affordable might look back at Labour’s record. There were 2 million more homes under Labour and we built 500,000 affordable homes. A million more families were able to buy their own homes, housing standards improved and homelessness fell by 70%.

17:45

My hon. Friend the Member for Birmingham, Erdington (Jack Dromey), who might want to comment on the work that he has been doing, is right to call for investment in house building to tackle the housing crisis, bring down the benefits bill—we have not dwelt on that in this debate, but it would feature in a review if the Government accepted the amendment—and put a roof over the heads of the families and individuals who need a home. It would also create thousands of jobs and apprenticeships, and rebuild Britain as we need it for the future.

This is another mild-mannered amendment. I do not see what objections the Minister could have to conducting a review. It would answer a number of the questions that were posed in Committee.

[Graham Jones]

Will my hon. Friend give way?

[Cathy Jamieson]

I will, but only briefly because I am on my last words.

[Graham Jones]

My hon. Friend has made some valuable points in what is an excellent speech. Does she agree that the Government and certainly the Treasury ought to consider in the review what impact a VAT cut would have on the construction industry and on the renovation and refurbishment of properties? That should be part of the review because half the country is being left behind.

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

I do not think that we need to worry about that. We should stick to the amendment.

[Cathy Jamieson]

Thank you for that guidance, Mr Deputy Speaker. I had feared that the Exchequer Secretary would jump up and ask a supplementary question about the Opposition’s position on cutting VAT.

[Mr Newmark]

Will the hon. Lady give way?

[Cathy Jamieson]

I suspect that the hon. Gentleman wants to stray into the territory where Mr Deputy Speaker has suggested we do not go. Suffice it to say that my hon. Friend the Member for Hyndburn (Graham Jones) makes yet another suggestion that the Minister would do well to consider as part of the wider review. I look forward to hearing his response.

[Jack Dromey (Birmingham, Erdington) (Lab)]

My hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), in her powerful speech, pointed to the biggest housing crisis in a generation that is gripping our country. House building is down to the lowest level since the 1920s. Homelessness is up by 30% since the general election, after it fell by 70% under the Labour Government. We have a mortgage market in which millions struggle to get mortgages and a private rented sector with 8.6 million tenants, or 1.1 million families. There are many good landlords, but many bad ones too. There are chronic problems of security, stability, affordability and quality. One in three homes in the private rented sector does not meet the decent homes standard.

Like my hon. Friend, my interest in housing goes back a long way. When I was a lay trade union activist, I was also secretary of the Tenants and Residents Federation. I was a founding member of the Housing Action campaign. For older Members of the House who remember the occupation of Centre Point, I was proud to be one of those who organised what was an effective demonstration against office block speculation, against the background of rapidly rising homelessness and bad housing. I never thought that we would be back here 30 years later debating a crisis worse than that one.

[John Mann]

I wonder whether my hon. Friend would elucidate more for the benefit of us younger Members.

[Jack Dromey]

There was an office block speculator called Harry Hyams. Those were the days when people could build office blocks and not pay rent on them, and they would appreciate two or three times in value every year. That happened against the background of a chronic housing crisis. We rightly protested against that and the incoming Labour Government rightly changed the law for—

[Mr Deputy Speaker (Mr Lindsay Hoyle)]

Order. We are trying to deal with an amendment. Going down memory lane is all very well, Centre Point is very interesting and Mr Mann will always have a response, but I know that Members are desperate to get back to the amendment.

[Jack Dromey]

You are right, of course, Mr Deputy Speaker.

We are here to stand up for the people we represent, and we all see the impact of the housing crisis in our constituencies. I see the impact in the shortage of homes being built in Erdington—56 certified by the National House-Building Council in 2012—and the building worker, one of 79,000, who lost his job, a big man who burst into tears on his front doorstep in Marsh lane and said, “I’ve lost my job three times; I am desperate to provide for my family. I simply can’t cope any longer.” I also see the impact on the homeless families who come to my surgery—on one occasion, they had just been evicted—desperate for a decent home, and the young people in the Orchard project run by the YMCA in my constituency, where numbers of young homeless people double every year.

[Mr Newmark]

Is the hon. Gentleman aware that homelessness today is at its lowest for the past 30 years? It has been lower in only three of the past 27 years. It has been bad, but homelessness today is the lowest it has been for 27 out of 30 years.

[Jack Dromey]

I prefer to rely on statistics from the hon. Gentleman’s Government: homelessness has risen by 30% since the general election.

A teacher and a firefighter in their 20s came up to me on Erdington high street and poured their hearts out about how they are desperate to buy their own home but simply cannot get a mortgage. Evidence from Shelter has shown that typically, couples in their 20s will have to save for 11, 12, 13 or 15 years to afford a deposit. Extraordinary statistics show that the number of people between 25 and 34 who own their own home has fallen from 2 million to 1.3 million, and census figures showed that for the first time since the 1950s home ownership has fallen in our country.

I have seen the problems in the private rented sector in my constituency, such as the lady in Streetly road who had to be rescued by the council’s private tenancy team from a premises for which she was being charged a fortune in rent, but which was deeply dangerous because of faulty electrical wiring.

[Ian Mearns (Gateshead) (Lab)]

My hon. Friend makes a powerful point. One sad thing that I reflect on is that a lot of property in the private rented sector is in grossly bad condition, yet the rent is paid by the taxpayer through housing benefit. I do not for the life of me see why we do not have better regulation of the private rented sector when a vast amount of public money goes into that market through housing benefit.

[Jack Dromey]

My hon. Friend is right. We call it protection for good tenants and landlords alike; the Government call it red tape and have rejected every move since 2010 to regulate the private rented sector more effectively. No Government have done enough in our lifetime, but my hon. Friend the Member for Kilmarnock and Loudoun was right: I will compare favourably anytime the record of our Government to the current Government.

[Mr Newmark]

I hate to throw facts at the hon. Gentleman, but 421,000 social homes were lost under the previous Labour Government. This Government are building 170,000 homes by 2015. This Government’s record is far better than that of the past 13 years under the previous Government.

[Jack Dromey]

Let me spell out the facts: 2 million new homes; 1 million more mortgage holders; half a million more affordable homes; and 1.6 million social homes brought up to a decent homes standard after our Government inherited a £19 billion backlog in housing repairs. In the 1980s, the hon. Gentleman’s Government stood back and allowed a tidal wave of mortgage repossessions. In 2008, we took action to keep people in their homes and, through the kick-start programme, sustained the building industry against collapse and got Britain building again. I will compare that record favourably anytime to the miserable track record of failure of the hon. Gentleman’s Government.

[Sheila Gilmore]

Does my hon. Friend share my perplexity about the figure for the amount of homes lost that Government Members have come up with in recent debates on housing? If social homes are lost, they are lost through the right to buy. The Government have decided to increase the size of discounts and further encourage the right to buy, so they will probably lose more social homes than they build. We cannot compare net figures with gross figures.

[Jack Dromey]

Indeed, when the former Housing Minister, the right hon. Member for Welwyn Hatfield (Grant Shapps)—a man who gives hubris a bad name—launched the new enhanced right-to-buy campaign, he said that there would be one-for-one replacement. One for nine is what is happening. In addition, as freedom of information requests have just shown, Labour councils are building council homes at twice the rate of Conservative and Liberal Democrat councils.

[Ian Mearns]

Another explanation for the loss of units under the previous Government is that, because they were investing in upgrading homes through the decent homes standard, some homes, particularly in high-rise blocks, were too expensive on a unit cost basis to improve. It was costly, but they had to be demolished. We lost units because we were trying to improve the overall stock.

[Jack Dromey]

My hon. Friend is right: tough decisions had to be made. All of us in our constituencies have seen the benefits of that decision to invest in the decent homes programme: it has transformed the lives of millions of tenants.

Why have the Government made these mistakes? They started with the catastrophic error of judgment of cutting £4 billion in affordable housing investment in 2010, which led to a 68% collapse in affordable house building. What we have had subsequently are a succession of false dawns: four “get Britain building” launches, 300 separate initiatives and thousands of press statements. I once said of the former Housing Minister that if we had a home for every press statement that he issued we would not have a housing crisis.

My hon. Friend the Member for Kilmarnock and Loudoun looked at the track record: NewBuy was to produce 100,000 homes, but thus far there have been 2,500. When the Minister comes to respond on NewBuy, he might care to refer to the recent Help to Buy announcement, when the Prime Minister ruled out, from the Dispatch Box, any question of its being used to buy second homes. I tabled a written question:

“To Mr Chancellor of the Exchequer…with which organisations or companies (a) he and (b) other Ministers in his Department have met to discuss the mechanism that will be put in place to stop people using the Help to Buy Mortgage Guarantee Scheme to purchase a second home.”

In answer, I was told that

“Treasury Ministers have met with a number of companies in the mortgage industry to discuss a wide number of issues, such as the Help to Buy mortgage guarantee scheme, including through the Home Finance Forum.”—[Official Report, 1 July 2013; Vol. 565, c. 408W.]

Has a mechanism been agreed?

[Graham Jones]

My hon. Friend makes a valid point regarding going from First Buy to homebuy to Help to Buy. When the Government talk about affordable housing, is there any explanation of why the upper limit in the previous schemes of £280,000 was increased to £600,000 in the current scheme? How does that qualify as affordable housing, and how does it help people who are struggling? That is surely redirecting money at people who could afford a more modest property.

[Jack Dromey]

Those of us on the Opposition Benches stand for homes for all; the Government stand for homes for the better-off.

Another example of hype was what the £10 billion guarantee scheme would deliver, including in investment in the private rented sector. However, the Government have failed to get anyone to run the scheme for them. Another example—there are endless examples—is self-build. The former Housing Minister said in opposition that the Conservatives would oversee a housing “revolution” led by self-build. He said they would have an action plan in government to double self-build homes. He introduced that action plan in 2010. He then tried to conceal whether it had worked, but ultimately the Information Commissioner forced his hand. We now know that self-build has fallen under this Government, not increased.

18:00

[John Mann]

Is my hon. Friend as disturbed as I am by the Government’s failure to deliver on their promise to exempt self-build from the community infrastructure levy and the affordable housing levy, despite repeatedly saying in this Chamber that they would do so?

[Jack Dromey]

We have been strong supporters of self-build. The Government have promised a great deal on self-build, but done pitifully little. The figures speak for themselves: a decline in self-build under a Conservative-led Government, compared with what happened under a Labour Government.

The simple reality is that we have seen catastrophic mistakes, a succession of false dawns and, to be frank, downright cheek—the point has already been made that sometimes the Government have claimed the figure is 170,000, when 70,000 of those homes were commissioned by a Labour Government. The comprehensive spending review last week was a missed opportunity. There are indications of a moderate uptake in house building; what we needed was a major investment programme—I will say more about that in a moment. It was a missed opportunity at the worst possible time, and we now run the risk of seeing five wasted years for housing under this Government.

Let me make some brief points about the announcement made last week. It represents a cut in investment in affordable house building, instead of the necessary ambition of approach. I would simply contrast two figures. In the final comprehensive spending review under a Labour Government, £8.4 billion was committed for the three-year period from 2008 to 2011. For the three-year period from 2015 to 2018, this Government propose to invest but £3.3 billion—less than half of what Labour proposed to invest in affordable house building.

In addition, we are seeing an approach on the part of the Government that will mean the slow death of social housing—the mistakes made in 2010, with the cuts in investment; the progressive reigning back of councils’ ability to use section 106 to insist on affordable and social housing; and, now, the Housing Minister talking about the need to convert to the affordable rent model, which is unaffordable for many people and will push up housing benefit bills. We also see the Government once again restating their determination finally to crack the problem of bringing public land to market. We have heard it all before. They have promised a great deal and delivered pitifully little.

It is little wonder that the National Housing Federation was critical of the statement, despite the Government saying that the role of housing associations would be central. The federation attacked it as representing a cut in investment. It is also little wonder that the Chartered Institute of Housing said that the statement lacked the necessary ambition. Just when the country needed a sense of urgency and ambition, the Government let the country down. That is why our amendment argues for a serious approach, designed to get Britain building. First, we have to tackle the biggest housing crisis in a generation. There should be decent homes for all, to rent or buy, at prices people can afford. Secondly, history tells us that there has never been a recovery from a depression, such as that in the 1930s, from a war or from any recession since the war without a major public and private housing programme.

That is why the shadow Chancellor has said that the Government should heed the advice of the International Monetary Fund. Were they to invest that £10 billion in a house building programme, 400,000 homes would be built, and 600,000 jobs and 100,000 apprenticeships would be created. The Government need to invest now, rather than looking beyond 2015. They need to build now, in order to get people back into work now and to bring the cost of failure and the housing benefit bill down. It cannot be right that 95p in every £1 spent on housing investment goes on housing benefit. We need to get that money shifted into bricks. Such investment would ultimately bring down borrowing as well.

[Ian Mearns]

My hon. Friend is making a powerful speech. I have to criticise the Government for the fact that if every one of their announcements on this matter had been a house, we probably would not have a housing crisis now. They have talked an awful lot about house building but, brick upon brick, it is not happening in very many places in this country.

[Jack Dromey]

I agree absolutely with my hon. Friend. As I said earlier, if we had a house for every press statement issued by the Government, we would not have a housing crisis.

[Jonathan Edwards]

The hon. Gentleman is making some powerful points, and I entirely agree with him on the need for a house building programme. Would not the advantage of such a programme be that there would be a ready revenue stream in the form of rental repayments?

[Jack Dromey]

The hon. Gentleman is absolutely right. All the benefits that I have referred to, plus others, would result from such a programme. If we were to invest in retrofitting as well as in new build, we could tackle some of the chronic problems that are costing the national health service £2.5 billion a year. We could also tackle the problem of a whole generation of young people being held back at school because their overcrowded homes impact on their ability to do their homework. That impacts on their exam results, which in turn impact on their lifelong earnings potential. If the Government were to invest in housing as we would do, they could also reflect the demands of an ageing population. They would be able to help people of all tenures to downsize, rather than using the obscene weapon of the bedroom tax, which has no place in a civilised society.

[Graham Jones]

My hon. Friend has made a powerful point. The Government’s policy is totally focused on an under-supply of housing, but he makes the valid point that the Treasury should be looking at the other part of the problem, which is the over-supply of housing and its consequences. The Treasury needs to take this matter on board. In constituencies such as mine, people suffer chronic ill health as a result of poor housing.

[Jack Dromey]

My hon. Friend makes a good point. This is not just about new build, where appropriate; it is also about retrofitting, about regeneration and about bringing empty homes back into use. It is also about recognising that the housing market and the problems associated with housing should not simply be seen through the prism of London and the south-east. Housing markets vary considerably nationwide.

[Bob Stewart (Beckenham) (Con)]

I have listened very carefully and I understand the logic of what the hon. Gentleman has said. My only worry and concern is where we are going to get the money to invest in housing—investment in housing is a good thing. The hon. Gentleman suggested that we would get the money back, but we will not get it back quickly.

[Jack Dromey]

What is happening for certain is that the country is paying the price of failure, with £245 billion more being borrowed because of it. Ultimately, it comes down to this: it is a choice between paying for the costs of failure and investing for success. All the evidence shows in transmission times that investing in house building is the quickest way to get a sluggish economy moving. It would build badly needed homes for people to rent or buy; it would put building workers back to work; it would create apprenticeships and hope for the nearly 1 million young people out of work; it would progressively bring down the cost of housing benefit; and, ultimately, reduce borrowing rather than increase it. That is the choice that the Government and the country now face: do we invest public money for failure or invest it to build for success?

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

My hon. Friend is making a very powerful speech. Is it not the case that the £25 billion that goes into housing benefit supports rentier capitalism and not entrepreneurial capitalism? Would not that money be better invested in bricks and mortar? One of the solutions that the left and the Labour party have for this problem is to bring in rent controls. Does my hon. Friend agree that rent controls would help to bring down the housing benefit budget?

[Jack Dromey]

I would make two points in response. First, the single biggest factor that would make a difference is, of course, significantly increasing supply. What is so wrong about the Government’s approach is that it has been too much focused on demand and not sufficiently focused on supply. On the issue of demand, we have heard criticisms from the IMF, the Treasury Select Committee and others about the impact of Help to Buy on pushing up house prices, without necessarily seeing a significant increase in supply.

Secondly, we definitely need to look at a very different type of private rented sector for the future, where quality standards will be raised and where there will be longer-term tenancies and flexibility for those who wish it and security for those who need it. Index-linked rents, for example, could see people having predictable and more affordable rents. If we look at existing evidence of such longer-term tenancies with the indexation of rents, we find that tenants pay significantly less and landlords have a reliable income stream, so it works for good landlords and tenants alike. The time has come for a very different private rented sector in the future. Sometimes we refer to “the continental model” of security, affordability and higher quality, where people enjoy a higher status in a sector of choice—not what we have at the moment.

Millions of people will have waited for last week’s comprehensive spending review with hope, but their hopes have been dashed. What we had was hyperbole from the Chief Secretary to the Treasury. I have to say that I sat gobsmacked at his contribution. When it comes to writing the history of hyperbole, he will deserve a chapter of his own, as we have heard it all before. The simple reality is that this Government’s housing policies, like their economic policies, have failed and will continue to fail. Whether it be “First Buy”, “NewBuy” or “Help to Buy”, the British people know from experience that getting a decent home at a price they can afford and getting Britain building once again will ultimately mean sending this message to this Government at the next general election—“goodbye”.

[Mr Nick Raynsford (Greenwich and Woolwich) (Lab)]

Let me begin by drawing attention to my interests as declared in the Register of Members’ Financial Interests.

I am very pleased to follow my hon. Friend the Member for Birmingham, Erdington (Jack Dromey), who made a powerful and persuasive speech about the importance of expanded investment in housing, and my hon. Friend the Member for Kilmarnock and Loudoun (Cathy Jamieson), who presented a masterful overview of the whole range of housing expenditure.

18:15

The state of the housing market in Britain today can only cause alarm, for a variety of reasons. Output is far below the level that would enable it to meet the current need, and that is bad for people who are themselves in need. It is bad for people who want to buy their homes but find it impossible to do so at prices that they can afford; it is bad for people who are looking for social housing, because the waiting lists are overstretched and the supply is inadequate; and it is desperately bad for people who risk homelessness. The number of homeless people has, alarmingly, been rising in the last three years, after, it must be said, a period during which there was enormous success in driving down the level of homelessness.

The state of the market is also bad for people in private rented housing, which, curiously, is one of the few success stories of recent housing history. The amount of private rented housing has increased, but unfortunately it has increased on the back of very steep rent increases. That has created a huge problem for people who simply cannot afford to pay such rents without the help of housing benefit, and it has created a real problem for the Government. All the Government’s rhetoric is about reducing housing benefit, but the policy that is being promoted by both the Treasury and the Department for Communities and Local Government is leading to increased calls for it. Increased dependence on private renting and higher rents in the social housing sector, both of which are explicit policies of the DCLG, inevitably drive increased demand for housing benefit. The Government have got themselves into an extraordinary mess. One arm of Government is talking about cutting housing benefit, while the other is deliberately fuelling demand for it.

[Graham Jones]

Does my right hon. Friend agree that the Treasury does not seem to be taking account of evidence which shows that the cost of private renting housing, per unit, is roughly twice the cost of social housing? At that rate, the more reliance there is on the private rented sector, the higher the housing benefit will be.

[Mr Raynsford]

I entirely agree. As my hon. Friend the Member for Birmingham, Erdington pointed out, it is important to support the private rented sector, but it must be helped to do the job it does best, which is providing for people whose incomes are higher than the incomes of those who have traditionally depended on social housing.

The Government have created a problem for themselves by trying to use the private rented sector, with high rents, as a substitute for social housing, with lower rents. That is inevitably a recipe for more dependence on housing benefit. It traps people who are dependent on benefit, which is bad for them, and it increases the bill for housing benefit. What we need are policies that encourage both the growth of a private rented sector for people who can afford to pay a market rent for their housing and will not be dependent on benefit, and, in parallel, the revival of a social housing sector that meets the needs of those who require housing at sub-market rents.

[Sheila Gilmore]

Sometimes the issue of private rents is presented as though it involved people living in mansions, but many of those high private rents are actually charged in former council properties. Ironically, two tenants living next door to each other may both be receiving housing benefit, but the rents involved may be very different. People who are not living in mansions are simply having to pay high rents.

[Mr Raynsford]

My hon. Friend has made a fair point about the fact that the rise in rent levels means that many people are paying above the odds for accommodation that is not particularly good. However, that is a product of shortage. We need an increased supply of good-quality private rented housing which commands a market rent. There will be people who are perfectly happy to pay that rent, and to benefit from good-quality accommodation as a result.

As my hon. Friend the Member for Birmingham, Erdington said, we need to bear down on exploitative landlords who are letting substandard properties and charging above the odds for them. We also need to ensure that councils and housing associations provide an adequate supply of alternative housing for people who genuinely cannot afford to pay a market rent, and who would otherwise be left either dependent on housing benefit or homeless.

[Ian Mearns]

My right hon. Friend is making some very powerful points. The private rented housing market is very diverse, but in areas such as mine in Gateshead in the north-east of England, where we have a substantial private rented sector, unfortunately much of the property in that sector is housing of last resort and people are having to pay inflated rents for it—rents that are much higher than they would have to pay for much higher-quality socially rented housing in the neighbourhood.

[Mr Raynsford]

My hon. Friend makes a very good point that again illustrates just how dire the consequences of current policies are for people in need of housing.

If the current housing policy and current housing market are bad news for people in housing need, they are also bad for the economy. As my hon. Friend the Member for Birmingham, Erdington rightly emphasised, there would be huge economic benefits from an expanded house building programme. Not only would we see an increase in employment and demand for materials, most of which are sourced within the UK, but there would be huge impacts on the supply chain.

[Lisa Nandy (Wigan) (Lab)]

I agree with what my right hon. Friend is saying. Does he agree that there would be a particular impact on young people? There are more than 1 million young people in this country who are desperately in need of a job. Many young people in Wigan were employed in the construction industry and on apprenticeships before this Government came to power, so they would experience a very positive effect from the changes he is describing.

[Mr Raynsford]

I entirely agree. I happen to be the president of Youthbuild UK, which is one of the bodies that has been campaigning specifically for more effective opportunities for young people, in particular disadvantaged youngsters, to get the training and skills necessary to secure employment in the construction industry. I wholly endorse what my hon. Friend says.

There are benefits in terms of the economy. There are benefits in terms of employment. There are wider supply chain benefits. I am thinking in particular of all the industries that provide the materials, furniture, furnishings and equipment that go into houses when they are built. When people move into a house, they need carpets, furniture and various fittings, and all of that additional demand will be good for the UK economy. There is therefore a real multiplier effect from an expanded house building programme.

It is not just about new homes. As has been said, it is also about retrofitting existing homes that are in poor condition. Here the Government have got themselves into another mess, but not through lack of a good idea. The idea behind the green deal is a sound one: that we try to put in place a mechanism that enables people to borrow the money required to fund improvements in the energy efficiency of their home and they can then pay for that out of the savings they make through reduced bills because the home demands less energy. That is in principle a very good idea. The problem is that the scheme the Government have managed to come up with after quite a long gestation period has proved so complex, opaque and financially disadvantageous that it is at present struggling to get any takers.

I admire the ambition displayed by the Minister responsible for the scheme in trying to get it off the ground. He has put a huge amount of effort into trying to promote it, but as it is currently constituted it is simply not attracting the interest of the British public, and without doing that it will not fly, so we will have a continuation of the problems of energy inefficient homes that are bad for the environment because they pour out unnecessary carbon emissions. That will be bad for the fuel poor who end up paying more for fuel than they need to, and it will be bad for the construction industry because all those potential jobs in retrofitting existing homes will not be taken up.

[Graham Jones]

Does my right hon. Friend agree that it is an indictment of the Government’s shambolic housing policy that they rejected the idea that private landlords should in the near future be forced to implement the green deal and energy efficiency measures in properties? The Government have put that backstop date back to 2018, which allows private landlords still to have houses that do not meet the lowest of energy ratings for many years.

[Mr Raynsford]

I am grateful to my hon. Friend for highlighting that, because it is a cause of real concern that the energy efficiency programmes that were in place have come to an end, and as a result of the introduction of the new ones—the green deal and the energy company obligation programme—the level of activity on energy efficiency retrofitting has plummeted.

I talked to a housing association, active in my constituency, that has done a magnificent retrofit of about 1,000 properties in Charlton. That has hugely improved the comfort of its tenants, who can now keep warm at much less cost. It has improved the appearance of the estate and has won plaudits from everyone, and it was done with a work force who included a number of young unemployed people from the area, who were trained specifically to be able to take up the advantages of employment as part of the scheme. It was an admirable scheme. When I was congratulating the housing association on it, the one and only disappointment came when it told me “Well of course this was funded under the old community energy saving programme—CESP—which made it possible and has now ended. We would probably not be able to do this again if we were starting from scratch today.” That is an obvious problem.

[Bill Esterson (Sefton Central) (Lab)]

My right hon. Friend is talking about the ending of schemes. Does he agree that this is not just about renovating properties where people are living, but about the large number of empty properties in boroughs such as mine which are crying out to be renovated? They are in places where people want to live, where communities can be recovered in the way he just described, but nobody is living there now. Does he agree that the Government need to revisit the issue of funding for empty properties?

[Mr Raynsford]

The thrust of my whole speech is about the importance of the Government finding more effective measures to stimulate investment in housing in all sectors. That includes bringing empty properties into use, improving the existing substandard housing stock and building new homes that are needed to increase the supply. The case is overwhelming, but, sadly, as the figures cited in this debate so far have shown, the Government are failing to meet the needs. I am not going to go into that in detail, because it has already been covered.

I wish to draw attention to the new homes bonus. It an extraordinary scheme, and our Front-Bench spokesperson made some pertinent remarks about it. It was launched by the Government as, supposedly, the panacea for the problem of opposition among some local communities to new house building in their area. The theory was that if a financial incentive was given to councils and to communities for agreeing to build new homes, we would get a different attitude—we would have enthusiasm for new house building rather than hostility. And so the new homes bonus was launched.

The new homes bonus is a very expensive scheme. As the National Audit Office report demonstrates, it is costing £668 million in the current year, but that is due to rise to £905 million next year, to £1.1 billion in 2015 and on beyond that, because it is a cumulative bonus that is paid for a six-year period. I have given only the individual one-year costs. When we add in the cumulative costs derived from previous years’ awards, we find that by 2018-19—that is six years ahead, so at the end of the six-year period—on current trends, expenditure on the scheme would be £7.5 billion. It is a very, very expensive use of public money, which is mostly taken from local authorities. The Government talk about it as though it is a Government scheme, but they are putting in only £250 million a year, with the rest coming as a top-slice from local government funding.

[Graham Jones]

My right hon. Friend is making a strong argument about the new homes bonus, which is top-sliced from local authorities and given back to those who build. On other policies, such as empty homes and retrofitting, local authorities that have had their income reduced substantially, and are in low-demand areas such as mine and unable to build new homes, encounter a perverse incentive, whereby a slew of issues, such as empty homes and dealing with the private rented sector, cannot be dealt with. The money is simply given to authorities that are cash rich and are building more homes, and it is not really in their interests to build any more because they have got enough money.

18:30

[Mr Raynsford]

My hon. Friend makes a very good point. The NAO made an absolutely damning comment—I am astonished that the Government have not looked at this one sentence and said that they clearly need to reconsider the scheme. It is, quite simply:

“We found no association between individual local authorities’ planning application approval rates and their numbers of homes qualifying for the Bonus.”

There we have it: the NAO can find no correlation between the granting of planning consent and the awarding of the bonus, yet that is what it is supposed to do—it is supposed to incentivise councils to improve their performance in granting planning consent. No wonder the Government are embarrassed.

Rather than doing what they ought to by carrying out a thorough and quick review of the scheme and winding it up if it is proved to be as ineffective as the NAO indicates, the Government have done another extraordinary thing and announced in the spending review last week that they will take £400 million of new homes bonus money and transfer it to local enterprise partnerships. It is not their own money—only £250 million is Government money, and the other £150 million would otherwise have been paid to local government. It will now go to the LEPs. Whatever happened to localism? I thought the Government’s mantra when they came into office was that they would allow more decisions to be taken locally. This decision muddies the waters and it will be even more confusing to work out where the money goes.

As my hon. Friend the Member for Hyndburn (Graham Jones) pointed out, there is already gross inequality between different parts of the country, many of which are contributing to the new homes bonus and getting nothing out of it while others, which have done nothing to improve their housing performance because they already have a high demand for housing and because it is already been built in those areas, benefit from the scheme. It is a most extraordinary scheme and it will be made even more opaque and confusing. Clearly, such a scheme has no prospect of achieving the incentive effect it was supposed to achieve.

[John Healey]

My right hon. Friend has put his finger on it. There is not an economic rationale for the policy, but a political one. Essentially, it is a stealth redistribution from poor areas to wealthier ones with a more active, buoyant and successful housing market.

[Mr Raynsford]

My right hon. Friend, as always, is very acute and he realises that this is a political move. The change is being introduced with no analysis and no evidence base—it is a political move that will have significant redistributional consequences in favour of some areas at the expense of others, paying no regard whatever to the principles of localism that the Government used to proclaim.

[John Healey]

May I tempt my right hon. Friend to reflect on one other aspect of the subject he just touched on? If his figures are right—I am sure they are—by 2017-18 this will cost £7.5 billion in total. That cannot be described as a top-slice from local government as it represents almost a third of the total local government expenditure in England. The proposal will fundamentally destabilise the whole system of local government funding within five to six years.

[Mr Raynsford]

My right hon. Friend makes a valid point, and it is a further argument for the serious and thorough evidence-based review of the subject that the Government ought to be undertaking. It is shameful that they are continuing to tinker with this failed scheme at a time when there is such an urgent need for the limited funds that are available to be used to best effect to stimulate investment in housing and to have the beneficial economic effects that my hon. Friends and I have been talking about.

The amendment specifically calls for a review of the operation of REITs and their interaction with the housing market. That is important because the scale of investment necessary to secure the level of house building and home improvement we need will require a combination of public and private investment. We must therefore have measures that encourage more private investment in both private and social rented housing. Institutional investment in private renting has been a bit of a holy grail for many years for people who saw it as a way of ensuring an improved private rented sector driven by responsible investors who would be keen to see high standards of investment and management.

[Graham Jones]

I am grateful to my right hon. Friend for giving way once again. Will he congratulate my local Labour authority, Hyndburn borough council, which has private institutional investors? The council has got a pension company to invest in private lets to the tune of £14 million and is using that capital to regenerate and provide affordable housing for rent for people who need it. Does he not agree that there should be more such schemes in the UK? That flagship programme has appeared on many television programmes and I am proud to say that a Labour authority is doing it.

[Mr Raynsford]

My hon. Friend makes a valid point and highlights the fact that throughout the country, there are a series of partnership agreements between the public and private sectors which are successfully helping to attract increased investment to meet social needs. That is what we need to encourage. I very much welcome amendment 57 because it calls for precisely that: it calls for a review of the REITs programme and how it interacts with the housing market. The thinking behind it is entirely about how we can ensure more effective blending of public and private finance to meet housing needs.

I have gone on quite long enough, so I will let others contribute. I conclude by saying that current policies are not working. We have a stagnant housing market, which is showing very limited signs of recovery. We have massive unmet needs., and we have huge economic problems which should be addressed by an expanded house building programme. I hope the Government will change course.

[Mr Gauke]

It is a pleasure to return this debate to the amendments to clause 38 and schedule 18 to the Finance Bill before us. Before I discuss Opposition amendment 57, I shall say a few words about amendments 30 to 34, which are designed to ensure that clause 38 and schedule 18 work as intended. The clause and the schedule make improvements to the REITs regime. This year’s Finance Bill improves the REITs regime by allowing a UK REIT to treat income from another UK REIT as income of its tax-exempt property rental business. Therefore these amendments do not affect the policy, but rather ensure that it works as intended. The change would generate positive benefits for the REIT industry, and also meets the Government’s wider objectives.

Let me provide some background. During the technical consultation in February, stakeholders told us that the changes as drafted might not work quite as intended. HMRC has consulted further with interested parties, and we agree that minor changes are necessary to achieve the desired policy aims. The problem, as presented by interested parties, concerned the balance of business test, which requires that at least 75% of the REIT’s profits must come from a property business. Interested parties were concerned that in certain circumstances, a REIT that invests in another REIT might fail that test even though the lower-tier REIT derives all of its income from a property business. Consideration of the issue has revealed that minor amendments are required both to the new and the pre-existing legislation. These amendments together will ensure that the Bill’s changes correctly implement the intended policy, which is that profits of a property rental business comprising the new type of tax-exempt income do not include amounts attributable to capital allowances and other tax adjustments.

Turning to Opposition amendment 57, we have had a very broad debate this afternoon. Indeed, it has felt more like an Opposition day debate on housing than a debate on the clause and the schedule. The amendment proposes that the schedule shall come into force after the Chancellor has conducted a review of the interaction of REITs with the housing market, and I hope to address the issue of REITS and the housing market in my remarks.

[Cathy Jamieson]

I hoped the Minister would understand that the nature of the debate reflected Opposition Members’ genuine concerns about the Government’s record on housing. But specifically on REITs, when he responds to the arguments in favour of the review, will he be able to say something more about the future of REITs and social housing?

[Mr Gauke]

The hon. Lady can rest assured that I will address that very point, if not necessarily every point made in the wide-ranging debate.

The proposal set out in amendment 57 is that

“The Review shall consider…tax measures in place to support house building; and…what steps HM Government have taken to support house building”

but the Government’s view is that there is no need to postpone the changes to the REIT regime, as the proposed review would add little value at this time. There is something of a routine here of the hon. Lady requesting a review and me turning it down, and she asks so nicely that I feel almost pained in doing so, but the reason we believe in this case that a review would add very little is that there are not yet any REITs with substantial housing assets on the market, so it is too early to assess any interaction of REITs with the housing market. We do not accept the amendment and I urge her not to press it to a vote.

The new changes to the REIT regime are an example of tax measures to support house building. As REITs represent the supply side of the property market, any improvements to the REIT regime are expected to have a positive impact on the market.

The hon. Lady made a couple of points on how the REIT regime works: the first, which I believe we touched on in Committee, was whether the regime could support people who want to own their own home. It is worth pointing out that residential REITs can provide accommodation only in the private rented sector, so they are not designed, nor could they be used, for the purpose of home ownership.

The second point, on which the hon. Lady intervened, was on the relationship with social housing and what role REITS could play in that sector. There was full consultation in summer 2012 involving a number of one-to-one and group meetings with interested parties in the social housing sector. The reality is that yields on, for example, affordable rents do not appear to be high enough to attract investors into that sector, but I assure her that discussions are ongoing with non-social housing entities and other interested parties to explore the possibility of residential REITs. If a workable residential model can be found, it might be possible to use it to further a move into social housing, and we certainly would not rule that out. At the moment there appears to be no interest in using REITs for those purposes, but we are entirely pragmatic about that.

We believe that REITs have a valuable role to play and we do not want to delay the implementation of the schedule while we conduct a review from which there is little to be gained. For those reasons, I urge the hon. Lady to withdraw the amendment.

We discussed wider housing policy, but I do not intend to be drawn into a lengthy, general debate on housing. I just point out that we announced £5.4 billion of additional support for housing in the last Budget, building on the £11 billion this Government have already committed to investment in housing over the spending review period. Last week’s spending round announcement confirmed a total of £5.1 billion-worth of investment to support housing in England from 2015-16 to 2017-18; £3.3 billion of that new funding is for affordable housing over those years and will support the delivery of 165,000 new affordable homes in England over the next three years. I can also point out some of the recent housing numbers. Housing building starts in England rose by 4% in Q1 2013, seasonally adjusted. Housing starts are 15% higher than in the same quarter last year. Starts are now 62% above the 2009 trough.

[Graham Jones]

Will the Minister give way?

[Mr Gauke]

No, I want to give the hon. Lady a moment or two at the end of the debate to respond to the points that I make.

The amendments before us, alongside the changes that already form part of the Bill, show the Government’s continued support for REITs and the UK property sector. I believe the Government amendments will be welcomed by interested parties. The delay that would result from Opposition amendment 57 would be unfortunate and I urge the hon. Lady to withdraw it.

[Cathy Jamieson]

I find myself in the same slightly pained position that the Minister described. He said no so nicely, as he normally does, that I hesitate to come back with extremely critical comments. I am disappointed once again that he has not heeded our arguments, especially the argument for a review and a look at how the wider tax regime deals with housing issues.

18:45

As I said earlier, we did not seek in Committee to strike clause 38 or the schedule from the Bill, but we considered it opportune for the Government to consider a wider review. The Minister said that our debate had gone wider than real estate investment trusts. That is true, and it is because the Opposition are so concerned about the Government’s lamentable record on housing. I was disappointed that the Minister did not see fit to deal with some of the issues that were raised, particularly the criticisms arising from the work of the Treasury Committee on the Help to Buy scheme and National Audit Office report on the new homes bonus. I noticed also that the Minister was not tempted to respond to the concerns expressed by my hon. Friends about forward planning, housing strategy, how that would be funded, especially for people who require care and support, and accommodation suited to the elderly.

I am disappointed that once again the Government have come up with warm words, as I mentioned during the debate. Although the Minister said very nicely that he would not have a review, that is exactly the same mantra as we have heard from the Government all the way through the Bill. On every occasion when we simply wanted the Government to scrutinise their policies and report back to the House, they have refused to do so. For that reason, I unfortunately cannot accommodate the Minister’s request to withdraw the amendment. I can see that he is terribly disappointed but not surprised. I therefore intend to press the amendment to a Division.

Question put, That the amendment be made.

18:49

Division 41

Ayes: 227

---

Labour: 213
Scottish National Party: 4
Democratic Unionist Party: 3
Social Democratic & Labour Party: 2
Plaid Cymru: 2
Independent: 2
Alliance: 1
Green Party: 1

Noes: 301

---

Conservative: 253
Liberal Democrat: 45
Independent: 2

17:44

More than four and a half hours having elapsed since the commencement of proceedings on consideration, the proceedings were interrupted (Programme Order, 1 July).

The Deputy Speaker put forthwith the Questions necessary for the disposal of the business to be concluded at that time (Standing Order No. 83E).

Schedule 18

Real estate investment trusts: UK REITs which invest in other UK REITs

Amendments made: 30, page 310, line 36, at end insert—

‘(1A) After subsection (4) insert—

“(4A) In the case of a group, for the purposes of subsections (1) and (2) a distribution falling within section 549A(5) or (7) received by a member of the group is to be treated as profits of a property rental business in accordance with section 549A(1) notwithstanding section 549A(4A).

(4B) In the case of a company, for the purposes of subsections (1) and (3) a distribution falling within section 549A(5) or (7) received by the company is to be treated as profits of a property rental business in accordance with section 549A(1) notwithstanding section 549A(4A).”’.

Amendment 31, page 311, line 9, leave out paragraphs 5 and 6 and insert—

‘5 (1) Section 548 (distributions: liability to tax) is amended as follows.

(2) In subsection (5) after “2009)” insert “so far as the distribution is a distribution of exempt profits”.

(3) In subsection (6) after “2005)” insert “so far as the distribution is a distribution of exempt profits”.

(4) After subsection (8) insert—

(9) This section does not apply in relation to a distribution falling within section 549A(5) or (7) so far as the distribution is a distribution of exempt profits.

(10) For the purposes of this Chapter a distribution is a “distribution of exempt profits” so far as the distribution falls within section 550(2)(a), (aa), (c) or (d).

(11) In applying section 550 for the purposes of subsection (10) in relation to a distribution made by the principal company of a post-cessation group or by a post-cessation company—

(a) subsection (1)(a) is to be read as referring to the principal company of the post-cessation group, or (as the case may be)

(b) subsection (1)(b) is to be read as referring to the post-cessation company.”

6 (1) Section 549 (distributions: supplementary) is amended as follows.

(2) In subsections (2) and (2A) after “shareholder” insert “so far as they are distributions of exempt profits”.

(3) After subsection (3) insert—

“(3A) “Relevant distribution” does not include a distribution falling within section 549A(5) or (7) so far as the distribution is a distribution of exempt profits.”

(4) In subsection (4) after the first “shareholder” insert “(so far as they are distributions of exempt profits)”.’.

Amendment 32, page 311, line 31, at end insert—

“(4A) Subsection (1) applies in relation to a distribution only so far as the distribution is a distribution of exempt profits.

This is subject to section 531(4A) and (4B).”’.

Amendment 33, page 312, line 39, leave out ‘4’ and insert ‘4(2) to (4)’.

Amendment 34, page 312, line 41, leave out sub-paragraph (2) and insert—

‘(2) Subject to what follows, the amendments made by paragraphs 5 to 7 above have effect in relation to distributions received on or after the day on which this Act is passed.

(3) A distribution received by a member of a group UK REIT does not fall within section 549A(5) or (7) of CTA 2010 if it is received in an accounting period of the principal company of the group beginning before the day on which this Act is passed.

(4) A distribution received by a company UK REIT does not fall within section 549A(5) or (7) of CTA 2010 if it is received in an accounting period of the company beginning before the day on which this Act is passed.’.—(Mr Gauke.)

New Clause 11

Stamp duty reserve tax

‘The Chancellor shall, within six months of Royal Assent, publish and lay before the House of Commons a report detailing the distributional impact of any changes to or abolition of Schedule 19 to the Finance Act 1999.’.—(Chris Leslie.)

Brought up, and read the First time.

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

I beg to move, That the clause be read a Second time.

Hon. Members might not have spotted the announcement on this matter in the Chancellor’s Budget in March. It is a little-noticed provision that was buried on page 64 of the Red Book in the table that sets out whether individual policy decisions will mean a gain or a loss to the Exchequer. This decision did not hit the headlines and very few people spotted it. I should look back and see whether the Chancellor even referenced it in his Budget speech.

This little-known provision is the abolition of something called the stamp duty reserve tax. It is not quite the same as the stamp duty on share transactions that many hon. Members are familiar with. That is, for want of a better term, a financial transaction tax of 50 basis points or 0.5% on share transactions. The stamp duty reserve tax is the equivalent change that was introduced in schedule 19 to the Finance Act 1999. It is essentially a proxy for stamp duty on the return of units in unit trusts to the investment managers who deal in those transactions. If individuals buy units in unit trusts and then surrender or sell them back to the investment manager, a stamp duty of 0.5% has not unreasonably been paid.

The Chancellor, in his wisdom, has decided that that must go. He has decided to forgo the princely sum of £150 million in every financial year henceforth. I am afraid to tell hon. Members that there is a lot of this story to be told. The abolition of stamp duty reserve tax is essentially a decision by the Chancellor to give a tax cut to investment managers.

The new clause calls on the Chancellor, within six months of Royal Assent, to publish and lay before the House of Commons a report on the distributional impact of the change detailing who has benefited—whether it is the lower and middle-income households and families in all our constituencies or the privileged and wealthy investment managers.

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

Does the shadow Minister not recognise that the abolition of the reserve tax will be a great enhancement to the UK unit trust industry, which has been losing a lot of business to Switzerland, Singapore and elsewhere? Although he has characterised the beneficiaries as being very wealthy, this change will ensure that jobs are retained in this important industry, especially back-office and middle-office jobs, as it goes from strength to strength in the decades ahead.

[Chris Leslie]

I commend the hon. Gentleman for doing his duty to his constituents in the City of London. I confess that they probably will be right up there among the beneficiaries of this change. He is assiduous in speaking up for his constituents, but I am sure he would concede that they are not exactly typical of people in the rest of the country. The people who engage in investment trust transactions and unit trust arrangements may well benefit from this £150 million tax cut.

The Chancellor of the Exchequer was supposedly faced with difficult choices and cuts in the Budget. That he has chosen to give a tax cut of this order at this time is a reflection of his priorities, which are beyond understanding for many Opposition Members.

[Mark Field]

Would the shadow Minister be willing to extend his new clause to ensure that it takes into account what has happened since 1999 when the tax was instituted under the previous Labour Administration? More importantly, would that reflect Britain’s place in the world and what proportion of the global asset management industry was in Britain in 1999 and is still here today, compared with other countries? That may have a direct impact on why the Chancellor acted as he did in the Budget.

[Chris Leslie]

Times are tough, and for most people in the country life is getting harder. I confess, however, that I have not been lobbied by or seen those poor, unfortunate City investment managers knocking at my door, coming to my surgeries, or writing e-mails and saying, “Please, the one thing we need is the abolition of the stamp duty reserve tax. There is massive hardship among investment managers at this time, which demands a £150 million tax giveaway.” Frankly, I think the investment management community is doing reasonably well relative to the rest of the country. Moreover, I do not think that the City of London is uncompetitive. Indeed, all the evidence suggests the opposite and that the City continues to thrive and do exceptionally well—something like £5 trillion in funds is under the management of those investment managers affected by this tax change, and a tax cut of 150 million quid is small change to that community.

We are having this debate because we need to know why the Chancellor decided on this priority—cui bono would be the Latin adage. In whose interest is this? Who benefits from this change? I doubt it is my constituents in Nottingham East, and Government Members must forgive me if I am left with a slightly bitter taste in my mouth when we see the hardship caused by cuts to tax credits, the increase in VAT and the bedroom tax. The Chancellor says that individuals affected by those things must feel the pain and the squeeze, but when it comes to the City and the investment management community, I do not see how they are all in it together or sharing that anxiety.

[Mr Russell Brown (Dumfries and Galloway) (Lab)]

Yet again I am back on my old hobby-horse about the economy. If this measure is passed and people benefit from it, what will that do to the local economy? Will we see massive spending on our high streets? Will it help to regenerate the economy?

[Chris Leslie]

Dare I say that my hon. Friend knows the answer to his question? I do not think it will make a blind bit of difference to the success—or otherwise—of the investment management community, and I have seen no evidence from the Government that this measure is the thing that will transform the economy at this time, or make a massive difference to jobs and growth in society at large.

Let me put this in context: £150 million is a lot of money. In fact, it is exactly the same amount that the Chancellor cut from young mothers when he abolished the health in pregnancy grant—hon. Members will remember from the Chancellor’s first Budget that the health in pregnancy grant was given to mums-to-be to ensure they ate healthily and had a little help at that time. That was slashed; that had to go because £150 million had to be saved, yet in next year’s Budget the Chancellor is introducing a £150 million tax cut for the investment management community. That is about the same amount of money as was cut from the child tax credit supplement for one and two-year-olds in that original Budget. In fact, it is about the same amount of money that the pasty tax and the caravan tax were supposed to save—I am sure the Minister will remember that from the ill-fated omnishambles 2012 Budget. All the hassle that fell on the Chancellor’s shoulders at that time was due to saving £150 million. In that context, this is a strange choice by a strange Chancellor.

[Stephen Doughty]

My hon. Friend is making a strong point. Does he, like me, think that people will be bemused by this measure when the Government voted recently against a reasonable motion on an international financial transaction tax? When people see those two things, as well as the bedroom tax, what will they make of this Government?

19:15

[Chris Leslie]

We had that debate on a financial transaction tax a few weeks ago. I think we managed to extricate from the Minister, despite his reluctance, a suggestion that somehow, somewhere, buried in the Government, there was still some flicker of interest in a financial transaction tax. I am not sure whether it has been snuffed out by this particular measure. If this is the abolition of stamp duty on unit trust transactions, what will be next? What else will they give away to this particular set of fortunate investors? Will the Minister rule out plans to abolish the other financial transaction tax, the stamp duty on equity transactions? Do the Government have that long-standing financial transaction tax, which has been around for several hundred years, in their sights? Conservatives are second to none when it comes to defending the best interests of the wealthiest in society, and I take my hat off to the Minister for managing to slip this little one through in the Budget provisions without anybody really spotting it.

[Geraint Davies (Swansea West) (Lab/Co-op)]

My hon. Friend has already pointed out that this £150 million saving per year for the very richest should be compared with the bedroom tax saving of £450 million from the very poorest. The difference between the two measures is that the bedroom tax is hitting thousands upon thousands of the poorest people. The bedroom tax costs about £10 per week, and I have had people tell me that their disposable income is being reduced from £30 to £20 per week. With this tax, the £150 million saving is going to a very small number of people who will receive a large amount of money. These are the choices we face in Britain today. Does my hon. Friend think that that is disgraceful?

[Chris Leslie]

I am more disappointed that the Government think they can get away with it. I want very much to hear the Minister defend this decision. I am sure he will do so with gusto and alacrity, as ever, but I know that deep inside—the record will reflect that I am looking into his eyes—he realises that this is a completely daft idea. This is not a priority at this time. It is a crazy priority when the public are struggling, and I know that in his heart of hearts he agrees with me. It is not clear where this idea has come from. I saw something on the Deloitte website that said there had been many decades of lobbying in favour of this particular change. Perhaps the lobbying is something that the Treasury has eventually succumbed to.

When we line this measure up alongside other examples of largesse the Government have shown to those who are doing very well, it is notable. We cannot take it out of the context of the paucity of the bank levy, which was supposed to raise £2.5 billion in the previous financial year but did not. Last night, the Minister said that they will try to get £2.7 billion next year instead, but they are already £1.9 billion in arrears from the previous two financial years. It will be more than a decade before they are able to recoup the loss. It was notable last night that he did not say that he was certain that £2.5 billion would be brought in from financial years 2011-12 and 2012-13.

I will put the bank levy to one side. After all, what is a couple of billion pounds between friends? The Government refuse to repeat the bank bonus tax, despite the fact that financial services bonuses leapt by 64% in the first month of this year, when all those who benefited from the reduction in the additional top rate of tax—earnings over £150,000 were taxed at the 50p rate, but from, I think, 6 April they were taxed at the 45p rate—rushed out all those bonus payments. Of course, those individuals found ways and means to avoid the higher rate of tax, as the Government helpfully flagged the change up for them far in advance.

[Geraint Davies]

Does that not contrast sharply with the 2 million people in Britain who are on payday loans? They could each be given £70 with that £150 million. They are desperate for the money, but instead these tens and hundreds of thousands of pounds are all focused on, again, the very rich. Does that not speak volumes about the cruel values of the Tories?

[Chris Leslie]

The point is the context in which these things arrive from the Government. Perhaps it is our fault that we have not successfully flagged up for the wider country what exactly is happening in the Budget or what will happen in future Finance Bills; but for the time being, it is incumbent on the Minister to do at least this one thing: let us have the distributional analysis showing who benefits from the change. Which deciles, in terms of the affluence of society, will gain the most from this £150 million tax cut? The case for it has not been made. It has not been high on the public agenda. There is no problem in the City or the investment management community of such significance that it merits this intervention by the Chancellor, at the expense of the health in pregnancy grant or the cuts to tax credits that merited the pasty tax and the caravan tax.

This £150 million tax cut is an incredibly important totem of the Chancellor’s priorities. It is a sign that he does not care about the fact that most people—the typical family—will be paying an extra £891 this year because of the tax and benefit changes made since 2010. Those who have found themselves pushed into greater deprivation and poverty will look at the decision and be absolutely disgusted that this is the Government’s priority now. This change has no justification. The Minister has not made the case for it. We need more information about who benefits from the arrangement.

All that comes on top of the Government’s giveaway on the bank levy, their failure to repeat the bonus tax, the millionaires’ tax cut from 50p to 45p and other changes hidden in the Bill, such as making the additional tier 1 debt coupon tax deductible for the banks, which The Times described thus: “Chancellor to the banks’ rescue with secret £1 billion tax break”. Lots of people will have questions, although not necessarily about this Minister’s priorities. He is doing the best of a bad job and having to cope with the hand he has been dealt. He is, I am sure, a decent and honourable chap, but when he goes home this evening, turns on the television and sees the hardship afflicting families up and down the country, I would ask him to keep in mind whether making a tax cut of £150 million for those investment managers was the right call to make at this point in the economic cycle, such as there is a cycle involved.

[Mr Russell Brown]

I come very much from the school that says that if someone is under a bit of pressure and struggling, it is only right for the Government to try to step in, but I am amazed by the figures. In 2011, the UK fund management industry was up 5%, after double-digit growth in the previous two years. The industry is not struggling. Why on earth should we consider giving even more money to people who, at the end of the day, are not in desperate need?

[Chris Leslie]

That is the £150 million question. The tax cut is £150 million in the key years, but it goes up to £160 million in financial year 2017-18. It gets greater and greater as time goes on. If we roll all the numbers together, as the Chief Secretary to the Treasury is wont to do when presenting figures in the Budget, we get a total of £600 million of tax cuts in this area in the Red Book. I am sure that you could think of a good use for £600 million, Mr Deputy Speaker. At the very least, we want a distributional impact assessment. We want to know who will benefit from the measures, and it is incumbent on the Minister to tell the House the facts.

[Geraint Davies]

I have been provoked to stand up and speak on this outrageous stealth tax, which is an attempt to subsidise the very richest in a clandestine way. If hon. Members had known about the £145 million being crept into the back pockets of the very richest people in the City, the Chamber would have been full of Members speaking in protest, as I am doing now.

The direction of travel in the Budget and the spending review continues unabated. It consists of blaming the poorest for the bankers’ errors, punishing them with cuts in public service jobs and wages and cuts in welfare benefits, particularly outside London and the south-east—and especially in Wales—then pumping all the infrastructure growth opportunities into London and the south-east, to line the pockets of the very richest, many of whom were responsible for the disaster in the first place.

The Government are allegedly trying to balance the books, but they are dismally failing to do so. They have decided to sack 600,000 public sector workers. This is having a disproportionate effect in certain parts of the country. Many parts of Wales, for example, are 50% more likely to have public sector workers than London, and it is in those areas that the cuts are biting deepest. Meanwhile, the money is going to places such as London, where the cuts are not so deep, not only in infrastructure investment but in measures such as this one. We are talking about getting rid of stamp duty on transactions in the City of London, where a small community of people will benefit from that tax cut of £145 million a year, and rising.

We must set against that the fact that 2 million people are already using payday loans. Dividing the £145 million between those 2 million people would give them about £70 each. Only today, I have been talking to colleagues in Swansea about the emerging problem on our council estates, and on estates generally, of companies setting up shop to take advantage of people in dire need by offering them payday loans. At the same time as the Chancellor announced this cut in stamp duty, he asked the newly unemployed to wait an extra week before receiving their money. That will of course feed the stomachs of the payday loan sharks. Those sharks are not just the well-known wonga people; they are also the new, smaller operations setting up in very poor communities. They hire people in the community, on a commission basis, to persuade their neighbours to take out loans at exorbitant rates of interest that they cannot afford. They then harass them by phoning them in the middle of the night or following them into the supermarket, for example, until they repay the loan. That is the cruel reality of Tory Britain today.

Alongside that reality, we have this ghastly attempt to give another £145 million to some of the richest people in the banking community, who were part of the problem in the first place. The alleged justification is to make the City of London more competitive. It appears that these whizz kid City folk, with their red braces, zoom up in their Rolls-Royces to see their old Etonian friends, such as Ministers, and look in awe at them and say, “Have another champers, will you, Minister?” and all that sort of stuff.

19:30

[The Financial Secretary to the Treasury (Greg Clark)]

I think that the hon. Gentleman will find that I went to a comprehensive school in Middlesbrough, not to Eton.

[Geraint Davies]

I am sorry that the right hon. Gentleman no longer has any school friends. Those who have abandoned the communities from which they came have proposed legislation to punish the poorest and reward the richest, which is a great shame. It is not too late for the Minister to think again about what is fair and right in distributive economics.

The reality is that the marginal impact of this change on the competitiveness of the City of London is very small indeed; it is not a serious argument. I can imagine the greed-fuelled lobbyists who come here on behalf of the City to demand an extra £145 million being the sort of people who say, “Oh, well, we have got to give these people more money, because otherwise they will leave the country.” We have heard all that before. In any case, many of those individuals have all sorts of tax havens, about which the Government pay lip service to investigating.

At the same time as we hear alleged concerns about those rich people avoiding tax, the Government say to them, “I’ll tell you what; here’s another 5p off the income tax.” People sometimes ask why there has been a 64% increase in bonuses this year. Could it be because the Government have provoked it, as people move their income from a tax year where they pay 50p to a tax year where they pay 45p? It was completely predictable, and it was even factored into the Treasury figures in the form of behavioural changes. The perverse thing was to hear the argument, “Oh, well, we are going to move to 45p instead of 50p because more money can be raised that way. Look, we are going to encourage our mates to move all their money to save tax”—[Interruption.] That proves that it is an absolute farce.

[Tim Loughton (East Worthing and Shoreham) (Con)]

Will the hon. Gentleman give way?

[Geraint Davies]

Of course. I was wondering whether the mumbling man was listening to anything, but I shall certainly give way to him.

[Tim Loughton]

There is of course always a temptation not to listen when the hon. Gentleman is on his feet. Does he remember the Finance Bill 1997, on which Committee he and I both served? I remember him making a similarly prejudicial class-bashing speech then and accusing merchant bankers or anyone working in the City as parasites, yet this industry accounts for many billions of pounds of revenue to the Exchequer and employs 1 million people. Does he still hold to that completely outrageous view? From what he is saying, it sounds as though he does.

[Geraint Davies]

It is interesting to see that the hon. Gentleman has changed from his red braces to blue braces—and very nice, too! I obviously do not regard the whole City of London and the banking community as parasites, as they are a major engine for exports, growth and productivity in Britain. The issue is about managed capitalism and what is the acceptable face of capitalism. It seems to me that many people on the hon. Gentleman’s side are not at all concerned, as more and more money is given to people who have already acquired enormous pots of money.

The distribution of income has shifted massively since 2010. We have seen the incomes of a large number of people in the top 10% growing by 5.5% each year over the past two years—at a time when most people have had pay cuts or pay freezes, certainly in the public sector, or lost their jobs. We have heard the Government boasting—this is their latest creative thought—that an extra 1.2 million people are in jobs, yet that has been contradicted by the Office for National Statistics. Even if there were another million extra people in work, with no extra growth and no extra output in the economy, productivity is going down and things are not going well. Nevertheless, the answer from the Government is still to give more and more money to the richest people and less to the poorest, and that is supposed to get us out of the mess, but it does not.

This stamp duty on transactions is the tip of an iceberg. I am sorry, Mr Deputy Speaker, that I have come on to describe the entire iceberg rather than the tip at the top, which we are talking about. It is important for people to stand up and be counted on this issue. There is no justification for these extra few buckets of money being thrown in the direction of those who have most. There is a great need for a more balanced growth strategy, whereby there is investment in infrastructure across the piece and where the opportunities for tax and spend are more fairly spread, so that together we can build a future that works and a future that cares—a one-nation Britain of which we can all be proud. I do not think that this suggestion makes sense, so I am very much in favour of putting a halt to this £145 million handout to people who are already rich, as it will not make any appreciable difference to the competitiveness of the City of London.

[Greg Clark]

This has been an astonishing debate. I have a lot of time for the hon. Member for Nottingham East (Chris Leslie), but he must have been pretty dozy in recent months if he thinks that this is a Budget measure that has emerged by stealth having hitherto been hidden from view, because it was given considerable prominence in the Chancellor’s Budget speech. The Chancellor said, in the Chamber,

“I also want Britain to be the place where people raise money and invest. Financial services are about much more than banking. In places such as Edinburgh and London we have a world-beating asset management industry, but they are losing business to other places in Europe. We act now with a package of measures to reverse that decline, and we will abolish the schedule 19 tax, which is payable only by UK-domiciled funds.”—[Official Report, 20 March 2013; Vol. 560, c. 939.]

However, the measure did not only feature in the Chancellor’s Budget speech. It was the subject of a press conference, and received quite a lot of publicity on the money pages. I should have thought that the shadow Financial Secretary would be aware of that, and would know what a good reception the proposal was given in the very important financial services industry.

Many misconceptions need to be cleared up. The hon. Member for Swansea West (Geraint Davies) talked about banking, but this measure has nothing whatever to do with banking. A regrettable consequence of what has happened in recent years is that the financial services sector as a whole has too often been equated with the banking industry and associated with its frequently catastrophic misjudgments and regulatory failures, and people have been tainted unfairly by that association. Just as there are hundreds of thousands of ordinary working people employed by banks who bear no responsibility for—indeed, are sickened by—some of the misdeeds that were committed by those at the top before and during the crisis, there are people who work hard for a living elsewhere in financial services, who contribute to our national income, the taxes that pay for our public services and our foreign exchange earnings, and who have certainly not put taxpayers' funds at risk in the way that characterised the worst excesses of the banking industry.

The investment management industry in this country is a case in point. It employs 30,000 people across the United Kingdom, mostly in areas such as administration, IT and legal services. At least 10,000 of these people, who are directly employed in the sector—I am not talking about those who are ancillary to it—are based outside London and the south-east. A large number of them are concentrated in Scotland—I should have thought that the hon. Member for Dumfries and Galloway (Mr Brown) would be aware of that—and in the north-west and the north midlands. In fact, 12% of the asset management industry is in Scotland. I am amazed that the hon. Member for Nottingham East—not just as shadow Financial Secretary, but as a Nottingham Member of Parliament—did not recognise the important contribution made by investment management in his city. He should be aware that the professional services sector in Nottingham is an important component of the city’s economy.

[Chris Leslie]

The Financial Secretary is characterising the Opposition as if we were somehow denigrating the investment management community. Far from it. We are simply asking this question: where is the hardship that justifies £150 million of generosity from the taxpayer at this point in time?

[Greg Clark]

I shall come to that. The hon. Gentleman professed not to recognise the problem that existed. As I have said, given the position that he enjoys, I would expect him to be aware of the long-standing damage to the competitiveness of an industry that employs people in his constituency. There are some very distinguished firms in his constituency. The Nottingham office of Brewin Dolphin has been there for 150 years, and I think that it is a vital component of our regional economy. These are valuable jobs, and they exist throughout the country.

The British investment management industry has a strong reputation internationally, yet—here we come to the reason for the reform—since 2000, countries such as Luxembourg and Ireland have increased their market share of domiciled funds dramatically in comparison with the United Kingdom. In fact, the UK’s share of EU domiciled funds has dwindled to less than half that of Luxembourg and has been overtaken by Ireland.

What is the reason for that? It cannot be because the reputation of British fund management has declined, as many of the funds domiciled elsewhere in Europe are in fact managed remotely by fund managers within the UK. It cannot be because the fundamental competitiveness of UK financial services has declined, because we have maintained, and very often increased, our market share in other parts of the financial services industry. For example, twice as many euros are traded in the UK than in the entire eurozone. One of the principal reasons for this competitive decline is a consequence—unintended, I am sure—of a change in the tax system that was made in 1999, and whose effect everyone agrees has been deleterious.

Schedule 19 to the Finance Act 1999 imposed a special stamp duty reserve tax—SDRT—on the investment management industry when fund managers match investors leaving a fund and surrendering their units with those joining the fund and purchasing the units. Because the fund manager is not buying any UK shares, no stamp duty reserve tax is payable, but schedule 19 imposes a tax of 0.5% on the fund manager, as if the shares have been bought. Of course, whenever a fund manager buys UK shares within a fund, full stamp duty is paid. As well as being complex and burdensome—requiring frequent tax calculations and returns to be sent to HMRC—there is a major flaw with schedule 19. Anyone who does not wish to pay schedule 19 can simply invest in otherwise identical funds, have them managed by a UK fund manager, but have them domiciled elsewhere, and that is what has happened in recent years. Such a non-UK fund could hold exactly the same equities as a UK fund, and that is happening in large numbers. It could be managed by a UK fund manager, but the investor would—by investing in a fund in Luxembourg or Ireland, for instance—not need to pay schedule 19.

Why should this matter? [Interruption.] I think the shadow Chief Secretary should take an interest, since he was not aware of the problem to which this is the solution. What are the advantages of having funds domiciled in the UK? First, there are advantages in terms of jobs, particularly in the regional economy. While fund managers can operate from anywhere, most jobs in fund management come from ancillary services and the professional services associated with them. These are high-value jobs in IT, legal services and accountancy support, and they are typically in the jurisdictions in which the funds are domiciled.

Secondly, there are advantages in terms of tax revenue. Although schedule 19 imposes SDRT on fund managers matching investors for UK funds, the Exchequer would be advantaged by having more funds domiciled in the UK, as that would involve the paying of income tax, national insurance, VAT, business rates and other taxes by people who would be employed here, rather than in Luxembourg, Ireland and other countries, and corporation tax by the companies supplying ancillary services.

Finally, who pays? It is pensioners who pay. Schedule 19 does not come out of the pay of fund managers. It is a cost of business that is invariably passed on to UK investors. It comes out of the returns and lessens the funds that are otherwise available.

[Andrew Selous (South West Bedfordshire) (Con)]

My right hon. Friend is making an excellent speech and I am listening with great interest. Is there not a further point in that, given that the Government have just started rolling out auto-enrolment, many lower paid workers across the country have a real interest in the health of the fund management industries for their pensions, and probably want their money managed in the UK rather than Luxembourg?

[Greg Clark]

My hon. Friend makes an excellent point. He is absolutely right. Already 81% of investors in UK funds are pension funds or insurers, meaning that people’s income in retirement is impaired and fewer funds are available for investment in the real economy. Two-thirds of individuals approaching retirement are contributing to a pension fund from where these charges are taken, and the introduction of automatic enrolment will mean that many more ordinary working people will be saving into a pension for the first time and will be affected.

So there is a double imperative to act now to correct this situation in which funds are moving from being domiciled by choice in this country to overseas. First, any continuing loss of competitiveness by the UK fund management industry risks destroying, possibly for ever, the critical mass and prominent global position that the industry has had. Secondly, we are on the cusp of a once-in-a-generation opportunity for the UK fund management industry, and, with it, the UK economy, because in July the EU’s alternative investment fund managers directive comes into force, creating a much more effective single market across Europe in fund management. It is estimated that €250 billion of funds may be available for the UK, and other competitors, to play host to. That is to say nothing of the significant growth shown in the emerging economies, where a burgeoning middle class is looking to make investments for which the EU is an attractive home.

19:45

The opportunity for the UK to attract those funds depends on the abolition of schedule 19. That is why the Budget proposed, in pretty high-profile terms, the abolition of schedule 19. The measure will be included in next year’s Finance Bill. The draft legislation, including a tax information and impact note, will be published for consultation in the autumn, to inform the consideration of next year’s Finance Bill—that never happened under the previous Government; this is totally transparent. The costs that have been included very prudently in the Red Book represent a conservative case; they do not include any of the effects or any assumption of what would happen if we reverse this relative decline compared with jurisdictions such as Ireland and Luxembourg so that we have an increasing tax take from people being employed there. The included costs do not reflect the potential boost to stamp duty reserve tax revenue— empirically, investment funds tend to have more active investment strategies than direct investors and are more likely to incur it. Those aspects will be further elaborated during the consultation and the tax information and impact note during the next six months.

[Geraint Davies]

rose—

[Greg Clark]

I want to conclude now. I hope that the House will welcome, as commentators universally have, a significant boost to the competitiveness of a very important sector for jobs in every part of the United Kingdom. I hope that, having had the explanation, the hon. Member for Nottingham East will feel willing to withdraw the new clause and await the formal consultation, which will accompany next year’s Finance Bill.

[Chris Leslie]

You have to hand it to the Financial Secretary, because he managed to keep a straight face throughout that, but I can almost hear the thumping of those trading desks across the City of London as people are delighted at the largesse of a £150 million tax giveaway to those poor, downtrodden investment managers, who really need that helping hand just now. That £150 million is the same amount as the Government saved when they abolished the health in pregnancy grant—that was not a priority; making sure that they abolish stamp duty reserve tax on unit trust transactions is where that £150 million had to go. That is completely crazy. They cannot even agree to a distributional analysis because they know that it is the wealthiest in the society who benefit from this. Therefore, we shall be pushing new clause 11 to a Division.

Question put, That the clause be read a Second time.

19:48

Division 42

Ayes: 212

---

Labour: 195
Scottish National Party: 5
Democratic Unionist Party: 4
Plaid Cymru: 3
Social Democratic & Labour Party: 2
Independent: 1
Alliance: 1
Green Party: 1

Noes: 274

---

Conservative: 234
Liberal Democrat: 37
Independent: 2

New Clause 1

Transfer of personal allowances between spouses

‘After section 37 of the Income Tax Act 2007, insert—

“37A Transfer of personal allowances between spouses

(1) This section applies to an individual who is entitled to a personal allowance under sections 35 to 37 for a tax year if—

(a) the individual is a person whose spouse who is living with the individual for the whole or any part of the tax year,

(b) the individual is, for the whole or any part of the tax year, usually resident with at least one child who is under the age of 5 years at the end of the tax year, or such other age as is specified by order; and

(c) the spouse meets the requirements of section 56 (residence, etc).

(2) If—

(a) the allowance exceeds the individual’s income;

(b) the individual makes an election; and

(c) the individual’s spouse makes a claim;

the individual’s spouse is entitled to an allowance for the tax year equal to the amount of the transferable allowance subject to a maximum amount, if any, specified by order.

(3) The individual’s transferable allowance is found by—

(a) taking any personal allowance to which the individual is entitled for the tax year, and

(b) subtracting the amount of the individual’s income.

(4) For the purposes of this section “spouse” includes civil partners.

(5) For the purposes of this section an “order” means order made by statutory instrument a draft of which has been laid before and approved by resolution of the House of Commons.

(6) This section shall have effect for the tax year 2014-15 and subsequent years.

37B Election for transfer of allowance under section 37A

‘(1) An election under section 37A—

(a) must be made not more than 4 years after the end of the tax year to which it relates;

(b) cannot be withdrawn; and

(c) cannot be made before 6 April 2015.

(2) If an individual makes an election for a tax year under section 37A the individual is treated as also giving notice under section 51(4) that section 51(1) (tax reductions for married couples: transfer of unused relief) is to apply for the tax year.”.’.—(Tim Loughton.)

Brought up, and read the First time.

20:00

[Tim Loughton]

I beg to move, that the clause be read a Second time.

I am delighted to have the opportunity to speak to new clause 1, albeit very briefly. It is rather ironic that this issue has probably been one of the most over-reported aspects of this Finance Bill, when it was not even in the Bill and we have only a minuscule amount of time to discuss it. Many colleagues here would like to speak to the new clause, and many others have come up to me to express their support.

There has been a lot of misreporting about the new clause, which has commonly been referred to as some sort of “rebel” amendment. It is strange when a manifesto commitment, which was also in the coalition agreement, to a measure of which the Prime Minister himself is a huge fan, becomes a rebel amendment. We are not rebels. There has been no campaign to orchestrate some sort of rebellion; in fact, there was never any intention to force the new clause to a vote, as anyone who had asked would have found out. New clause 1 is simply a helpful amendment, tabled solely in my name, to nudge the Chancellor to give a formal commitment in law to a Conservative party pledge—a popular one at that—and to name the day, and so dispel the concerns caused by vague references to the measure being introduced “in due course”.

The measure was good enough to be in the Conservative party manifesto. It was good enough to be argued out in the coalition agreement, with accommodation for the Liberal Democrats. It has been good enough for the Chancellor and Treasury Ministers and the Prime Minister quite rightly to reaffirm its importance, so surely it must be good enough to get on with now, to lay to rest any uncertainty about the commitment to its implementation and to end any delay in its becoming a reality. I am therefore delighted, even if I have little time to express my delight this evening, that the Prime Minister has indicated that the measure in the new clause will now be brought forward. I hope that the Minister will be able to assure me from the Dispatch Box this evening, or, if there is no time, by writing to me and other hon. Members, that the measure will be in the next autumn statement, with a view to putting it in the next Finance Bill, so that, hopefully, the money will be in people’s pockets by the time of the next election.

I have framed the new clause to give the Chancellor maximum flexibility to determine the exact details of its execution. Spouses, civil partners and indeed the beneficiaries of same-sex marriage, if that Bill goes through, will qualify. There is no prescription about whether the provision applies to basic rate or higher rate taxpayers, or whether the whole or part of an allowance should be transferable. That can be specified by order to suit the Chancellor. It is suggested that the tax relief should focus on couples with at least one child under the age of five—that is, under school age—and therefore correspond to the child care allowances to be introduced from 2015, but that, too, can be changed by order. This is not a prescriptive amendment.

What is uncertain is the timing. I hope that the Minister will be able to confirm what the Prime Minister said in the briefing that he and officials gave on the other side of the world that the measure will be in the next Finance Bill.

Perhaps the most extraordinary aspect of this debate has been the reaction of the left to the proposal. This is a popular proposal, and a modest one. It is popular among the public and among the majority of Labour voters. The Lib Dems are split on it, but one would expect that: it is party policy to oppose it, but only recently the Business Secretary attacked the prejudice against stay at home mothers. When we have an organisation, Don’t Judge My Family, apparently formed solely to oppose the measure, saying that it is a throwback to a 1950s fantasy family image, that is deeply insulting not only to the many millions of married couples who decide to make a lifelong commitment to each other in front of their families and friends that is recognised in law, but to the 90% of young people and the 75% of cohabiting under-35s who in recent opinion polls have said that they aspire to get married.

There are many different forms of family in the 21st century, and most do a fantastic job of keeping together and bringing up children, often in difficult circumstances, yet almost uniquely among large OECD countries, the UK does not recognise the commitment and stability of marriage in the tax system until one of the partners dies. Worse still, one-earner married couples on an average wage with two children face a tax burden 42% greater than the OECD average, and that gap has been getting worse.

So to introduce a recognition of marriage in the tax system, particularly in the modest form suggested, is not to disparage those single parents who find themselves single through no fault of their own, perhaps as a result of having had an abusive or deserting partner, nor is it to undermine two hard-working parents, all of whom get help and support from the state in other forms, and quite rightly. But uniquely, married couples, civil partners and same-sex married couples in future are discriminated against in the tax system.

[Jim Shannon (Strangford) (DUP)]

I thank the hon. Gentleman for giving way and I am conscious of the time. Like him, I passionately believe in marriage, as do my constituents in Strangford. They are keen to see the benefits for their families and their children in Strangford, across the whole of Northern Ireland and in the United Kingdom. Does the hon. Gentleman have an assurance from the Government that the time scale will be met? In other words, will the marriage tax allowance be delivered before the next election?

[Tim Loughton]

I very much hope so. That was the clear indication that the Prime Minister gave in his briefing in Pakistan. I very much hope that the Minister will be able to confirm, because the timing of the measure is important, that it is not something that will be done “in due course”, but in the next Finance Bill.

[Sir Edward Leigh (Gainsborough) (Con)]

Will my hon. Friend allow me?

[Tim Loughton]

I briefly give way to my hon. Friend, who has been a great champion of this measure for many years.

[Sir Edward Leigh]

Not just the Prime Minister in a faraway place, but the Chancellor of the Exchequer, in my own home, not 300 yards away, in front of 40 MPs, gave a solemn pledge that this was going to be brought in before the general election. This will and must happen.

[Tim Loughton]

So the mystery is why on earth it is not happening and the Prime Minister has not been able to say, “We back this amendment.” However, I trust what he has said. Those I do not trust are those who oppose the amendment, because those who oppose it as some sort of 1950s throwback are the ones who are being judgmental about how certain people choose to live their relationships. That view has been endorsed on many Labour party members’ blogs. Disgracefully, they seek, in effect, to pit working mums or dads against stay at home mums or dads, who are of course no less, and often more, hard-working.

My support for a transferable married couples tax allowance has never been based on some moral stance on types of relationship. My concern, as might be expected, is based on what is best for children. That is why I have suggested that it is limited in the first instance to families with children under the age of five. Two statistics say why. For a 15-year-old living at home with both birth parents, there is a 97% chance that those parents are married. For a five-year-old with parents at home, there is a one in 10 chance of those parents splitting up if they are married, but a one in three chance if they are not married. The cost of family breakdown is £46 billion and rising. That is what we need to attack.

Marriage accounts for 54% of births but only 20% of break-ups among families with children under five. We must recognise that in the tax system and we do not. That is what this modest amendment seeks to put in statute as a starting point to appreciate that.

[Andrew Selous]

My hon. Friend is making an excellent speech. Does he agree that we encourage many things in the tax system—for example, employees cycling to work? It is therefore no great surprise that we want to support marriage, given the number of families that split up each year.

[Tim Loughton]

And marriage was invented before bicycles, so why do we not support that, recognise it and value it, as we all do?

There are those who have come up with arguments against the figures, saying it is all about causation and effect. The millennium cohort research revealed that the poorest 20% of married couples are more stable than all but the richest 20% of cohabiting couples, so it is insulting to say that marriage is the preserve of the middle classes or better educated or better-off people.

This amendment alone will not solve all the problems that I have laid out. I am not naive enough to suggest that £150 or whatever the end result may be when this amendment becomes law in some form, as we hope, represents the difference between staying married or getting divorced, or getting married or cohabiting, but it does send a clear and strong message that we value families who take the decision to bring up their children within marriage. When I stood on our manifesto in 2010, and for many years before, my Front-Bench colleagues agreed with that. My amendment makes that a reality, beyond all doubt.

[Mr David Burrowes (Enfield, Southgate) (Con)]

Is it not also a matter of fairness and social justice, because the Institute for Fiscal Studies has shown that 70% of the benefit of a transferable tax allowance would go to those currently on the lower half of the income distribution scale?

[Tim Loughton]

My hon. Friend is absolutely right. I think that that dispels many of the myths being put around against the measure.

I hope that the Minister will take the new clause absolutely in the way it was intended. I do not intend to force it to a vote. I think that the Prime Minister has acknowledged the imperative of getting on with it now. I hope that, at last, our constituents can expect to benefit from the proceeds before the next election, both financially and with regard to our clear commitment to marriage, and that we can benefit from delivering on a popular, practical and achievable pledge, rather than the promise of jam in due course. If we can do that, it will be box ticked, job done.

[Several hon. Members]

rose—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. Mr Leslie, please ensure that you leave time in the debate, which will end at 8.19 pm, for the Minister and perhaps some Back Benchers as well.

[Chris Leslie]

I will be very brief. I want first to pay tribute to the hon. Member for East Worthing and Shoreham (Tim Loughton). I have to hand it to him: he has got the Government jumping around and on the run on this issue. However, I am afraid that the Opposition are not convinced that the millions of people who are separated, divorced, or indeed widowed, would benefit from this policy, let alone those married couples where both partners work. I am all in favour of marriage, and Mrs Leslie might at first glance like the idea of the £150 give-away, but because she works and earns above the personal allowance, it would not be of benefit in our circumstances.

[Sir Edward Leigh]

Will the hon. Gentleman give way on that point?

[Chris Leslie]

I would rather hear from the Minister.

I think that the right hon. and learned Member for Rushcliffe (Mr Clarke) was right when he called this policy social engineering. He said that when he joined the Conservative party it was opposed to it. The hon. Member for East Worthing and Shoreham seems to have got a commitment that something will be done in the autumn, and we will hear what that happens to be in a moment. In a nutshell, the Opposition’s view is that if there is to be a tax break, it should be for all families, not just a select few, and for all households on lower and middle incomes. That is where tax breaks ought to be focused. I want to hear what the Minister has to say.

[Mr Gauke]

My hon. Friends will be aware that at the last election the Conservative party set out a policy of allowing married couples and civil partners to transfer up to £750 of unused tax-free personal allowance where the recipient is a basic rate taxpayer. They will also be aware that two points in the coalition agreement are relevant to this debate: first, our commitment to increasing the personal allowance to £10,000, to be prioritised over other tax cuts; and secondly, the provision for Liberal Democrats to abstain on Budget resolutions introducing transferable tax allowances for married couples without prejudice to the coalition agreement.

I want to be very clear that the Government support the principle behind the new clause proposed by my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton). We are committed to recognising marriage in the tax system. As we have made clear, and indeed as my hon. Friend the Member for Gainsborough (Sir Edward Leigh) has pointed out, we are committed to legislating for that in this Parliament. The Prime Minister has made it clear that we will be announcing our plans shortly.

I know that my hon. Friend the Member for East Worthing and Shoreham wants us to be specific on implementation. I can assure him that we want to implement this at the earliest opportunity. Of course, recognition of marriage involves a new attribute to our income tax system, requiring Her Majesty’s Revenue and Customs to link married couples in a way that does not currently happen. That is deliverable, but I am not going to set out a timetable today. Once we are able to make an announcement on timing, the Chancellor will do so, but I repeat that we want to do this as soon as possible.

There are some differences between the Conservative party’s position at the last election and new clause 1. The new clause is targeted at a subset of married couples—those with children under the age of five—and does not limit the amount of the allowance that could be transferred, although it gives the Chancellor the ability to restrict that by order. However, it does not apply any income limits or restrictions on the rate of relief, which means that it could provide double the benefit to those paying tax at the higher rate. Obviously we want to make sure that this is well targeted.

There are some specific points about new clause 1 that would need to be addressed regarding the measure of income, the definition of “child”, and the date of election set out in new section 37B(1)(c). However, I assure my right hon. and hon. Friends that we are considering these points in great detail and that an announcement of further details on how we want to take this measure forward will be made by my right hon. Friend the Chancellor in the months ahead.

I hope that my hon. Friend the Member for East Worthing and Shoreham is satisfied with those reassurances and that he feels able to withdraw new clause 1 now that I have put on record our commitment to and belief in legislating for this and our desire to implement it at the soonest opportunity.

20:15

[Mr Frank Field (Birkenhead) (Lab)]

Had we voted on the new clause tonight, I would have voted for it. I encourage the Government to be much more ambitious in the review that they are undertaking. The new clause is about how we maintain greater tax equity between households with two earners and those with one earner, whichever sex those earners may be.

When the Government abolished child benefit for higher rate taxpayers, they did an injustice to the tax system. May I briefly recall why? The background to this, which you will remember, Madam Deputy Speaker, is that we used to have family allowances and child tax allowances. The tax allowance and the benefit were merged into the single payment of child benefit. Child benefit then had two functions: it was a cash payment to mothers but it also maintained tax equity between people further up the income scale who have children and those further up the tax scale who do not have children. By abolishing child benefit for higher-rate taxpayers, the Government forwent the one instrument at their disposal to maintain tax equity for higher-rate taxpayers between those who have no children and those who do have children.

Might I make a plea to the Minister? When the Government undertake the review about the workings of this measure, will they extend it and rectify the injustice whereby in abolishing child benefit for higher-rate taxpayers they abolished the tax-free income for higher-rate taxpayers if they had children and therefore put them on the same level as people who do not have children? We never had that in the tax system before; we have had it in the past couple of years.

[Mr Stewart Jackson (Peterborough) (Con)]

The House will know that I led a debate on this issue in Westminster Hall on 28 November last year. I, too, pay tribute to my hon. Friend the Member for East Worthing and Shoreham (Tim Loughton) and others who have been so stalwart in this campaign.

Perhaps the right hon. Member for Birkenhead (Mr Field) will have a word with his Front Benchers, because this is about social justice and redistribution. It is about a transferable allowance for married couples disproportionately benefiting those in the lower half of the income distribution much more than under the current policy of encouraging the personal income tax threshold. That is a fact.

The “make work pay” argument is very important too. Transferable amounts would help to make work more rewarding for many of the poorest in society. Moreover, we are out of line, on international comparisons, in not supporting the family.

Those are important issues and this is a big subject. I am sorry that the Minister’s speech was so short, but delighted that those on the Treasury Bench have seen fit to give us these assurances. We will hold them to their word.

[Jim Shannon]

Transferable allowances work by families claiming against them for the previous year. Thus this year’s Finance Bill makes provision for transferable allowances for the financial year 2014-15. People will not be able to claim against them until the financial year 2015-16. I will be seeking from the Government an assurance that that will be addressed this year so that it can happen.

[Sir Edward Leigh]

This is simply a matter of justice. There are 2 million families where one partner is working and the other is not. They are uniquely disadvantaged in the benefits system, and it is a matter of justice—let’s do it.

20:19

Six hours having elapsed since the commencement of proceedings on consideration, the debate was interrupted (Programme Order, 1 July).

The Deputy Speaker put forthwith the Question already proposed from the Chair (Standing Order No. 83E), That the clause be read a Second time.

Question negatived.

Third Reading

20:19

[Mr Gauke]

I beg to move, That the Bill be now read the Third time.

The Finance Bill 2013 delivers the Government’s commitment to creating a tax system that is fair, that promotes growth and competitiveness and that rewards work. This Bill supports enterprise, helps families and ensures that everyone pays their fair share of tax.

We should pause for a moment to remember the background to the Bill. The Government inherited the largest peacetime deficit since the second world war, a deficit we have already reduced by a third over the three years since 2009-10. During this time, more than 1 million new jobs have been created by British business. We have had to make some tough choices, but the results show that we are making the right choices. The Government are leading the road to recovery—to putting the economy back on course—and this Bill continues that agenda.

[Mr Russell Brown]

Does the Minister recognise that the 1 million jobs that have been created are allocated disproportionately across the UK? My local authority area has lost 2,000 private sector jobs and the average wage has now fallen 24% below the national average. Some areas are hurting.

[Mr Gauke]

It was not that long ago that we were told that the reductions in public sector employment would not be met by new jobs in the private sector, but they have been met many times over. The reality is that we have an astoundingly good record on job creation over the past three years, despite the fact that the economy has faced significant challenges.

This Government have established a corporate tax system that attracts international investment to the country and that encourages UK businesses to grow. Corporation tax will be eight percentage points lower in 2015 than the levels we inherited in 2010. This Bill cuts the main rate to 21% next year and 20% the year after, which will give us the joint lowest rate in the G20, the lowest of any major economy in the world and the lowest rate this country has ever known.

The Bill does that alongside separate action to incentivise activity across the economy. It introduces a new above-the-line credit for large company research and development investment, provides reliefs that are among the most generous in the world for the animation and high-end television industries, and gives long-term fiscal certainty to the oil and gas industry on decommissioning tax relief.

[Mr Stewart Jackson]

There was no time to debate new clause 3 on air passenger duty so I will not speak to it, but will the Treasury continue to review the effects of APD on the travel industry and the wider economy?

[Mr Gauke]

We keep all taxes under review. My hon. Friend is a prominent voice on this particular matter and I am sure he will continue eloquently to make the case on APD to Treasury Ministers.

[Lady Hermon (North Down) (Ind)]

I am grateful to the Minister for taking a second intervention so soon after the first. Does he realise that APD is particularly damaging to the ambition of rebalancing the economy in Northern Ireland, especially when there is such a low level of APD just over the border in the Republic of Ireland? Will he undertake to look seriously at the issue with regard to Northern Ireland?

[Mr Gauke]

The hon. Lady will be aware that we have made a number of concessions in that area with regard to Northern Ireland and I say again that we will keep those matters under review.

The Bill will support a wide variety of sectors, encourage innovation and send the clearest possible signal that business is welcome in the UK.

The Government’s strategy is underpinned by our commitment to fairness. The Bill will reward hard work and help families with the cost of living. It will lift an additional 1.1 million individuals out of income tax with the largest ever cash increase to the personal allowance. The allowance will be set at £9,440, making assured progress towards the longer-term objective of making the first £10,000 of income free from income tax. That objective will allow people to keep more of the money that they earn.

I should not have to remind hon. Members that the Bill keeps fuel duty frozen, nor that it removes a penny from beer duty. Those measures will make a real difference and support individuals on low incomes who want to get on.

We are taking steps to ensure that those with the most contribute the most. We have introduced a charge on owners of high-value properties placed in a corporate envelope, along with an extension of capital gains tax on the non-natural persons disposing of those properties. We are targeting reliefs appropriately. The cap on the previously unlimited income tax relief and the reduction of the pensions tax relief lifetime and annual allowances are significant in ensuring that everyone pays their fair share.

We have taken significant action to crack down on tax avoidance and evasion. The Bill legislates for the UK’s first general anti-abuse rule, which provides a significant deterrent to abusive tax avoidance schemes. Where they persist, it will give HMRC the tools to tackle them. Just because something is not covered by the GAAR does not mean that it will not be addressed in other ways. We have closed 15 loopholes that have been used to avoid tax, and strengthened the successful disclosure of tax avoidance schemes regime. Since its introduction in 2004, more than 2,000 tax avoidance schemes have been disclosed to HMRC. The changes made in the Bill will improve the information that promoters have to provide to make it even more effective.

Our position is clear: non-compliance and contrived tax arrangements will not be tolerated. The Bill will help to reduce the tax gap, make the law robust against avoidance and optimise our operational response.

[Jonathan Edwards]

The Minister will be aware that the Silk commission on Wales stated that the Finance Bill would be the appropriate legislative vehicle to implement its findings. Those findings have not been implemented in the Bill, so what legislative vehicle will the Government use to implement the Silk report when they respond?

[Mr Gauke]

As the hon. Gentleman says, the Government will respond to the report in due course. Further details will be provided at that point.

On simplification, we continue to shape the tax landscape. A tax system should be easy to administer and to understand. To that end, the Government set up the independent Office of Tax Simplification in 2010. I pay tribute to the invaluable work that it has done. The Bill takes forward the recommendations from its review of small business tax. It introduces two optional simpler income tax schemes for small incorporated businesses and a new time-limited disincorporation relief for small businesses that feel that a corporate form is burdensome. Small businesses make a vital contribution to the UK economy and public finances, and these measures recognise that contribution. We have acted to provide certainty and clarity in other areas. The statutory residence test and the reforms to ordinary residence are a significant and welcome simplification of the tax code, if not a shortening of it.

Many of the measures in the Bill have been subject to extensive consultation and scrutiny—processes that are entrenched in the Government’s approach to making tax policy. The statutory residence test was consulted on three times between summer 2011 and February 2013. The Chartered Institute of Taxation said that that was a

“good example of how to make good tax law”

and we would agree.

The Government have shown their commitment to greater transparency and broadening the range of impacts that they consider. For the Finance Bill 2013 we published more than 400 pages of draft legislation, and we are grateful for the 400 or so responses we received. Through such engagement we have considered the views of interested groups and taxpayers, and we considered them further in Public Bill Committee with more than 49 hours of scrutiny—to some of us, it may have felt longer.

I thank all those involved in the Bill, whether officials, interested parties, parliamentary counsel, my hon. Friends the Economic Secretary to the Treasury and the Financial Secretary to the Treasury, Opposition Members, and Back Benchers, who all contributed to the scrutiny of the Bill. This Finance Bill delivers real reform, supports business and growth, upholds principles of fairness, rewards work, and demonstrates the Government’s commitment to creating a tax system that reduces the deficit and builds a prosperous economy. I commend the Bill to the House.

20:30

[Chris Leslie]

I agree with the Minister about one thing—it was certainly a long and well-scrutinised Bill. To elaborate on that brief moment of cross-party agreement, I, too, pay tribute to all Members who served on the Committee, the Clerks, and the officials who helped pull together a substantial legislative moment in the parliamentary calendar—albeit that the Bill does not do much to help the economy or do much good for the country at large. I am afraid the Bill offers just more of the same: carrying on regardless of the urgent need for action to stimulate our economy.

We know that the Chancellor, scarred as he was from the omnishambles Budget in 2012, decided to go in the opposite direction this year and produce a Budget that contained so little of any import or substance that the Government’s Office for Budget Responsibility said on page 42 of its Budget report, that the Bill would have

“no impact on the level of GDP at the end of the forecast horizon…these measures reduce GDP growth”

in 2013. It is a Finance Bill that sees the economy moving backwards.

This is in the context of a great deal of humiliation for the Chancellor, including the downgrading by not just one but two credit rating agencies. The cherished prize that was supposed to be at the heart of the Government’s strategy—retaining and defending that benchmark triple A status—is gone. Then, of course, as we saw in the most recent figures, there was the humiliation of a rising deficit, not a fall in levels of borrowing.

This Finance Bill has its priorities all wrong. The lowlights include there being little on growth, but yet persisting with the cut to the top rate of income tax. It means that the fortunate 13,000 people who earn more than £1 million a year will get a lovely, juicy tax cut of £100,000, while typical families will be £891 worse off this year on average because of the changes to tax and benefits introduced since 2010. There are failures in a number of different ways, but it has been particularly piquant this evening to focus on the Government’s largesse and the City tax cut to the stamp duty reserve tax that gives £150 million to the investment manager community.

[Richard Fuller (Bedford) (Con)]

rose—

[Chris Leslie]

I am not sure whether the hon. Gentleman is a former investment manager, but I wonder what his view is of that change.

[Richard Fuller]

I am grateful for the shadow Minister’s indulgence in allowing me to intervene, and to answer his question, no I am not. The hon. Gentleman mentioned the cut to the top rate of tax and the house tax that Labour wants to introduce. Yesterday, I sat through the debate on Report, and the Opposition Front-Bench speaker was unable to say whether, if Labour get into government in 2015, it would increase the rate of tax and introduce a house tax. For the record, will the hon. Gentleman say whether that is the intention of the Labour party, or is it again just fine words but no real meat?

[Chris Leslie]

Fortunately for the hon. Gentleman, but unfortunately for the rest of us, there are still two years of this Parliament to go. He has probably two years of employment left in his parliamentary career and although we think there should be a Labour Member in his seat, we will miss him.

In two years’ time, we will set out the detail in our manifesto. When the Conservatives are in opposition after the general election, we hope to implement a radical manifesto that actually does something to benefit our economy. Today, we would implement a mansion tax that would raise a significant sum that we would give away as a tax cut for lower and middle-income households with a new 10p band of income tax. Government Members struggle with this, but we will judge what needs to be in the manifesto in two years’ time when we can judge the needs of the economy.

Government Members think they already know what their fate will be in 2015, hence the Chancellor coming forward with his cuts programme for 2015 when any responsible Chancellor would be rolling his sleeves up this summer and getting on with bringing forward capital infrastructure investment and doing something to stimulate the economy now. There is nothing in the Budget, nothing in the spending review and, more to the point, nothing in the Finance Bill to help growth. Indeed, the most interesting measures are conspicuous by their absence. There is no mansion tax, although there is provision for an annual tax on enveloped dwellings, which usefully illustrates that it is feasible to move in that direction.

[Lady Hermon]

In an earlier intervention on the Minister I asked about air passenger duty. In the context of Northern Ireland, would the hon. Gentleman and his colleagues agree to reduce air passenger duty? Rebalancing the economy in Northern Ireland will be difficult to do if this matter is not addressed. Where do the Opposition stand on reducing air passenger duty more generally?

[Chris Leslie]

I am sorry that we did not have the opportunity to consider this matter on Report. I think it was given some consideration in Committee. I think we are still waiting for the Government’s review to come to fruition—I am happy to give way to the Minister if he wants to confirm that—and we need to see the evidence. If we feel that any changes in tax and in spending are necessary, we want to spell out clearly where we would get the resources to pay for them. The fact that the Government have ignored not just our advice—[Interruption.]

[Madam Deputy Speaker (Dawn Primarolo)]

Order. Can we stop the chuntering from Front Bench to Front Bench while someone is trying to speak? Minister, you were listened to in silence and with proper courtesy, so it would be good if you showed that same courtesy to the shadow Minister. Perhaps Ministers and shadow Ministers could pay attention rather than shout at each other.

[Chris Leslie]

Madam Deputy Speaker, I am grateful for your protection from the sedentary chuntering of Government Members. They ignore anything they hear, not just from the Opposition but from the International Monetary Fund, which has pointed out that this has been the slowest recovery for a century. There has been barely 1% growth since the 2010 spending review, and the Chancellor predicted there would be 6% growth by now. Living standards have fallen and many families are finding it difficult to make ends meet. Life is much harder.

[Mel Stride]

The hon. Gentleman mentions the important pursuit of growth. Will he enlighten the House on what happened to his party’s five-point plan for growth, including his commitment to a reduction in VAT?

[Chris Leslie]

We are desperately keen for the Government to bring forward any measures—whether measures on VAT or bringing forward capital infrastructure—that would stimulate growth. Any Chancellor worth his or her salt would have used last week’s statement in the House to make at least a passing reference to the importance of growth in the economy, but there was absolutely nothing, and the same goes for this Bill.

The problem is not just the neglect of growth and living standards; it is the Government’s failures on borrowing and the deficit, which should be to their shame. They have been totally unable to deliver the promises they made on deficit reduction. [Interruption.] The Minister of State, Northern Ireland Office can tell his constituents that the deficit was £118.5 billion in 2011-12 and £118.7 billion in 2012-13. Even he, with all his skill and acumen, can tell that that is an increase in the level of borrowing from that year to this. No wonder the Government find it an uncomfortable fact that they have failed on their promise and are not on course to balance the books in 2015 as they said they would. That was their solemn promise to the electorate. It is a busted flush.

This Bill is a reflection of the fact that the Government have no answers. They do not know where to go on this issue. It is time we had a Finance Bill to boost the economy, instead of the Government neglecting their duties to achieve strong and sustained economic growth. This Bill is bereft of the bold measures we need to kick-start Britain’s economy. The country deserves better. We oppose a Third Reading of this Bill.

20:41

[Jim Shannon]

I want to say a few quick words. I thank the Minister and his team for the hard work they have done during the passage of this Bill. They have made a valuable contribution. I also thank the Opposition for their contribution.

The Government have made a number of welcome legislative changes—they are in the Bill, so they will happen—on child care and family provisions. Like other speakers, I listened with great interest to what the Prime Minister said at the weekend. The subsequent confirmation from Downing street that transferable allowances would be introduced in the 2014 Finance Bill came not a moment too soon. However, I would have liked more positivity from the Government about the time scale for the married tax allowance in new clause 1 to be introduced. It would have been better to have had that opportunity, although we might get it yet.

Reference has also been made to the air passenger duty in Northern Ireland. We know how important it is to the economy—a point that the hon. Member for North Down (Lady Hermon) has made clear. There have also been contributions and input from the Minister for Finance and Personnel in Northern Ireland, my hon. Friend the Member for East Antrim (Sammy Wilson). That has enabled some of the work done in the Bill to suit the Northern Ireland Assembly and the people of Northern Ireland.

In conclusion, let me say on behalf of my party that I would have been happier with a positive commitment to the married tax allowance, although we might get it yet.

Question put, That the Bill be now read the Third time.

20:43

Division 43

Ayes: 279

---

Conservative: 239
Liberal Democrat: 38
Independent: 1

Noes: 217

---

Labour: 202
Scottish National Party: 5
Democratic Unionist Party: 4
Social Democratic & Labour Party: 2
Plaid Cymru: 1
Independent: 1
Alliance: 1
Green Party: 1
Conservative: 1

Bill read the Third time and passed.

Business without Debate

Tuesday 2nd July 2013 Commons Chamber

Delegated Legislation

Motion made, and Question put forthwith (Standing Order No. 118(6)),

Education

That the draft Education (Amendment of the Curriculum Requirements) (England) Order 2013, which was laid before this House on 10 June, be approved.—(Mr Swayne.)

Question agreed to.

HPV Vaccine

Tuesday 2nd July 2013 Commons Chamber

Motion made, and Question proposed, That this House do now adjourn.—(Mr Swayne.)

20:58

[Mike Freer (Finchley and Golders Green) (Con)]

I am grateful to Mr. Speaker for granting me this debate on vaccinations against the human papillomavirus, otherwise known as HPV. My main aim is to raise the issue of the inherent inequality of the vaccination programme, which excludes men.

Discussing this issue involves raising topics that people often do not want to talk about, but such discussion is easier than having to deal with the illnesses and diseases that arise from not vaccinating. Embarrassment is preferable to the many cancers that are associated with HPV.

Let me begin by saying that it is important to acknowledge the success of the programme. Since its launch in 2008-09, it has successfully screened and vaccinated more than 80% of applicable girls. Last year the original HPV vaccine was replaced with the quadrivalent HPV vaccine, which provides protection against the two strains of HPV that cause at least nine in 10 cases of genital warts. Of course this added protection is above the primary purpose of the vaccination programme—to bring down rates of cervical and vaginal cancer in women. Men are, however, up to six times more likely than women to have oral HPV infection, thereby increasing the risk of cancers of the throat, neck and head.

[Mr Mark Spencer (Sherwood) (Con)]

I am pleased to hear my hon. Friend mention throat cancers in men. Will he address how much the treatment of such diseases would cost compared with the cost of the vaccine?

[Mike Freer]

Yes, I will raise the cost-effectiveness of the vaccine as compared with the treatment costs of many cancers, including oral or pharyngeal cancer, which is throat cancer.

In 2009, just after the HPV vaccination programme started, there were over 6,500 cases of these cancers, with 47% of penile cancers and 16% of head and neck cancers thought to be HPV-related. Today, however, overall rates of HPV-related cancer and warts should—should, I stress—subsequently come down in heterosexual men, because of so-called herd immunity.

Herd immunity is where men have sex with vaccinated women and thereby get protection against warts, as well as other cancers including penile, anal, oral and pharyngeal cancers. However, they get such protection only if they have sexual contact with UK-born women who have been vaccinated, or with Australian women or those of the very few countries that have had a mass vaccination programme.

[Jim Shannon (Strangford) (DUP)]

I congratulate the hon. Gentleman on securing this debate. Does he agree it might be better if we had a regional vaccination programme not only for England and Wales, but for Scotland and Northern Ireland as well, so we can address issues of education and intervention UK-wide first, and also globally?

[Mike Freer]

The hon. Gentleman makes a good point. On a small island such as ours it is important that men who are having sex with women, or men having sex with men, are having sex with partners who are vaccinated, and I believe that is a matter not just for England and Wales, but for the whole of the United Kingdom, and we would also then be setting an example for the rest of the world.

Herd immunity is valuable, but it is not foolproof for heterosexual men. I have mentioned that it is valuable where heterosexual men are having sex with vaccinated women, but men who have sex with men are not subject to herd immunity, and that is another element of inequality. Evidence from other countries suggests herd immunity will eventually prevent most, but not all, cases of HPV-related cancer in heterosexual men. There is still work to be done, therefore, on all men having vaccinations against HPV-related cancers.

Some HPV-related cancers are on the rise in the UK, despite the vaccination programme. Throat cancer has overtaken cervical cancer as the leading HPV-related cancer in the UK. Men who have sex with women who are not vaccinated remain at risk. This is of concern to men who, for example, have sex while on holiday or while living outside the UK, or who have sex with unvaccinated migrants to the UK—but men, straight or gay, remain at risk.

The current programme is inequitable, as those men who “stray from the herd” by having sex with unvaccinated women or men will remain at risk. That is why I am seeking a commitment for the HPV vaccination programme to be widened.

The key issue I wish to press is the health inequality in respect of gay men and anal cancer, an inequality perpetuated by the current vaccination policy. Gay men already experience poorer sexual health as a group; they are at an increasing and far higher risk of HIV and other sexually transmitted infections compared with the wider population. Rates of anal cancer in gay men are now equivalent to those for cervical cancer in women before the cervical cancer screening programme was introduced in 1988. HPV is associated with 80% to 85% of anal cancer in men, yet it is not yet possible to screen for or effectively treat anal pre-cancer, as it is for cervical cancer; HPV vaccination is the only effective form of prevention, and it is being denied to men.

Gay men with HIV are particularly susceptible to HPV-related anal cancer and as the number of gay men with HIV continues to rise year on year, so will cases of anal cancer, other HPV-related cancers and warts. In addition to having a disproportionate effect in HIV-positive men, HPV can increase the risk of HIV transmission. HPV can increase skin fragility and overt anal warts can bleed, which enhances the risks of acquisition or transmission of HIV infection. This health inequality between gay men and the general population will continue to widen as long as gay men remain unprotected against HPV. I stress this point as it relates to gay men, but it also affects heterosexual men who are equally unprotected.

[Pamela Nash (Airdrie and Shotts) (Lab)]

I congratulate the hon. Gentleman on making a powerful argument on a difficult subject. Michael Douglas, the actor, was given much criticism in the press recently for talking about these difficult issues. I know about this, because I had the HPV vaccine as a 17-year-old, so I am glad the hon. Gentleman has brought the matter to the Floor of the House. I just want to highlight the fact that this is an issue not only for homosexual men in terms of the vast health inequalities they have here in the UK, but for heterosexual men. Although we have a successful HPV vaccination programme for young women, we by no means have the whole herd vaccinated just yet.

[Mike Freer]

The hon. Lady makes a good point. Herd immunity is valuable only for those who are sleeping within the herd. Those who have sex outside the herd are at risk, and that inequality needs to be addressed.

The best way to protect all males against HPV-related cancers and warts would be to offer the vaccine to all boys aged 12 to 13, as well as girls, as part of the school-based immunisation programme. The vaccine is most effective when given at this younger age, before people start having sex and before exposure to the strains of HPV. Other countries are starting to do that; the vaccine is available for boys in a number of other countries, including Australia and the United States. I firmly believe that we should follow suit.

If we do not have a widespread vaccination programme for boys, at least, and as a bare minimum, gay men should be offered the vaccine when they first present at a sexual health clinic as men who have sex with men. That would match the current policy on offering hepatitis B vaccinations to gay men. Given the expense of treating HPV-related cancers and warts, there is a strong cost-effectiveness argument for extending the availability of the HPV vaccine. If the inequality is not a powerful argument, the cost savings to the Department of Health must be.

The Joint Committee on Vaccination and Immunisation inquiry that began last year is welcome, although little is known of the progress it is making. If the JCVI looks into the cost-effectiveness of vaccination initiatives, it will find that the case to extend the programme to boys is irrefutable.

Each HPV vaccination for the three-dose programme costs £260. Compare that with the lifetime treatment and care cost of an HIV-positive man or woman at £280,000 a year, the £13,000 cost of treating anal cancer, the £11,500 cost of treating penile cancer, the £15,000 cost of treating for oropharyngeal cancer or the £13,600 cost of treating vulval and vaginal cancer transmitted by an infected male. In 2010, the cost of treating anogenital warts was £52.4 million.

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

I congratulate the hon. Gentleman on securing the debate. If the Minister and the Department are considering reviewing the vaccine in the light of his speech, may I ask the Minister whether she will also consider another aspect of this—that is, the number of young women who have had a severe adverse reaction to the vaccine? My constituent, Stacey Jones, received the vaccine five years ago and since then she has struggled with memory loss, loss of concentration, mood swings and a need for continuing treatment by the neurology department at the Queen Elizabeth hospital in Birmingham. Does the Minister accept that it cannot be an acceptable price to pay for what might be an otherwise beneficial vaccine programme if some young women undergo such a severe reaction? Will the Minister and her officials look into this to see how many other young women are in that position and whether changes can be made to reduce the number of young women who have had such a reaction or even stop it altogether?

[Mike Freer]

I am grateful to the right hon. Gentleman for intervening on me to ask the Minister a question and I am sure that she will answer it in due course. He makes a valuable point, however. I, too, have a constituent who had an adverse reaction to the vaccine and who is believed to have myalgic encephalomyelitis as a result. Statistically, such reactions might only be small in number compared with the benefits of the widespread vaccination programme, but he makes a good point in that it is important that the Department of Health tracks them to see whether a pattern emerges over time.

[Mr Spencer]

My hon. Friend is being very generous with his time. Is screening available on the NHS to prove whether someone is a carrier of HPV? If I presented myself to my local GP and asked to be screened, would such screening be readily available?

[Mike Freer]

To be honest, I am not sure that I can answer the question. I suspect, however, that if my hon. Friend presented at a sexual health clinic, the staff might be able to advise on what screening or tests were available to identify whether he is a carrier of HPV. It is quite common in men, so in all probability he is. He might want to visit a sexual health clinic tomorrow—if I have not frightened him too much.

I understand that the JCVI inquiry is limited to considering cervical cancer, which restricts the review to women and girls. I press my hon. Friend the Minister to confirm that the JCVI’s scope will be extended to include all HPV cancers so that we can look at how best to vaccinate boys, girls, women and men. The Department of Health must redefine the formal aim of the programme, because if it does not it will be compounding inequality and cost-ineffectiveness.

Males must be protected against the four strains of HPV. The herd immunity that will potentially result from the current programme is often used as a defence for not vaccinating boys, but that implicit intention of excluding men who have sex with men or men who have sex with women who are not vaccinated is simply not sustainable.

The inequality of health protection is obvious and so are the cost savings that I have identified. I know that the Minister will be as concerned as I am that that cost-ineffectiveness and inequality cannot be allowed to continue, and I look forward to hearing her confirmation that the scope of the review will be widened.

21:13

[The Parliamentary Under-Secretary of State for Health (Anna Soubry)]

I congratulate my hon. Friend the Member for Finchley and Golders Green (Mike Freer) on securing the debate and bringing this important subject before the House. He speaks, as ever, with considerable knowledge and makes a powerful argument. I would not expect anything other than that from my hon. Friend.

I shall not rehearse the statistics on vaccination— they were well explained by my hon. Friend—and the success that it has had in its take-up among young women. It has been a success. Seven million doses have been given so far in the United Kingdom, and we have achieved one of the highest rates of HPV vaccine coverage in the world, with 87% of the routine cohort of girls completing the three-dose course in the 2011-12 academic year. That contrasts with 35% take-up in America. The very low take-up in America explains why America has extended the vaccination to boys as well as girls; it is only 35% in girls.

As my hon. Friend explained most ably, because of the high uptake of HPV vaccine among girls, it is argued correctly that many boys are indirectly protected against HPV-associated cancers, such as anal cancer and head and neck cancers, as transmission of the virus between girls and boys should be substantially lowered. But of course, my hon. Friend is making the point that it does not protect men who have sex with men, and men who have sex with women who have not had the vaccine.

[Jim Shannon]

In my intervention on the hon. Member for Finchley and Golders Green (Mike Freer), I made the point about conducting campaigns regionally and UK-wide. Has the Minister had any discussions with the Health Minister in Northern Ireland, for instance, or the Health Minister in Scotland to ensure that we have a UK-wide strategy to address this issue?

[Anna Soubry]

I am going to repeat everything that has been said, and I agree; that is a very important point. As my hon. Friend the Member for Finchley and Golders Green argues, the vaccine does not protect men who have sex with women who have not been vaccinated, because they may have been in a country where the vaccine was not available to them. So I completely take the point, which is well made, and ask my officials to take it back to the Department.

As hon. Members know, the Department of Health is advised on all immunisation matters by the Joint Committee on Vaccination and Immunisation—an independent expert advisory committee—and our HPV vaccination policies are accordingly based on the advice of the JCVI. When the committee considered the introduction of the HPV vaccine in relation to cervical cancer, it did not recommend the vaccination of boys because with high vaccine uptake among girls, as is the case in the UK, it is judged that there would be little benefit in vaccinating boys. With the high uptake of HPV vaccine among girls, we would expect many boys to be indirectly protected against vaccine-type HPV infections and associated diseases, including anal cancer, head and neck cancers and penile cancers. However, the JCVI recognises that under the current programme, the same protection may not be provided to men who have sex with men, and of course men who have sex with women who have not had the vaccination.

[Mr Spencer]

I hope the Minister would recognise that, obviously, ideally we should be vaccinating boys who are pre-puberty, and at that stage we have no idea of their sexual orientation or whether they may fulfil their career abroad or in the UK, so we have no way to identify whether they are at risk.

[Anna Soubry]

I am going to struggle, because that is another good point. I always try to be honest when I come to the Dispatch Box and when hon. Members make good points—points that were made not only by my hon. Friend, but by the hon. Member for Airdrie and Shotts (Pamela Nash).

The point raised by the right hon. Member for Wolverhampton South East (Mr McFadden) is related to the actual vaccine, and I am more than happy to discuss that case, or any other adverse reactions of young women to the vaccine, with him. I am very sorry for his constituent, and I am more than happy to have that discussion with him and help in any way I can. He raises an important point.

As we have heard, in June 2012 the JCVI was presented with data on HPV infections and it noted that there is early evidence to suggest that the HPV immunisation programme in England is lowering the number of HPV 16 and 18 infections—the strains of HPV that are linked to these unpleasant cancers—in females in birth cohorts that have been eligible for vaccination.

I accept that the data are very limited on the prevalence of HPV infections among men who have sex with men, but we hope that research under way at University College London will provide more data and an age profile of HPV prevalence. HPVs, particularly types 16 and 18, are associated with the majority of anal cancers as well as cervical cancers, and to a lesser degree with penile, vaginal, vulval and head and neck cancers, but HPV types 16 and 18 predominate in cancers at those sites that are HPV-related. Data on the impact of HPV vaccination on infection at some of these non-cervical sites are limited.

The JCVI noted that the potential impact of HPV vaccination on non-cervical cancers would make the current HPV immunisation programme even more cost-effective, but it would remain the case that, given the expected effects of immunisation on HPV transmission and the indirect protection of boys that accrues from high coverage of HPV vaccination in girls, vaccination of boys in addition to girls was unlikely to be cost-effective. That argument, which we know is advanced, is combated by all that has been said by my hon. Friends the Members for Sherwood (Mr Spencer) and for Finchley and Golders Green, who urge us to consider the cost of treating someone who has one of these cancers.

Evidence for indirect protection would continue to be evaluated by the ongoing HPV surveillance programme at the former Health Protection Agency, now part of Public Health England, but the JCVI agreed that there may be little indirect protection of men who have sex with men from the current immunisation programme. Therefore, the impact and cost-effectiveness of vaccination strategies for men who have sex with men, with the offer of vaccination through general practice and/or at genito-urinary medicine clinics, needed to be assessed. In addition, data on the prevalence by age of HPV infections in men who have sex with men and in the settings where vaccination could be offered to them were needed to determine the potential effectiveness and cost-effectiveness of HPV vaccination of men who have sex with men. It would also be important to understand better the rates of HPV-related disease in men who have sex with men and the influence of HPV on HIV infection.

As we have heard, in August 2012, the JCVI issued a call for evidence from interested parties, including for information to inform a study on the impact and cost-effectiveness of HPV vaccination of men who have sex with men. Any new proposals for the vaccination of additional groups will require supporting evidence to show that this would be a cost-effective use of resources. The JCVI also asked the HPA, now part of PHE, to undertake that study. The study is under way and, once completed, will be considered by the JCVI, at the earliest in 2014. The Department will consider carefully the advice from JCVI, once the committee has completed its assessment.

[Pamela Nash]

May I reiterate the point the hon. Member for Strangford (Jim Shannon) made about the need to have conversations with ministerial colleagues in Scotland, Wales and Northern Ireland? As the hon. Member for Finchley and Golders Green (Mike Freer) argued powerfully, this is about homosexual men and men who have sex with men, but also about men who have sex with women who have not been vaccinated. It is important to have those conversations with the other nations.

[Anna Soubry]

I am grateful for that intervention. I was about to conclude by saying that it is only fair and right to acknowledge the powerful arguments that have been advanced by a number of hon. Members this evening. They have certainly caused me to take the view that I will not hesitate to contact the JCVI, as a matter of urgency, to raise all these important points with them. The committee is an independent expert body, and when it gives its advice to the Government, the Government are—quite rightly—bound to accept that advice.

[Mike Freer]

I am grateful to my hon. Friend for the commitment and the confirmation that the JCVI is now looking at this, but while we are waiting for 2014 and the results, can my hon. Friend confirm, if not tonight then in writing, that the Department of Health will give some guidance that sexual health clinics and GUM clinics can offer the vaccinations as an option before that becomes mandatory, should the JCVI recommend that?

[Anna Soubry]

I had thought that that was already the situation; but if I am wrong, I will not hesitate to agree to a quite proper, reasonable request. I think that I am wrong.

[Mike Freer]

My hon. Friend is being very generous. May I confirm that the vaccination is available only to men on private health schemes and that they have to pay for it?

[Anna Soubry]

Forgive me—it is available, but people have to pay for it. The point being made is that they should not have to pay for it. It should be available, like any other vaccination. That is a good point, and one that I am more than happy to take up.

These are all important and powerful arguments, especially when they are advanced on the basis of inequality, which should concern us all, wherever it may lie, and a good argument has been made that it is simply not fair on men who have sex with men that they should not have the same sort of protection as heterosexual men. If for no other reason, that demands that I make further inquiry.

I repeat—I am sorry to have to repeat it—the committee is an independent body, but it has such force and power that when it makes a recommendation, there is no debate or argument about it: the Government follow its recommendation. I am more than happy to take the matter forward and to make sure also, which is very important, that the committee’s recommendations and findings are made as soon as possible. At present, I am told that that will be in 2014 at the earliest, but it seems to be the sort of matter that requires everybody’s most urgent attention. I hope that is a positive note on which to finish.

Question put and agreed to.

21:26

House adjourned.