House of Lords

Thursday 5th December 2013 Lords Chamber

Thursday, 5 December 2013.

11:00

Prayers—read by the Lord Bishop of Derby.

Mesothelioma

Thursday 5th December 2013 Lords Chamber

Question

11:06

Asked by

[Lord Alton of Liverpool]

To ask Her Majesty’s Government what funding has been secured for research into the causes of and potential cures of mesothelioma.

[The Parliamentary Under-Secretary of State, Department of Health (Earl Howe) (Con)]

My Lords, the Government are fully committed to research into the causes of this dreadful disease and into potential treatments. The usual practice of the main public funders of health research is not to ring-fence funds for expenditure on particular diseases, and funding is available for high-quality research proposals. With its partners, the Department of Health is actively pursuing a package of measures that we believe will stimulate an increase in the level of research on mesothelioma.

[Lord Alton of Liverpool (CB)]

While thanking the noble Earl for his reply, does he recall the assurance he gave to the House, when an all-party amendment—which would have created a small, statutory levy to support mesothelioma funding—was defeated by 199 votes to 192, that insurance companies would voluntarily step up to the plate? Given that there have been 2,400 deaths from mesothelioma this year, with 60,000 anticipated over the next 25 years, and with the imminent ending of even the existing insurance industry funding, would it not be shameful to leave unfunded research that could save lives and prevent vast expenditure on compensation? The Mesothelioma Bill is now before another place, with an amendment supported by both Conservative and Labour Members of the House of Commons. Surely Ministers should be looking again at this practical way of finding a cure for this deadly disease.

[Earl Howe]

My Lords, I understand that the British Lung Foundation has had discussions with representatives of the insurance industry about extending the funding for research, but that no commitment has been made by the industry so far as to future funding. As I made clear during the debate, the issue holding back progress is not the lack of available funding—there is plenty of that—but the lack of sufficient high-quality research applications. The money previously donated by insurers is supporting valuable research, as the noble Lord, Lord Alton, has said. At the moment, a greater volume of mesothelioma research is supported by the Government, and we believe that the package of measures that I mentioned will stimulate an increase in that volume.

[Lord Beecham (Lab)]

My Lords, I refer to my interest in the register. Section 48 of the Legal Aid, Sentencing and Punishment of Offenders Act 2012 requires the Government to review the application to mesothelioma claims of the provisions banning conditional fees. The Government have announced that, in the light of a consultation as yet unpublished, they will not treat those cases differently from other claims. They seek to conflate this issue with entirely different provisions in the Mesothelioma Bill.

Is the Minister aware that the Civil Justice Council has been unable to agree whether the current consultation,

“fulfils the conditions set out in Section 48 of LASPO”?

Is this not another example of the Government cravenly caving in to the demands of their friends in the insurance industry and ignoring the strong feelings of this House in support of those suffering from this terrible disease?

[Earl Howe]

I am sure that the noble Lord wants to take advantage of this opportunity to raise that particular issue, but it is a rather different one from the Question posed by the noble Lord, Lord Alton. However, I will take his question away and ensure that a letter is sent to him in response.

[Lord Ribeiro (Con)]

My Lords, the Government are to be congratulated on introducing the Cancer Drugs Fund, but how do they anticipate that the vital research which needs to be done into mesothelioma will continue to be funded without legislation to compel those insurance companies which so far have not stepped up to the plate to make a contribution?

[Earl Howe]

My Lords, as my noble friend will be aware, four insurance companies have stepped up to the plate with funding of £3 million, which admittedly is nearing its end, but I do not think that we can belittle that contribution. My noble friend may be interested to know that the MRC and the NIHR together spent more than £2.2 million on mesothelioma research in 2012-13, which is a larger sum than for many other disease areas. I say again that the issue is not the lack of funding because the research funding in both the MRC and the NIHR has been protected. What is lacking are suitable proposals.

[Lord Howarth of Newport (Lab)]

My Lords, does the Minister share the disappointment expressed by the noble Lord, Lord Alton, which I certainly do, that following the scandalous mistreatment of mesothelioma sufferers by employer’s liability insurers over decades, there has been no commitment from those four employer’s liability insurers or from the rest of the industry to continue funding beyond next year? Whatever arrangements are made to secure the continuation of research in this vital field, can the Minister be more precise on how the Government will bring their influence to bear to ensure that the research is of suitable quality?

[Earl Howe]

My Lords, we have committed to doing four things, the first of which will be to set up a partnership to bring together patients, carers and clinicians to identify what the priorities in research are. Secondly, the NIHR will highlight to the research community that it wants to encourage research applications in this area. The NIHR Research Design Service will be able to help prospective applicants develop competitive research proposals, and we will convene a meeting of leading researchers to discuss and develop new proposals for studies. I think that those four measures together will deliver what the noble Lord seeks.

[Lord Avebury (LD)]

My Lords, does my noble friend acknowledge that the £3 million has run out and that there is a danger that the talented clinicians who have been working on mesothelioma as a result of that fund will move on to other subjects? However, the Association of British Insurers has told me that it would be prepared to consider a new scheme funded jointly by all employer’s liability insurers and the Government, so I wonder if the Government will approach the ABI to see if that scheme could be taken a little further.

[Earl Howe]

I am very grateful to my noble friend and that is certainly something I can undertake to do, perhaps in conjunction with the British Lung Foundation.

[Lord Walton of Detchant (CB)]

My Lords, what makes mesothelioma such a fatal disease is the length of the incubation period, in that individuals who have been exposed to asbestos may not develop the disease until many years later; indeed, 2,000 new cases have been reported this year. The developments to which the Minister has referred are helpful and encouraging, but have the Government been able to persuade the relevant insurance companies to increase significantly their contribution to the research programme?

[Earl Howe]

My Lords, I said earlier that the discussions between the British Lung Foundation and the insurance industry have not so far resulted in a pledge for further funding, but as my noble friend Lord Avebury has indicated, that door may be open. However, we should bear in mind that asking insurance companies to fund research is an unusual mechanism in itself. I suggest that we should not push the envelope too far because in the end the cost will fall on the industry.

[Lord West of Spithead (Lab)]

My Lords—

[Noble Lords]

Next Question!

EU: Membership

Thursday 5th December 2013 Lords Chamber

Question

11:15

Asked by

[Baroness Quin]

To ask Her Majesty’s Government what discussions they have had with representatives of British business following statements by Ministers calling for a referendum on United Kingdom membership of the European Union.

[Lord Popat (Con)]

My Lords, reflecting the coalition agreement, the Government have no plans to hold a referendum on the UK’s membership of the EU in this Parliament. The Government continue to have regular discussions with British business organisations on the need for EU reform and the direction it should take. The other 27 member states of the EU are key trading partners of the UK, and this relationship supports UK jobs, growth and prosperity.

[Baroness Quin (Lab)]

My Lords, has the Minister seen the recent survey by the CBI and YouGov that showed that, of the firms surveyed, 80% wanted to stay within the EU, and that many of them were worried about both the prospect of a referendum and the effects on investment and competitiveness of the uncertain timing of such a referendum? Will the Minister assure me that he and his colleagues, particularly his Conservative colleagues, across Government will address these real concerns with industry rather than, as so often seems to be the case, simply trying to appease the unappeasable critics on their own Back Benches?

[Lord Popat]

My Lords, I am aware of the CBI survey. Some 80% of UK businesses want to be in Europe; Europe is good for them. Their position is that there is already a question mark as to what the future will lead to, and most businesses support both a referendum and the reforms that need to take place.

[Lord Forsyth of Drumlean (Con)]

My Lords, does my noble friend not agree that it would be quite outrageous if this unelected House were to seek, using its procedures, to frustrate the will of the House of Commons to give the people an opportunity to have their say on our membership of the European Union in a referendum?

[Lord Popat]

My Lords, the House of Commons has given the Bill a smooth passage towards becoming law, and it is important that this House, too, gives a clear passage for the Bill to go through in the new year.

[Lord Pearson of Rannoch (UKIP)]

My Lords, has the Minister seen the Opinium poll today, which goes somewhat wider than the CBI? It finds that 38% of British businesses want to stay in the EU and only 31% want to leave. But as for the CBI, did it not tell us that we were finished if we did not join the euro? Did not the CBI get the gold standard wrong in the 1920s? Was it not in favour of appeasement, nationalisation and state planning, price controls, tripartite industrial relations and the exchange rate mechanism? Why on earth should we listen to this absurd organisation?

[Lord Popat]

My Lords, the CBI, the IoD and the Federation of Small Businesses represent a large number of businesses in the UK, and they are all in favour of being in the EU. In fact, 55 business leaders wrote to the Times to show their support for the Prime Minister’s position, saying:

“As business leaders we are passionate about Britain’s prosperity. We agree with the Prime Minister that Britain’s best chance of success is as part of a reformed Europe. We need a new relationship with the EU, backed by democratic mandate”.

[Lord Liddle (Lab)]

My Lords, on this side of the House we are very ready to welcome and listen to the views of British business. In its recent report the CBI said:

“No alternative option to full EU membership can combine all the benefits of EU membership with none of the costs”.

Do the Government agree with that position—that there is no conceivable alternative to our EU membership? If so, do they accept that the process of renegotiation is pointless, because it will always be in Britain’s national interest to stay in the EU?

[Lord Popat]

It is important and in our national interest to stay in the EU. We are for the EU. The EU brings a lot of prosperity to the UK, including approximately 3.5 million jobs and around 11% of the workforce. In 2011, 47% of our exports were to the EU. Without any doubt, we are for EU membership. However, we need a reformed European Union. We need to compete in the global race. In order to compete in the global race, it is important that we reform the European Union; hence, the mandate for the European Union Bill.

[Lord Maclennan of Rogart (LD)]

My Lords, have the Government engaged in dialogue with the City of London Corporation about the anxiety felt by financial institutions about what would happen if Britain left the EU? Did he notice the statement yesterday by Michael Sherwood, a co-director of Goldman Sachs, that if the country left the EU, it would move its offices to Paris or Frankfurt?

[Lord Popat]

My Lords, there is no question of leaving the EU, which is very important for trade and prosperity. But we need a reformed EU, in particular for SMEs and micro-businesses.

[Lord Brooke of Sutton Mandeville (Con)]

My Lords, as the Official Opposition state that an in-out referendum makes for uncertainty but decline to rule out an in-out referendum themselves, does my noble friend find that this is an instinctively convincing and coherent position?

[Lord Popat]

My Lords, there is already uncertainty, and ignoring it will not make it go away. We have a credible, certain referendum plan and we need to let the British people decide.

[Lord Dobbs (Con)]

My Lords, is it not time to take this issue out of the hands of the elites and end their unseemly squabble? We have the “kippers” who think that it is a mortal sin to be on the same continent as Europe, and we have the “sprouts” who think that Brussels is the answer to everything—unless, of course, it is a question about audited accounts. The only way to end this unseemly and damaging squabble is to take the issue and give it back to the people, where it belongs, so that they can decide their own future in a referendum.

[Lord Popat]

My Lords, I completely agree with my noble friend. It is certainly time for the people of Britain to have their say. If the Conservative Party wins a majority at the next election, it has committed to negotiating a fresh settlement and to holding an in-out referendum before the end of 2017. I very much look forward to the Second Reading of my noble friend’s European Union (Referendum) Bill on 10 January. I hope that this Bill, which has a clear democratic mandate from the elected House of Commons, will pass speedily through this House. For the unelected House of Lords to stand in the way of giving the people of Britain their say would be very wrong.

Iran and Syria

Thursday 5th December 2013 Lords Chamber

Question

11:23

Asked by

[Lord Soley]

To ask Her Majesty’s Government what discussions they have had with the Government of Iran regarding that country’s role in the current conflict in Syria.

[The Senior Minister of State, Department for Communities and Local Government & Foreign and Commonwealth Office (Baroness Warsi) (Con)]

My Lords, after that last question I am really looking forward to the debates in January. The Government have impressed on Iran the importance of it playing a constructive role in Syria—for example, in pressing for greater humanitarian access. However, its current actions are far from that. Iran continues to support the Assad regime financially and militarily. We are using the upgrading of our diplomatic relations to engage Iran on a range of issues, including Syria.

[Lord Soley (Lab)]

I thank the Minister for that Answer. Bearing in mind the remarkable success of my noble friend Lady Ashton in chairing the nuclear talks, the importance of the links that have developed between Iranians and civil servants in the European Union and the western powers, and the effect of the international sanctions that have brought Iran to the table, is it not time to expand those contacts with Iran to try to use extra influence on them both against the Assad regime and with Hezbollah?

[Baroness Warsi]

We are expanding our contacts with Iran. The noble Lord will be aware of the meetings between Foreign Minister Zarif and my right honourable friend the Foreign Secretary, William Hague, and the telephone conversations between the Prime Minister and President Rouhani. He also will be aware of our decision to appoint the chargé d’affaires last month. I can inform the House that our chargé d’affaires, Mr Ajay Sharma, visited Iran this week on 3 December. We are hoping that the chargé d’affaires from Iran, Mohammad Hassan Habibollah-zadeh, will visit the United Kingdom this month.

[Baroness Nicholson of Winterbourne (LD)]

Following on from the Minister’s helpful answer, could Her Majesty’s Government cease supporting with quite such pressure the fractured, and in some ways poisonous, opposition in Syria? Could they ask Iran, with its concessions already in the bag, to be at Geneva II with a guaranteed seat and a proper invitation?

[Baroness Warsi]

The national coalition represents a broad range of Syrian opinion. We could not proceed with the Geneva II discussions without the views of the Syrian people being at the table in a wide and broad way, so possibly I disagree with my noble friend on that point. Any constructive role that Iran can play in relation to Geneva II is good. However, Iran must first and foremost say that it supports the communiqué that was agreed at Geneva I. It could not possibly be part of a process where it does not agree with the outcomes as detailed in the communiqué.

[Lord Triesman (Lab)]

My Lords, in Her Majesty’s Government’s discussions with Iran, have the Government stressed the need for progress on regional co-operation, however difficult that might be to achieve? Do the Government have a view on how to lessen the distrust, particularly between Iran and Saudi Arabia and between Iran and the Gulf states, so that this level of distrust in regional geopolitics does not perpetuate the battles in Syria beyond the point that they are already at?

[Baroness Warsi]

The noble Lord raises an important point. It was right that we communicated properly the discussions that we were having with Iran and the outcome of those discussions. We must bear in mind that this is an interim discussion relating specifically to Iran’s nuclear programme. I think that our partners, whatever their reservations, and they are right to have reservations in the light of Iran’s previous conduct, accept that an Iran with nuclear arms, which was where Iran was heading, was not the right way forward, and therefore to halt the programme and in some ways to unroll it must be the way forward. This is an interim agreement with a view to a final settlement agreement in due course.

[Lord Hylton (CB)]

My Lords, Iran was unable to accept the conclusions of the first Geneva conference. Can the noble Baroness assure the House that that is not a sufficient reason in itself for excluding Iran from Geneva II?

[Baroness Warsi]

The noble Lord will be aware that that communiqué, among other things, reiterates the need for a transitional Government who have full executive powers and for that to be done with mutual consent. If Iran cannot agree with that statement, I am unsure what constructive role it could play by being at the table in Geneva. Iran can play a constructive role in advance of that—for example, by leveraging its influence in Syria to give us better humanitarian access. That is an early win that Iran could put on the table to show that its intent and actions supported its words.

[Lord Clarke of Hampstead (Lab)]

I am sure that the House welcomes the dialogue taking place between Iran and Syria while they continue to supply Hezbollah with arms and training. During these cosy talks with this butcher who is the new President of Iran, could the Government ask him to spare a thought for the executions in Iran of its own people that take place almost daily?

[Baroness Warsi]

My Lords, we feel that the discussions with Iran are constructive and that the intent that we have seen so far has been sincere. I take on board the noble Lord’s strong views but I also take the view that closer diplomatic relations mean that we can start to tackle the difficult issues around human rights, including the use of the death penalty, face to face.

[Lord Alton of Liverpool (CB)]

My Lords, has the Minister been able to get any further with my recent Written Question about the mass graves discovered in Sadad in Syria and the links between the militia involved in the killings that took place there and both al-Qaeda and Iran?

[Baroness Warsi]

I am not aware of the latest on that, but I shall write to the noble Lord with more information.

Press Regulation

Thursday 5th December 2013 Lords Chamber

Question

11:29

Asked by

[Baroness Deech]

To ask Her Majesty’s Government when they expect the new system of press regulation set out in the royal charter agreed on 30 October to be implemented.

[Lord Gardiner of Kimble (Con)]

The appointments process for the chair and initial board members of the recognition panel can begin following the sealing of the charter, which we expect to occur shortly. The panel will be formally established from the date on which the chair and the initial members of the board of the recognition panel have been appointed. It is for the newspaper industry to design its own new self-regulator.

[Baroness Deech (CB)]

Is the Minister not concerned that, more than a year after the Leveson report, we seem no nearer an improved system of redress and apology? Does he agree that the Government are presiding over an impasse? We have the worst of both worlds: there is no effective press regulation at the moment and, because of the undemocratic use of the royal charter as a tool, input and scrutiny into the system by this House have been blocked.

[Lord Gardiner of Kimble]

The noble Baroness made a number of points. To start with the last one, the royal charter was felt in the end to be the appropriate route by all the parties, and by others more widely, precisely so that there was not seen to be any intrusion into the very valuable tenet that we should have a free press and freedom of expression. The architecture of Lord Justice Leveson was designed to have a new, independent, self-regulatory body and a recognition panel to oversee that body and to make sure that it adheres. It is for the self-regulatory body to apply or not—it will be voluntary. However, I do not think there is an impasse because there is an understanding that what we had before must never return.

[Lord Clinton-Davis (Lab)]

People have questioned whether the Government are very serious about the issue at all. It is imperative that action is taken very quickly. There is no adequate reason for not doing so.

[Lord Gardiner of Kimble]

I understand what the noble Lord is saying. It does seem some time since Lord Justice Leveson reported—a year. However, during that time, many things have happened. The royal charter, which has now been agreed, is about to be sealed, which will enable the Commissioner for Public Appointments to start the process of finding a chair and members for the recognition panel, which is clearly important. It will then be for the press to set up its own self-regulator. Yes, it will be voluntary, but part of Lord Justice Leveson’s architecture is that there are incentives to encourage the press to join.

[Lord Sharkey (LD)]

My Lords, David Yelland, an ex-editor of the Sun, has said of the PCC’s IPSO proposal that,

“they can’t simply set up a system that has many of the flaws of the old one, run by the same people that ran the old one”.

Does the Minister agree with the sentiment behind that and will he reassure the House that he believes the PCC proposals to be fatally and irretrievably flawed?

[Lord Gardiner of Kimble]

The most important thing about the recognition panel is that it will be for the panel to opine on any body that applies to it for recognition. That is part of the whole architecture that Lord Justice Leveson proposed: the recognition body and an independent self-regulator. Therefore, it is not for the Government or the Executive to opine whether an application from a new body is to be recognised. That is precisely why we set up the recognition panel. That work is now in progress.

[Baroness McIntosh of Hudnall (Lab)]

My Lords, following the last question and given that there have been, shall we say, a few doubts in the recent past about certain public appointments, in what way will the Government ensure that the appointment of members of the recognition panel is fully open and transparent?

[Lord Gardiner of Kimble]

That is precisely why the Commissioner for Public Appointments is ready to start work on ensuring that all the requirements in terms of transparency, openness and fairness are absolutely key to the appointments process that he is taking charge of very shortly.

[Lord Dykes (LD)]

Is my noble friend worried that the bulk of our British newspapers—all of them owned, I think, by those who do not pay UK personal tax—have still not apologised to the victims of hacking and other malpractices?

[Lord Gardiner of Kimble]

I hope it is a reflection from the press that they can never go back to what happened and that the work they are doing on a new, self-regulatory body is an indication, at least, that what happened was unacceptable to everyone—unacceptable to the public. So much of what we have been discussing, and the talk about parliamentarians, indicates that the public want us to do something; and we have a responsibility to do it.

[Lord Pearson of Rannoch (UKIP)]

Is not one of the most important reforms that the press and the media should accept—or have imposed upon them—that when they libel someone in very large letters, all over several pages, they should be forced to carry the apology in exactly the same dimension, for exactly as many days, as they did when they made the original mistake? Would that not concentrate their minds somewhat?

[Lord Gardiner of Kimble]

The noble Lord has raised something that is very much part of what Lord Justice Leveson referred to in the corrections and apology part of what would clearly be one of the key features, for a recognition panel, of deciding whether a body should be recognised.

[Lord Hunt of Wirral (Con)]

My Lords, I declare my interest as chair of the existing body that upholds the editors’ code and as the person instructed to set up a new body. Does the noble Lord recall that in his very valuable report Lord Justice Leveson said on many occasions:

“It is worth repeating that the ideal outcome is a satisfactory independent regulatory body, established by the industry”?

Will he therefore welcome that on Monday my application to set up a new community interest company, to be known as the Independent Press Standards Organisation, was approved, and will he urge the industry now to support that initiative and sign up to a new body—a regulator that will be independent, effective and in accordance with Leveson principles?

[Lord Gardiner of Kimble]

I think it is in the public interest that any body that the press sets up is independent and a self-regulator that adheres to Lord Justice Leveson’s principles. It is obviously for a body to apply for recognition, because of the incentives—particularly the Crime and Courts Act, which was all part of Lord Justice Leveson’s architecture. I very much hope there is an application to the recognition panel at some stage.

Business of the House

Thursday 5th December 2013 Lords Chamber

Timing of Debates

11:37

Moved by

[Lord Hill of Oareford]

That the debate on the motion in the name of Baroness Morgan of Huyton set down for today shall be limited to three hours and that in the name of Lord Harris of Haringey to two hours.

Motion agreed.

Privileges and Conduct Committee

Thursday 5th December 2013 Lords Chamber

Membership Motion

11:37

Moved by

[The Chairman of Committees]

That Viscount Ullswater be appointed a member of the Select Committee in place of Lord Howe of Aberavon, resigned.

Motion agreed.

Education: Contribution to Economic Growth

Thursday 5th December 2013 Lords Chamber

Motion to Take Note

11:38

Moved by

[Baroness Morgan of Huyton]

To move that this House takes note of the contribution of high-quality education to economic growth.

[Baroness Morgan of Huyton (Lab)]

My Lords, I am pleased to have the opportunity to introduce this debate on the important contribution of high-quality education to the economy. I am grateful to noble Lords who are taking part today, and I am humbly aware of the breadth and depth of experience and knowledge around the Chamber. I am particularly pleased to see that two noble Lords are making their maiden speeches today. I draw attention to my entry in the Register of Lords’ Interests, including my role as chair of Ofsted.

It is a very pertinent week to be holding this debate. On Tuesday the OECD published its PISA league table of global education. The UK stayed pretty static in the rankings, stubbornly hovering in the lower section of the top half. The focus on education in a number of Asian economies is well documented. Rather less discussed is the remarkable improvement in standards in other countries, including Poland and Estonia.

We must do better; but we must also not be pessimistic. There are reasons to believe that our schools and colleges will continue to improve. Indeed, there are lessons to be learnt very close to home. We do not have to go to Helsinki or Shanghai to understand how children—especially disadvantaged children—can get a better education and a better start in life. However, it would be equally foolish to minimise the scale of the challenges we face. According to the OECD, a quarter of all adults in the UK between the ages of 25 and 64 have minimal levels of numeracy and literacy, compared to 14% in Sweden, 12% in Canada and 11% in the United States.

No country that wants a dynamic economy can afford to neglect the quality of its education, and no country that is serious about its education can afford to neglect the full range of its educational provision: from nursery through school to college, university and beyond. Weaknesses in one will affect the quality of the next, and the earlier they occur, the greater the negative impact and the harder they will be to rectify. The economic opportunities for the poorly educated are few, and getting scarcer.

Three things in particular hold this country back: the gap in attainment between well-off and poor children; the alarming regional variations in the quality of our schools, especially with regard to teaching and leadership; and the weakness and irrelevance of much vocational education.

Our educational problems start early in life and have a lot to do with the way we tackle—or, more precisely, fail to tackle—disadvantage. At the age of five, children from low-income backgrounds are already 19 months behind their better-off peers. By the age of six, low-ability children from well-off homes outperform brighter children from poor families. So it continues through primary and secondary school. Just over a third of pupils on free school meals get five good GCSEs—27% behind the rest of the population.

The problem is now particularly acute among poor white children. For example, Bangladeshi children on free school meals used to lag behind their peers; now 59% of them achieve five good GCSEs, the national average for all pupils, whether or not they are on free school meals. Barely 30% of white children from low-income families manage the same. This matters because a quarter of all children without five good GCSEs end up being NEET—not in education, employment or training—within two years. Those with no qualifications have a greater than 50% chance of becoming NEET. It affects the economic prospects of the whole country.

This “tail” of underachievement is longer and bigger in the UK than in many of our international competitors. Canada, for instance, which has comparable demographics and income inequality, has half the proportion of children in its “tail” that we do. If the Canadians can do more for their disadvantaged children, surely so can we.

London stands out, although other areas are improving as well. Bluntly put, 20 years ago London’s schooling system was a basket case. Inner London’s GCSE results were a third of the national average. Schools were chaotic, with poor behaviour and inadequate teaching. Now the results are above the national average, even though the city still has some of the worst deprivation in the country. London has well qualified and committed teachers and great head teachers. Among disadvantaged children, the bottom 1% in London now match the average score of their peers in the rest of the country at GCSE.

If London were analysed in the PISA rankings separately, as Shanghai is, it would undoubtedly be much higher up the table than the UK. What happened in London was a combination of political focus and professional determination. London Challenge backed those head teachers who focused on achievement regardless of background, who never accepted excuses and who never gave up. It did not support those willing to let things drift.

The London Challenge team also encouraged heads to share good practice and the intelligent use of data and, crucially, to challenge each other. It benefited from other far-sighted initiatives of the time, such as many of the first sponsored academies and the first cohorts of Teach First and Future Leaders. Through a combination of practical steps, persistence and strategic imagination, it succeeded—and when the challenge formally ended, the system continued to improve and work in the same new way.

Interestingly, Andreas Schleicher, director of the PISA programme, would highlight many of the features I have just described in London as the core features of successful countries in the PISA study. He speaks of the core elements: capacity at point of delivery, with great teachers and leaders; zero tolerance of failure; well targeted resources; a commitment to raising attainment; and confidence for all. He also highlights the importance of time devoted to learning. One extra hour of maths a week leads to three-quarters of a year’s extra progress at GCSE, and underlines that autonomy with accountability is a must—we cannot have one without the other.

If London succeeded against the odds, other regions can succeed, too. As things stand, the variability in performance of many schools outside London is frankly alarming. In the north-east, for instance, less than a third of teaching was judged good or better last year by Oftsed; in London, it was over three-quarters.

Last month I visited schools in Hull and Grimsby. I met great new heads turning around schools, but their biggest challenge was not the children, or indeed the teachers any more, but raising the aspirations of parents and the community, and convincing them that education matters. That is tough when the jobs that used to be there have gone and have not been replaced.

It would be a mistake, however, to think that only economically challenged areas have problems with their education. The south-east, for instance, had the highest attainment gap in the country between children receiving free school meals and children not receiving free school meals—33 percentage points. In 30 schools in West Berkshire, not one free school meal pupil managed to get five good GCSEs. Relatively affluent areas may be educating some of their children well, but they are not educating all their children well.

The quality of much of our vocational education, too, lags far behind that of many of our international competitors. We must develop the skills base we need for this century rather than the last. Some of the Government’s recent initiatives are welcome. The move to require youngsters to study maths and English to 18, if they fail at 16, recommended by the Wolf report, was overdue. The introduction of graded apprenticeships in partnership with top employers will bolster the credentials of a vital training option. The move to fund apprenticeships through employers rather than providers should end some of the perverse incentives in the current system.

I welcome, too, the increase in the number of apprenticeships announced by the Government last month, which builds on the work done in this field by the previous Government. However, we would be foolish and premature to indulge in too much mutual backslapping. Are we collectively bold enough and comprehensive enough in this area? We do not yet have a vocational system that rivals our international competitors. Vorsprung durch Technik is not a phrase that was minted in Thurrock, Woking or Hull. Until we have an English equivalent, perhaps we should put the champagne on ice.

Too many training courses and apprenticeships still fail to deliver employable skills, too many are of short duration and too many cater to adults over the age of 25 rather than youngsters. Many of these are still, in effect, on-the-job training programmes for existing employees rather than genuine apprenticeships.

Although the numbers have declined slightly over the past year, we still have more than 1 million NEETs in this country. Indeed, it is unnerving to note that the proportion of 16 to 18 year-olds who are NEET has been roughly static for almost 20 years—at around 9% to 10%. That figure is an appalling indictment of successive Governments, a dreadful waste of the country’s talent and a personal tragedy for millions of young people. I will put those bare statistics in some kind of human context. In a recent survey, 40% of NEETs said they did not feel part of society, 36% felt that they would never get a job; and 37% said they rarely went out of the house.

Reforms of vocational education have to address not only the nuts and bolts of the issue—what apprentices should learn, who should provide it and whether it is relevant to employers and the local economy—but must also have legitimacy with those they seek to help. Crucially, will they get youngsters out of the cycle of little hope of a job or even of a place in society?

I have another concern about vocational courses. Until we make vocational training an alternative, sought-after and prestigious route into higher education and employment, we will never succeed in rebalancing our economy or harnessing the full potential of the next generation. Our country must become as proud of its vocational education as the Swiss and the Germans are of theirs.

If we are to do that, we must grapple with an uncomfortable truth. Vocational training is too often seen as the consolation prize: the route we urge young people to take if they have failed to shine academically. That must change. Vocational and technical training and education must be judged on its own merits, and not dismissed like some ill favoured child, always doomed to disappoint.

Apprenticeships and vocational training will always suit some children of all abilities and backgrounds, because that is where their natural potential lies. Unfortunately, in this country that technical potential usually is identified only in children from low-income families. Remarkably, it seems to be entirely absent in the children of the middle and upper classes. Has it been bred out of them or are we refusing to see what our prejudices will not let us see—that some children learn best by learning practically?

I have to say that I think the situation has worsened since the turning of polytechnics into universities. Institutions offering high-quality technical and vocational courses are something of a gaping hole in our academic landscape. The challenge for our country is not only to equip those disadvantaged youngsters with the key skills they lack—and that employers want—but to break the automatic assumption that decrees that a vocational education is a second-rate education for the poor and disadvantaged. When we see Cabinet Ministers or even, dare I say, your Lordships, boasting that their son or daughter has bagged an engineering apprenticeship at BAE rather than a place at Balliol, perhaps we will know that we are making progress.

The lesson from Shanghai this week is this. That city region is engaged in a systematic, long-term project as a way to transform its economy. As Andreas Schleicher says, you can see, from the Minister down to the classroom teacher, that this is their future. They believe that education is the great equaliser. That is why they make it prestigious to teach in a tough school.

We know what it will take in all parts of our country to move the goalposts: investment in preschool, recruitment of good quality teachers, continuous development, excellent leadership, a focus on numeracy and literacy and skills for life—and, above all, a determination to develop the potential of all students, not just the high-performing ones. These things are doable. If the disparities in our education system can be addressed, the economic gains will be immense.

Nothing is ordained; all it takes is will and persistence. If they can do it, so can we.

11:51

[Lord Baker of Dorking (Con)]

My Lords, I must first apologise for my husky voice. My advice to all your Lordships is: do not come near me, you might catch it.

I am very pleased to be speaking in this debate for two reasons: not only is it an important debate but I shall hear the maiden speech of my old friend Stephen Sherbourne—now my noble friend Lord Sherbourne. We go back 40 years, when I was the most junior Minister in Ted Heath’s Government and he was a political adviser. Stephen has spent his life trying to make Conservatives more intelligent, better read and perceptive. You might think that this is a hopeless task; it is certainly thankless, and I look forward to his maiden speech.

The reason why this debate is important is that there is total dysfunction between the needs of British industry and commerce and the educational system of our country at all levels. At university level, with the skills gap by 2020, British industry and commerce will need 850,000 STEM graduates, including in computing. It will be 300,000 short; 45,000 short each year for the next seven years. When it comes to levels 3 and 4, the advanced and foundation degrees, it will need more than half a million. The FE college system cannot possibly meet that need in that time. The reason why it cannot meet it is that if a student starts at FE college at 16, it takes him two years to get to GCSE in engineering, computing or the built industry. At 18, with that qualification, he goes off for a job. If you start at 14, by 16 you will have a BTEC or a good GCSE in a technical subject. You then go on to level 3 and level 4, but the conversion rate of FE colleges to levels 3 and 4 is the lowest in Europe, so that is a major problem.

Then we come to the school system. We have nearly 1 million unemployed youngsters today. That is a disgrace and a shame. All Secretaries of State, including me, have tried to do something about it. Michael Gove is trying to do it by increasing the quality of maths, English and science teaching. Good luck to him; I wish him well but actually, we have all failed and I must bear some responsibility for that. There are 1 million people today who, after 11 years of free education, cannot get a job in our country. We must do something about that, and that means a fundamental change to our education system.

We can see the demands of industry. Last week, we had a meeting with Allan Cook, the chairman of WS Atkins, one of the largest consultancy firms in Europe. He said that we are short of 4,000 railway engineers. Talk to anybody in Cisco or Microsoft and they will say that they are tens of thousands short of computer scientists for their own business and for their clients. Last week, I had a meeting with the food processing industry, which I do not know very well. It is today short of 100,000 technicians. This week, your Lordships probably saw our Prime Minister opening a college in China sponsored by Jaguar to train young engineers. He will have the chance to open a university technical college in Coventry next year, which Jaguar is supporting because the schools in Coventry just do not produce youngsters who want to work in Jaguar. It has put in for a second one in Solihull because the schools in Birmingham are simply not producing the youngsters who want to work in Jaguar, one of the most successful companies in our country.

We have to do something about this. Michael Wilshaw, the chief inspector, put his finger onto it earlier this year. He said that we need more specialist colleges for 14 year-olds. This is what university technical colleges are. I think many of your Lordships are aware that they are the new colleges, for students aged 14 to 18. They have a demanding day. They start at 8.30 am and go on till 5 pm. They have shorter holidays. For two days of the week the youngsters, the girls and the boys, are making things with their hands—designing things, working in teams and problem solving—and the rest of the week they are doing their GCSEs in English, maths, science, a foreign language and history or geography.

These colleges have proven to be very popular. We are very proud of them. Seventeen are open; 27 are waiting to open. We are assessing, together with my noble friend Lord Nash, 11 at the moment. This year there will be 3,000 students in the colleges; next year there will be 9,000; in 2015 there will be 15,000. When they are all fully operational, over four years, there will be more than 30,000 students. This is making a contribution. Indeed, the Prime Minister is a fan of these colleges, and said recently that every major town in the country should have one. The number depends on how you define “major town”, but it is somewhere between 200 and 300. We need that sort of number to create the sort of opportunities for young people for the jobs that they will have.

I would like to thank my noble friend Lord Nash personally. Having come from business, he understands the importance of good technical and practical training in any business. I also thank the Secretary of State, Michael Gove. Sometimes he is said to be not very keen on these colleges. On the contrary—I had a meeting with him last week, and he said that he is a fan of UTCs. In the House of Commons this week he said that they are an excellent innovation, and he wants more high-quality UTCs. This is an all-party programme. These colleges started under the previous Labour Government, when I won the support of the noble Lord, Lord Adonis. The Labour Party is still very committed to supporting this; the Liberal Democratic Party committee on this matter has also supported it. This is an initiative that will not change if there is a change of Government. It is very important that there should be some stability in this area.

One of the things we found is that when English and maths are taught under the same roof as a technical subject, there is a dramatic improvement in English and maths. At the JCB Academy, it was forecast that the youngsters would get to only 50% having Level C in maths. After two years, they got 85%. There are astonishing improvements of 30% to 40% in the basic subjects because the youngsters suddenly realise the basic subjects are not taught in a separate classroom; it is intrinsic to all their work, and it is leading to jobs.

One of the proudest things we have as a target is that, when we have leavers at 16 and 18, we will have no NEETs. So far, of the two colleges that have had leavers at 16 and 18 every youngster has got a job, got an advanced apprenticeship at 16, gone on to study A levels and BTECs, got a hired apprenticeship at 18 or gone to university. Very few schools in our country can say that they have achieved that, so we know that we have a successful model. We also know that we get attendance rates of 95% from an average comprehensive intake. We take children with special educational needs and those who have free school meals. Very few schools can say that they have a 95% attendance.

In conclusion, I will read a letter from a young student at Central Beds UTC. He was not asked to write this letter, but he wanted to encourage Ministers and the Government to be enthusiastic about this subject. He is called Morgan. I have not met him. He says this:

“After (underachieving) failing my first year at a standard sixth form, I made the best decision of my life and started fresh at UTC. My grades have rocketed from D’s and E’s to A’s and B’s (in mathematics and physics), and I’m currently achieving D*D*D* in the BTEC course which has set me well on my way to attending a top university such as Bath, Bristol or Loughborough to study an engineering design masters degree”.

He went on:

“It’s not like school, we don’t get spoon-fed information to pass our exams, we have to put the effort in to get something out. And I believe it is more than possible to pave your way to your dream career from this UTC, as we are given the opportunities needed to proceed to the next stage of life, be it an apprenticeship… an engineering firm or a degree at university, the college will help you get there”.

We need more Morgans. We need hundreds more Morgans. We need thousands more Morgans. We need tens of thousands more Morgans. It is up to us all to realise this, because, otherwise, we will let down British industry and the prosperity of our country will be weaker.

[Baroness Warwick of Undercliffe (Lab)]

My Lords, this debate is timely. This morning, the Chancellor of the Exchequer is making his Autumn Statement. He is widely expected to announce yet more cuts to funding for higher education and research, and it is for that reason that I want to focus my remarks on the implications of his statements for higher education.

I have spoken many times on the contribution made by higher education to economic growth and I was delighted to see the pithy and convincing briefing sent to us by Universities UK, my former employer. Other noble Lords across the House will, I know, reinforce many of these comments, as have my noble friend Lady Morgan and the noble Lord, Lord Baker.

However, fine words or arguments can have no effect if resources do not shore up policy. While we do not know the detail of these cuts or how they will be allocated, reports have suggested that that the Department for Business, Innovation and Skills has to find more than £1 billion in additional savings. There have been fears, reported in the Guardian, that this would mean that the Government would breach the principle of a science ring-fence, making cuts of as much as £200 million. I hope that that will not be the case.

It also appears likely that the Higher Education Funding Council will have to find additional savings from within an already tightly constrained budget. These cuts would be in addition to those announced in this summer’s spending review. At that time, the Government said that cuts to HEFCE funding would be at least £45 million and that there would be no inflationary uplift for the science budget. This is serious. I have said previously that the Government should be congratulated on their relative protection of investment in higher education, and particularly in research, despite the pressure to cut expenditure. However, public funding for teaching has been dramatically reduced and it now looks like it will be reduced still further. It is not widely understood that research budgets lost 13% of their value during the last spending round as a result of the fact that they were maintained in cash terms rather than in real terms. Projections suggest that, because the science budget has again been held in cash terms rather than in real terms, the budget will lose a further 10% of its value during this spending period. Will the Minister confirm that this is indeed the case?

Any new cuts would exacerbate that position. We know that the UK already spends less on research than many of our competitors. We have made relatively little progress towards the Lisbon goal of spending 3% of GDP on research and development. We spend 1.8%, below the average of both the EU and the OECD. We are holding our own in international terms because we have a highly efficient research system. In fact, it is the most efficient in the world when measured by citations per pound spent. Meanwhile, HEFCE now has very little funding available to support teaching. Support is restricted to high-cost and vulnerable subjects, which are likely to continue to be protected. There is some limited support for specialist institutions and taught postgraduate courses, and funding to support widening participation.

This last strand, of widening participation, looks increasingly vulnerable, which is a shame because the student opportunity funding underpins the kind of long-term and collaborative work which universities do to encourage children from primary school upwards to think about higher education generally, not just applying to their own institution. It acts as a lever for additional investment by universities and philanthropists. It is hard to see how the funding council can shoulder cuts without doing some damage to long-term national priorities. Clearly, the Department for Business, Innovation and Skills has to balance its budget, but overspending on student support and loan subsidies, including to support the rapid growth of private providers, is starting to squeeze out long-term investments, which should be high priorities for a Government committed to fostering strong economic growth. While national investment in research is critical to our future economic competitiveness, as today’s debate has again made clear, it should not be achieved at the expense of investment in education. After all, the most important form of knowledge transfer from universities is in the heads of the graduates that they educate.

There is so much evidence of the link between education and the economy and I will not repeat the arguments already made by the noble Baroness, Lady Morgan, and the noble Lord, Lord Baker. It is worth emphasising, however, that around 20% of GDP growth in the UK from 1982 to 2005 can be attributed to graduate skills accumulation, according to government figures. The same study estimated that a 1% increase in the share of the workforce with a university education raises the level of productivity by up to 0.5% in the long run. Many of our fastest growing sectors depend on high concentrations of graduates, including the creative sector, which needs graduates from a range of disciplines including the arts and humanities as well as the sciences.

Our research base increasingly supports innovation in businesses from the very large to the very small. Collaboration between university and business is a considerable success story in the UK. So if the Government want long-term economic growth and an economy that will remain competitive with fast-growing economies with rapidly growing skills levels, we cannot afford to stand still, let alone go backwards.

Instead of driving forward, we seem to be constraining growth. Capital investment has been limited. Universities face strict limits on the numbers that they can recruit and perhaps numbers may be restricted again next year. There is no plan for growth and there is unlikely to be one until the system of loan funding is sorted out. It is simply too expensive to allow for growth in student numbers.

Part of the answer has to be in encouraging the development of diverse modes of study, including more online and flexible study. We have seen the number of part-time enrolments drop by a staggering 40% since 2010. Studies by the UK Commission for Employment and Skills, Universities UK and others have pointed to the need to address this decline to meet the rapidly changing skills needs of employers. We should also be concerned about the decline of taught postgraduate enrolments by UK-based students. The noble Lord, Lord Leitch, in his seminal report published in 2006, described postgraduate skills as one of the most powerful levers for improving productivity but a number of factors are combining to pose a real challenge to postgraduate education, which has received insufficient attention from government. We cannot afford to be complacent. As President Obama put it:

“The nation that out-educates us today is going to out-compete us tomorrow”.

Deficit reduction is of course a priority but education is precisely the wrong place to cut if you want to balance the national budget.

12:07

[Lord Storey (LD)]

My Lords, I thank the noble Baroness, Lady Morgan, for initiating this important debate at such an opportune moment. Two days ago the OECD’s PISA education rankings were published, showing that the UK is flatlining in maths, science and writing.

If we want a 21st-century workforce, we have to ensure that our young people are equipped with the necessary skills, drive, motivation and ambition to succeed. Unlike previous generations, there are fewer employment opportunities for those who do not have the necessary talent and aspiration. With free movement of labour across the EU, unless we train young Britons properly, such opportunities will undoubtedly be filled by young European counterparts.

At the turn of the century we were building massive infrastructure projects in Liverpool, including a cruise liner terminal, the Arena and Convention Centre and the Liverpool ONE retail and leisure development. We could have dealt with Liverpool’s unemployment problems at a stroke but, sadly, at a local level we did not have the required skills and competencies. Locally created jobs were therefore filled from outside.

Getting schooling right in order to provide for the needs of business and industry is essential. So why are we flatlining, given that our educational spending—we are ranked eighth—is one of the highest in the world? Why are other countries able to forge ahead? Countries that understand this dilemma are preparing their young people for the future. If we are not careful, as we know, nations such as China, Singapore, South Korea, the Netherlands, Switzerland and Canada will win the global race and leave us languishing behind. However, we cannot and should not make carbon copies of their education systems. Frankly, I do not want our young people doing the 11-hour day of a South Korean pupil, nor do I want the rote learning approach of China. I will always remember visiting a Chinese primary school in Xi’an and watching the children chanting and collectively performing in a robotic way.

However, we can learn broad lessons from these high-performing countries. All of them, without exception, have some key shared elements: qualified teachers who are both highly trained and highly valued, and school leadership that, again, is highly trained and experienced and of only the highest calibre. There is constant high quality continuous training for professionals in schools, plus excellent parental involvement. Staff have only the highest expectations of the pupils, regardless of background and IQ. Interestingly, in Shanghai not only are school leaders and teachers well supported but only the best teachers get promoted. All of them have personal development plans that include mentoring and observation throughout their careers.

I want our children to be numerate and literate and to be given first-class science teaching, but I also want them to continue to be immersed in the other opportunities that a broad-based curriculum offers. The reason that we have some of the most creative pupils in the world is that the visual and performing arts that are available in our schools are second to none. This, in turn, has led to a world-beating creative industry in the UK. Yes, we need to develop language in schools, and I applaud the Government for introducing modern foreign languages in primary school.

Sports need to be part of our school offer, with children given opportunities to experience different sporting activities, while the traditional subjects—history, geography and so on—are part of developing the well rounded, articulate, thoughtful citizens who should be the hallmark of our education system. Of course, special educational needs provision needs to be second to none, with early identification and intervention.

It is possible to turn schools and schooling around but still keep those gems of our educational entitlement that have kept our uniquely British system so special. The changes in London over the past five years, where passes in GCSE results have gone from 40% to over 60%, show that change is possible. In my own city, Liverpool was the worst performing of the core cities, and now it is the best.

Another important issue, which shows that we must ensure that no children are left behind and is often not talked about, is that of our summer-born children. It can affect our rankings, our school performance and, of course, the summer-born children themselves. Research and evidence has shown that summer-born children have a 25% lower attainment at key stage 1; 20% of summer-born children are less likely to go to university; and, staggeringly, 50% of summer-born children are likely to be diagnosed as having special educational needs. In a week in which we have been looking at international comparisons, it is interesting that the 19 OECD countries with different starting dates show that later formal education helps to reduce birth-date effects.

I cannot resist reminding the House about Finland, which is always held up as a shining example by people from all parties. Yes, Finland is great, and it has well trained teachers and head teachers, but children start school at the age of seven, there are no tests until they are 16, there are no league tables, and teachers—wait for it—are required to train for five years and have a master’s degree.

Finally, there is another element that we should strive for, which is perhaps the hardest of all: political consensus on our educational goals. I was mindful of my noble friend Lord Nash’s comments in the Chamber on Tuesday when he was reading the Statement on the PISA results. He said that we should stop throwing stones at each other. My goodness, I thought, he was right. Let us get that political consensus, and give our schools the chance to breathe and flourish. I promise your Lordships that we will then shoot up in those important world rankings and build on the unique ethos that is special to the British schools system.

12:15

[The Lord Bishop of St Albans]

My Lords, as a bishop I find myself standing up regularly in unfamiliar buildings, usually with long and distinguished histories, holding forth to people whom I barely know. I do this every Sunday when I visit one or two of the more than 400 churches in my diocese. Rising to speak in this House evokes a certain level of apprehension. On the day of my introduction I managed to break rule one by standing up at the point when the Lord Speaker had risen to her feet. The noble Lord, Lord McNally, said to me afterwards that he could see that I was starting out as I intended to continue: causing havoc. In the coming years, I trust that I will not create a great deal of havoc, but will perhaps make a modest contribution to the deliberations of this House.

I am conscious that my predecessor but three, Archbishop Robert Runcie, made a very significant contribution here. I recall also that his predecessor as Bishop of St Albans, who was bishop for just over 24 years, reportedly spoke only once in the time that he spent in this House, and that was to argue for the welfare of pit ponies in the coal mines—not a subject that evokes a great deal of passion in the highways and byways of Hertfordshire today. My arrival has been greatly helped by the generous welcome of Members of the House, and the unfailing courtesy and support of the staff, for which I would like to record my sincere thanks.

I was brought up in the countryside. As a young man my father was a farmer, and I look forward particularly to engaging with issues of land, countryside and rural affairs. I have also lived in two multicultural communities in the Midlands, one of which was Walsall, from where Morgan, referred to by the noble Lord, Lord Baker, came, and I hope to draw on something of my experience of multicultural and multifaith communities.

I am glad to make my maiden speech in this debate on the contribution of high-quality education to economic growth. I live next to one of the oldest schools in the country. This is St Albans School, founded before the Norman Conquest by Abbot Ulsinus in the year 948. Over the years, it has produced many notable alumni, including the only British-born pope, Nicholas Breakspear, otherwise known as Adrian IV, Professor Stephen Hawking and several Members of this House. The diocese that I have the privilege to lead covers the counties of Hertfordshire and Bedfordshire, Luton and parts of Barnet. As well as many independent schools with a Christian foundation, we have 135 church schools serving their local communities. None of the church schools in my diocese is deemed “unsatisfactory”; 18% are graded “satisfactory” and the remaining 82% are either “good” or “outstanding”. I want to pay tribute to the work of head teachers, governors, teachers, parents and school staff who work so hard to produce schools of such excellence.

Detractors of church schools sometimes claim that our excellent academic results are because we have creamed off the best pupils. The facts do not support that assertion. Our schools are spread across a wide range of neighbourhoods, and we are proud to have schools in some of the most difficult and challenging communities. The national data produced in the Department for Education’s 2013 school census show that 15% of pupils at Church of England secondary schools are eligible for free school meals, which is the same as the average for non-Church of England schools. The same census reveals that we serve almost exactly the same proportion of black and minority ethnic pupils as non-Church of England secondary schools do.

I will share one story, which I hope will illustrate our concern and our commitment well, and which takes us to the very heart of today’s debate on education and the economy. Northfields Upper School in Dunstable, later Northfields Technology College, went into special measures in 2006 and there was a change of leadership to give it a fresh start. Sadly, it was decided that the school should close, but on 1 September 2009 it reopened as All Saints Academy, sponsored by the diocese of St Albans in partnership with the University of Bedfordshire. Today it specialises in science and business and is housed in brand new buildings.

The improvement in academic standards was not immediate, but has been steady and impressive since 2009. Over the past four years, attendance has increased from 87% to 93% this year. The percentage of pupils achieving five A* to C grades, including English and maths, has risen from 23% in 2009 to 40% this year. Our partnership with the University of Bedfordshire has generated a tangible rise in the aspirations of its pupils, with increasing numbers of students considering the possibility of going on to higher education. I am glad to acknowledge publicly the huge contribution made by the head, Tom Waterworth, and his team to achieve such a change in four years. That is a success story of which we are rightly proud.

It is too early, however, to know exactly what difference that dramatic improvement in exam results will make to economic growth in Dunstable. Certainly, everyone loses out if we cannot translate academic success into productive outcomes. Andreas Schleicher, already quoted by several noble Lords in this debate, makes the depressing assertion in his comments on that international survey that young English adults aged between 16 and 24 are some of the lowest-ranking in literacy and numeracy in the industrialised world. He concludes that deficiencies in our school system over a lifetime will lead to an unbelievable £4.5 trillion loss in economic output. In bald economic terms, that is the equivalent of living in a permanent recession.

Having said all that, I will pause and ask what we mean by the phrase “high-quality education”. Not one of us can dissent from that, but what does it mean in practice? What is its personal, social—and, dare I ask, spiritual—content as opposed to its crude cash value? I ask that because although we need to ensure that our pupils achieve academic success, education must surely be much more than that. In classical Greek culture the concept of paideia constituted a holistic understanding of education for body, mind and soul. That vision was picked up and developed by Cardinal Newman in his seminal work The Idea of a University, published in 1852. In today’s world, where so much stress is placed on individuality and the need for every person to realise their inner self, education plays a vital role in developing a sense of social responsibility and the need to contribute to civil society and the common good. If education is to be truly “high-quality”, surely it will also produce people with a rich emotional hinterland, whose souls have been expanded as they have explored the arts, music and literature.

I am also concerned, as we think about education, about the young people whose mental or physical health problems mean that they struggle in mainstream education. I am grateful to the noble Lord, Lord Storey, for highlighting that area a moment ago. It is good to have high standards, and in our diocese we are proud of several leading academic institutions such as the Universities of Bedfordshire, Hertfordshire and Cranfield and the Royal Veterinary College in Potters Bar. Our attention is instinctively drawn to those, but finally, I will mention one small project in the University of Hertfordshire.

In partnership with HCS Careers and GB Sports Coaches, the university has organised, for the sixth year running, a two-day event for 14 to 19 year-old students from special needs schools. The purpose of that unsung annual event, which sadly never achieves headlines, is to enable those young people to meet people who work in business and industry to help them develop appropriate skills and grapple with issues of employability. With the right support, many of them are also able to contribute to economic growth.

I hope that we will ensure that every part of our education system is given help and support so that all our young people, whatever their academic ability, are equipped to make their contribution to the flourishing and thriving of our nation.

12:24

[The Earl of Listowel (CB)]

My Lords, it is an honour for me to follow the eloquent maiden speech of the right reverend Prelate the Bishop of St Albans. I hoped that he might speak about the schools in his diocese. I noted that in St Albans are Abbey Primary School, St Michael’s Primary School and the Townsend School. I was pleased that he chose to speak about the schools in his diocese. I am sure that this experience will be helpful in many future debates on education in your Lordships’ House. I welcome him warmly to the House. Contributions from the Bishops’ Benches are always listened to with great interest. I hope that we may hear from the right reverend Prelate on many future occasions.

The noble Lord, Lord Storey, referred to Finland. I recall the noble Lord, Lord Adonis, returning from a visit to Finland and looking as though a light bulb had gone on above his head. He said that they educate their teachers there. I hope that the current revolution in the training of teachers here does not throw the baby out with the bathwater. It is good to get in different talents, but there has been a revolution in the curtailing of teacher training and we need to be careful that that is not harmful.

Little mention has been made so far of the importance of early years, although the noble Baroness, Lady Morgan, spoke about it. High-quality early years education is crucial. China recognises this and invests heavily in it. We need to make the right investment in early years if we are to have good outcomes later.

The noble Baroness, Lady Morgan, referred to NEETs. The Government have recently introduced an amendment to the Children and Families Bill which deals with this. It allows young people who wish to do so to remain with their foster carers until the age of 21. This will undoubtedly impact on the number of NEETs. This approach has been evaluated in 10 local authorities, and those young people staying with their foster carers past the age of 18 were twice as likely to continue in education. I welcome the step that the Government are taking. I also note the contribution made by the previous Government in setting up these pilots, which has made this possible.

I note what the Minister said in yesterday’s debate on the PISA Statement. He spoke about the importance of involving parents in their children’s education and his shock that, at the first attempt, only one parent was persuaded to attend a number of parents’ evening events in the Pimlico Academy’s catchment area in south London. I hope I understood him correctly.

I want to speak about the importance of involving parents in their children’s education and the contribution that this can make to the nation’s economic recovery. I remember the importance of my own father to my education. I recall sitting with him in his library. He was in his armchair; my sister and I sat on the floor with our backs against the radiator. I would be reading an encyclopedia of science or animals. She would be reading The Lord of the Rings. I remember him reading Kipling’s Just So Stories to us. Later, I recollect him taking me to the theatre and to other events. To my mind, my father’s example and encouragement were the most important elements in my education.

The evidence also points to this. Parental education is the most significant indicator of their children’s likely educational success. If the parent has a degree, the child is likely to get a degree. Academics agree that the most important influence on educational outcomes is what happens in the home, not in the school. It can be very difficult to get into the home, but that is where the most difference is made.

The great primary school heads I have had the honour to visit all adhere to the principle that engaging the local community—and parents in particular—is vital. On a visit to Lent Rise primary school in Slough, I was told by the head teacher that her area had a high level of Traveller families. When they could not write, the mothers of the Traveller children were glad to leave their mark on their sons’ homework to testify that they had sat down for half an hour to do that work. The head teacher had thus engaged those parents who were not able to write but still felt proud to be involved in their child’s education.

Dr Andrea Warman, when she was a senior policy offer at the British Association for Adoption and Fostering, developed a paired reading training package for foster carers. This took account of the difficulties that many foster carers had had in their own education and made a virtue of them. Working with experts from the Maudsley Hospital, Dr Warman was able to help foster carers reflect on their own struggles with literacy and thereby become empathetic educators of their foster children. The evaluation not only showed that their child’s reading had galloped ahead because of the daily reading with their foster carer but strongly suggested that the relationship had become stronger and the placement more stable.

Coming to my conclusion, and bringing us back to the economy and bridging the skills gap, five years ago I visited an event organised by the National Institute of Adult Continuing Education. The venue was the City of London’s Guildhall. Visitors were seated at round tables with parents and their children. In the course of the morning we had the beautiful experience of hearing how parents who had failed at school had been drawn into education as their child began at nursery or primary school. Educators might stand at the primary school gates and get hold of parents as they came in so as to encourage them to get into literacy and numeracy. We heard parents who had been addicts speak about their growing confidence as they gained qualifications in numeracy and literacy. We heard from a mum about the pleasure she now took in doing her homework while her son studied and being able to help him with his studies. We heard from young people how powerful an encouragement it was for them to see their parents setting an example for them and being able to take an informed interest in their studies. Parents spoke about their new confidence, which enabled them to gain other qualifications such as a driving licence. Just two months ago I returned to visit NIACE. My noble friend Lady Howarth of Breckland had chaired an inquiry for the association, and the occasion was the launch of its report, entitled Family Learning Works. Once the Children and Families Bill is completed, my noble friend will be seeking an opportunity to debate her report. In the mean time, I commend it to the Minister and to your Lordships.

Family learning benefits the economy because it is the best way to motivate children to learn, because it equips parents without qualifications with qualifications, and because it strengthens family relationships. It is arguable that the single greatest drag on our economy is family breakdown. I would be grateful if the Minister would write to me about the Government’s policy for family learning. Has the need for family learning been quantified? Has the contribution it might make to the employability of those currently without basic skills been assessed? Lastly, is his department developing a full response to the recommendations of the NIACE report? I look forward to his reply.

12:33

[Baroness Cohen of Pimlico (Lab)]

My Lords, many noble Lords have spoken about education in schools, which clearly, with a long tail of almost 1 million NEETs, is absolutely vital to our children and grandchildren. However, like my noble friend Lady Warwick of Undercliffe, I want to talk about the importance of education at university level, but from rather a different angle. I declare an interest as chancellor of BPP University. BPP are the initials of the founder of a fine training company, but now stand for the Business and Professional University. My noble friend Lady Morgan of Huyton emphasised in her speech the importance of technical education for economic growth. We at BPP, and I as the chairman of BPP Holdings Ltd long before we acquired degree-awarding powers—which we did in 2007, acquiring full university status this year—always thought that the end purpose of education must be to enable people to find a job and the life that will please them and give them a decent standard of living. Coming from a training background, as we do, we have always believed that. Yes, of course there are cultural purposes to university education, but for us the outstanding purpose has always been to enable our graduates to get into good, well paid jobs, because all else can stem from there.

I need to talk about the university a little in order to make my point. We have 9,000 students on seven campuses around the UK, with two in London and five in the regions. Some 3,000 of the students are undergraduates, which is a new departure for us. We teach very successfully the core business subjects, mostly accountancy and law. Some 65% of our students are female, and 96% have a job or are in further training within six months of leaving us. Our graduates make a major contribution to economic growth both directly and indirectly. They do so directly because we have a great many students at the graduate level from overseas, which helps to level up the balance of payments as well as spreading the reputation of the UK overseas. The indirect but vital contribution to growth is that the reputation of the UK as a good place to do business depends on having a corps of well trained, professional lawyers, accountants, actuaries and other business specialists. The City of London could not be the force that it is, contributing 20% of GDP, without its highly skilled lawyers and specialist accountants. Businesses all over the UK depend for their stability, and thus their ability to grow, on the efforts of their finance directors and the support of properly trained commercial lawyers.

At BPP I think that we can be rightly proud of our contribution not least because, as I should make clear, we are the only private, for-profit university in the country. But we are not the only people in the business. We believe that we are the most successful at placing our graduates in employment. A lot of universities teach law on a more theoretical basis, but we believe that students need to be taught by people who have worked in the profession. Some 80% of our tutors come from that background. The UK could do with more courses like this. I personally am particularly interested in the undergraduate-level courses that enable people of any age to move quickly into a position where they are useful and employable. There are definitely not enough of such courses, particularly for the capable young person who does not quite know what they want to do, but knows they want a decent job in a good business.

We have only 3,000 undergraduates so far but, private and profit-making business or not, we are able to charge fees of £5,500 a year for the three-year course, which is substantially less than for most law and business courses. The reason we can keep the fees down is that we do not have a conventional university structure. We sweat our assets and our buildings are hardly ever empty. Also, we have extremely flexible staff. We attract the services of excellent people by offering them what is essentially very well paid shift work on a part-time basis. That is a far cry from the leisurely programmes that I enjoyed as an undergraduate but it is very effective, and I believe that our universities could do much more to make their students more employable by teaching them for longer and better without risking the loss of the enjoyable university experience.

A new departure for us is that we believe that it is possible to deliver degrees that will get our students into good jobs on the basis of two years’ study. This is a work in progress but last week I was able to award degrees to some of the first graduates under the scheme. Those students are paying fees of £6,000 a year because the course is that bit more difficult to teach. On the other hand, however, they are getting a very economical degree because they pay only two years’ living fees, and it looks as though it will be very popular. Since most of our undergraduates are in their 20s, rather than 18 years old, this is of great importance, although it will also be an attractive offer to those aged 18. It will suit those people who did not quite work out what they wanted to do when they were 18, which must be a lot of them.

I believe that our model of using tutors who have worked in the relevant industry, determined and almost full-time university education, along with the very careful mentoring of students and a concentration on using assets so that higher education can be cheaper, could be spread more widely to other institutions. I regret very much something that has not yet been mentioned in the debate, which is the passing of the polytechnics, or rather their translation into universities. The polytechnics used to provide excellent technical training, which became diluted and a bit overly academic as they turned into universities. We are more on the model of a polytechnic than much of what is now being offered. I believe, I am afraid, that turning polytechnics into universities was a retrograde step for the country.

BPP University is a product of cross-party agreement. We were authorised under the Labour Government, who wanted to expand the provision of higher education and make it more varied and interesting, and we have been authenticated and given full degree-awarding powers following our review in 2013—so I am glad to record that this is not a controversial party political matter. We believe that it is a model for the future, and I would like to see more of it. I always say that I was badly taught at Cambridge, and that it was not until I met BPP and its training model that I realised what really good teaching looked like.

12:40

[Lord Sherbourne of Didsbury (Con)]

My Lords, I should like to start, if I may, by thanking everyone in this House for making me feel so welcome. Your Lordships from all parts of the House, the officials, the attendants and the police—everybody has been immensely helpful. I also want to thank my noble friends Lady Seccombe and Lady Jenkin of Kennington, who have helped me navigate my way around this place, both procedurally but also geographically, which is important for someone with a really bad sense of direction. I want to reassure my noble friend the government Chief Whip that if she ever finds me looking confused in a corridor, it will not—I hope—be to do with government policy.

I chose as part of my title Didsbury in the City of Manchester because that is where I was born, brought up and educated. I chose it also for a second, somewhat paradoxical reason—paradoxical because I have spent most of my working life in London. But I am conscious of the metropolitan bubble that so many of the commentariat seem to inhabit. For me that is best summed up by John Humphrys, introducing the weather forecast on the radio, saying, “It’s raining over Broadcasting House. What’s it doing in the rest of the country?”. Didsbury will be, for me, a constant reminder that London is not the centre of the universe.

I have been advised that it is customary in a maiden speech to talk briefly about one’s career before entering this House. I am not sure that in my case “career” is quite the right word. It has always felt more like snakes and ladders—but it has been my good fortune that there have been rather more ladders than snakes. I have been a teacher, and I was a trainee banker. I never got beyond “trainee”—and bearing in mind the banking crisis, I do not think I was alone in that. I have worked in business and for a manufacturing company, and for over 20 years in the world of communications. But I have also had the great privilege of working with three politicians whom I greatly admire—my noble friend Lord Jenkin of Roding when he was Industry Secretary, my noble friend Lord Howard of Lympne when he was Conservative Party leader, and Margaret Thatcher in Downing Street in the 1980s.

I now turn to the subject of the debate, and I want to focus on one specific area—the need for our schools to turn out more students who can speak and understand a foreign language. My noble friend Lady Sharp has great expertise in this area. Why does this subject matter? The UK trades with more than 200 countries, and most of them are non-English speaking. Three-quarters of the world’s population do not speak English. Many people have English as a second language, but what arrogance to think that other people should learn our language rather than our learning other people’s languages. Arrogance, real or perceived, is not helpful in a competitive marketplace.

Of course, the most obvious practical benefit of knowing a foreign language is that you can communicate in the language of the people with whom you are doing business. But there is another important point: speaking the language of another country also opens the door to an understanding of that country—an understanding of the culture and of the mindset. That must surely give you a competitive edge when you are trying to clinch that deal or sign that contract.

A few months ago the British Chambers of Commerce conducted a survey. Two out of three businesses that were thinking of exporting saw language as a barrier, and the vast majority of businesses did not speak a foreign language well enough to conduct business in the buyer’s tongue. This is not altogether surprising. For years now, language learning in our schools has been in decline. For example, this year the number of students who took French at A-level was 50% lower than the number 10 years ago. Of all the A-levels passed by state-funded students, those in modern languages—all modern languages combined—represented less than 3%. It was, I am afraid, a mistake in 2004 to remove compulsory language learning at key stage 4, for 14 to 16 year-olds. I welcome the various steps being taken to try to reverse this trend.

From next year it will be compulsory for children in primary schools to be taught a foreign language. We know that it is much easier to absorb the sounds of new languages when you are young, and more difficult when you are older. I speak from experience: I am learning Italian, and have been doing so for many years. I want to draw attention to one practical point here. I am thinking of children leaving a primary school where they have been taught, say, Mandarin or Spanish, and then finding themselves in a secondary school that teaches French and German. It is very important for there to be co-ordination between primary and secondary schools. The introduction of the English baccalaureate is another important advance, and EBacc is already having an impact on the numbers taking a modern foreign language at GCSE. Let us hope that continues.

I have two final points to make. Of course pupils need an understanding of grammar, and need to be able to translate the written word. But as we all know, oral skills are vital, so that they can speak the language with some confidence. Secondly, as our trade with non-European countries expands, the learning of non-European languages becomes ever more important. This echoes what the Prime Minister was saying in China yesterday.

All this is a long-term process, not least in ensuring that we have enough skilled teachers in modern languages. These are the challenges for the Government of the day and for our schools, so I very much hope that the House will have the chance to come back to this subject at a future date.

12:48

[Baroness Donaghy (Lab)]

My Lords, I congratulate the noble Lord, Lord Sherbourne of Didsbury, on his maiden speech. He was, as he said, head of office for Edward Heath, political secretary to Lady Thatcher, and chief of staff for Michael Howard—now the noble Lord, Lord Howard of Lympne. This not only reveals a wealth of political experience but suggests excellent diplomatic skills. Perhaps the Government should send him to Geneva, too. The noble Lord’s speech showed his erudition and fluent style. He also confessed to a bad sense of direction; I assume that that is geographical rather than political. I am sure that the whole House will look forward to his future contributions on this and other subjects.

I am pleased to take part in this debate and I thank my noble friend Lady Morgan for initiating it. The Minister has completed Committee stage of the Children and Families Bill, which I can see was a real marathon. He will know that I am not part of the education cohort in this House. I hope he does not think that I am a fraud. I worked at the Institute of Education, University of London, for 33 years and, dare I say it, for the National Union of Teachers for one year after leaving university. At one time, I was even a regular contributor to the Times Higher Education Supplement. However, it is 13 years since I left the institute and I hope that I can offer some perspectives on previous attempts to improve teacher training and to recognise different ways to enter teaching.

Higher education is a significant employer in the UK, with equivalent to 1.2% of the workforce in employment. In some towns, it is one of the biggest employers, bringing an important boost to the local and regional economy. Together with student spending, it can make a big difference to the prosperity of an area. Looking at it another way, a town such as Rhyl in North Wales, where I spent last weekend, has severe unemployment and deprivation. Even Marks & Spencer has moved out. Rhyl would benefit enormously from one of the UCTs suggested by the noble Lord, Lord Baker. Higher education depends increasingly on the income from overseas students. Anything that the Minister can do to emphasise the importance of removing barriers to their entry will be very welcome on all sides of the House.

It is not just about income for universities; it is that good universities are part of a global community. I have chaired appointment panels for hospital consultants. All the best candidates belong to worldwide professional associations, have published abroad and have studied abroad. If we lose that intellectual impetus, it will have a devastating effect on our world standing. I should have said that although I am not directly involved in education any more, I am still a member of the board of the Birmingham University Business Advisory Group. The university has important links to West Midlands business and the business school is participating in the initiative of the noble Lord, Lord Young, with the Association of Business Schools to establish business schools as a single point of entry into universities for small and medium-sized enterprises. Birmingham Business School is also picking up the recommendations in Sir Andrew Witty’s recent review—October 2013—of universities and growth, in which SME engagement is a keen component.

In 1968, when I turned up at the Institute of Education as a junior administrator, the first word I learnt was pedagogy—the science, profession or theory of teaching. It was and still is part of the Institute of Education’s DNA. The director was the great Lionel Elvin, who was a member of the Robbins committee. More significantly from my point of view, he was a member of the McNair committee, which brought teacher training colleges under the aegis of universities.

There were huge changes during my time at the Institute of Education. I do not have time to elaborate on the good work that was done in encouraging the recognised university teacher status for college of education lecturers and in university validation of teacher training courses. In the 1970s, we had a mature entrants system whereby 600 students a year were admitted to teacher training on the basis of their experience. Former service men and women, those returning from the former colonies and those who had pursued another career were interviewed and tested for suitability. I have lost count of the good things that were done and were swept away as government policy changed.

Of course, there were bad things too but the Institute of Education is still a world-class institution doing exactly what it did 45 years ago—pedagogy. I urge the Minister to visit the Institute of Education to see the great work that it does. He may know that the noble Baroness, Lady Shephard, presides over the council of the institute. Although I have not consulted the institute about this, I would not have dared to make the suggestion without consulting the noble Baroness, which I have done.

In reading the impressive background material produced by the Library, I was struck by the different elements that were mentioned as drivers for economic success. We can all pick and choose the bits that suit us best. However, the World Bank report, Education Quality and Economic Growth, laid great emphasis on cognitive skills as an important driver. I looked it up in the dictionary and a summary would be “acquiring knowledge that involves the processing of sensory information and includes perception, awareness and judgment”. The report acknowledges that the quality of the teacher in the classroom is paramount, that it is difficult to use simple measures to identify a good teacher, be it experience, education or certification, as there is no proven correlation, and that therefore the institutional structure of the school must provide,

“strong incentives for improving student achievement”.

I expect the Minister has strong sympathies with those elements of the World Bank report but it is perfectly possible to reach different conclusions based on the report.

If cognitive skills are paramount, it is essential that we equip our trainee teachers with the science, profession or theory of teaching—not just sitting next to Nelly. We know that leadership is the key to a good school. Schools can turn around because of a great leader even with the same teachers and building. I ask the Minister: what extra investment is being put into continuing professional development, particularly on leadership skills? Parental support is important but how do we support those children who will never have adequate parental support? While autonomy for schools may seem to be the ideal, we should acknowledge the downside. I wonder how much time is spent on number crunching, promoting good employment relations and resisting attempts by some parent governors with no home to go to from trying to take over the school. I am not saying that there is one good system. No Government have solved the inequality of educational opportunity in this country, although some have tried. We should be intolerant of low standards and poor leadership but we should be honest enough to acknowledge that our elitist system is part of the problem in perpetuating disadvantage and inequality.

12:57

[Lord Mawson (CB)]

My Lords, I thank the noble Baroness, Lady Morgan, for introducing this important debate. It has particular relevance for me at the moment, given the practical projects that I am working on in east London that are focused on education, enterprise and economic growth. One of the great strengths of this House is that it allows those of us who have a life outside the corridors of Westminster to make a contribution from what some would call the real world.

With that thought in mind, I thought it helpful to share with noble Lords two practical projects that I am working on in east London that are seeking to make the link between high quality education and economic growth. The first is the St Paul’s Way Transformation Project. Here, I must declare an interest as director. Seven years ago the CEO of Tower Hamlets Council, the health service and the social housing company asked me to intervene in St Paul’s Way. There had been a murder and considerable violence in a housing estate 800 yards to the north of Canary Wharf.

Arriving at St Paul’s Way for the first time, I was not surprised to find that the school was failing and in special measures, with only 35 families applying per year. Police cars, angry black youths with dogs and a frightened head teacher hiding behind a large fence greeted me. The school was defined by a silo culture. It had no relationship with the two warring housing estates around its perimeter, nor with the health centre next door and its 11,000 patients. Some school staff, among them Oxbridge graduates, actively fostered an agenda of isolationism, convinced that the school stood separate from the world of business. Few pupils had walked 800 yards down the road to visit Canary Wharf.

Over the past six years I have worked with partners to create an entrepreneurial narrative for this street. The lead directors in each key public body, their middle managers and the leaders on the street have all embraced it. The results speak for themselves. A new £40 million school now sits on the demolished 1960s school site, complete with the first Faraday science centre in the country. This year, over 1,000 families applied for a place at the school. Exam results continue to rise year on year; the 2013 Ofsted inspection rated the school outstanding in every category; 60% of the sixth form this year gained a place at a Russell Group university; and a bridge programme provides pathways for the most talented students into Oxford.

However, rising exam results are not enough to secure a future for these students. Reading Latin at an Oxbridge college will not guarantee these students a job at the end of an expensive degree; reading engineering will. Professor Brian Cox, a patron at the school, reminds us that we are short of 1 million engineers in the United Kingdom. With that in mind, I have worked over the past two years with Brian to run an annual science summer school at St Paul’s Way. This year, 250 students attended the school for two days in their summer holidays to listen to presentations by leading scientists, engineers and medics from across the world. Speakers included those working on the Higgs boson at CERN, the commercial director from Virgin Galactic, the engineer designing the next Mars Rover and the vice president of the Royal College of Physicians, Professor John Wass, who is also a patron of the school. The event was sponsored and part-hosted by Siemens, which opened its Crystal building in the Royal Docks to participating students and staff.

The theme of the science summer school was how to ensure that Britain becomes the best place to do science and engineering in the world. The answer lies in St Paul’s Way and places like it. A new campus is growing there that connects education, science, enterprise, business and research through practical activity. An example of this is the Wellcome Trust sponsored licence, recently won by the school, which will engage its science students in undertaking real DNA research into diabetes, focused on the 11,000 local patients. The only fly in the ointment is that those same patients are currently being prevented from moving into a new £16 million health centre that currently stands empty across the road from the school because of an NHS bureaucratic impasse.

Without doubt, high quality education has changed the lives of the students of St Paul’s Way Trust School and it is essential for our economic growth to further this country’s reputation for academic excellence. Education, however, must not stand alone from business and enterprise. Education is not just about reading books; it is about translating theory into practical activity.

Following my experience of working with the education sector for the past 30 years, I have a few observations. First, education must step outside text books and the classroom into the street and engage with the real world. Secondly, high exam results do not automatically equip students with relevant life skills. Like the noble Lord, Lord Sugar, and many other members of this House, I left school at 16 and developed successful businesses and organisations. School children desperately need to learn life skills, and often these cannot be taught in a classroom.

Thirdly, the often unconscious bias against business in the classroom needs to be addressed. Teachers are uncomfortable with their students trading and earning money in school. They are uneasy when you speak to them about profit margins and exploiting market opportunities. Unless this is addressed, the contribution of education to economic growth will be muted. Fourthly, an over-academic approach can be antithetical to the risk-taking involved in business and entrepreneurship. Too often, especially in government, we risk paralysis by analysis. Fifthly, practical experience and a track record of achievement should complement academic qualifications both in school and in the workplace.

As new science and technology businesses follow Tech City, BT, iCITY and Siemens on to the Olympic Park and across the Lower Lea Valley after the Olympics, there is a real opportunity to link high quality educational achievement with the development of practical skills that are needed there. The announcement yesterday that UCL and the V&A are moving into the park is a major piece of this jigsaw, and we thank the Government for supporting it. In the Royal Docks I am, with partners, starting to build a new secondary free school. This school, through a massive regeneration project, will explicitly link an isolated local community with the employment and enterprise opportunities present in ExCeL, the forthcoming Chinese ABP development, the new India Centre, City Airport and the Silvertown partnership, and here I must declare an interest. However, this will be successful only if the young people involved see that education is about innovation, enterprise and business as well as about reading, writing, and arithmetic.

I ask the Minister: what practical steps should be taken to navigate the blockages at the new health centre across the road from the school in St Paul’s Way? An educational opportunity, with significant economic implications, is being lost because of a bureaucratic impasse. I would be happy to meet the Minister to explain both the opportunity and the difficulties. In my experience, innovation needs both engagement and leadership, not bureaucracy.

13:06

[Baroness Dean of Thornton-le-Fylde (Lab)]

My Lords, I declare an interest as a member of the council of Nottingham University. We have heard two good, interesting maiden speeches, which have been a huge contribution to this wide-ranging debate.

Economic growth is fundamental to raising living standards and to social improvement. High-quality education is critical to that growth, right throughout the education years. It is crucial that those involved in each stage of education, from school to vocational training—an area in which I recognise the substantial work of the noble Lord, Lord Baker of Dorking, who has achieved far more outside Government, some may consider, than he achieved in it—and through to universities not only talk to but work with each other in the best interests of our young people. I shall touch on those stages of education in my contribution.

Innovation drives productivity improvement and growth. This is especially true for an economy such as that of the UK, where we cannot rely on moving resources from low-productivity activities such as agriculture into higher productivity activity. Universities are critical in driving innovation. They do so in at least three ways. The first is through talent development, not only through undergraduate and postgraduate education, but in executive education and CPD. Many of our successful business leaders across all sectors demonstrate that. However, too many of our citizens are missing that opportunity, either of vocational training or of academic training in universities.

The second way that universities drive innovation is through fundamental and translational research. This helps create new products, new services and new ways of doing things. At Nottingham for instance, Sir Peter Mansfield began fundamental research on MRI, which was then licensed to transform imaging and diagnosis worldwide. Nottingham has also contributed to 3D printing, food security, satellite tracking and carbon capture, all of them important to the UK’s economy both today and in the future. We need highly educated members of our community to carry through that kind of development.

The third way I have chosen to mention—there are others—is the spinning out of new companies. Again, these are developed from the cutting edge of research, not just at Nottingham but at many of our best universities. This has been a hugely successful contribution to the UK economy. This third aspect involves academia working with a wide range of companies, many of which are household names such as AstraZeneca, BAE Systems, E.ON, the Highways Agency, GSK, Rolls-Royce, Romax, Unilever and Boots, with its home in Nottingham and its close links to the founding of the university. They help bring the best of business and academia together.

The role that universities play in the growth of our economy was clearly demonstrated this week, with the Prime Minister’s welcome trade mission to China including a number of vice-chancellors, including Professor David Greenaway of Nottingham. They have gone to a part of the world that has already been covered in this debate and where there is a driving thirst for, and a commitment to, education in a way that we have perhaps not seen. However, that brings with it a downside. There is a question about the roundedness of the individual children coming through that system—their ability to solve problems and their cognitive skills. Nevertheless, that ambition is feeding through to the numbers coming through university. We see it in the China campus that Nottingham has at Ningbo and, indeed, in Malaysia. Those students are a great challenge to us and to our economy because of that thirst for education.

The economic role that universities play in their regions and in driving new technologies has been highlighted recently by the report commissioned by the Government and produced by Sir Andrew Witty, a leading businessman in this country, who is a former student and now chancellor of Nottingham University. The report makes recommendations to the Government on the need to leverage the role that universities play in the regions, in order to be more effective. In his reply, can the Minister tell us where the Government are in their thinking on responding to that report?

In addition to their economic role, universities play a crucial part in building the social capital in the communities where they are embedded, through their contributions to school improvement, healthcare and community engagement and through their involvement in local hospitals. This includes working directly with schools at primary level—it has to start at a very young age—and involves not only academics but students themselves going into those schools as role models to say to young people, “You can do it; I have done it”.

Launched in January 2011, Nottingham Potential is working to address the mismatch between relatively low local achievement, which we have in Nottingham, and progression to level 3 study. All the projects are rooted in the national curriculum, with very strong messages about aspiration and self-esteem. It starts with activities with seven year-olds and continues right through their education. In partnership with IntoUniversity, its activities take students into schools as role models. It holds events on the university campus and aims to make youngsters think that university can be for them and that getting there is achievable. It aims to lift their confidence and horizons and, as has been mentioned, the horizons of their families. So much of this goes back to the home. The local link between the wider community and universities is important to both parties and to our future as well. It is important in breaking down the social barriers which still substantially exist in young people thinking of going to university.

A debate about the role of universities and economic growth would not be complete if we did not recognise the importance of our higher education sector as an exporter and as a contributor to soft power. It is one of the most successful parts of the UK economy in terms of overseas trade, bringing in students and fees from around the world—something like £7.9 billion in 2009. In addition, there is this soft power: the impact of having so many international students learning for their degrees and then going back to their countries. Quite a number of them end up as leaders in their own countries and still carry affection for their alma mater, which benefits the UK in the long term.

I thank my noble friend Lady Morgan for listing and obtaining this debate, and I compliment her on the content and breadth of her opening address and the very thought-provoking statistics that she gave us.

13:14

[Baroness Sharp of Guildford (LD)]

My Lords, I, too, thank the noble Baroness, Lady Morgan, for initiating this important debate. I also thank the noble Lord, Lord Sherbourne, for his extremely interesting maiden speech, in which he attributed to me a particular interest in modern languages. I assure him that, although I chaired the all-party group yesterday, I am not a specialist in modern languages. Rather, I share his interest and the view that we, as a country, are the poorer because we do not put more emphasis on people being able to speak foreign languages. I am very anxious to see that we encourage the study of modern languages in our schools.

I am an economist, not a language specialist, and first came to be interested in the relationship between education and growth when I worked in the National Economic Development Office at the end of the 1970s. I came across the work that an economist called Sig Prais, whose name some noble Lords may remember, was doing at the National Institute of Economic and Social Research. I remember in particular a study that he did of two engineering companies involved in machining, comparing a German and a British company. As it happened, they both used exactly the same type of German machinery, which had been installed at the same time—there was no difference in the capital equipment used by the two companies. Nevertheless, productivity in Germany was twice that of the British firm. He wanted to know why productivity was so much higher in the German firm so he began unpeeling, if you like, the skins of the onion.

He discovered that the main reason why productivity in Britain was so low was that the machinery was down for a lot of the time and not being used. Why was it down? Because the build-up of iron filings in the machinery grew to such an extent that the machines just gave up the ghost. Why did this not happen in Germany? Because every Friday afternoon, the apprentices in Germany stripped down the machines, cleaned them all up and cleaned away all the iron filings. The machines therefore worked practically all the time and were never down. Why did this not happen in Britain? It was because there were no apprentices to do the work. They used to have to call the engineer, just as you do when the Xerox machine breaks down; and, just as when the Xerox machine breaks down, the engineer could not always come the next day. The machine might well be down for two days while they waited for the engineer to come along and fix it.

In Germany, on the whole, the operatives who ran the machines were sufficiently trained to be able to repair the machines on the spot if and when they broke down. Why could we not train British apprentices or operatives in the same way? It was discovered that they had tried to train them but the training programme involved an element of mathematical training. On the whole, the British operatives had not got the basic maths to be able to cope with the fairly elementary training programme that was required. The result was that the British organisation, so to speak, meant that we were the poorer for it.

This led me to have a very considerable interest in this link between education, productivity and economic growth. Quite clearly, these things were very important. That was 30 to 40 years ago and since that time we have taken on board and understood the message mentioned by the noble Lord, Lord Baker. We have seen a series of educational initiatives of one sort or another since then that have tried to address that particular problem, including all the initiatives on apprenticeships of one sort or another, which perhaps are beginning to pay off. However, there is a very real question as to why, 30 to 40 years later, and knowing the importance of it, we are still lagging in these PISA studies.

One answer is that, of course, others have been moving faster than we have. Another answer is that we should not neglect what we have achieved over that period. The noble Baroness, Lady Morgan, spoke about the number of young people achieving five As to Cs at GCSE; but it is not just that. We have quadrupled the number of young people in universities; we are turning out many more graduates than we were at that time. Something like 12% of the age cohort went through to university; it is now 40%. There are many achievements that we can think about.

Secondly, we should realise that it takes time. Within the Sure Start initiatives we have put a lot of emphasis, particularly in terms of trying to cope with the issue of the gap between the advantaged and disadvantaged, on early start and early years education. Your Lordships should remember that those who were in Sure Start when we had the expansion of that in the early 2000s are only just 15 now. We need to be watching the achievement of our 15 year-olds. Back in the 1970s, the Americans had a programme called Head Start that did precisely the same. They wrote it off after 10 years but discovered, 25 years later, that it had had a major influence on the young people who had benefited from it. It takes time for these programmes to work their way through.

Thirdly, we should recognise that it takes two to tango. In my preparation for this debate I was interested to see the work from the UK Commission for Employment and Skills. It pointed out that there is a demand as well as a supply side. It is not just the Government funding apprenticeships and so forth; we have to look at what industry is doing and see that there is a demand. I am conscious of the fact that, in two respects, the UK lags behind here. One is that industry fails fairly considerably in its spending on research and development. The second is that, similarly, although it spends £49 billion a year on what it claims to be education and training, much of that goes to high flyers and a lot of it is concerned with the wages of those concerned.

What do we need? Above all, we need consistency. The noble Baroness, Lady Morgan, mentioned that in London the message is one of success, in some senses; we have managed to turn it round. However, if I look only at vocational education, I see the failure of the number of initiatives we have had over this course of time—TVEI, TOPS, WOPs, academic or vocational GCSEs, vocational A-levels, diplomas—and a failure to pick up, for example, on the Tomlinson report. I congratulate the noble Lord, Lord Baker, on UTCs, which are a very good answer to this. At long last, we have achieved something there. Nevertheless, there has been total inconsistency. On teacher training, the noble Baroness, Lady Donaghy, mentioned how important the quality of teaching is. Yet what have we done? We have turned the whole thing upside down, just when we were beginning to achieve something.

I echo so much the plea made by my noble friend Lord Storey that there should be consistency. As the noble Lord, Lord Nash, mentioned on Tuesday, we should stop throwing stones at each other. There is political consensus on what we want to achieve. We ought also to try to create political consensus on how we achieve this and commit ourselves to pursuing a programme consistently over 10 or 20 years, not chopping and changing.

13:24

[Lord Graham of Edmonton (Lab)]

My Lords, it is a pleasure and a privilege to be able to take part in this debate. I am fifteenth or sixteenth and I have not heard a contribution with which I have not agreed, at least in part—especially that of the noble Lord, Lord Storey, who struck so many chords with my life that I want to congratulate him on what he said.

I have just two points to make from my experience. The best thing would be to start at the day, 75 years ago, when I ran from my school, Todds Nook in Newcastle, with a piece of paper in my hand. I said to mum and dad, “Mam—I have passed the exam”. I was in an elementary school and this was an exam to get into a secondary school. Dad laughed and mam cried. In those days, dad was on the dole from 1930 to 1939, when the war broke out; they knew that it was impossible for me not to leave school at 14.

Later on I took an exam to go to a technical school—Atkinson Road Technical—and I passed that; but there was no way of going. When I left school at 14, as most people did, I took any job that I could and made my way in life. One of the things that has always niggled me is that many people earn the right by their own abilities to make progress but are denied being able to make that progress as a result of their economic circumstances. Does the Minister have any statistics that would help me to understand the difference between 1934-35 and 2013? The question really is whether there is any record, or attempt to have a record, which shows that there are people who, due to economic circumstances, leave school—for instance, at the age of 16, now—when they are capable of going on.

During the war I was very badly wounded preparing for D-Day. During that period I sat 30 examinations—I made a count the other day—and passed them all, for the Workers’ Educational Association, the National Council of Labour Colleges and the Co-operative Union. Then the Open University came along. At the Open University, you start off with a registered number and a letter. The very first year was “A”; I am a “B” student, so I go back a long way. I am deeply grateful to the Open University.

I want to say that the Government need to be very careful. In producing the education we need, they rely on the goodwill of the teachers, the parents, the community and industry. Of course, there are highs and lows. One of the features of this debate has been that no one, as I recall, has tried to make party-political points. We are all conscious that this is a very serious matter. Not just the lives of the individuals are concerned, but the lives of their families and, collectively, the lives of everyone in our country. I believe that the Government should pause before they become too dogmatic in driving forward their political objectives. When one analyses the stalemates that arise between the teaching profession and the Government, one cannot help but conclude that there must be a better way of doing things. I want to hear something from the Minister on the relationships between the teaching profession and the community.

Tomorrow I am going to a school in Edmonton, which is slap-bang in the middle of a large council estate. It is called Latymer school and it is the best in the area. I am going along there to have Christmas lunch with the staff and pupils. A few years ago, I was invited to present the prizes, and I was pleased to do so. I was well received and someone said, “That was a very good speech”. I said, “Who else have you had?” and they said, “Last year we had Boris Johnson”. I said, “How was he received?”. “Oh, we all laughed all the way through his speech”. I said, “What did he say?”. They said, “We can’t recall what he said but we laughed all the way through his speech”. A laugh and a lightness of approach are probably helpful.

Year after year, Latymer school produces 20 pupils who go to Oxford or Cambridge. It has a basis in the community and the esprit de corps that it manifests is sought after. But one has to be careful. When I was the MP, I would get requests from people who said, “Ted, I want my boy to go to Latymer school and he has been allocated somewhere else”. I would say, “All I can do is write a letter and say that you’ve been to see me and ask if there is any way in which this can be looked at again”. Then I would see them in Edmonton market and they would say, “Ted, my boy got in”. A year later, I would see them in the market again and say, “How’s your boy doing?”. “Oh,” they said, “He’s had to leave the school”. I said, “Why?”. They said, “Because it was too tough”. Beware what you think you will need or want because if you get it, it may not be what you need or want.

The record of Latymer school is not replicated everywhere, but it is a first class school. I remember one of the first times I went there, Norris McWhirter was testing the school orchestra, which was attempting to break the record for playing for the longest time. I was there after they had been playing for 30 hours and they got into the Guinness Book of Records. That is the kind of school that it is.

The Government need to be very careful not to alienate teachers, who are the greatest asset that they have, or the community, because you are not dealing with adults but with the lives and the prospects of children, who deserve the best possible consideration.

13:30

[Lord Paul (Non-Afl)]

My Lords, I, too, congratulate the noble Baroness, Lady Morgan, on initiating this timely debate. We have had two very good maiden speeches, and I thank the noble Lord and the right reverend Prelate for their contributions.

Most of the world has had a difficult a time in the past few years, but now the economy is doing well, not just here but in the United States, Europe and Japan. Britain is ahead of the rest of the world and it is time to look at how we can sustain that momentum.

First, I declare an interest as chancellor of two universities: the University of Wolverhampton and the University of Westminster. I know at first hand the role that accessible quality education plays in economic regeneration. The opportunity to participate in education and gain skills must be available to all. This is what will grow the economy and ensure that we have a skilled workforce ready to meet the challenges ahead.

Other countries are accepting this challenge. The Government of India have set a target to have 40 million students in higher education by 2020, when it is forecast that India will supply 12% of the world’s graduates. China is expected to produce 29% of all higher education graduates by then. I am glad that the Prime Minister had exchanges with students from both countries on his recent visits.

Higher education is now a bigger industry in the United Kingdom than the aircraft industry, agriculture or even the pharmaceutical industry. Universities generated £59 billion of the UK’s output in 2009, during the first year after the recession, and created 670,000 jobs, either directly or indirectly. Yet the UK is still ranked by the OECD in seventh place for the skills level of the general population, which indicates that we need to provide more resources for adult learners. We know also that despite a 30% increase in participation in higher education by young people from less advantaged backgrounds, we still have some way to go to ensure that our economic recovery benefits from the creativity and entrepreneurialism of people from all walks of life.

As the only university in the Black Country, the University of Wolverhampton is committed to the regeneration of the region and providing the educational opportunities that I speak of. However, universities such as Wolverhampton are facing significant funding cuts that will affect their ability to provide these opportunities. Funding for teaching and widening participation must be protected to ensure that we maintain and grow our skills base across all parts of the population. In the Black Country alone, 80,000 more graduates are required to bring the region close to the national average. This is not unique to the Black Country. Many parts of the country have the same needs, and those future graduates ought to come from the regions that need them.

In the past, research and science budgets have been protected, while teaching and widening access funds have been cut. This needs to change. Research is not the only or the most effective way to grow an economy. Developing the workforce of today and the future is crucial to economic development, and we must enable all who can benefit from higher education to have an opportunity. This provides concentrated and embedded economic growth across the country.

The British model of higher education prepares students well for jobs. At the University of Westminster we welcome students of 150 nationalities, and we are working hard to upgrade it to world-class status. Today, the university is a world leader in photography, film and media, and is ranked 19th in the QS world rankings. It has probably the best complementary medicine department in Europe, as well as a very successful department of biomedical sciences.

London continues to attract many of the most able international students, but the challenges posed by changes to our immigration system mean that the numbers are falling in comparison with those of the United States, India and China. This is affecting our higher education market, which is currently valued at £5 billion to the UK economy and is forecast to rise to £16.9 billion by 2025. Therefore, we must remove students from the net migration target, as most are here for only a short time.

The number of higher-level skilled jobs is set to grow over the next decade. By 2020, more than 80% of new jobs will be in occupations with high numbers of graduates. Hence students completing a UK degree will be more valued than before.

Like Andrew Witty, I believe that economic regeneration should not be an add-on to the core business of a university; it should be intrinsic in all that it does. At the heart of course development and design, and of research and development, must be the driving force of meeting the needs of our economy. But public funding, especially for teaching, needs to be protected. Only by doing so will we provide the innovation and skills base that we need to sustain and, more importantly, grow our economy.

13:40

[Viscount Hanworth (Lab)]

My Lords, I begin by expressing my dismay at the obtuseness of many of the analyses that attempt to quantify the economic benefits of increased expenditure on our education. Such studies are well represented in the literature emanating from the Department for Business, Innovation and Skills. They are typically cast in the form of economic cost/benefit analyses. The costs are expenditures, both public and private, that are entailed in seeing an individual through the ultimate stages of their education. The benefits are in the form of a discounted flow of cash representing the present value of the individual’s enhanced lifetime earnings. The balance is termed a net lifetime benefit, and the sum of individual benefits, aggregated over the set of people in question, is deemed to be the net economic benefit. There is an implicit suggestion here that the per capita net benefit thus derived is a meaningful measure of the returns to be expected from a marginal increase in the expenditure on a particular form of education. It is suggested that this should provide the appropriate guidance for governmental educational policies.

We should, of course, expect much more from education than the individual financial rewards that it might generate. The economic benefits of an educated working population surely extend far beyond the realm of personal finances. This is notwithstanding the fact that, in economic accountancy, it is deemed to be appropriate to measure all benefits in terms of the eventual increases in the incomes of consumers.

We also have to contend with what economists describe as the problem of externalities; economic benefits and the other effects of the education of individuals accrue not only to themselves but also to others. The problem of externalities is commonly known as the fallacy of composition. The fallacy arises when the whole of something cannot be identified with the sum of its parts.

There is another more fundamental methodological criticism that I should like to aim at the studies that I have mentioned. The studies that purport to account for the levels of personal or national income commonly employ regression analyses. These attribute the value of a dependent variable, which is income in these cases, to a linear combination of various measurable factors, which are weighted by numerical coefficients. There is an unspoken assumption that these factors are amenable to independent variation, achieved perhaps by the intercession of some governmental policy. Thus, for example, it is asserted in one of the documents of the Department of Business Innovation and Skills, that,

“a 16 percentage point increase in those educated to degree level could lead to more than £1bn annual savings in reduced crime costs in the UK”.

That is an instance of what is described in philosophical jargon as a counterfactual conditional. It is a statement that asserts that if realities were other than what they actually are, then such-and-such a consequence would ensue. The difficulty here is in the need to invent a plausible alternative reality. The alternative reality would comprise not only the 16% increase in the numbers of graduates; there would be many other accompanying circumstances. There could plausibly be an increase in the unemployment of the graduates, which might lead them to commit crimes. If this speculation sounds silly, it is no sillier than the original proposition.

There are many other instances that could be cited of spurious quantification expressed in quasi-mathematical language. They are certain to bamboozle many readers who lack the confidence to gainsay them. An example of dubious quantification that is dominating the current debate on educational policy is the list of the so-called PISA rankings on national educational achievements that has been published by the OECD in recent days. The Education Secretary, Michael Gove, has been using these rankings to berate his predecessors and his critics. On closer examination, the PISA methodology appears to be seriously flawed. However, a cursory glance at the rankings indicates that they are, to a significant extent, inversely correlated with the degrees of inequality in the countries concerned.

If this is not the way to guide and to evaluate our educational policies, then what other methods should we pursue? I propose that we should take a narrative approach, which should be informed by a detailed knowledge of past and present circumstances. This would dwell on past successes and failures. We should allow ourselves some modest self-congratulation, but the principal aim should be that of avoiding the pitfalls already encountered and of overcoming the enduring failures. This is far too big a task to attempt in a brief speech, but I can at least talk briefly of some of my own perceptions.

I believe that we must go back at least to the Butler Education Act of 1944 in order to explain the current status of education in Britain. The Butler Act proposed three different types of secondary school: grammar schools, secondary technical schools and secondary modern schools. The technical schools were intended to foster the scientific and technical education that would sustain our industries, thereby enhancing our economic growth. However, they never materialised. This was partly on account of a lack of resources and a lack of teachers who had skills in the relevant areas. The technical schools were also opposed by some trade unionists who felt that they would encroach on the apprentice system.

Within this tripartite system, there was an order of merit. Grammar schools, which were to have an academic orientation, would take the brightest of the students; secondary technical schools were to take those of middling ability; and secondary modern schools were to take those who by and large were destined for menial industrial labour. As it transpired, there was no provision in the middle ground for training that was both academic and technical. The legacy of that deficiency has endured to this day. In particular, we have no meaningful system of technical apprenticeships. We seem nowadays to be intent on using a revived system of apprenticeships mainly to obtain placements for young people who might otherwise be unemployed. The reaction of the Labour Party to the socially divisive system of grammar and secondary modern schools was to create comprehensive schools to cater to all students together. However, the comprehensive schools have never satisfied the need for a technical education,

The philosophy of outsourcing that has been adopted by many British companies has led them to regard technical skills as commodities that can be purchased on the open market. They have failed to train and nurture people with the skills that they depend upon, and consequently in many cases the firms have rendered themselves technically incompetent. The problem was well illustrated in the speech of the noble Baroness, Lady Sharp.

At this juncture, I remark that British culture has fostered some decidedly anti-intellectual sentiments. In certain quarters there has been contempt for teachers. There are echoes of such contempt in the pronouncements of the current Secretary of State for Education. Michael Gove has threatened a more rigorous system of school inspections that will weed out incompetent and underperforming teachers. He has also proposed to give head teachers and school governors arbitrary and unbridled powers to determine the remuneration of their staff. It seems that the visitations of the Ofsted inspection regime are to be redoubled at a time when teachers are liable to be afflicted by a plethora of governmental educational initiatives. It is such interference by successive Governments and the derogation of the teachers’ skills that has been responsible for many of the problems in the educational sector.

People work best when they have ownership of the processes that they mediate and when they are able to maintain their self-respect. Under such circumstances, they are liable to work with enthusiasm and to perform beyond the formal call of duty. It is remarkable that our teachers have been so steadfast in the face of so many onslaughts.

13:48

[Baroness Taylor of Bolton (Lab)]

My Lords, I hope that I will be forgiven for not following my noble friend on the counterfactual conditional, although I enjoyed much of his other analysis.

Yesterday, my noble friend Lady McIntosh asked at Question Time about the fact that education is more than just about its economic impact. The whole House, I think, would agree on that, though it is important that we have this particular debate to focus on those aspects.

I congratulate my noble friend Lady Morgan not only on acquiring this debate but on the nature of her analysis, which was realistic, non-political and, importantly, hopeful. I start where she started. If we are to get more out of the investment that we make in education, we have to look more at what happens in early years. Yes, in terms of economic benefits, universities make a great and increasing contribution to exports and earnings, but if we are to get all of our population to the state where they have self-satisfaction, can play a part in society and can be of economic benefit, we must start early. The most significant statistic that my noble friend used was that, at the age of five, many children are 19 months behind the average. That is a desperately serious situation that we have not properly addressed in the past.

We must think in terms of not just formal education but of getting those children off to a better start and of the factors that will determine what they can do for the rest of their lives. That is one reason why I am very proud of what the previous Labour Government did in Sure Start—helping very young children to socialise, interact and co-operate with others and to have confidence and self-respect, all of which will determine their progress later.

As others have mentioned, it is particularly important that we get parents involved. We have to break the cycle of parents who have themselves not got a lot out of education being unable to engage in the system and therefore their children being significantly disadvantaged. Everyone who has been involved in education, at whatever level, knows that when you have parental involvement, you have better behaviour and achievement and everyone finds life an awful lot easier. Incidentally, that is one reason why I have favoured home-school contracts for many years.

It is important to get parents involved in another respect. In education debates we hear a lot about providing opportunity, which is right, but we face one difficulty that no Government have been able to overcome: motivating the non-aspirational. We sometimes talk as if it is a clear choice that individuals sit down to make: “I will be aspirational” or, “I will not bother taking that opportunity”. We need to understand the fears that can inhibit people’s aspirations: the fear of entering an unknown world, the fear of moving away from the security of their family and friends. I think back to some of those films made in the 1960s, where young students from the north were going down to universities in the south and being dislocated from their families. That fear and feeling of, “It’s not for us”, is still very much there in many areas, and we must find new ways to tackle that. What my noble friend said about London was interesting. There may be things that we can learn from there, but it is a serious problem.

An article in the Telegraph today shows that some towns and cities have nine out of 10 residents with high qualifications but some towns have only four out of 10 with the same qualifications. I cannot believe that that reflects an innate ability in one place but not in another; I think that it is to do with aspirations, motivations and confidence. Until we find out how we can crack that one, we will have real difficulties because we are dealing with people whose expectations are not high, and I am not sure that we are doing enough to raise them.

Secondly, echoing what has been said so far, we must value teachers and head teachers and provide them with the training, support and mentoring that they need. Mention has been made of Finland. I am not sure that that is the complete answer, but we should value and respect teachers not just by words; we need action as well. By action, I mean inaction on occasion, because the Government should not overprescribe what teachers should be doing. I think that nearly everyone agrees that we need a national curriculum, but that means different things to different people. I recall, as I am sure the noble Lord, Lord Baker, does, discussion about what a Secretary of State should recommend as the 10 books that all children should read. I was shadow Secretary of State at the time, and it was very tempting to name your 10 books, but Secretaries of State should resist that temptation—it is not their job to do more than have a prescriptive framework.

Thirdly, I want to mention examinations. We have to ask the basic question: what is the purpose of the testing? Is it to assess and assist the child’s progress; is it to look at the added value that that school is providing; or are we creating hurdles and just using tests for league tables? I draw the Minister’s attention to what the Chief Scientific Officer said yesterday: that the risk in education is always that exams are the tail that wags the whole education dog.

Finally, briefly, I am surprised that no one other than the OU graduate, my noble friend Lord Graham, has mentioned the Open University. It teaches us many things. It shows that many people who did not succeed on the conventional path can succeed later. The majority of its students do not have qualifications for conventional universities. It can also teach us different teaching methods. I am pleased that the vice-chancellor is with the Prime Minister in China, because there is a lot of scope there. The Open University is showing how, through its FutureLearn programme, new techniques can be used to teach people but also to draw them into education by giving them taster courses, not least those based on the BBC programme, “The Frozen Planet”, which encourage them to take up a theme, do courses and get into education. We must look at new ways to get people into education and then keep them in.

13:57

[Lord Liddle (Lab)]

My Lords, I should like to declare an interest as the pro-chancellor of Lancaster University and a former director of the University of Cumbria, and as a member of Cumbria County Council, in which capacity I will probably be knocking on the door of the noble Lord, Lord Nash, quite soon.

It is a great pleasure to speak in this debate introduced by my noble friend Lady Morgan of Huyton, with whom I worked in No. 10, which now, I fear, seems a bygone era. It has also been a very good debate. It is a great privilege to hear the noble Lord, Lord Baker, speak. In Cumbria, we are very excited by the creation of one of his university technical colleges. It was also a great privilege to listen to the maiden speeches by the right reverend Prelate the Bishop of St Albans, and particularly by the noble Lord, Lord Sherbourne of Didsbury. Although we have been on opposite sides of the political fence, he has made a distinguished contribution to public service in his lifetime. I share his view that London is not the centre of the universe.

We also heard an excellent veteran speech by my noble friend Lord Graham of Edmonton, to offset the maiden speeches. His experience reminded me of the absolute political commitment that we ought to have to education. My mother left school when she was 14 for exactly the same reasons as he had to, and went to work in a confectioners for five bob a week.

I want to make four propositions in this debate. First, education has contributed to economic growth, is contributing and has the potential to contribute much more. Having heard a little of what my noble friend Lord Hanworth said, I hesitate to talk statistics, but I looked to the excellent authority of David Willetts, who has written a very good pamphlet called Robbins Revisited. He argues in that that 20% of UK economic growth in the past quarter-century has resulted from the increase in graduate-level skills, and that a third of the increase in UK labour productivity in the decade before the financial crisis was due to the growing number with university degrees. Economic growth is not the only benefit that better education brings. He cites research that says that people who are well educated are more likely to be members of a voluntary organisation; likely to be more tolerant; less likely to suffer depression; less likely to drink a lot—I am not sure about that; less likely to smoke; less susceptible to criminal activity; and more likely to live longer. Those are all good things.

He also cites evidence that education leads to less cost in public spending. Indeed, the net lifetime benefit to the Exchequer of getting someone through university successfully is, according to David Willetts, £260,000 to the Exchequer for a man and £315,000 for a woman. Perhaps the Minister can explain why, in the light of this compelling logic, today the Chancellor has announced cuts in public spending that affect the Department for Education and the Department for Business, Innovation and Skills, and prevent those economic potential gains being realised.

The second argument I will make is that we have in Britain a huge problem of two nations in education, which we have to overcome. That is what the recent PISA studies show. We have, on the one hand, a combination of great academic standards, wonderful universities and world-leading research, and, on the other, average standards that are too low and regional divides between success in London and failure in northern cities. We have huge deficits in vocational qualifications and skills that Governments have failed to tackle over decades. We have a deplorable position of leadership in Europe on the question of NEETs—young people not in education, work or training of any kind.

I do not think one should play politics about this. This is a huge national problem. I do say, however, that, in response to the PISA studies this week, I thought the Secretary of State for Education—for whom I have respect because he is a man with genuine commitment to equal opportunity—demeaned himself by trying to turn the PISA results into an attack on Labour’s record in office in those years. Labour inherited an education system that was in crisis in 1997. Yes, we got some things wrong. We had perhaps too many targets and perhaps the wrong targets. Perhaps getting rid of languages as a requirement in 2004 was a mistake. All Governments get things wrong. What we got right, however, was a 74% increase in spending per student below university level in those Labour years and an increase in higher education spending per student of 38%. Let us not play politics with education. Let us recognise that we have these underlying problems.

My fear about the present coalition’s policy is that, although there are aspects of it that are very attractive, the problem of the two nations may be made worse. I will give a few examples. One of the good ideas in the coalition policy is the pupil premium. When you look, however, at what is happening in teaching, autonomy in schools should not become an excuse for hiring loads of unqualified teachers. That will not improve the quality of teaching; nor should the proposals to reform the system of teacher education be rushed. The Government are right to want a lot more apprentices. Yes, there is a need for more apprenticeships, and the previous Government, I think, got things wrong on Train to Gain. I am quite willing to admit that. However, I looked at a recent report from the Boston Consulting Group—this is not a Labour think tank, this is the Boston Consulting Group—which said that, of the 240,000 new apprenticeships created in the past two years, 58% were low-level and 75% went to people over the age of 25 who were already in work. It looks to me as though this is not a dramatic breakthrough in skills education but another form of employer wage subsidy. We have progress to make on apprenticeships.

That is also the case in higher education. My noble friend Lady Warwick talked about the decline in part-time students and mature students, which is a great shame. The noble Lord, Lord Paul, mentioned how migration policies threaten the future of our universities. I think the Government may have the wrong priorities. For instance, I am sure that, in the other place today, there will be a lot of applause for the married couple’s allowance and the universal free school meals. Would it not, if you were seriously interested in educational opportunity and that was your principal objective, have been better to spend that money on children’s centres and early years?

Our education policy needs a rethink, on a cross-party basis, to try to establish consensus. We need to make institutional changes to our education system that will withstand changes of Government. We need to make systemic change to raise quality, not just fiddle around at the edges. We need to raise the status, as Labour attempted, of the teaching profession. We need a new system of post-16 funding. I think the Labour Government experimented with an individual learning account and it went wrong, but we need something like that. We also need a new, more settled approach to higher education.

In conclusion, we will succeed as a country only if we improve our educational quality. The greatest national resource that we have for our future is the unfulfilled potential of so many of our young people. We need a national consensus if we are to achieve that.

14:08

[The Parliamentary Under-Secretary of State for Schools (Lord Nash) (Con)]

My Lords, I thank the noble Baroness, Lady Morgan, for proposing this debate on such an important topic. She is an experienced and passionate advocate for education, from her time as a geography teacher in the early 1980s to the work that she has done as a member of the board of trustees of the Teaching Leaders charity, chair of the board of trustees of Future Leaders and chair of Ofsted.

I congratulate the right reverend Prelate the Bishop of St Albans and my noble friend Lord Sherbourne on their maiden speeches. Both spoke passionately, incisively and eloquently, and I am sure that we are all looking forward to hearing them speak on many more occasions. I also thank all noble Lords for their valuable contributions.

As the excellent charity ARK, one of our high-performing academy sponsors, which I know the noble Baroness advises, has stated, education is one of the strongest determinants of future income and social mobility. Young people with university degrees have double the earning capacity of those who leave school without qualifications. The noble Baroness, Lady Morgan, spoke about the underachievement “tail” of particularly poor children. We all know that many of our children are brought up in chaotic home lives with no systems, no structures and a background of generational worklessness. As I think noble Lords know, and I think there is consensus on this across the House, the only way in which we can break this cycle is through education. The tail is why we are changing the basic accounting measure for schools from a rather simplistic five A* to C grades, including English and maths, to a progress measure across eight subjects so that all pupils, whether they come to school performing poorly or highly, are measured on the progress that they make.

The noble Baroness also mentioned London Challenge, to which I pay tribute, as a model of collaboration. The academies programme is the structure that we are using for school-to-school support in local clusters in regional locations. A local collaborative structure is the only model that we feel works. I was delighted to hear the noble Viscount, Lord Hanworth, say that people work best when they have ownership of the processes that they are running, which is exactly what our academy programme is all about.

The right reverend Prelate the Bishop of St Albans mentioned that 82% of the schools in his diocese are good or outstanding. As I am sure he knows, that puts his diocese in the premier division of dioceses. I am extremely grateful to the Diocese of St Albans for its sponsorship of the All Saints Academy. I also pay tribute to church schools generally, which consistently outperform local authority-maintained schools and outperform on community cohesion.

As the noble Baroness, Lady Morgan, and other noble Lords have said, this debate is particularly timely as the latest PISA international comparison results were published earlier this week. These results showed that, having tumbled down the PISA tables in the first decade of this century, we have broadly maintained our pretty average, mid-20s standing out of 65 countries. For the sixth largest economy in the world, it is clear that there is a lot more that we have to do if we are to give our children the ability to compete in an increasingly competitive and diverse international market.

These results follow the shocking findings of the recently published OECD’s adult skills survey, which showed that we came joint bottom out of 24 countries in numeracy and 21st out of 24 in maths. We were the only country in the surveyed group whose school leavers’ grandparents are better educated than they are. There is a similar story with TIMSS and other statistics.

It is clear that countries with successful education systems have faster rates of economic growth, as the noble Lord, Lord Paul, referenced. A study by Hanushek and Woessmann in 2012 suggested that if the UK halved the then 50 PISA-point gap between us and Finland, it would result in a 6% boost to the level of UK GDP by 2050, worth around £90 billion in today’s money.

There is evidence that education is increasingly important across the world. Graduates are good for growth and good for the economy; the noble Baronesses, Lady Warwick, Lady Cohen, Lady Donaghy and Lady Dean, referred to the success of our university system. Looking across developed economies, a study by the National Institute of Economic and Social Research shows that countries that increased their share of graduates in the workforce saw labour productivity grow faster, as the noble Lord, Lord Liddle, referred to. In the UK, we estimate that roughly one-third of the increase in labour productivity between 1994 and 2005 was attributable to the accumulation of graduate skills in the labour force. In other words, a substantial share of the UK’s economic growth over this period was related to the expansion of higher education.

The noble Lord, Lord Liddle, referred to the graduate premium. Office for National Statistics data show that the average income for graduates levels out at £35,000, compared to £22,000 per annum for those with A-levels and £19,000 for those with merely GCSEs.

The noble Baroness, Lady Warwick, and the noble Lord, Lord Liddle, referred to funding. I must remind the House that we inherited a particularly parlous state of finances in this country and we have had some very difficult decisions to make as we seek to rectify the financial situation while protecting education budgets extremely well, particularly in relation to schools. As a result of our tighter financial controls, and as the Chancellor has today announced, the economic prospects for the country are looking up substantially.

While education is critical in building human capital, it is also important for short-term and medium-term growth. Our £18 billion capital investment programme to build new schools is stimulating construction activity across the country and supporting jobs. Free early years education for 1.3 million three and four year-olds—that is 96%—is enabling more parents to work. Education is worth around £17.5 billion to the UK export sector. My department spends almost £60 billion on education and children’s services.

However, it is not just about spending money, it is also about value for money. I am delighted to be able to tell the House that we are now building schools at half the cost of that under the Building Schools for the Future programme, more quickly and more fit for purpose. We are also running the Department for Education far more efficiently and, by 2015, will have halved the cost of running the department in real terms from just over £500 million to around £300 million, and we will have a far more efficient and effective organisation as a result.

Our ambitious educational reforms are influenced by international evidence on what works. Successful school systems prioritise the quality of teachers over the size of classes; they attract the best people into teaching; and there is greater autonomy and accountability—I pay tribute to the noble Baroness, Lady Morgan, and Sir Michael Wilshaw for the highly effective work that Ofsted does in this regard.

High-performing systems have curriculum standards that set clear and high expectations. The relationship between early education and better student outcomes is strongest in countries that offer early education to a large proportion of the population. The amount spent is less important than how those resources are used.

Pupils’ socioeconomic background still plays too big a role in attainment in England. The impact of parental education on literacy and numeracy is stronger in England than in most other countries. According to the Sutton Trust, boosting the educational outcomes of children from less educated families to match the UK average could be worth around 4% of GDP, or £60 billion, to the country’s economy.

The noble Earl, Lord Listowel and the noble Baroness, Lady Taylor, spoke about the importance of engaging parents in their children’s education. I could not agree more. Unfortunately, many parents, however hard they try to engage, are so badly educated and so immersed in worklessness that schools today have to do so much more to replace the lack of support that children get at home. The evidence is that children from middle-class families will hear different words millions of times more than children from poorer families, which is why we are focusing so much on improving early years and primary education.

We know that education is crucial to a child’s future success. Not only is that true in respect of the labour market but educated people are healthier, more innovative, less likely to commit crime and more likely to be involved in volunteering.

Our education reform programme is based on raising attainment across the board and narrowing gaps. We are prioritising the most disadvantaged children through additional funding for early years and the pupil premium; setting higher expectations of the quality of teaching and standards of education; giving our teachers more scope to make the right decisions; holding schools and colleges to account for the outcomes that they secure for their disadvantaged pupils through a robust accountability system, which I have already mentioned; and creating opportunity for more innovation in the schools system, giving head teachers more freedoms in maintained schools and driving forward growth in the number of free schools, UTCs and studio schools.

As the noble Lord, Lord Baker, mentioned, we now have 42 UTCs open or due to open. These are creating opportunities—or will do when they are full—for 30,000 young people to train as the engineers and scientists of the future, playing a crucial role in England’s long-term economic growth. In this, they are teaming up with employers such as Jaguar Land Rover, Rolls-Royce, Siemens and the National Grid. I pay tribute to the noble Lord, Lord Baker, for his tireless, relentless and energetic determination to drive this programme and to the noble Lord, Lord Adonis, who is not in his place, for getting this programme off the ground in the first place.

We also have studio schools. There are now 28 open, with 13 more due to open shortly. They bring together academic and vocational education and employment, with over 400 employers, including M&S, Sony, Barclays and the BBC as well as many smaller businesses, involved.

My noble friend Lord Sherbourne set out another crucial factor in the future competitiveness of our children—modern languages. He highlighted many of the reforms that we have made in this area and made a compelling case for these changes, and I thank him for it. As he said, the English baccalaureate is already encouraging more young people to take a language at GCSE level. The increase is 16% in 2013 in pupils taking MFL at GCSE. Studying languages is about choice and we are making £3.1 million available in funding for Routes into Languages, a consortium of universities working together with schools and colleges to enthuse and encourage people to study languages to support a new three-year student demand-raising programme. Through the free schools programme we have opened the Bilingual Primary School in Brighton, which is delivering the curriculum in both English and Spanish, and the Judith Kerr Primary School in Southwark, where the curriculum is being delivered in both English and German, while in pre-opening there is the Bromley Bilingual school, which will teach French and English through immersion, and the Marco Polo Academy, which will teach English and Mandarin using immersion methods.

I thank my noble friend Lord Storey for his encouraging words about what we are doing about languages in primary schools. Strong and robust vocational education is essential for the future. More and more young people are taking vocational courses; we have seen a 200% increase over the past 10 years. As my noble friend Lord Baker said, the fact that we have such a high number of NEETs, stubbornly stuck at around 1 million, has to change. We need to repair the broken link between qualifications and training between British industry and employers and universities. The most able students must have confidence that the vocational qualifications are of the highest standard.

The noble Baroness, Lady Morgan, spoke about the importance of raising the status of vocational courses, and that is why we commissioned the report by Professor Alison Wolf on vocational education. We have followed all her excellent recommendations. We have already reformed vocational qualifications at 14, we are in the process of consulting on reforming 16-to-19 vocational qualifications and we have introduced Techbacc. In the past, skills training has been bureaucratic, top-down and complex. The funding of the system has been done through large numbers of people rather than focusing on value. Successive Governments have made the education system for vocational qualification accountable to funding bodies instead of to their customers, learners, businesses and the wider local community.

Under this Government we have ended top-down bureaucracy in FE colleges and supported a massive expansion in apprenticeships programmes, which we are focusing on making of higher quality and of longer duration. However, none of this means anything unless our young people are engaging with education, and we are planning to spend £7.4 million in 2013-14 to fund an education and training place for every 16 or 17 year-old who wants one, and we are raising the participation age.

Our higher education system is a huge success story, as a number of noble Lords have mentioned. We attract large numbers of international students and researchers who bring revenue, expertise and stimulate growth. Our strongest universities are among the best in the world. Education is a valuable and growing export sector worth about £17.5 billion in 2011. About 26,000 international students at over 1,200 UK independent schools contribute £685 million in fees, and around 1.4 million pupils studied at nearly 3,000 British schools overseas, contributing nearly £10 billion in fees. There is a strong overseas demand for educational products and services, including support in building, staffing and inspecting overseas schools. There is also growing interest in developing technical and higher vocational skills.

In the summer we published our education export strategy, which will ensure that British schools, universities, colleges and education businesses continue to stay ahead in the global education market worth about £1 trillion. The noble Baroness, Lady Donaghy, talked about the Institute of Education, which I would be delighted to visit. I was delighted to hear the noble Baroness refer to the World Bank report mentioning the importance of acquiring knowledge and the processing of information, which is why we are increasing the content in our curriculum. I was also delighted to hear her mention the importance of providing incentives so that the stronger teachers can get better paid, which is what performance-related pay is all about. I am beginning to sense the makings of a consensus across the House on the future of education, and perhaps we can begin to see the end of the stone-throwing era.

I agree with the noble Baroness, Lady Dean, about the importance of raising aspirations for our pupils, particularly those from less privileged backgrounds. The noble Baroness, Lady Taylor, talked about those films in the 1960s. I can particularly remember one with Tom Courtenay. I cannot recall what it was called but it made a vivid impression on my mind.

We must open the door to education much wider for employers. As the noble Lord, Lord Mawson, said, we must provide our pupils with a clear line of sight to the workplace. I have been struck when talking to students about their work experience and visiting places of work; talking to people from the workplace has raised their heads and their ambitions. I look forward to meeting him to see if we can unblock the logjam to which he referred.

I agree with the noble Lord, Lord Graham, that schools should widen their connections with the local community. In my own school we have an active programme of raising aspirations, engaging with community voluntary groups, professions and businesses, which has had a remarkable effect on the aspirations of the children.

The noble Baroness, Lady Taylor, talked about prescription and the freedom to teach. As the noble Baroness, Lady Morgan, knows, one of the things that we in this Government have been very strong on is being much less prescriptive. We have had many conversations with Ofsted about how teachers should teach so that they can teach in the way that they think is best to make progress for their pupils.

Ensuring that all our children receive the best educational outcomes is a priority not just for me, my department and my right honourable friend the Secretary of State for Education but for the whole country, and I am sure that there is consensus across the House about this. In concluding, I again congratulate the right reverend Prelate the Bishop of St Albans and my noble friend Lord Sherbourne on their excellent maiden speeches, and I am grateful to all noble Lords for their contributions to this debate. I thank the noble Baroness, Lady Morgan, for allowing us to discuss these most important matters.

14:28

[Baroness Morgan of Huyton]

My Lords, I thank noble Lords for taking part in today’s debate, which has been engrossing. I especially thank the right reverend prelate the Bishop of St Albans and the noble Lord, Lord Sherbourne of Didsbury, for their excellent maiden speeches. I am sure that we all look forward to hearing more from them in the future.

I have been struck by the breadth of knowledge and expertise in this House but also by the real experience that so many Members of this House have. We do not do too much stone-throwing here; we seek consensus and ways to try to move educational standards forward in a way that will help economic growth.

Motion agreed.

Scotland: Independence

Thursday 5th December 2013 Lords Chamber

Question for Short Debate

14:29

Asked by

[Lord Forsyth of Drumlean]

To ask Her Majesty’s Government what is their response to the Scottish Government’s declaration that, if the people of Scotland vote for independence, Scottish independence day will be 24 March 2016.

[Lord Forsyth of Drumlean (Con)]

My Lords, I am most grateful for this opportunity to discuss the White Paper that was published by the Scottish Government on the advantages of an independent Scotland. It runs to 650 pages, and I believe that an anagram of the title, Scotland’s Future, is “fraudulent costs”, which would certainly do a great deal to explain the content. It has all the deliverability and realism of a letter to Santa Claus. Such is its credibility that if it were put forward on “Dragons’ Den” as a business plan for an independent Scotland for the next 300 years, it would not even get up the stairs to be filmed before them.

We were told that it would answer all the central questions about Scottish independence. In fact, it ignores all the questions by simply asserting the answers that the Scottish Government would like. On EU membership, therefore, Scotland will able to join the EU. The Spanish Prime Minister says, “Not on your life”—but, of course, Alex Salmond knows better than the Spanish Prime Minister, the European Commission and others.

Yes, there will be free tuition fees, but our deal with Europe will mean that we can maintain this outrageous discrimination against students from England. The proposal in this White Paper, believe it or not, is that an independent Scotland will allow French, Italian and German students to come and get free university tuition fees, but England, Wales and Northern Ireland will still be discriminated against. This is from people who have the nerve to use the rhetoric of us all being a family together.

Similarly, an independent Scotland will not have to join the euro, even though the treaty requires it. It will have the pound, but without accepting any of the obligations that would come from the Bank of England in a monetary union when it comes to determining their interest rates, borrowing and the rest. It will be able to avoid Schengen as well—all because Alex says that this has got to be the case. On NATO, it can join a nuclear alliance while engaging in rhetoric about how offensive nuclear weapons are. The Scottish Government can put at risk tens of thousands of jobs on the Clyde by insisting on our nuclear deterrent being moved, without any suggestions as to where it might be moved, who would bear the cost of the tens of billions of pounds involved, or what the consequences for NATO would be of Britain consequently having to abandon its nuclear deterrent.

The Scottish Government fail to make the case in this White Paper for what amounts to the Balkanisation of Britain. To be fair, they do answer some questions. For noble Lords who have not had the opportunity, as I had last weekend, of wading through this document, I can announce that Scotland will be able to put forward its own entry for the Eurovision Song Contest.

I say to my noble friend on the Front Bench that it is a bit off that we should be debating a document as important as this on a Back-Bench Motion late on a Thursday afternoon. We really ought to have seen a debate in the House of Commons and one in this House on such an important document. I suggest to my noble friend that he might consider persuading his colleagues to set up a Joint Committee, perhaps chaired by someone of impeccable credentials such as a former Law Lord, to go through this White Paper—it will not take them long, although it might take a long time to read it—and set out what the consequences should be for both sides of the border. This is not a Scottish issue. It is an issue for every part of the United Kingdom, with huge implications for Northern Ireland, Wales and England.

I have another request for my noble friend. I do not know if he has had a chance to read the White Paper, but you only have to get to pages xii and xiii to see set out a whole load of things, where on one side it says:

“Gains from independence—whichever party is elected”,

and on the opposite page it says:

“Gains from independence—if we are the first government of an independent Scotland”.

It sets out SNP party policy, including the renationalisation of the Royal Mail, which is not within the competences of the Scottish Parliament. What on earth are civil servants doing writing this stuff, with the Government of Scotland putting the bill for an SNP manifesto on to taxpayers?

I draw my noble friend’s attention to paragraph 14 of the Civil Service Code, which says:

“You must: serve the Government, whatever its political persuasion, to the best of your ability in a way which maintains political impartiality and is in line with the requirements of this Code”.

Section 15 says:

“You must not: act in a way that is determined by party political considerations”.

The Cabinet Secretary ought to have a look at this. If he concludes that it is party political and contrary to the code, the bill for this whole exercise should be sent to the SNP, which should pay it. I do not see why my taxes should pay for this sort of nonsense.

The subject of my Motion was the declaration in this document that if Scotland votes for independence, 24 March 2016 will be independence day. I have no idea where that particular date came from, but I was always told that if you were going to be in a negotiation—and if Scotland votes for independence there will be a lot to negotiate, because it is not answered in this White Paper—you never set a deadline, especially if you are the weaker party.

The other day, I pointed out to the leader of the SNP in the other place that if independence day was going to be 24 March 2016, it would be rather awkward if a Government had been elected with a majority that depended on Scottish MPs, who would presumably be thrown out of the House of Commons on independence day. He replied, “Ah, yes, we’ve been thinking about that, and we think that the general election should be postponed by a year”.

[Noble Lords]

Ha!

[Lord Forsyth of Drumlean]

That is SNP policy, and it is one of the more credible notions that it puts forward.

Of course, to be fair, I shall always be grateful to the SNP. Had it not brought down the Labour Government, we would never have had the late Baroness Thatcher as Prime Minister for three successive Parliaments. Now, of course, it is arguing that we should extend the life of the coalition Government by a further year. It is indeed a fair-weather friend. Of course, if there were no Scottish MPs in the House of Commons, we would have a Conservative Government with a majority of 10. Let no one say that the Tory Party does not stand up for the United Kingdom, even when it is against its own short-term political interests.

Where did this idea of independence day come from? The Battle of Bannockburn was on 24 June. The Act of Union took effect on 1 May. Could it just be that 24 March is immediately before the run-up to the election campaign for the next Scottish parliamentary elections? Therein lies the clue: this is all about the SNP’s interests and not about our country’s. It has never been part of Scotland that good, patriotic Scots are concerned with narrow nationalism. We have always been an outward-looking, innovative, entrepreneurial nation. A Scot founded the BBC. A Scot founded the Bank of England. Scots played a major part in the industrial revolution, with steam engines, railway engines, and then telephones, televisions and penicillin. The Age of Enlightenment came about after the Act of Union, because of the benefits of the union, and gave us Adam Smith, Hume, Robert Adam, and ships and bridges all over the globe; and, today, Dolly the sheep and even computer games. It is a nation with a traditionally global outlook.

What are we to say to those members of the Armed Forces serving in the British Army in Afghanistan who, according to this White Paper, will be asked to choose whether they want to be in the Scots army, which will be like “Dad’s Army”, or remain in the British Army and, in so doing—as most of them will so decide—become mercenaries as part of the British Army, having proudly fought under the union flag? It is a nonsense which, according to this White Paper, will make our families on both sides of the border choose their nationality—choose the country of which they are to be citizens or subjects—and will make families and neighbours foreigners in their own countries. And for what? What are the benefits?

The benefits seem unclear. We are to rely on the wishful thinking of Mr Salmond, Ms Sturgeon and Mr Swinney. It reminds me of lines from The Jungle Book, which I remember from childhood. In the “Road-Song of the Bandar-Log”, three monkeys chant:

“Here we sit in a branchy row,

Thinking of beautiful things we know;

Dreaming of deeds that we mean to do,

All complete, in a minute or two—

Something noble and grand and good,

Won by merely wishing we could”.

10:55

[Lord Foulkes of Cumnock (Lab)]

My Lords, I am grateful to the noble Lord, Lord Forsyth, for providing the opportunity to speak on this matter, and for giving such a witty and eloquent introduction. I am only sorry that more of my Scottish Labour colleagues are not down to speak today. I hope earnestly that they are not feeling intimidated by Alex Salmond and his cybernat cronies who constantly attack Members of this House because we are not elected. I have in fact been elected to two councils and to two Parliaments over more than 40 years, as have some other Members who are participating in this debate. Whether they like it or not, this House is part of the UK legislature. We have a continuing responsibility, because what Alex Salmond and his party are proposing affects the whole of the United Kingdom.

Mr Salmond reminds me a bit of the Mad Hatter in Alice in Wonderland: if he says that it is so, then it must be so. His so-called White Paper, which I do not call a White Paper, is not so. He does not have the power to implement the proposals that he is putting forward. Voting yes in the referendum is not an endorsement of all the proposals in the White Paper, and he cannot say that it is.

When he declares independence day unilaterally, as he has done, he ignores the fact that when two parties must make an agreement, the timetable cannot be determined by one side—by one of the parties. When he declares, as the noble Lord, Lord Forsyth said, that a separate Scotland would automatically be in the European Union, NATO and the Commonwealth, he flies in the face of logic and geopolitics, as we have heard recently from Belgium and Spain.

Mr Salmond has declared that a separate Scotland would keep the pound, ignoring that this would need the consent of the rest of the United Kingdom. When he pledges that no controls would be needed at the border between Scotland and England, but promises an open door to immigrants—which would be a different case from the rest of the United Kingdom—he also flies in the face of logic. There are many similar unilateral pronouncements throughout Scotland’s Future, which is 650 pages of continuous fiction. I agree with the noble Lord, Lord Forsyth, that we should have a full day’s debate in this House and in the other House. I have raised that with my party group.

I will quote Voltaire rather than The Jungle Book. He wrote:

“The human brain is a complex organ with the wonderful power of enabling man to find reasons for continuing to believe whatever it is that he wants to believe”.

Alex Salmond is living proof that Voltaire was right.

14:42

[Lord Steel of Aikwood (LD)]

My Lords, I am not sure that I shall join in the thanks to my noble friend Lord Forsyth for arranging that we would have three minutes to speak on this subject, but I agree with the noble Lord, Lord, Foulkes, that he was right to press for a proper debate on it.

The so-called White Paper is full of wishful thinking. It spells out what the SNP would like to happen, not what will happen. There is a fundamental difference between the two. Some of what it would like to happen, I would like as well. For example, it mentions currency union. We have that already. It is a funny kind of independence in which the Bank of England will call the shots in future. On defence, it wants a separate Scotland to stay in NATO, keep all Scotland’s defence establishments and get rid of Trident. It just wishes that that would happen. It wants a separate Scotland to be an “active participant” in the European Union. Not only the Prime Minister of Spain but many others will have views on that matter. There are pages and pages of wishful thinking.

My greatest fear, which is what I want to express today, is that the danger of a vote for independence is that Scotland would become ingrown. That is against the whole of our history. After all, the contribution that Scotland made to the building of empire and Commonwealth was far greater than our population would suggest. The contribution that we made in the First and Second World Wars to the defence of Britain was far greater than our population would suggest. I take pride in that. I want to live in a country that continues that history of a major contribution to the well-being and success of the United Kingdom. I do not wish to live in a country that has its own wee broadcasting corporation feeding us on a continuous diet of “cauld kail het agin”, which I fear is what would happen. That is why I believe that the people of Scotland will vote decisively against this bogus prospectus of a bogus independence.

14:44

[Lord Hennessy of Nympsfield (CB)]

My Lords, I add my thanks to the noble Lord, Lord Forsyth, for securing this debate and support his call for a Joint Committee.

I offer a few thoughts on the possible percussive effects of the Scottish question. Horizon scanning is a perilous trade, but those of us who live on our islands and care deeply about them need to be ready for several stretching, vexing and interlocking contingencies. I have two swift scenarios. The first one has already been alluded to by the noble Lord, Lord Forsyth.

In September 2014, the Scottish people vote to separate from the UK and negotiations begin. I have my doubts that the all-encompassing statute ending the old sovereignties will be in place by spring 2016, but it would be so well before 2020. In May 2015, at the general election, Scotland returns 59 MPs to the House of Commons. Last time 40 were Labour Members. Should Labour win the 2015 election, even with a relatively comfortable overall majority, the loss of around 40 MPs when Scotland goes would plunge it into a minority Government. Does it soldier on to May 2020, or would such a Government try to engineer a losing confidence vote to stop the clock ticking, in accordance with the Fixed-term Parliaments Act, knowing that what Whitehall inelegantly calls the “remainder of the UK”, or “RUK”, is unlikely to return another majority Labour Government in the foreseeable future?

In scenario two, in September 2014 Scotland votes to stay a part of the UK. Opinion surveys show that economic worries were among the trumping factors in determining the outcome. In June 2017, the UK electorate votes in a referendum to leave the European Union. Scottish voters, especially if the bulk of the Scottish electorate favoured staying in the EU in 2017, would say that the September 2014 deal is off. They voted then to remain part of a country with full EU membership and unfettered access to its single market. Could a UK Government deny Scotland another Edinburgh agreement and another referendum in, say, 2020? Alongside the upheaval and uncertainty of hauling ourselves out of the EU in the vain hope of becoming a kind of Singapore in the cold northern seas, the prospect of living inside a shrivelled RUK would loom once more. There is more uncertainty imperilling our islands in peacetime than in anyone’s living memory—and far more than our people realise.

I have a final optimistic thought. When the time comes, I want to draw my last breath as a Brit, not a RUK. I am fairly confident that I shall.

14:47

[The Duke of Montrose (Con)]

My Lords, I thank my noble friend Lord Forsyth for giving us an opportunity to make brief comments on this vital issue.

I will go back a little while. It looks as if the First Earl of Seafield was not quite correct when he described the Act of Union in 1707, which brought an end the Scottish independent Parliament, as the “end of an auld sang”—even if it was in one sense. It was also the end of another “auld sang”, which was the efforts of the Crown and the Scottish Parliament to bring to an end what had been more than 100 years of negotiation for a settlement between the two countries. One of my ancestors, in appointing the members for the first commission for the union in 1604, expressed the aim as being to achieve,

“the often wished but hardly expected conjunction of the two so ancient and long discordant kingdoms”.

It was that discordance that once again drove through the union in 1707. We are not given to being agreeable neighbours at the best of times.

It appears now that we are thinking of taking up that “sang” again. In 10 months we will see whether it is a number that gets to the top of the charts. Unfortunately, discordance, or its modern equivalent, is still something that could undermine the outcome, whatever it is. The current mood in Scotland thrives on the emphasis of discordance. This is very unfortunate. Breaking is always easier than building, but the Scottish Government paper’s 18 months to achieve a settlement, as most other Peers have mentioned, looks a particularly unrealistic proposal. However, it is only one of the many areas that might produce argument. We have now got ourselves into a position with devolution that is not wholly satisfactory from anyone’s point of view. Changes are due under the recent Scotland Act, and it may be that things should be looked at again further.

A current issue, in which I must declare an interest, is that Scottish farmers are much disturbed because they are switching on to an area-based, single farm payment, and there is great uncertainly about the size of the gains or losses that will affect each business. They have concluded that Whitehall is not sufficiently alive to their problem. Therefore, there are areas for argument.

Then again, there is an argument, much favoured by the Scottish First Minister, that an end to the Act of Union would create two new countries, and that each would have to re-establish itself by new treaties and arrangements. What steps is the Minister taking to guard against this outcome?

14:50

[Lord Maclennan of Rogart (LD)]

My Lords, I, too, thank the noble Lord, Lord Forsyth, for initiating this debate. This debate can highlight many of the issues that ought to be considered and deliberated on by the people of Scotland. None the less, the document that has been produced by the Government of Scotland is so transparently thin, and contains so much wishful thinking, that it ought to be considered not just in a one-hour debate but by a joint committee of the two Houses of Parliament. I support what the noble Lord, Lord Forsyth, said on that. I also take the view that we need, at this time, to agree to a further constitutional convention.

If the Scots are presented in 10 months’ time with a referendum, as they will be, the present choice appears to be between the status quo and independence. Frankly, that is not enough. We have seen many changes take place in our constitution over the past decade and a half—almost two decades. It was perfectly appropriate for them to consider some by themselves: for example, enactment of the European Human Rights Act and of the Freedom of Information Act, and the separation of the judiciary from this legislative House. However, if we are to see changes—and all the political parties are suggesting changes that might come further down the line—we want the people of Britain, not just the people of Scotland, to have some input in deciding what the structure of our Government should be.

I noticed that the committee chaired by Graham Allen in the House of Commons recommended such a convention. It would help if the Government and all political parties agreed that that should be set up—and that it should be announced that it is being set up—before the referendum takes place.

14:53

[Lord Selkirk of Douglas (Con)]

My Lords, I do not accept the premise that 24 March 2016 will be independence day. Indeed, I trust that before the vote next September the electorate will remember that the duty of any Government is the defence of the realm. I cannot see how Scotland and Britain’s security will be enhanced in any way by ripping our Armed Forces apart.

The disaggregation required to set up a new Scottish defence force would be an enormous upheaval and would take time. It would also be both costly and disruptive, and economies of scale would no longer apply. Speaking in Glasgow recently, former commander of the Black Watch Lieutenant-General Sir Alastair Irwin warned that extracting men and women from the Army, the Navy and the Royal Air Force would deal,

“a very significant blow to the defence capability of the rest of the UK”.

He said that separation would lead to,

“a British Isles collectively less well defended”.

Sir Alastair also warned of the difficulties of recruitment, saying:

“It would be a big assumption to make that every single member of each of the units allocated to the Scottish forces would elect to transfer from the British Army that they had joined, not least because many of them are not themselves Scots”.

I remember when a Labour Government cut three-quarters of the Territorial Army in the mid-1960s. I was taking degree exams and was not one of the chosen few who remained. However, when the TA was expanded in the 1970s, I rejoined a newly formed battalion and I recall quite clearly all the difficulties we faced in having to start from scratch, as much that we had taken for granted before was just not there.

Other major issues must be resolved such as defence procurement and the future of shipbuilding jobs on the Clyde. I note that the Ministry of Defence said that the Scottish Government’s proposal for some form of joint procurement is a non-starter.

What, therefore, are the advantages and disadvantages of breaking up our 300 year-old partnership? It seems that when it comes to defence, the weight of argument lies with maintaining our highly efficient integrated armed services, which are among the best in the world.

Why do we have to go through the controversial and painful process of disaggregation with regard to our fighting forces, not to mention putting at risk thousands of jobs? The answer, of course, is that we do not have to do so if a majority of those resident in Scotland vote no in the referendum next September. I am very pleased to say that on this occasion Peers of the realm who live in Scotland will have a vote.

14:56

[Lord Kerr of Kinlochard (CB)]

This document is 650 pages long and I congratulate the noble Lord, Lord Forsyth, on reading them all. It is, however, rather longer on assertion than on argument. I will just touch on the EU angle.

The aim as set out is to achieve by March 2016 a seamless transition into membership. The SNP says that the treaty base appropriate to the exercise is Article 48 of the treaty. That is not the view of the EU institutions or that of any of the member states that have so far spoken. I doubt if it is the view of HMG, although I will be interested to hear what the Minister has to say. Most people seem to believe that Article 49 would be the treaty base for the negotiation. They are clearly “all out of step but oor Wullie”. However, wishing it so cannot make it so. There will be a genuine negotiation to be had under Article 49. That cannot formally start until Scotland is an independent sovereign state. It could possibly be pre-negotiated; that would be possible if all member states were to agree that there could be pre-negotiation both of the substance of the deal and of transitional arrangements, which would follow during the inevitable hiatus after Scotland, as a sovereign state, could sign the treaty—some date after March 2016—and during the process, which might be many months, possibly more than a year, of ratification by all the other member states, because it is their treaty, too. It is possible that you could pre-negotiate both the substance and the transition. However, that would not be easy, and would require every member state to agree that they were prepared to do it. Judging by some statements that have been made, some member states might not want to.

The negotiations on substance would be serious. The text says that Scotland does not wish to apply to join Schengen. However, the treaty says that all applicants must undertake that they will join Schengen. It is perfectly possible to envisage a derogation for Scotland; no one would want a real physical frontier on the Tweed. However, that derogation would have to be negotiated. You cannot just assert that “We will not apply, therefore it will not apply to us”. The same applies to the euro. I do not believe that if Scotland had opted—and the remainder of the United Kingdom had agreed—to continue to use sterling, Scotland would be obliged to join the euro. In any case, Scotland would not be eligible, such would be its inherited debt and deficit. However, the treaty says that you take a commitment to join when you are eligible, and getting a derogation on that would have to be negotiated.

Most delightfully of all, the big book says that the budget rebate would continue. It also says that Scotland would be one of the richest countries in the world. The continuation of the rebate would play extremely well in Lesmahagow or in Linlithgow, but not necessarily as well in less rich Latvia or Lithuania, and it would be up to the Latvians and the Lithuanians to decide. I am not clear about a lot of things in the big book but it seems certain that if and when an independent Scotland achieved membership of the European Union—and I believe that it would—all Scots would be paying more into the EU budget per capita than would all English, Welsh or Northern Irish. It also seems absolutely clear that you cannot achieve, by March 2016, the seamless transition which is so boldly asserted in this book.

15:00

[Lord Crickhowell (Con)]

My Lords, I am grateful to my noble friend Lord Forsyth of Drumlean for initiating this debate. My own family represents an intermingling of English, Welsh, Scottish and Irish blood that is by no means uncommon. In the 1820s, my wife’s Scottish forebears established a Far East trading company of the kind to which the noble Lord, Lord Steel of Aikwood, was referring. It prospered for 150 years. Scots have frequently lived, worked and produced their offspring far from home. Today, a great many of them live and work away from Scotland; they will have no vote in the referendum that will decide the future of their country.

The Scottish Government propose an 18-month timetable from the referendum, if it is won, to independence. Between the two events, negotiations of immense complexity would have to take place and, in May 2015, a general election will be held. I do not think for one moment that it would be postponed for Mr Salmond.

Last Thursday, my noble friend Lord Forsyth asked a crucial question. At what point will those Scottish MPs, elected to the House of Commons, be asked to leave? My noble and learned friend Lord Wallace of Tankerness responded:

“Those who have been elected to this Parliament in the other place have received their Writ of Summons. I do not think they have any clause in it that tells them to go”.—[Official Report, 28/11/13; col. 1514.]

The implication seemed to be that, once elected, MPs from Scotland might stay for a full five years, despite that, in less than a year, they would be foreigners. I do not for one moment believe that that would be allowed to happen. There would have to be speedy legislation to tell the Scottish MPs that they would have to go at the moment of independence. That could result in a change of government at Westminster, less than a year after the start of a five-year Parliament. As the first non-Scot to speak in this debate, I emphasise, as did my noble friend, that all these events are as important for the rest of the United Kingdom as they are for Scotland.

The Scottish Government are frank about the deep integration that exists between Scotland and the rest of the UK, but fail to acknowledge the many consequences of break-up. Among these are the costs of dissolving institutions and of merging others, which would be not be light, and would be a burden that could severely impact both economies for many years.

Interdependence takes so many forms. Mr Salmond’s bid to remain with the sterling area and to have the Bank of England as lender of last resort, while making a rapid and pain-free entry into the EU, has already sparked hostile reactions which have introduced an element of reality into this debate. It is clear that he and his supporters want to eat their cake and have it too. I support my noble friend Lord Forsyth of Drumlean’s proposal that there should be a Joint Committee of both Houses to make recommendations about the way forward, and about how much cake there is available for eating.

15:03

[Lord Purvis of Tweed (LD)]

My Lords, many noble Lords have reflected upon Scotland’s historic contribution to the union. That is entirely understandable, and I share it. A girl born in my former Scottish Parliament constituency on 18 September 2014 will glimpse the 22nd century and her grand-daughter is likely to see the 23rd century. There are many people in Scotland, such as myself, who wish to be taking part and to have a voice in a debate about the long-term prospects of the future of Scotland. One scenario is being outlined with the trappings of a new state, and one argument is being presented by those who want an independent state for Scotland. It is for those who believe in that course of action to defend it, and it is quite right that those proposals are scrutinised forensically and robustly. I would rather wish to debate a positive future for Scotland and its role with the United Kingdom. With long-term sustainable, equitable funding for Scottish services, we can deliver educational attainment that is the best not only in these islands but in Europe. We could see child poverty abolished in that girl’s lifetime, and we could see her contribution match, perhaps, some of the historic contributions that Scots have made in the past. It means that the United Kingdom has to be fit for that purpose, and so far the United Kingdom is not fit for that purpose when it comes to its structures and institutions.

I do not need to look at a hypothetical way forward over the next 18 months towards—as some noble Lords have said—a fanciful independence day. For five years, I was on the Finance Committee of the Scottish Parliament, and I know that it is not sustainable. I know that a parliament in these nations cannot be sustained almost exclusively on handouts when it does not have revenue powers that are commensurate with its legislative powers, otherwise we will have a permanent parliament in these nations where the electorate will reward rhetoric rather than results. It also means that the case against independence is not so much that it cannot work; rather that being part of the United Kingdom—a refreshed United Kingdom—is far better for the people of Scotland than is independence.

Finally, if this United Kingdom is not successful for that girl born on independence day, she will continue to have some of the unequal life opportunities that currently exist. In my former constituency, the girl would have a life expectancy of 82 years. Just an hour and a half over the hills to Glasgow, her life expectancy would be 14 years less. Her chances of dying of alcohol morbidity would be immeasurably higher, and her life opportunities would be fewer because of unemployment and a poorer education.

I believe that the choice is not one of independence versus the status quo, and I endorse my noble friend Lord Maclennan of Rogart’s contribution. The choice is either that March 2016 could be seen as state building, or that we in this House and in another place carry through progressive reforms to make the United Kingdom better, and Scotland within that a more prosperous and forward-looking country. That, I hope, is the best that we can provide the girl born on referendum day.

15:07

[Lord Cormack (Con)]

My Lords, I congratulate my noble friend Lord Forsyth, and I want to endorse two of the suggestions he made. First, there should be a proper debate in this House and, by a proper debate, I mean a debate that can—as with the debate on the future of this House—extend over two days. There is no more important constitutional issue before us at present than the one we are all too briefly discussing today. I also endorse what noble Lords on both sides of the House have said about a Joint Committee of both Houses to examine in full the implications of independence for the whole of the United Kingdom.

I have often said in this House that Mr Salmond is an extremely wily politician; he is. I do not think that he is a statesman, but he is a very skilful politician. He is a sort of Tartan Boris, but whereas Boris is a big Londoner, Mr Salmond is a little Scotlander. That is because if his wishes come to pass, Scotland will be diminished. The United Kingdom is much more than the sum of its individual parts, and Scotland’s punching power in the world is far greater as an integral part of the United Kingdom and a separate nation within it—because it has proper nationhood—than it would ever have as a small, independent European nation. Notwithstanding all the points made by the noble Lord, Lord Kerr, I am not certain that Scotland would go automatically into the European Union, but that is another point entirely.

What I want to say today is that Scotland means a great deal to all of us who are in the other parts of the United Kingdom. My noble friend Lord Crickhowell talked about his own mixed ancestry and that of his wife. I have a son who lives in Scotland and is married to a Scottish girl, and I have two granddaughters at a school in Edinburgh. They consider themselves to be Scottish and British. My forebears all came from Scotland, but I consider myself British. I have streaks of Englishness and Scottishness within my make-up and I want to keep it that way for all of us. There are very few Members present in the Chamber who cannot say that they do not have family connections with Scotland, Wales and Northern Ireland. The United Kingdom is the most amazing constitutional achievement of the last three centuries.

When it comes to referendum day next year, I hope sincerely that all our friends and fellow citizens in Scotland will realise what it is that we have to lose as well as what they have to lose, and what we and they have to gain if we can build on the integrity of a very great nation. Let old acquaintance never be forgot.

15:10

[Lord McFall of Alcluith (Lab)]

My Lords, it is a privilege to reply to this debate from the Opposition Front Bench, and I congratulate the noble Lord, Lord Forsyth, on introducing it, as my noble friend Lord Foulkes said, in a witty and elegant way. I also appreciate the contributions made by all Members today. Their range and profound quality has been impressive, and the points made regarding a Joint Committee are very important; it is something that we need to take up.

The White Paper is almost 700 pages long. I am always suspicious when I am given a long document. Why is it so long? It is to allow the SNP to duck the questions, not to answer them, so we must see the paper as an elaborate ruse to duck them. When President Barroso and Mariano Rajoy, in responding to the Economic Affairs Committee of which I am a member, state that Scotland must reapply for EU membership, which will need the unanimous approval of the 28 member states, what that indicates is not that Scotland will not get into the EU some day but that the negotiations ahead may be protracted.

The ground chosen by the First Minister is the economic one. He has said clearly that the Scots will be better off if they are not part of the union, so the most important economic decision of the referendum is the currency one. Jim Sillars, the former deputy leader of the SNP, has talked about,

“the mistaken policy of using sterling in a currency union”.

with the rest of the UK. He went on:

“That will require a treaty between two countries, ours and theirs, and just as it takes two to tango, so it takes two to make a treaty. If SNP policy is seen as damaging to”,

the rest of the United Kingdom’s,

“state interests, and that of its allies, why should they sign a treaty giving us seats on their central bank, and a say in monetary policy? Alex Salmond says Osborne cannot stop us using sterling. True, but there is a world of difference between using it as one’s currency, and being in a currency union”.

On Mr Sillars’s point there I say: precisely.

We could have dollarisation along the same lines as Montenegro without RUK consent, but that would not be a viable option because we have large Scottish financial services firms that rely on access to UK central bank services. The Economic Affairs Committee took evidence from Standard Life, which told us that 94% of its products are sold on the other side of the border and 6% to Scotland. What will it do if there is an independent Scotland and it wants recourse to a central bank? It is obvious: Standard Life will move its headquarters. John Swinney said in his evidence to the committee that he wanted a,

“formal monetary union … with the Bank of England operating as the central bank for sterling”.

But we cannot have a monetary union if we do not have a fiscal union, and therefore the implications for tax and spending policies are enormous. As Gavin McCrone, the former respected chief economist at the Scottish Office, said, monetary union will only work if there are broadly similar inflation rates. If the SNP persists with the sterling option, it will require Bank of England approval.

I suggest that it would be foolish for a central bank, after the RBS and HBOS debacles, to extend central bank services or be the lender of last resort to a foreign country over which it does not have any control or exert any real influence on tax and spending policies. On the proposal to exert influence over the Bank of England, let alone the rest of the UK Exchequer, the EAC said clearly in its report that that is devoid of precedent and entirely fanciful. Nowhere in the White Paper are these difficulties and uncertainties addressed.

Whether we are talking about the EU, NATO, pensions and benefits or the future of the Scottish financial industry, they all have to be examined very carefully. We also need to examine whether independence will deprive Scots of the benefits of pooling resources and bringing down real costs. John Kay, an eminent economist at the Financial Times and an adviser to Alex Salmond, has said:

“For the degree of economic independence a small European country can enjoy in a global marketplace is inevitably limited. Nothing that happens in Scotland in September 2014 will change that reality”.

Let us make a decision on independence only after a proper debate. The 670 pages of the SNP’s White Paper is its very own brand of poetry. It has taken 19 months for Scotland to reorganise the Scottish police forces into one force, but the White Paper envisages an independent Scotland being up and running in less time than it took to reorganise the police. What a fantasy that is. It illustrates the fanciful nature of the proposition. It is an insult to the seriousness of the Scottish question which people will have to address in September 2014. It is a wish list with no price list, and this House needs to examine it further and forensically. We need a Joint Committee and further debate because if we do not do so, all of us—the rest of the United Kingdom and Scotland itself—will be losers, and we cannot afford that.

15:17

[The Advocate-General for Scotland (Lord Wallace of Tankerness)]

My Lords, I start by echoing what many of your Lordships have said, by thanking my noble friend Lord Forsyth for securing this debate and introducing it—and, indeed, for the animated and spirited way in which he made his case. He covered, in a very short time, most of the salient points that were made in the debate. I acknowledge that he was not alone in asking for a much longer debate; indeed, I think most other contributors to the debate said the same. I have noted that request, and will ensure that it is conveyed back to the business managers. Even I am constrained in replying to all the points that have been made in this debate, and would perhaps like longer to do so. That is an important point.

Numerous noble Lords have asked for a Joint Committee. Clearly, that is a matter that could be established only with agreement across both Houses. As ever, I shall ensure that the usual channels consider the request. It is also important to put it on record that committees and their members in both Houses are already undertaking much work on the implications of independence in a whole range of different areas; they are making the case for the union and exposing the gaps in the case for independence. I pay tribute to the work done by a number of Select Committees, both in your Lordships’ House and in the other place.

[Lord Campbell-Savours (Lab)]

The Minister says that this will be a matter for the usual channels, but could not Ministers in this House approach the Leader of the House of Commons and ask him whether it is possible to take such an initiative forward?

[Lord Wallace of Tankerness]

I thought that the Leader of the House of Commons was part of the usual channels. This would have to be done with the collaboration of both Houses, but I am saying that we will reflect on the matter. I cannot go further in making any commitment today, other than what I have already said.

My noble friend chose a debate specifically on the date, because I think he had to put his application into a ballot before the White Paper had been published. It may be worth reflecting on the fact that the date may be about the only thing in the White Paper that had not previously been in the public domain—and even that was leaked about two days before publication. We had already been told that the date would be in March 2016, so I suspect the only new information was the specific date of 24 March, which I think is the anniversary of the death of Queen Elizabeth I, and therefore of the union of the Crowns. Indeed, as my noble friend the Duke of Montrose reminded us when he talked about the Earl of Seafield and the end of the auld sang, it is also the date on which the previous Scottish Parliament last sat. However, I rather suspect that that was an ex post facto justification that some people gave for that date, rather than stating the reason that, as my noble friend pointed out, it will be the start of the 2016 Scottish election campaign.

I take the point that even if Scotland were—heaven forbid—to vote yes, actually naming your cut-off point does not seem the best way to go about negotiations. One of the things that has been evident from this debate, if not necessarily from the White Paper, is that a considerable amount of negotiation will have to take place. That point was made by the noble Lord, Lord Foulkes.

Sometimes we have heard people in the Scottish Government compare this White Paper to the 1997 White Paper produced by the Labour Government, which paved the way to the referendum on devolution. However, there is a world of difference between a White Paper produced by a Government, which reflected a constitutional convention that had met in public over many years and had achieved a consensus, and a White Paper that is the product of a single party behind closed doors, and is dependent not just on the Government of the rest of the United Kingdom, but on other member states of the European Union, members of NATO and numerous other countries. It is important to make the point that this White Paper has no guarantee of delivery. It is, as the noble Lord, Lord Kerr, said, strong on assertion but perhaps not so strong on argument.

My noble friend the Duke of Montrose asked about the fact that it is sometimes said by some Scottish National Party people that there would be two new countries, and the rest of the United Kingdom would have to negotiate lots of other treaties. However, the first Scotland analysis paper, which the Government produced in February, examined the constitutional position. We did so on the basis of advice from Professor James Crawford of Cambridge University and Professor Boyle of Edinburgh University—two outstanding experts in the field. Their analysis—one which represents the view of the United Kingdom Government—is that the rest of the United Kingdom would be a continuing state, with all the rights and responsibilities such as permanent membership of the Security Council of the United Nations and membership of the European Union on the terms that have been negotiated, and Scotland would be a new state.

It sometimes seems rather odd to me that a party that aspires to independence finds it awkward to admit that it wants to be a new state. I thought that was the whole purpose. Scotland would be a new state, and it would have to enter into a whole series of different negotiations, including seeking membership of NATO and the European Union. If I may pick up another point, it was certainly rather a novel approach—perhaps this is one of the other things in the White Paper that we had not quite anticipated—to refer to Article 48 of the TFEU. The view of the United Kingdom Government—again, this was set out in the first paper of the Scotland analysis series—is that Article 49 would represent the appropriate way forward. We can have a debate as to whether Scotland would have to come out to go back in, or whether there would be a possibility, following a yes vote, of negotiations taking place during that period. However, the important point, which was reflected in the speeches by my noble friend Lord Forsyth and the noble Lord, Lord Kerr, is that there would have to be negotiations—and we cannot predict with any certainty what would be in those negotiations. The only thing that is certain is the uncertainty.

Arguments have been made about Schengen, about membership of the euro and about the rebate. Approaching this from the perspective of Croatia or Bulgaria, we would be talking about giving a rebate to a country that the First Minister has said would be the eighth wealthiest in the world. I also think that there is a misunderstanding on the part of the Scottish Government as to the nature of the rebate. They have said, “As the budget has been set for the European Union for 2014-20, we will decide between Scotland and the rest of the United Kingdom how the rebate is split up”. I know that there are people in this House who are much more knowledgeable about this matter than me but my understanding is that it is not a constant, annual lump sum that can be divvied up or shared; it is a function of the United Kingdom’s respective shares in the EU economy and receipts. Any change in the size of the United Kingdom, for example as a result of independence, would automatically be reflected in the rebate calculation. Therefore, there would not be a Scottish share of the UK rebate to be handed over. There seems to be a fundamental misunderstanding on the part of the Scottish Government in their White Paper as to what they are talking about.

As regards currency, my right honourable friend the Chancellor of the Exchequer has said that it is highly unlikely that there would be a currency union. That was reflected by other former Chancellors, including Alistair Darling, and the former Chancellor and Prime Minister, Gordon Brown. I think it also has been said by the Shadow Chancellor. Therefore, while we get an answer to whether Scotland could take part in the Eurovision Song Contest, we do not get an answer as to what the currency position would be if a monetary union was not agreed with the rest of the United Kingdom. Because questions such as that are ducked, the Scottish people will not be given, as a result of this White Paper or from the Scottish Government, the proper information with which they can make up their minds—our minds—when voting on 18 September next year.

My noble friend Lord Selkirk talked about defence and the primary importance of the security of the realm. We believe that the whole of Scotland and the United Kingdom benefits from a full range of UK defence capabilities and activities. Scotland has greater security and influence with the United Kingdom’s geopolitical influence, which few states of similar size to Scotland can match. In addition, there is the important defence industry in Scotland. On the idea of joint procurement, as far as I am aware, since the Second World War, no complex naval vessels have been built outside the United Kingdom. If the rest of the United Kingdom should start building these vessels outside the UK, that could not automatically go to Scotland. There would have to be open competition, even in these circumstances. My noble friend is absolutely right to stress the defence implications of independence, but there are defence benefits from Scotland being part of the United Kingdom.

The 2015 election was mentioned by my noble friend Lord Crickhowell and the noble Lord, Lord Hennessy. In answer to my noble friend Lord Crickhowell, last Thursday, I had a question from my noble friend Lord Forsyth on what would happen after the vote on independence in September 2014 and whether Scottish MPs would have to leave at that point. I think that that is when I said that they would not need to do so. Obviously, it would be a matter for Parliament to address what would happen in 2016, although I cannot honestly see how people could represent constituencies or a country that no longer belongs to the rest of the United Kingdom. I do not see how that could happen, or how Parliament would deal with that or with the intervening period between the elections in 2015 and 2016. Should that ever happen, I think it would be a matter for both Houses.

I certainly picked up the point made by my noble friend about the idea that we should somehow postpone the United Kingdom general election. Given that the Fixed-term Parliaments Act was on the statute book before the date of the referendum was announced, the Scottish Government had full notice of it. I find it somewhat preposterous that for some reason people in the rest of the United Kingdom should be denied their democratic opportunity to select their Members of Parliament to facilitate a negotiation.

[Lord Forsyth of Drumlean]

Will the Minister deal with the point about the Civil Service Code?

[Lord Wallace of Tankerness]

My noble friend raised an important point on paragraph 14 of the Civil Service Code. When a similar issue was raised during the Scotland Bill debate, I said that, when questions are asked about breaches of the code, there is a process for dealing with that. I do not think that it is appropriate for a Minister at the Dispatch Box to pass judgment on that when there are proper processes. I note what my noble friend says and I am sure that it will be noted by those to whom these matters might properly be addressed. I think my noble friend reflected on the positive things about the union. It was also said by my noble friend Lord Steel.

My noble friend Lord Maclennan talked about a United Kingdom convention and my noble friend Lord Purvis talked about policies of how we might look to the future in our constitutional arrangements. It is important that we look to the future. We should do so and record the strengths of our United Kingdom; namely, those of family and kinship, which were mentioned by my noble friends Lord Cormack and Lord Crickhowell. We should also look at what has been achieved over many years.

Just before I came into the Chamber, my attention was drawn to the second leader in today’s Times. It states:

“Whatever Scotland’s future, it should be a source of pride to everyone in the United Kingdom that for centuries we have made a state of many nations work so well. We have lived together in peace and harmony, never losing our distinct identity yet also forging one together. And we have been strong together, through centuries of continental and global conflict. None of this should be pushed to one side in favour of an argument dominated by oil revenues”.

That is profound advice. I believe that when it comes to it, people will recognise that Scotland is stronger as part of the United Kingdom and the United Kingdom is stronger with Scotland as part of it. I sincerely hope that the noble Lord, Lord Hennessy, will die British rather than as RUK.

Autumn Statement

Thursday 5th December 2013 Lords Chamber

Statement

15:30

[The Commercial Secretary to the Treasury (Lord Deighton) (Con)]

My Lords, I refer the House to the Autumn Statement made by my right honourable Friend the Chancellor of the Exchequer in the House of Commons, copies of which have been made available in the Printed Paper Office, and the text of which will be printed in full in the Official Report.

The following Statement was made earlier in the House of Commons.

“Britain’s economic plan is working, but the job is not done. We need to secure the economy for the long term, and the biggest risk to that comes from those who would abandon the plan. We seek a responsible recovery, one in which we do not squander the gains we have made, but go on taking the difficult decisions, and one in which we do not repeat the mistakes of the past, but this time spot the debt bubbles before they threaten financial stability. We seek a responsible recovery, in which we do not pretend we can make this nation better off by writing cheques to ourselves, and instead make the hard choices. We need a Government who live within their means, in a country that pays its way in the world.

Three and a half years ago, I set out our long-term economic plan in the emergency Budget. That plan restored stability in a fiscal crisis, but it was also designed to address the deep-seated problems of unsustainable spending, uncompetitive taxes and unreformed public services for which there are no quick fixes. Over the last three years we have stuck to our guns and worked through the plan. We have done so in the face of a sovereign debt crisis abroad, and at home in the face of opposition from those who got Britain into this mess in the first place and have resisted every cut, every reform and every effort to get us out of that mess. We have held our nerve while those who predicted there would be no growth until we turned the spending taps back on have been proved comprehensively wrong.

Thanks to the sacrifice and endeavour of the British people, I can today report the hard evidence that shows our economic plan is working, but I also report the hard truth that the job is not yet done. Yes, the deficit is down, but it is still far too high, and today we take more difficult decisions. Yes, the forecasts show that growth is up, but the same forecasts show growth in productivity is still too low, and today we set out further economic reforms. Yes, jobs are up and unemployment is down, but too many of our young people lack the skills to fill those jobs and the opportunities to acquire them, so now we take bold steps to remove that cap on aspiration. Yes, businesses are expanding, but business taxes are still too high and exports are too low and we must address that. And yes, real household disposable income is rising, but the effects of the financial crash on family budgets and the cost of living are still being felt. So where we can afford to help hard-working families, we will continue to do so. The hard work of the British people is paying off, and we will not squander their efforts. We will secure the economy for the long term, and this Statement sets out how.

Let me turn to the report from the Office for Budget Responsibility. Again, I thank Robert Chote and his team for their rigorous and independent work. The OBR report notes that the Office for National Statistics has reassessed the depth of the great recession. The fall in GDP from peak to trough between 2008 and 2009 was not 6.3% as previously thought, but was instead an even more staggering 7.2%; £112 billion was wiped off our economy—about £3,000 for every household in this country—in one of the sharpest falls in the national income of any economy in the world. That is a reminder of the economic calamity that befell Britain and of the simple fact that our country remains poorer as a result of it. A lot of work still remains to be done to put that right. The data revisions also showed something else: there was no double-dip recession.

Let me turn to the future. At the time of the Budget in March, the OBR forecast that growth this year would be 0.6%. Today, it more than doubles that forecast and the estimate for growth will be 1.4%. Next year, instead of growth of 1.8%, it is now forecasting 2.4%. Faster growth now means that it has revised the following four years to 2.2%, 2.6%, 2.7% and 2.7%, so growth over the forecast period is significantly up. It is still not as strong as we would like it to be, but this is the largest improvement to current year economic forecasts at any Budget or autumn Statement for 14 years. I can report that Britain is currently growing faster than any other major advanced economy: faster than France, which is contracting; faster than Germany; and faster even than America. That contrast itself points to the risks that remain for the UK from abroad, and the weakness of many of our main trading partners.

The first risk the OBR identified to our economic recovery is a recurrence of the damaging instability in the eurozone. Even with the relative calm of recent months, the OBR still forecasts that the euro area as a whole will shrink by 0.4% this year. Its growth forecasts for the US and emerging markets have also been revised down, and world trade has been weaker than it expected in March. While our exports are growing, they are not growing as fast as we would like. That is because we are too dependent on markets in Europe and North America. The Prime Minister’s visit to China this week is the latest step in the Government’s determined plan to increase British exports to the faster growing emerging markets, something our country should have done many years ago. Today, I am doubling to £50 billion the export finance capacity available to support British businesses, expanding the help available to firms in these emerging markets and ensuring that our excellent new Trade Minister, Lord Livingston, has all the firepower he needs.

Let me turn to the forecast for employment. Today in Britain, employment is at an all-time high and the OBR has revised up its forecast for the future. It was expecting jobs to stay flat over the year, but it now expects the total number of jobs to rise by 400,000 this year. This is being felt right across the country. Since 2010, the number of jobs in Carlisle and on the Wirral, and from Selby to south Tyneside, have all grown faster than in London. Meanwhile, the number of people claiming unemployment benefit has fallen by more than 200,000 in the past six months—the largest such fall for 16 years. Unemployment is also lower than in 2010, and is forecast to fall further from 7.6% this year to 7% in 2015, before falling even further to 5.6% by 2018. We have the lowest proportion of workless households for 17 years.

There were those who said it was a ‘fantasy’ to believe that businesses could create jobs more quickly than the public sector would have to lose them. What they should have said was that it would be fantastic if it happened. So I have good news for them. Businesses have already created three jobs for every one lost in the public sector, and the OBR report today forecasts that this will continue, with 3.1 million more jobs being created by businesses by 2019, which, in its words, ‘more than offsets’ the million or so reduction in the public sector headcount. Far from the mass unemployment predicted, we have a record number of people in work, hundreds of thousands fewer on welfare, and unemployment lower than when we came to office, and we will have 2 million more jobs than in 2010—an economic plan that is working and a Government who are seeking a job-rich recovery for all.

Let me turn now to the forecasts for government borrowing and debt. When this Government came into office, the deficit was 11% of GDP. That was the highest level in our peacetime history. One pound in every four was being borrowed, and a former Chancellor and a former Prime Minister have now joined the consensus that spending was too high. The borrowing posed a huge risk to the economic stability and credibility of the United Kingdom, and we have taken many difficult decisions to bring that deficit down—every one contested and opposed.

I can report today, however, that the effort is paying off. The OBR uses a measure of what it calls ‘underlying public sector net borrowing’, which excludes the impact of the Royal Mail pension scheme and asset purchase facility transfers. I can tell the House that this underlying measure of the deficit, like the other deficit measure, has been revised down substantially since March. From the 11% back in 2010, the underlying deficit now falls to 6.8% this year, instead of the 7.5% the OBR forecast back in March. It then falls to 5.6% next year, then 4.4%, 2.7% and, in 2017-18, 1.2%. By 2018-19, on this measure, the OBR does not expect a deficit at all. Instead, it expects Britain to run a small surplus. These numbers mean that the Government will meet their fiscal mandate to bring the structural current budget into balance and meet it one year early.

Let me turn to the forecasts for cash borrowing on this same underlying basis. At the autumn Statement last year, there were repeated predictions that borrowing would go up. Instead, borrowing is down—and down significantly more than was forecast. In their last year in office, the previous Government borrowed £158 billion. This year, we will borrow £111 billion, which is £9 billion less than was feared in March. That falls next year to £96 billion, then down to £79 billion in 2015-16, £51 billion the year after and £23 billion the year after that. So we are set to borrow £73 billion less over the period than was forecast in March. That means that we are borrowing the equivalent of £2,500 less for every household in this country.

In 2018-19, on this cash measure too, the OBR forecasts that the Government will not have to borrow anything at all. Instead, we will run a small cash surplus. Of course, this will only happen if we go on working through our long-term plan, delivering the reductions in the deficit we plan this year, next year and in the three years after. If we gave up on the plan now, we would be saddled with a deficit still among the highest in Europe, and the government side of the House is not prepared to take that risk.

While the deficit remains, it adds to our national debt every year. The OBR today expects debt this year to come in at 75.5% of GDP, which is £18 billion lower than was forecast in March. It rises to 78.3% next year, before peaking at 80% the next year—5% lower than forecast at the Budget. In 2016-17, it then falls, albeit slightly, to 79.9%; then falls again to 78.4% and then to 75.9%. By 2017-18, debt is over £80 billion lower than forecast in March. The supplementary debt target is for debt to be falling in 2015-16. At the Budget, the OBR forecast debt to be falling in 2017-18. It is now forecast to fall in 2016-17, which is one year earlier.

But let me enter this note of caution. The OBR is clear that this is a cyclical improvement. The forecast for the continuing fall in the structural deficit has not improved. The structural deficit is the borrowing that stays behind even when the economy improves. Thanks to our actions, it has fallen from the 8.7% we inherited to 4.4% today—more than in any other major advanced economy. It goes on falling, but no faster than was previously expected because, as we have always argued, the central task of reforming government and controlling spending does not simply dissolve when growth returns. It supports the case we have made all along that economic growth alone was never going to be enough to repair Britain’s broken public finances. An improving economy does not let us off the hook for taking the difficult decisions to make sure that the Government live within their means.

The single most important economic judgment I make today is this: we will not let up in dealing with our country’s debts; we will not spend the money from lower borrowing; we will not squander the hard-earned gains of the British people. The stability and low mortgage rates, the lower deficit and falling borrowing have been hard won by this country, but let us be clear that they could easily be lost. That is why we must work through our plan to secure the British economy for the long term.

So this autumn Statement is fiscally neutral across the period. Indeed, I can announce today that we will take three new steps to entrench Britain’s commitment to sound public finances. First, we will bring forward next year an updated charter for budget responsibility and ask Parliament to support it. I can say today that both parties of the coalition have agreed that we must ensure that debt continues to fall as a percentage of GDP, including using surpluses in good years, for this purpose. In other words, this time we will fix the roof when the sun is shining.

We will look to see whether the five-year time horizon of the fiscal mandate could be shorter and even more binding now that the public finances are closer to balance, and we will see how fiscal credibility could be further enhanced by a stronger parliamentary commitment to the path of consolidation already agreed for 2016-17 and 2017-18. The answers will be written into an updated charter for budget responsibility, which will be presented to Parliament a year from now and voted upon.

The second step we take today to entrench Britain’s commitment to sound public finances is this: we will cap overall welfare spending. Welfare budgets were completely out of control when we came to office and the number of households where no one had ever worked nearly doubled. We have taken very difficult decisions to bring benefit bills down; we have saved £19 billion a year for the taxpayer. We need to maintain that discipline. The percentage of spending in the UK subject to fixed spending controls is very low by international standards—at just 50%. So from next year, we will introduce a new cap on total welfare spending.

I have had representations that the basic state pension should be included within that cap, but that would mean cutting pensions for those who have worked hard all their lives because the costs on, say, housing benefit for young people had got out of control. That is not fair, so we will not include the state pension, which is better controlled over a longer period. We will also exclude from the cap the most cyclical of benefits for jobseekers. All other benefits—from tax credits to income support to the vast majority of housing benefit—will be included in the cap.

At the beginning of each Parliament, the Chancellor of the day will set the welfare cap for the coming years, and will ask the House of Commons for its support. If the cap is breached, the Chancellor will have to explain why, and hold a vote in the House. The principle is clear: the Government have a responsibility to taxpayers to control their spending on welfare, and Parliament has a responsibility to the country to hold the Government to account for it.

That brings me to our third step. Ultimately, the test of fiscal credibility is whether you are prepared actually to make the difficult decisions that will keep spending under control. Tight discipline means that most departments are now living well within their set budgets. This year they are expected to underspend by £7 billion, which is testimony to good financial management. We can therefore be confident in reducing the contingency reserve by £1 billion this year, and reducing departmental budgets by a similar amount in the next two years. That will save a further £3 billion in total. The protections for the NHS and schools will apply, and the security and intelligence agencies and Her Majesty’s Revenue and Customs will be exempt. The Barnett formula means that over the next two years, the budgets for Scotland, Northern Ireland and Wales will see a net increase. We will not apply those additional savings to local authorities, because we expect them to freeze council tax next year.

This year, Britain becomes the first G8 country to meet our promise to the poorest in the world to spend 0.7% of our national income on development, but we do not have to increase the budget of the Department for International Development further in order to do that. The effectiveness of the British Government’s aid effort in the Philippines, matched by the generosity of the British public, is a reminder of what marks us out as a nation, and we in this country can be very proud of it.

We are also immeasurably proud of the work of Britain’s Armed Forces. As they wind down their operations in Afghanistan, the budget that we spend there is also falling fast, so we can reduce the military special reserve by a further £900 million this year while still funding all operational costs. To reflect our society’s debt of gratitude to our service men and women and their families, I want to make a further £100 million of LIBOR fines available to our brilliant military charities, and to extend that support to those who care for the work of our police, fire and ambulance services. I think the whole House will agree that the terrible events in Glasgow this weekend, and the work that those services are doing right now to cope with the adverse weather conditions, remind us how much we owe to them.

Discipline with the public finances means more than just words. It means making difficult decisions, and being prepared to stick to them. It means using surpluses in good years to keep debt falling, so that we fix that roof when the sun is shining. It means capping welfare to keep it under control, and, when we do want to spend more money, it means finding extra ways in which to pay for it. One of the biggest single items of government spending is the basic state pension. I am proud to be in a Government who have introduced a triple lock that ensures a fair and generous increase in the state pension every year for those who have worked hard all their lives. I can confirm that next April the state pension will rise by a further £2.95 a week. That increase, and the other increases that have been made under this Government, mean that pensioners will be more than £800 better off every year. I can announce that we are also going to offer current pensioners an opportunity to make voluntary national insurance contributions to boost their income in retirement, and that we will extend that opportunity to those who reach pension age before the introduction of the single-tier pension. That will help those who have not built up much entitlement to the additional state pension, especially women and the self-employed.

However, we must also guarantee that the basic state pension is affordable in the future, even as people live longer and our society grows older, and the only way in which to do that is to ensure that the pension age keeps pace with life expectancy. The Pensions Bill, which is currently going through Parliament, puts in place reviews of the pension age every five years. We have set the principle that will underpin those reviews. We think that a fair principle is that, as now, people should expect to spend up to a third of their adult lives in retirement. Based on the latest life expectancy figures, applying that principle would mean an increase in the state pension age to 68 in the mid-2030s and to 69 in the late 2040s. The exact dates will be set by the future statutory reviews and in line with the most up-to-date demographic data, of which the next update is published next week. This is one of those difficult decisions that Governments have to take if they are serious about controlling the public finances. Future taxpayers will be saved around £500 billion. Young people will know that our country can afford to give them a proper pension when they retire. That is this generation fulfilling its obligations for fiscal responsibility to the next generation, not saddling them with the debts and the decisions we were not prepared to deal with ourselves.

Having sound public finances also means making sure that we collect the taxes that are due. Most wealthy people pay their taxes and make a huge contribution to funding our public services; the latest figures show that 30% of all income tax is paid by just 1% of taxpayers. We have given incentives to enterprise and cut punitive tax rates, and this year the rich pay a greater share of the nation’s income taxes than was the case in any year under the last Labour Government. But alongside those paying the most tax are those who try to avoid paying their fair share of tax. So today we set out in detail the largest package of measures to tackle tax avoidance, tax evasion, fraud and error so far this Parliament. Together it will raise over £9 billion over the next five years.

We are going to tackle the growth of intermediaries disguising employment as false self-employment, depriving workforces of basic employment rights such as the minimum wage in a bid to avoid employer national insurance. We will halve the final period exemption for capital gains tax private residence relief. We will end the abuse of dual contracts, offshore oil and gas contracting, derivatives linked to profits and share buy-backs. And we will ensure the tax advantages of partnerships are not abused either. We are introducing a new, limited power that requires people to pay up front their taxes where the scheme they used has already been struck down by the courts. We are going to strengthen Whitehall’s capacity to prevent error and tackle fraud in the benefit and tax credit systems, and expand its efforts to recover money that is owed.

There is one personal tax change we make today which is not about avoidance, but is about fairness. Britain is an open country that welcomes investment from all over the world, including investment in our residential property. But it is not right that those who live in this country pay capital gains tax when they sell a home that is not their primary residence while those who do not live here do not—that is unfair. So from April 2015, we will introduce capital gains tax on future gains made by non-residents who sell residential property here in the UK.

I can also announce that from 1 January next year the rate of the bank levy will rise to 0.156% and its base will be broadened in ways we have consulted on. The levy will raise £2.7 billion in 2014-15 and £2.9 billion each year from 2015-16. The country stood behind the banks in the crisis, and now it is right that they support the country in recovery.

Having a Government who live within their means is essential to secure the economy for the long term, but it is not sufficient. Britain has to earn its way in the world. Our infrastructure needs to be overhauled. We have to help our businesses compete. Above all, our young people need the skills to succeed in the modern world. This autumn Statement takes the next big steps in all these areas.

Let me start with infrastructure. We are going to be spending more on capital as a proportion of national income on average over this decade than over the whole period of the last Government. That has involved making tough choices about priorities in spending and sticking to them. But that is not the most difficult decision in this area. We have to decide whether we are serious as a country about competing in the modern world and say to people that we need the new roads and the new railways, including the northern hub and High Speed 2. We have to say that we are prepared to push the boundaries of scientific endeavour, including in controversial areas, because Britain has always been a pioneer.

We should say that the country that was the first to extract oil and gas from deep under the sea should not turn its back on new sources of energy such as shale gas because it is all too difficult, and the country with the world’s first civil nuclear programme should not be a country that says we can do this no longer.

Yesterday, my right honourable friend the Chief Secretary and Lord Deighton published the update to the national infrastructure plan. That includes a co-operation agreement with Hitachi on the next nuclear power station in Anglesey and a deal with the insurance industry to invest at least £25 billion in UK infrastructure. We published the strike prices that support long-term investment in offshore wind and prioritise it over onshore wind. Today we go further, with a commitment to invest in quantum technology, and a new tax allowance to encourage investment in shale gas that halves tax rates on early profits. In the week in which Professor Peter Higgs travels to Stockholm to collect his Nobel prize for physics, we commit to build a new centre in his name at Edinburgh University, because science is a personal priority of mine.

Some of the most important infrastructure for British families is housing and we must confront this simple truth: if we want more people to own a home, we have to build more homes. The Office for Budget Responsibility is absolutely right today to draw attention to the weakness of housing supply in this country. The good news is that the latest survey data showed residential construction growing at its fastest rate for a decade. Our hard-won planning reforms are delivering a 35% increase in approvals for new homes, but we need to do more.

This week, we are announcing £1 billion of loans to unblock large housing developments on sites in Manchester and Leeds and across the country. We will increase the housing revenue account borrowing limit by £300 million. Aspiration is not only for people who can afford their own home. We want to regenerate some of our most run-down urban housing estates. Councils will sell off the most expensive social housing, so they can house many more families for the same money. We are going to give working people in social housing a priority right to move if they need to for a job.

Right-to-buy applications have doubled under this Government, and we will expand it more. The very same spirit of aspiration that underpins right to buy is what drives this Government with Help to Buy. It is not enough to build more houses if families who can afford mortgages do not have the large deposits that the banks have demanded. Help to Buy is now helping thousands to own their own home. I can today announce that Aldermore and Virgin, two challenger banks, expect to join the scheme this month. Help to aspiring families and building more homes: that is what we stand for.

We must also avoid the mistakes of the past decade. We want a responsible recovery. That is why I am the first Chancellor to give the Bank of England the responsibility and the power not only to monitor overall debt levels, but to take action to deal with asset bubbles if they threaten our stability.

We want a functioning, stable housing market. The OBR’s latest house price forecast today, while higher, still has real house prices 3.1% lower in 2018 than at their peak in 2007. Together with Governor Carney, I acted last week to focus the funding for lending scheme away from mortgages on to small business lending, where its support is still needed. It is precisely because the authorities can act in this targeted and pre-emptive way, and because our public finances are under control, that the Bank can keep overall interest rates lower for longer and support the rest of the economy.

Investing in the physical infrastructure of our country is critical to our future. But in this global economy, it is better education and skills that hold the key to long-term national success. This week’s programme for international student assessment—PISA—scores show how much ground this country has to make up. My right honourable friend the Education Secretary is doing more to transform school standards and raise the aspirations of pupils from the poorest families than anyone who has done that job before him. His expansion of free schools and academies has the full backing of this Chancellor.

We also know that children do better at school when they have a proper meal inside them. This autumn Statement has found the financial resources to fund the expansion of free school meals to all schoolchildren in reception, year 1 and year 2, announced by the Deputy Prime Minister and supported by me.

But today we also focus on what happens when our young people leave school—and we do more to help them. First, we will not abandon those who leave school with few or no qualifications. At present, Jobcentre Plus does almost nothing to help 16 and 17 year-olds who are not in work or education. We will change that and will now fund the jobcentres to support these very young adults to find an apprenticeship or a traineeship.

Without basic maths or English, there is a limited chance any young person will be able to stay off welfare, so we are taking a new approach. Starting in some areas at first, anyone aged 18 to 21 signing on without those basic skills will be required to undertake training from day one or lose their benefits. If they are still unemployed after six months, they will have to start a traineeship, take work experience or do a community work placement—and if they do not turn up, they will lose their benefits.

A culture of worklessness becomes entrenched when young people can leave school and go straight on to the dole with nothing expected in return. That option is coming to an end in our welfare system.

The second reform is to apprenticeships. We have doubled the number of apprenticeships and now we will transform the way they are provided by funding employers directly through HMRC. I can tell the House there will now be an additional 20,000 higher apprenticeships over the next two years. I can also announce a big expansion of start-up loans, through which a new generation of entrepreneurs is being created: 50,000 more people will be helped to fulfil their aspiration to start their own business. We are extending the new enterprise allowance, too.

This year is also the 50th anniversary of the Robbins report, which challenged the nonsense that university was suitable only for a small few. In 1963, Robbins said:

‘Courses of higher education should be available for all those who are qualified by ability and attainment to pursue them and who wish to do so’.

That was true then, and I believe it should remain true today. Our reforms to student loans, difficult as they were, have put our universities on a secure footing. Some predicted that applications from students from poor backgrounds would fall. Instead, I can report that this year we have had the highest ever proportion of young people from disadvantaged backgrounds applying to university.

But there is still a cap on aspiration. Each year, about 60,000 young people who have worked hard at school, got the results, want to go on learning and want to take out a loan to pay for it are prevented from doing so because of an arbitrary cap. That makes no sense when we have a lower proportion of people going to university than even the United States, let alone countries such as South Korea. Access to higher education is a basic tenet of economic success in the global race, so today I can announce that next year we will provide 30,000 more student places, and the year after we will abolish the cap on student numbers altogether.

Extra funding will be provided to science, technology, and engineering courses. The new loans will be financed by selling the old student loan book, allowing thousands more to achieve their potential.

Education underpins opportunity. It is business that provides those opportunities and the best way to help business is by lowering the burden of tax. KPMG’s report last week confirmed for the second year running that Britain has the most competitive business tax system in the world. Some in this House suggest that our response to this good news should be to increase corporation tax from 20%. Today, we publish the first of our studies into the dynamic effects of tax changes that shows that our corporation tax cuts increase investment and raise productivity—so much so that more than half the cost of the tax cut to the Treasury will be recovered because of higher growth. Putting up corporation tax hits investment, cuts productivity, costs jobs and raises much less. We thank the honourable Members for their submission, but we think it would be economic madness to pursue it.

Quite the reverse, today we take further steps to make our business taxes yet more competitive. The Budget announcement that we would abolish stamp duty on AIM shares was applauded around the world. Today, we also abolish stamp duty for shares purchased in exchange traded funds to encourage those funds to locate in the UK. We are making our successful film tax relief even more generous, and looking to extend the principle, including to regional theatre. We set out major reforms to encourage employee ownership of the kind that makes John Lewis such a success. And from April, we will be one of the first countries in the world to introduce a new tax relief for investment in social enterprises and new social impact bonds. I want to thank Sir Ronnie Cohen and my honourable friend the Charities Minister for all their help in putting this innovative scheme together.

Business rates impose a heavy burden on businesses of all sizes. Today, we will help ease that burden—and here is how. The last Government wanted to halve small business rates relief—a relief that helps cut rates bills for half a million companies and means a third of a million of the smallest businesses pay no rates at all. If we had followed that plan, small businesses would have faced a rate increase of up to £3,375. So we have rejected that plan. Instead, we have extended that rate relief scheme year after year. It was due to expire next April. We will now extend it for another whole year. We have also listened to the small business groups and will relax the rules that discourage these firms from expanding and opening extra premises.

But that does not go far enough. All businesses are expecting rates to rise by 3.2% next year. Instead, I will cap the inflation increase in business rates for all premises at 2% from next April. We will also allow businesses to pay their rates in 12 monthly instalments. We will clear almost all the backlog of valuation appeals by July 2015, with reform of business rates on the agenda for 2017 revaluation.

There is one group of businesses that has found the recession especially hard, as it has coincided with a rising challenge from the internet that is only getting stronger. These are our local retailers—the shops, the pubs and the cafés that make up our high streets across Britain. With Small Business Saturday this weekend, I want the Government to do all we can to help them. We are already changing the planning rules to help town centres compete. To get the vacant shops that blight too many town centres to open again, I am introducing a new reoccupation relief that will halve the rates for new occupants.

But we can do more, and I want to thank my honourable friends the Members for Wolverhampton South West, Nuneaton, Hastings and Rye and many others for their campaign. Like them, I also want to help those who have struggled hard on our high streets—often working long hours for not enough in return. So I can announce today that for the next two years every retail premise in England with a rateable value of up to £50,000 will get a discount on their business rates. This discount will be worth £1,000 off their bills.

This is what we offer: business rates capped; for the smallest firms, no rates at all; and help for the high street, with £1,000 off for small shops, pubs, cafés and restaurants across our country. The people in these businesses epitomise the hard-working values this Government support, and we are backing British businesses all the way.

And we are backing British families. Next April, the personal allowance will reach £10,000. This Government are delivering an income tax cut worth up to £700 a year to over 25 million hard-working people. Under the last Government, council tax doubled. We are now helping councils freeze it for the whole of this Parliament. Tax-free childcare is being introduced and free school meals are on their way. But there is more we are doing to help.

This autumn Statement confirms that from April 2015 we will introduce a new transferable tax allowance for married couples. Available to all basic rate taxpayers, it enables people to transfer £1,000 of their personal allowance to their wife, husband or civil partner. It is just a start. And I confirm today that we will introduce a new uprating mechanism that ensures the new married couples tax allowance is automatically increased in proportion to the personal allowance. Four million families will benefit, many of them among the poorest working families in our country. This measure, along with the others we take today, ensures that across this Parliament our policies are progressive, showing that we are all in this together, with the very rich paying the most.

We are also helping families with their energy bills, not with a transparent con by pretending that we can control the world oil price, but instead by focusing on the thing that Government can and should control—the levies and charges that previous Energy Secretaries piled on bills. This week we deliver on the promise made by the Prime Minister to roll back those levies. The result: an average of £50 off family bills. We are doing this in a way that supports the lowest income families, reduces carbon, supports investment in our energy infrastructure and, as the document shows, does not add a penny to the tax bills that families pay. My political philosophy is clear: instead of penalising people with more taxes and more regulation, give them incentives by reducing their taxes and their bills. As I have often said, going green does not have to cost the earth.

That brings me on to fuel duty. We inherited from the previous Government the hated fuel duty escalator that would have inflicted hardship on families and small firms alike. Instead of those rises, we abolished the escalator, and we have cut and then frozen fuel duty. I have had further representations from many honourable friends, from the Member for Blackpool North and Cleveleys, to the Member for Argyll and Bute, and of course the Member for Harlow, who is a champion of the people he represents.

I said earlier this autumn that if we could find the money, I would like to go on freezing duty. Today I can report that because we have taken difficult decisions to control the public finances, I can deliver on that promise. Next year’s fuel duty rise will be cancelled. Instead of petrol taxes going up by 2p a litre, they will stay frozen. That means that, compared with the previous Government’s plans, petrol will be 20p a litre less. That is £11 less every time you fill up—a saving for drivers over this Parliament of £680, and double that for a small business with a van.

Cancelling fuel duty rises has been a major priority of the Government—a £22 billion demonstration that we are on the side of hard-working people in this country. A married couples allowance; £50 off energy bills. We are helping those who drive a car and we are helping those who get the train, too. Fares next January were going to go up by 1% above inflation. We are going to keep average fares flat in real terms.

We on the government Benches know that there is one thing more than any other that has supported families through these difficult times, and that is being in work. At the heart of our economic plan is support for the creation of more jobs. That is why we opposed the last Government’s plan to increase the jobs tax. That is why we reversed the most damaging part of that increase in the very first Budget after we came to office. That is also why in the last Budget I introduced the employment allowance, which eliminates the jobs tax for half a million small businesses. And that is why we will go further still. We are going to abolish the jobs tax on young people under the age of 21. Employer national insurance contributions will be removed altogether on a million and a half jobs for young people. We are not going to leave young people behind as the economy grows. We are going to have a responsible recovery for all.

The cost for a business of employing a young person on a salary of £12,000 will fall by over £500. For someone on £16,000, that is over £1,000 off. I want to commend my honourable friends for Braintree and Carlisle and the Million Jobs campaign for highlighting this issue. The change requires legislation. It will come into force in April 2015, and it will not apply beyond the upper earnings limit.

This country is working through its long-term plan: bringing down the deficit and dealing with the debt; spending less on welfare and making the big decisions on infrastructure; living within our means and cutting tax on business; making work pay and letting people keep more of what they earn; and with confidence in the next generation, as they make their way in education and in the workplace. This Statement shows that the plan is working. It is a long-term plan for a grown-up country. But the job is not done. By doing the right thing, we are heading in the right direction. Britain is moving again. Let us keep going.”

15:30

[Lord Davies of Oldham (Lab)]

My Lords, it is a pleasure to address the issues raised in the Autumn Statement in our usual atmosphere of calmness and courtesy—a rather sharp contrast with the wall of noise that greeted my counterpart, the shadow Chancellor, in the other place. This is an occasion for asking questions so I am sure that I am not going to be able to generate such excitement on the government Benches, but I hope that the Minister will answer my questions.

The Chancellor did not mention the concept of productivity, made no acknowledgment of the weakness of our balance of payments position in recent years despite the significant devaluation of the currency that we have experienced, and showed no real appreciation of the fact that real wages are still falling, among those who are employed. It is therefore proper to ask the Minister whether he is assured that the much vaunted growth figures quoted in the Statement are not based upon a somewhat insubstantial platform. Do these figures also not reflect a bounce back from a very low base indeed? The House will appreciate that even if growth reaches the figures that the Chancellor quoted, with his customary optimism, after three years of this economy flatlining, growth by 2015 will be only half the growth that in 2010 the Chancellor indicated to the nation that he hoped to achieve by the time that this Parliament had concluded.

The Minister who will respond to this Statement speaks and acts significantly on the issues of infrastructure in the economy. Will he comment on the fact that infrastructure output has fallen by 15% since 2010, and that so much which is promised remains unfulfilled? In 2010 the Chancellor also said that he was setting out to balance the books by 2015. It is clear that in 2015 we shall still have a deficit of £80 billion. That reflects the amount of borrowing that he had to do in the lean, flatlining years when no growth occurred. Will the Government persist in seeking to deny that we are in the middle of an acute cost of living crisis?

The Government are of course so wedded to the free market that they are quite unable to recognise the challenge presented by the Opposition on energy prices. After all, their belief in the market means that they cannot even recognise a standard textbook analysis of the creation of cartels, which is what the six main energy companies represent, and how that leads to excess profits. It is noticeable that the Government’s gesture in attempting to moderate the level of energy prices during this winter does not cost the cartel anything at all. It is the taxpayer who is going to meet the deficit that will occur due to the companies charging quite so much, and prices will still rise, going up by £70 in this period. For an awful lot of people in the country, £70 is a very significant sum for fuel. After all, we pay £100 to pensioners in the winter fuel allowance because we recognise the acute need that pensioners have to keep their homes warm. However, we expect all the rest of the population, whatever their incomes, to withstand an increased charge of £70.

The Government shy away from any interference with the market. However, I am a fair man and therefore the House would expect me to acknowledge those occasions when the Government do interfere—for example, the gesture with regard to payday loans, but that is a straight reflection of the pressure that had been generated from my party and in this House on the issue, and of course the Government’s response has been woefully inadequate.

The crucial thing I want the Minister to address is the constant failure of wages to match prices, which is making working people poorer. It may be that the Minister is not that familiar with those people who find themselves poor at present. He is likely to meet an awful lot of people—his friends certainly have many associates among the banks—in the banking fraternity, at the highest levels, who are of course not feeling the pinch at all. Hedge funds, too, are not noticeably short of returns. That is to say nothing of the growth of high salaries right throughout British commerce and industry, while wage levels stay stagnant. It is only accidental that some of those groups have a profound interest in sustaining and supporting the Conservative Party both between elections and at election time. We are not seeking to be too controversial today so the Government need not comment on that particular point, but I want the Minister to respond on the issue of falling wages.

It is quite clear that the Government are committed to a position. The Chancellor waxed with some strength over the fact that there will be a cap on welfare and very severe constraints on public expenditure, and gave the briefest outline of what that would mean. We all know what it means: five more long and hard years. We also know who is going to bear the costs of those five long and hard years—those who have done it since the coalition came into office in 2010.

The other obvious question is: if the Government are so wedded to free markets, do they consider that the free market worked well in the banking crisis of 2007-08? That was not a failure of anything except the free market. I notice some excitement on the government Bench, because they have worked out that in 2007-08 Labour was in power. That is certainly so, but we were not in power when the Big Bang freed up the City to create the successive market mechanism, and whenever there were suggestions of anything to do with regulation we know on which side the Conservative Opposition were. Of course, they have shown themselves to be exactly the same in the energy debate.

Will the Minister confirm that the Chancellor envisages—if, by some mischance, this Government, or a Conservative version of them, were retained in office—aiming for the size of the state in public expenditure to go back to the levels of 1948? To contemplate that in a modern society merely demonstrates that ideology dictates this Government’s economic policies, not the welfare of the nation.

[Baroness Thornton (Lab)]

Answer that!

15:41

[Lord Deighton]

I will. My Lords, first, I thank the noble Lord for his measured response and forensic questioning, which I shall do my very best to address in an entirely constructive fashion.

However, I want to set a bit of reality and context to the discussion about the economy. Clearly, there was lots of good news to report and we as a nation, across the parties, should welcome the recovery of the economy that we have seen in recent months. Growth is up: the OBR has just restated that the growth forecast for 2013 is up from 0.6% to 1.4%. For 2014 the forecast has been increased from 1.8% to 2.4%. The deficit is down. As a percentage of GDP in 2010 it was 11%; it will be 6.8% this year and will be at a small surplus in 2018-19.

The noble Lord makes much of the fact that some of the original projections in 2010 envisaged those targets being reached earlier. Of course, the two principal reasons that they were not were, first, that the depth of the crisis in 2008-10 proved to be much, much greater, with over 7% taken out of GDP, as we have just discovered. Secondly, the external circumstances surrounding the economy in the past three years, in particular the fact that the euro region was on the verge of having its currency broken up, put a damper on the economy. To find ourselves in this economic situation today, despite those prevailing winds, is a testimony to the strength of this Government’s economic strategy.

Surprise, surprise, there was no mention of employment, which sits at record levels, with the lowest proportion of workless households for the past 17 years and the creation of 1.4 million new private sector jobs. There were some interesting announcements in the Autumn Statement today, particularly around trying to help young people into those job opportunities: namely, the scrapping of national insurance contributions for under-21s and specific measures for Jobcentre Plus to deal with 16 and 17 year-olds, which are addressing something absolutely critical for the nation.

On inflation, let us talk a little about real wages. Of course, the reason that people are feeling the squeeze is the result of the significant collapse in the economy in 2008-10, from which we are trying to recover. That is the problem; that is why real wages fell sharply. Above-target inflation occurred through 2011-12 because of external influences, principally commodity prices and the oil price.

The good news is that inflation is now slowing down. It was at 2.2% in the previous quarter. The OBR says that we will hit our 2% target by 2016. So we see inflation coming down and earnings recovering. But earnings do not tell the whole story. Total, real household disposable incomes have increased by 3.9% since the crisis, and that has been supported by government policy—for example, the increase in the personal allowance to £10,000, which will be coming through next year—as well as those strong employment levels.

Of course, the critical thing in this argument is that the only way to improve living standards is to grow the economy. There cannot be a cost-of-living strategy without an economic strategy. We have heard nothing from the Opposition about an economic strategy, which is not surprising because the one they were professing has been demonstrated to be a complete failure. The numbers I have just gone through show very clearly that you can have both a reduction in the deficit and a recovery in economic growth. It was the axiom of the opposition strategy that that just was not possible. The facts have demonstrated that it is.

I absolutely accept that there is still a lot to do. We are not at all complacent about the situation. It was a very deep recession. We are recovering from it effectively but still relatively slowly. Although on an international basis we are one of the strongest performing economies at the moment, there is still an enormous amount to do. Our deficit level is still far too high. Of course, the level of debt created by the accumulation of borrowing in order to finance the deficit leaves us in an exposed and unsustainable position unless we continue to bring it down. That is why the overall message in this Autumn Statement is the commitment to fiscal neutrality, even though the temptation to indulge in giveaways could, at the political level, be strong.

I admire the Chancellor’s discipline. Taking a grip of the long-term risks around pension costs is absolutely the right thing to do, to match pensions to longevity. Putting a constraint on the absolute size of the welfare bill—the part of our spending that was most out of control, among the many out-of-control elements of the previous regime—so that the Chancellor will have to come back to Parliament to be scrutinised if that significant part of our spending gets out of whack, is a very disciplined part of the equation. We will also continue to see a reduction in government spending at the margin—continuing to capture the underspends that we will see this year, which are a function of prudent financial management, but ensuring that year after year we continue with that efficiency drive to ensure that the state delivers its services in a reformed and efficient way.

The noble Lord said that the Chancellor mentioned neither productivity nor exports. With respect, that is not correct. He did refer to productivity and said that it is expected to increase in 2014-15 and 2015-16 as the economy recovers, which is in the OBR independent report, and that this will drive the cost-of-living recovery. He also talked about exports. If one looks at the balance of the recovery, it is consumer-led. Everybody accepts that. It is not surprising that it is consumer-led. Consumption is by far the biggest part of the economy. The OBR’s estimate is that business investment will recover strongly next year and the year after. Of course, everything that the Government are doing on the supply side of the economy is focused on supporting that.

The Chancellor absolutely said that exports were disappointing. The reason they are disappointing is that the markets into which we export, predominantly the European Union and the US, have been relatively weak through the period, which is why our efforts have been so focused on developing export markets in the faster-growing developing economies; hence the Prime Minister’s recent trip to China, for example. We are absolutely in tune with the requirement to improve the net trade balance.

I also draw noble Lords’ attention to the fact that at the heart of living standards recovery is the improvement in productivity that will come with the growth in the economy, but in the mean time this Government have been very attentive to supporting hard-working individuals, whether it is through the £50 improvement to energy bills, the freeze on fuel duty, the married couple’s allowance, free school meals for the up-to-seven year-olds and freezing rail fares in real terms. Those are just some of the examples of the measures.

There have been very targeted efforts to ease the burden on those who are feeling it most, including the most consistent and effective attack on tax avoidance that this country has ever seen, which is yielding considerable savings to the Exchequer that can be deployed against some of these targeted cost-of-living measures.

On the question of free markets, I am proud of the work that we did all together in this House to come up with the right answer on payday loans. I make no apologies for that. It was a really good example of the work that this House can do on a collaborative basis, and a specific example of the general work we are doing on banking reform.

It is hard to know where to start on the 2007-08 banking crisis. It was the regulatory regime that was the great revolutionary change of the previous Government; taking control away from the Bank of England, which meant that the regulatory system was quite unable to cope with what was happening. This of course led us, with the Financial Services (Banking Reform) Bill, to completely change the regulatory framework.

15:51

[Lord Higgins (Con)]

My Lords, I very much welcome many aspects of the very imaginative Autumn Statement. Regretfully, I have to deplore once again the fact that many aspects of it were leaked in advance. I would have thought that the Treasury would have learnt the lesson from a previous Budget experience that this is not a good way of handling public relations—and is very discourteous indeed to Parliament. Parliament has the right to hear these matters first.

The good news, certainly, as my noble friend has just said, is that the economy is recovering faster than expected. Perhaps I might comment on why this has happened. There are, I think, two particular aspects. The first is that the deficit has not been cut as fast as we hoped and that consequently, the economy has picked up a little more, because of the effect on aggregate demand. None the less, I welcome the fact that the Chancellor has now set out a very firm timetable for getting down not only the underlying cyclical deficit but also the structural deficit. This is something to be welcomed. Up to now, we have rejoiced in the fact that we have cut the deficit by a third, but we are still continuing to borrow at two-thirds of the appalling rate that we inherited from the previous Government. It is very important that my noble friend agrees that that should be tackled.

The second reason, which gives more cause for concern, is the substantial reduction in saving—apparently the biggest fall in saving for 40 years. People have been using their savings, which has accelerated the growth of the economy, which may lead to concern. Given his particular responsibility for infrastructure, does my noble friend agree that it is absolutely crucial that we get savings up? The finance has to be provided for the infrastructure that the Government envisage.

In that context, I will ask one particular point. We seem to have got away from financing infrastructure in the usual way: that is, by allowing capital to be provided by whoever is launching the operation and then working it up in the usual way. Instead of that, we have been allowing monopolistic enterprises in particular to increase the prices on existing consumers. That has been the way in which we have been financing, for example, the railways and energy. Will he look particularly at whether this is the right way to proceed—because we are also then depending very largely on foreign investment rather than our own domestic savings and ownership?

[Lord Deighton]

I thank my noble friend for those incisive observations. He is absolutely right to say that the deficit was reduced in a measured fashion, which is part of the reason why the economy has been able to recover so quickly. He is also absolutely right that there is still a structural deficit, so we cannot simply allow for the natural recovery through the economic cycle to take care of our borrowing problem; we must continue to drive savings through the system. On the fall in consumer savings, again, my noble friend is absolutely right that it is a sign of a healthy economy to have a strong savings rate. On consumer behaviour, it is not surprising that, after a few years of belt-tightening, there has been a desire to begin spending again.

On the overall economy, as I mentioned, the recovery in business investment is the single most important change in the recovery of the economy over the next year. We anticipate that the recovery in consumer demand will give business the confidence it needs to increase its level of investment, which is what should sustain the recovery.

On infrastructure, my noble friend is correct. Essentially, there are two ways to finance it: directly from taxpayers or indirectly through the private sector and into the utilities, which then recover the investment through consumers paying. Of course, that is governed by independent regulators, who set the prices in those industries. It is absolutely part of our national infrastructure plan continually to assess the balance between the interests of the investing institutions and consumers’ affordability over the longer term.

[Lord Razzall (LD)]

My Lords, notwithstanding the verbal fisticuffs in another place, I am sure that no one in your Lordships’ House thinks that the Autumn Statement does not contain a lot of good news. Perhaps I could ask the Minister one or two, or three or four questions.

I assume that the Minister will agree that our two parties going into coalition government in 2010 was essential to restore the economy to the point where we could have the Autumn Statement today, and that, without that coalition being formed, that would not have happened. Touching on the coalition, I am well aware, as are all noble Lords, that coalitions mean trade-offs. One of them is the married tax allowance. It is obviously above the Minister’s pay grade to say whether it is time to change it, but if the object is to save marriages, would it not have been better to spend the money on organisations that help them, rather than to introduce that to satisfy the Tory right-wing?

Has there been any progress on the tax fairness proposals that David Cameron announced at the G8, with negotiations on international co-operation? The Minister touched on tax avoidance. How much have tax evasion and aggressive avoidance been affected? How much is currently raised annually from the Government’s measures? Does he agree that, although the plan announced yesterday indicates that only 1% of our GDP will be spent on infrastructure—much less than our colleagues—there is an opportunity to increase that as the economy recovers?

Finally, on a cheekier point to which I think I know the answer, bearing in mind that, as the Minister rightly says, more jobs have been created here in this country than before, have he or his colleagues had an apology from the Labour Party for saying that this would not work?

[Lord Deighton]

On the effectiveness of the coalition partnership, I launched the national infrastructure plan yesterday with my right honourable friend Danny Alexander, and I can say that the harmony in the Treasury could not be stronger. My noble friend is correct to say that the marriage tax allowance question is way beyond my pay grade. On the G8, I can confirm that the initiatives outlined by the Prime Minister, where we have taken global leadership to address issues of tax information exchange and publicising beneficial ownership, continued to be followed through very effectively, with us setting an example.

On the national infrastructure plan, it is clear to me that infrastructure is a very important driver of growth, and the bigger proportion of public spending we can devote to it, the healthier the long-term outcome. The measure, therefore, that my honourable friend the Chancellor of the Exchequer has put in place to keep the proportion of capital expenditure to national income at a constant level is absolutely to be welcomed as a protection in that respect.

[Lord Newby (LD)]

My Lords, these are time-limited questions, so the briefer individual Lords can be in making their contributions, the more Members of your Lordships’ House will be able to participate.

[The Lord Bishop of Chester]

My Lords, whenever a bishop speaks on economics I must emphasise that we preface it with St Paul’s statement: “I speak as a fool”. I fundamentally support the Government’s strategy of getting the deficit down. My question is about the cap and how that is going to operate. Somewhere in the Statement it says that 30% of tax is now collected from 1% of taxpayers. That is a signal of how disparities of wealth have grown in our society. It really behoves us to protect the weakest. My worry is that I see a sort of American scenario of a cap being introduced and benefits not being paid because the cap is there. How will this work, when social security benefits can rise and fall with events which nobody can control? It worries me that introducing another cap of an absolute sort without reference to other realities could end up almost undergirding the underclass, which I am afraid is a developing feature of our society. Can the Minister say a bit more on how this cap is going to work?

[Lord Deighton]

The cap is essentially a fiscal discipline to ensure that a very large part of our budget, which in the past has had no controls around it—and no opportunity to explain what is going on—is properly scrutinised. In the circumstances where there is justification for changing the cap, that will be done under the scrutiny of Parliament. The Chancellor has not introduced what the level of the cap should be but merely an operational measure to make sure that it is properly controlled, just as other parts of the budget are, and indeed so that all the questions and issues around the appropriate level of support for vulnerable members of society can be tackled independently. Those measures should be effectively targeted and that is also part of our welfare-reform programme.

[Lord McFall of Alcluith (Lab)]

My Lords, the Statement issued by the Treasury indicates that the free school meals commitment, costing £755 million in 2015-16, is there for only two years. Can the Minister confirm that that is not the case, and can he indicate why the OBR today sees public finances worsening in the future?

[Lord Deighton]

I thank the noble Lord for that question. I will have to write back to him. I am not sure what the long-term budgetary arrangement is. The usual thing is that it is not specifically in the book. It is expected to be absorbed when we come to do the specific budgets in those years. I am sure the expectation is that it will continue, and that the money will be found for it when we do the budget for that year.

[Lord Crickhowell (Con)]

My Lords, I particularly welcome the measures taken to reduce the tax on employing young people, which will be welcome all around the country. But will the Minister say a little more about the £25 billion that is supposed to be coming in for infrastructure from the insurance companies? I do not think this has been referred to at all in the exchange that has taken place so far on infrastructure. How far does he think it can help in speeding up the infrastructure work? That seems to me, as the years go by, to take longer and longer, partly because the projects are very big. What we really need is not just a large amount of infrastructure work propped with finance but that it takes effect quickly rather than slowly.

[Lord Deighton]

I absolutely agree that one of the principal challenges for our infrastructure ambitions is accelerating the delivery of the projects which we know are important but which take time to define, to get through planning, to be organised and generally to deliver. In a nutshell, what the Government are trying to do within the national infrastructure plan is to work away at the constraints on delivering this plan more effectively. Financing is one of those, which is why we welcome the announcement from those six insurance companies. It is an interesting example of joined-up government working, because the Treasury negotiated successfully with the European Union on the solvency question. That enabled the insurance companies to be comfortable in committing to this kind of asset, because the capital treatment in Brussels is now much more sensible.

[Lord McKenzie of Luton (Lab)]

My Lords, page 1 of the Statement makes reference to the introduction of universal credit. Part of the news that we had today was confirmation that that programme is in disarray and will not be delivered on time. Can the Minister say how much public expenditure has been wasted on that to date and what the estimates are of future write-offs of abortive expenditure? If the Minister is not able to give us the figures today, will he promise to write to us and let us have that information? The Minister referred also to tax avoidance. The introduction of capital gains tax on disposals of residential property by non-residents is to be welcomed, but, from a Government who do not hesitate to legislate retrospectively for benefit claimants, why will that not be introduced until April 2015, when it is clear that the wise will forestall that tax by upping valuations in the interim?

[Lord Deighton]

On universal credit, I can tell your Lordships from a personal point of view that the individual whom we have brought in to manage that programme, Howard Shiplee, worked on the Olympic Games and delivering the Olympic park, so we have got the right people focused on getting the delivery of universal credit absolutely right. Our current planning assumption is that universal credit will be available in each part of Great Britain during 2016, with new claims to the benefits that it replaces having been closed down and the majority of the remaining caseload moving to universal credit in 2017. I do not have the particular numbers on how much it has cost, but I will work with DWP and provide the noble Lord with a response to that question. On capital gains tax for non-residents, we are introducing it in the normal way. The efficacy with which we have approached closing down these loopholes puts the previous Government to shame.

[Lord Hollick (Lab)]

The Statement recognises that we have a cyclical recovery and that in order to turn that into a sustainable, long-term recovery, we need investment—we have had a number of discussions on that—and an improvement in productivity. The Statement references a report, presumably prepared by the Treasury, showing that the policy pursued by this Government and their predecessor to reduce corporation tax has increased investment and raised productivity. In the light of this, is it not strange that the Government have so comprehensively rejected the recommendation of a report prepared by the Economic Affairs Committee of this House and enthusiastically endorsed by all sides in a recent debate that we take measures to ensure that all companies pay corporation tax, particularly those international companies which currently do not, and that UK companies using complex and—frankly—dodgy procedures not to pay tax here should all be required to pay tax? As a result of that, the tax rate to both large and small companies could be substantially reduced, to the benefit of productivity, and the Treasury would be no worse off.

[Lord Deighton]

I thank the noble Lord for his analysis of our need for investment. We also talked about productivity. The review that the noble Lord referred to that the Treasury did on corporation tax is what we describe as dynamic modelling, which means understanding the long-term effects of the tax cuts and demonstrating that the increase in income that flows afterwards pays for the majority of them. The way that we are dealing with making sure that overseas companies pay their fair share is through the OECD and taking leadership internationally. I think that is the only way that you can do it. You have to be able to deal with these international companies on a global basis, otherwise it is impossible to close them down, so that is probably the right way to approach it. The general trend of getting people to pay less tax and making sure that everybody pays that tax is the right strategy, and one that is working well for this country.

[Baroness McIntosh of Hudnall (Lab)]

My Lords, I was not here at the beginning so I merely repeat something that has been said by somebody else. I do not believe the Minister answered the question from my noble friend Lord McFall about the OBR. Perhaps I could repeat the question. I believe my noble friend asked why the OBR was predicting that the economic situation would get worse in the years ahead.

[Lord Deighton]

The short answer is that you would probably need to ask it. As a former economist I can take this lightly, but in the short term, where I would rely much more on their forecast, the recovery is strong. In the longer term, if you look at the way the OBR handles it, it shows a fan of growth forecasts which comprehends just about every single possibility in the longer term.

Police: Independent Police Commission Report

Thursday 5th December 2013 Lords Chamber

Motion to Take Note

16:11

Moved by

[Lord Harris of Haringey]

That this House takes note of the role and responsibilities of the police service in the light of the report of the Independent Police Commission chaired by Lord Stevens of Kirkwhelpington.

[Lord Harris of Haringey (Lab)]

My Lords, I declare my interest as co-chair of the All-Party Parliamentary Group on Policing and as adviser to a number of technology companies with an interest or potential interest in the policing sector.

I would also like to congratulate the noble Lord, Lord Stevens of Kirkwhelpington, who I understand is not in his place today because of business elsewhere, and his other commissioners, some of whom are speaking in this debate, on their report Policing for a Better Britain. As I understand it, the commission had six days of witness hearings, seven regional meetings, conducted eight surveys and drew on advice of over 40 experts and 30 academic institutions, along with receiving over 250,000 words in evidence and submissions. It was a royal commission in all but name. As the Independent newspaper said:

“it provides the most detailed appraisal of policing for over fifty years”,

and certainly since the royal commission of 1962.

Like that royal commission, it provides an opportunity to reshape the police service to meet the challenges that it faces today. What are those challenges? According to the report, nothing less than a police service grappling with “deep social transformations”. In particular, it highlights “a global economic downturn”—we have just heard the rosy viewpoint that has been expressed by the Government today—as well as,

“quickening flows of migration, widening inequalities, constitutional uncertainty, and the impact of new social media”.

While overall crime levels have fallen, though there are some indications that burglary and acquisitive and violent crime are rising, there are new types and modes of crime to contend with, including e-crime and cyber-enabled crime, widespread trafficking of people and goods and terrorism, both international and domestic. All this is happening when trust in the police is under threat. Indeed, the integrity of the police service has been seriously shaken by high-profile scandals and organisational failures. Some of those are historic but others are not. Perhaps it is a good time to go back to the principles that should underpin British policing. I understand that it is a matter of debate whether Sir Robert Peel ever uttered Peel’s maxim:

“The police are the public and the public are the police”.

That outlines the concept that the police are a civilian service and operate with the consent of the public they serve. The principle also articulated that police effectiveness is measured not by the number of arrests but by the absence of crime. The underlying theme of all of it is that the police are accountable for their actions.

That is why the central recommendations of this commission are so important. The noble Lord, Lord Stevens, articulates its vision as follows:

“Our vision is of a police service with a social purpose that combines catching offenders with work to prevent crime and promote and maintain order in our communities … listens closely to the demands of everyone while meeting the needs of the most vulnerable in our society and protecting victims of crime … is rooted in local communities while also possessing the capacity to tackle effectively threats of organised and cross-border crime”.

The report says that the golden thread running through its proposals,

“is that the local policing area is the core unit, and building block, of fair and effective policing”.

The commission warns, and it is a serious warning, that:

“Faced with budgetary constraints and the Government's insistence that the police are ‘crime-fighters’”,

there is a danger of the police being forced to retreat,

“to a discredited model of reactive policing”.

That means that the Home Secretary’s credo that all that matters for the police are the crime statistics misses the point. The police have to be about crime prevention as well as crime detection. The police have to be proactively engaged with the community rather than simply providing an emergency response. They have a social purpose in contributing to community cohesion while maintaining order.

That is why the steady dismantling of neighbourhood policing under this Government is so wrong. The sight of neighbourhood police, whom the local community know, fosters reassurance. It promotes feelings of well-being and security and builds trust. It builds the sort of relationships where the public will feel confident enough in their local police to confide, to pass on concerns, to provide the raw material of the intelligence on which the police must rely to do their work.

When I was chair of the Metropolitan Police Authority, when the noble Lord, Lord Stevens, was the commissioner and the noble Lord, Lord Blair, was the deputy commissioner, we developed the “3-2-1” concept of neighbourhood policing: one sergeant, two police officers and three police community support officers. Indeed, we pioneered the introduction of PCSOs as a visible presence in local communities, building confidence. That neighbourhood policing is now disappearing: 300 neighbourhood sergeants have been removed in the past two years alone. Safer neighbourhood teams are being replaced by a more reactive, fast-response approach. No doubt that is a more efficient use of reduced police resources if the sole criterion of success is a speedy presence at a crime scene. However, what is being done to prevent the crimes being committed in the first place?

The very point of neighbourhood policing was to build local trust and confidence. It was to make communities feel safe. It was to offer reassurance. That, in turn, led to public approval and reinforced police legitimacy. That is very different from the police as an occupying force, swooping in reactively and creating resentment through failure to understand the communities involved. Reassurance stemming from proactive neighbourhood policing produces an orderly community, where people can voluntarily comply with the law. It reinforces that that compliance is the right thing to do. Prioritising a reactive response, as this Government do, is not sufficient. It misses out on that essential community engagement. If that reactive response has been the objective of government policy, it has failed. Her Majesty’s inspectorate has reported that within the past two years the proportion of emergency calls responded to within the target time has fallen in 20 of the forces surveyed. The Stevens commission’s survey found that 30% of the population thought that their local policing had got worse in the past few years, with only 5% thinking that it had improved.

This all matters. Police need to demonstrate that they are worthy of the public’s trust. This confers on the police moral authority to exercise their powers for the public good. The police gain their legitimacy through that public approval. If that approval is declining, as the surveys show, that legitimacy is damaged as the performance declines. Moreover, satisfaction surveys show that young people, and those from black and minority-ethnic communities and from the lower socioeconomic classes, were least happy after contact with the police. The commission’s conclusions are telling:

“We think that the ‘singular focus on cutting crime’ that has been placed at the core of the police reform programme, and the diluting of the role of neighbourhood policing, will exacerbate rather than stem these trends”.

Government policy is making it worse, not better.

The commission proposes that the broader social purposes of policing should be enshrined in statute and commends the national statement of purpose for Police Scotland that states explicitly that the main purpose of policing is to,

“improve the safety and well-being of persons, localities and communities”.

It says that policing should be,

“accessible to, and engaged with, local communities”,

and that it should promote measures to prevent crime, harm and disorder.

This needs to be coupled with changes in the policing mindset and greater professionalism from the police; and I agree that this should be enshrined in statute. The Stevens report recommends creating “a chartered police officer” as the basis of the police profession. They would be accountable to a new professional body building on the College of Policing, which should register and accredit police officers, with the implication that some officers might be struck off from the register if they fail to meet the standards expected.

The commission’s recommendations envisage that there would also be a new and enhanced body, combining features of Her Majesty’s inspectorate and the Independent Police Complaints Commission to monitor and impose standards on forces, and to conduct independent investigations into serious complaints. The report addresses the style and purpose of policing, and professionalism and standards. But what of the final pillar of those Peelian principles, governance and accountability?

At local level the report proposes that there should be an explicit local policing commitment so that communities would get a guaranteed minimum level of neighbourhood policing, with priorities, possibly even budgets, set and allocated by the local elected councillors for that area. This makes sense to me as a former local authority leader: local councillors, rooted in the communities that elect them, setting the direction for how neighbourhood policing resources should be used and deployed.

That leads inexorably to force-wide governance. The report is scathing about the present Government’s flagship reform of policing, the introduction of police and crime commissioners. The birth of these was badly botched. The noble Baroness, Lady Browning, who is staring at me over the top of her glasses, will recall in detail that a last-minute coalition deal to hold the elections in darkest November delivered an average turnout of just 15%. This was not helped by the Home Office decision to penny-pinch on publicising the purpose of the elections and insist on confining the details of the candidates standing to an obscure website.

The results themselves are also instructive. Of the 41 police and crime commissioners elected, only six are women. I make no comment on that other than to note that it is surprising that there is such a bias. None is from a visible minority-ethnic community, and eight are former police officers. The latter is hardly a recipe for giving the public confidence in the independence of the accountability being offered. Of the 41, four have been or are being investigated by the IPCC for electoral fraud, expenses fiddles and other serious misdemeanours. That is a rather high hit rate of 10% of the total. Other elected PCCs have been criticised by the Home Affairs Committee for the way in which they have used their office. Several of them have tried peremptorily to fire senior officers without going through the due processes laid down in statute. The list of problems goes on and on.

There is no question that despite the good work that many of the new PCCs have done since their election, the system is flawed and needs to change. I have doubts that those changes can be implemented as the report recommends by the time the current terms of office come to an end. However, it is clear that some changes are needed. What is missing from the present arrangements is visible answerability at force level by the police for the actions that they have taken. While chief constables should answer to PCCs, they are not seen by the public to be doing so.

All that comes back to the building of trust. One of the pillars of that must be accountability and answerability to the public. Another pillar must be the improved professionalism and proper accountability of individual officers. The final pillar must be the close relationship between the police and the communities they serve—a partnership at neighbourhood level that underpins all that is done. The analysis, the diagnosis and the potential solutions are all contained in the Stevens report. That report more than vindicates the decision of my right honourable friend Yvette Cooper to commission the report when the present Government declined to have a full royal commission look at policing. It is now for a future Government to take it forward. I beg to move.

16:27

[Baroness Browning (Con)]

My Lords, I thank the noble Lord, Lord Harris of Haringey, for giving the House the opportunity to discuss policing again today. This is the second debate that we have had in a week, which is to be welcomed.

I very much regret that the noble Lord, Lord Stevens of Kirkwhelpington, is not in his place today, because my first point is something that specifically affects him. I will make a point of writing him a note. On the day that the report was published, he gave an interview on the “Today” programme in which he talked specifically about police and crime commissioners, which we have just heard about. He said quite categorically that they would not be abolished, but throughout the document he says otherwise—the noble Lord referred to that. For example, on page 84—and that is not the only place—he rightly says why the commission does not believe that police and crime commissioners have been a success. However, the report goes on to say that,

“the Commission believes that the office of PCC ought to be abolished in its present form with effect from the end of the current term of office”.

Of course, the difficulty is that the report gives no categorical recommendations about what should replace them or what the finances involved in that would be. I am therefore disappointed that although the report is critical of police and crime commissioners, it does not offer an alternative. That, of course, does not solve any of the problems that he has mentioned.

The commission’s whole approach to police and crime commissioners, notwithstanding some of the individual problems that the noble Lord mentioned, is premature. I use that word quite deliberately; I have not just conjured it up. It was used by Tony Lloyd, the former Labour Minister, who is now the police and crime commissioner for Greater Manchester. He believes that the report is premature in what it says about police and crime commissioners. I would hope that those who sat on this commission would have recognised that it is still early days. Looking around the Chamber, I see some of the usual suspects who voted against police and crime commissioners when the House considered the matter only a short time ago, so I am somewhat suspicious that it is not quite as impartial on this particular aspect of the report as perhaps it should have been.

I want to move on to the question of trust in the police. That is something that we debated in this Chamber quite a lot. During my 18 years as a Member of Parliament, I worked with police forces, particularly the Devon and Cornwall Police, and I have a high regard for them. However, I am concerned, as are many other people in this country, at the way in which the public generally voice their reservations about many aspects of the police. It is a very dangerous thing. The noble Lord, Lord Harris of Haringey, quoted Peel who said that policing in this country is policing by consent. We do not have a military police, or a military police answerable to the Government; rather, we have,

“policing of the people, by the people”.

That is absolutely right. That is the gold standard of policing, and many other countries have copied it. Yet there is a lack of confidence, even mistrust, in police forces around the country. This is something that we need to address quickly. When it was expressed to me, as a Member of Parliament, by members of the public, I sometimes feared that that is what precipitates the public to feel that they need to take the law into their own hands. I am not talking about people who you might think of as being on the other side of the law. These were people who had kept the law all their lives and respected the police but had somehow felt that, when they needed the protection of the law through the police service, they were let down and the police were not there for them.

I turn to the point that the noble Lord, Lord Harris, raised, particularly in relation to the Home Secretary’s comments and the changes that she has introduced. I think that he is misinterpreting her words when he says she has not taken account of the need for community policing. The front line of the police has increased since 2010, since this Government came to office. From March 2010 to March 2013, the front line increased from 88.9% to 90.6%. One of the big changes that this Government have made is that Theresa May, as Home Secretary, personally drove through very quickly the need to cut out a lot of the box-ticking and the form-filling that had previously kept police officers tied behind their desks in police stations, when what they and the public wanted was that they should be out on that front line. I believe that this has contributed to it.

I am very conscious that we are making those announcements. Speaking to the police themselves, the Home Secretary said,

“I am also scrapping the confidence target and the policing pledge with immediate effect. I know that some officers like the policing pledge, and some, I’m sure, like the comfort of knowing they’ve ticked boxes. But targets don’t fight crime”—

and I believe that that is the case—

“targets hinder the fight against crime. In scrapping the confidence target and the policing pledge, I couldn’t be any clearer about your mission: it isn’t a 30-point plan; it is to cut crime. No more, and no less”.

That was a very clear message. She cut out a lot of the bureaucracy that has hindered not only the police service. Bureaucracy has hindered all our public services. We see it in the health service; we see how targets have driven down standards in health. We see how targets have driven down the opportunity for the police to be out there fighting crime. It is endemic across the whole of our public sector. It is right that this Government have grasped that nettle.

It is true that certain types of target are needed. I say to the noble Lord, Lord Harris, though, that targets are all very well but outcomes are far more important. Targets are the receptacles of those people who like to process things; outcomes are the receptacles of people who like to achieve things. In getting rid of a lot of these targets, the Home Secretary has freed up police officers not just to fight crime at the front end, but to do all those things that lead to a reduction in crime. That, of course, involves crime prevention, awareness of crime and building on community relationships.

I disagree entirely with the noble Lord and perhaps the commission in their interpretation that the Home Secretary’s words on reducing bureaucracy and getting more people out on to the front line were made because she is concerned only about cutting crime and is not interested in the society that lies behind those criminals. I would say that this Home Secretary has addressed both in the policies that she has bravely implemented since she took office. What I think will be shared by the commission is her recognition that police officers, rather like doctors, should be professionals. She has introduced a consultation which is going on at the moment through the College of Policing to ensure that there is a code of ethics that police officers will abide by, while raising the professionalism of the police force in general.

16:35

[Baroness Henig (Lab)]

My Lords, I commend my noble friend Lord Harris of Haringey on securing this debate. I declare my interests as a former chair of the Association of Police Authorities and of the Security Industry Authority, and as an adviser to the British Security Industry Association. I was also one of over 40 commissioners who served on the Independent Police Commission.

I start by echoing my noble friend Lord Harris of Haringey’s point that this is an evidence-based report. It is heavily based on evidence, and I was pleased to be a small part of that evidence-gathering process when I co-chaired with the noble Baroness, Lady Harris of Richmond, seven regional meetings held in the north-east, the north-west, Yorkshire and Wales. I heard at first hand what local people had to say about what works and what does not work well in relation to their local policing service. I believe that it is the weight and substance of that evidence that make the report so significant and its recommendations so compelling in shaping future policing policy.

There is no doubt that the most contentious part of the report thus far has been the conclusion that the governance model of police and crime commissioners is systemically flawed as a means of democratic accountability and should be discontinued. Predictably this has caused dissention, particularly among the police and crime commissioners themselves, but I have to say to the noble Baroness, Lady Browning, that if one looks at the evidence rather than following ideology or party dogma, the logic based on the evidence that was collected is compelling. That point was demonstrated by my noble friend Lord Harris of Haringey in his remarks.

Noble Lords can read the report for themselves so I am not going to go into the detail any further, but the point I want to make is that it is not at force level that ordinary people engage with policing. The focus of the public so far as the police are concerned is on their own local area, which is why, following the evidence, the Stevens report suggests a local model of police accountability. So it is not true that nothing has been suggested: the commission’s recommendation is for a local model of police accountability, emphasising the importance of neighbourhood policing as an essential building block in establishing public confidence and support.

As we have heard, the report suggests legislation to give local government a say in appointing divisional police commanders, and to enable lower-tier local authorities to retain some of the police precept of council tax, which they could then use to commission local policing for their force. It is also at the local, divisional level that policing priorities for the neighbourhood need to be set by local people with councillors and the police, and that policing plans should be drawn up. To me, that was one of the big flaws in the police and crime commissioner model; it was a force-level model, and I would argue with anyone for any length of time that having one person representing a force that looks after millions of people is not my idea of democratic accountability, but I am not going to go there now.

I turn to the crucial issue of how to maintain and increase trust and confidence in the police because I agree that that is one of the major issues. As the report makes clear, we all need to agree on what we think the police should be spending their time doing. I accept that there is high policing, covering issues that must be dealt with at the national level, and there is low policing.

As the noble Lord, Lord Harris of Haringey, has emphasised, the police are not simply crime fighters. They have a core role in improving safety and well-being within communities, and in promoting measures to prevent harm, disorder and crime. At national level they co-ordinate policies to protect the public as much as possible from a range and variety of threats.

What is it that makes people have confidence in the police at local level? We need to know. Again, the evidence suggests that confidence stems from people’s concerns about disorder, from their sense of community cohesion and from their sense and their belief that the police are in control of their streets. It does not stem from levels of crime per se. Public confidence is also strengthened when the police treat people fairly, respectfully and honestly, when they take note of what people say and when they engage in local problem-solving alongside local people.

The report recommends a local policing commitment to provide a guaranteed minimum level of neighbourhood policing and a police response within a given time. It also calls for explanations if reported crime is not investigated, regular updating for victims and fair and respectful treatment of everyone who comes into contact with the police, be they victims, witnesses, offenders or complainants. It is recommended that this local policing commitment be guaranteed across the country. It cannot be right that, as at present, in some areas policing is delivered in partnership with local people very much along these lines, but in another neighbouring force the public may have little or no role or input.

There may be 43 police forces but there is only one policing service, and I have always believed that people are entitled to a minimum standard of policing and of police response. That is emphasised in the report and I heartily support it. The concept of there being only one police service also has serious implications for police procurement. I want to say something about this because the present procurement situation is totally unsatisfactory: only 2% of police procurement is carried out at national level. Why does every force need its own distinctive uniform, its own distinctive IT system and its own models of car? This is an area that I believe calls for decisive action at government level to bring as much police procurement as possible under the national procurement hub. We know that the savings could be substantial: the report says up to £50 million. Surely this is something we can all agree on—that where money is tight, we squeeze margins as much as possible and spend money on officers, rather than on having separate force uniforms and particular brands of force cars and equipment.

In this and in other crucial areas, the role of the College of Policing will be very influential and important. I support the creation of the college, and I hope it will become an established and strong feature of the policing landscape. It has a vital role to play in a number of areas; in particular, it has a guiding role in helping individual officers to develop their skills, professional knowledge and expertise. I know that the idea of the chartered police officer has caused some disquiet in the ranks of the Police Federation but the reality is that a police constable, by virtue of his or her role and powers, has a unique and fundamental capacity to affect, for better or worse, the lives of ordinary citizens. Each officer therefore owes it to us, the public, to develop their skills and their expertise to the best of their abilities.

Having sat in a magistrates’ court for 20 years, I have seen how a variety of administrative and behavioural errors committed by individual police officers have resulted in the complete collapse of cases, some potentially quite serious. It was my experience on the bench that led me to the conclusion that the gap between the best police officers and the worst was too wide. That is why I believe that the College of Policing has a really significant role in the continuing professional development of individual officers—which, again, will boost public confidence in the police. I share with the noble Baroness, Lady Browning, the belief that it is confidence that lies at the heart of that strong partnership between the police and the public which characterises British policing, and on which we need to build for the future.

16:44

[Baroness Harris of Richmond (LD)]

My Lords, I, too, thank the noble Lord, Lord Harris of Haringey, for securing this debate. First, I need to declare my former policing interests, which appear in the register, and that I too was a member, unpaid, of the commission. I also need to tell your Lordships that, perhaps surprisingly, I shall speak on only one part of the report—that of forensic science. I am most grateful for the support and help given to me in this matter by Professor Angela Gallop, our leading forensic scientist, and Keith Fryer from the College of Policing, which is now responsible for training police personnel in this profession.

Forensic science in policing goes back many years. It was originally run by the Home Office from regional laboratories. It then merged into a sort of business arm of government in 2005 in order to make efficiencies and to cut costs. However, police forces were increasingly in-sourcing forensic services. So, by 2010, the Government decided to close the Forensic Science Service and transfer its responsibilities to the NPIA, the former National Policing Improvement Agency, which had been responsible for the forensic procurement to forces until that point. Then the NPIA was disbanded and its responsibilities were transferred to the College of Policing, which is where it now sits within the Home Office and where much of the work of training for in-force forensic specialists is undertaken.

In the mean time, excellent work was going on in the private sector. The national forensic framework agreement was introduced, which categorised services into 14 work packages open for tender to forces. This then became the National Forensic Framework Next Generation and is intended to run until 2016. Regional competitions are run to enable forces to select their preferred forensic science provider, from the 13 within the framework, following the tendering process. There are between two and six providers for each work package. However, the contracts that the commercial providers will bid for are quite short term, which I believe could cause instability, especially when forces are trying to plan long-term. It also may mean that staff could end up moving between suppliers and contractors. There are just so many trained forensic scientists to go around. Indeed, a significant number of forensic science staff have already left the service. What proposals do the Government have to replace this loss of experience and talent?

Therefore, we now have a service to police forces which comprises different forensic science models. Some work is undertaken by the forces themselves. Scientific support managers oversee the use of forensic science in their force. They help to produce strategies for individual cases and with the collection and securing of evidence by scenes of crime officers et cetera. They also help with submissions to the forensic science provider laboratories. Clearly, a huge amount of work needs to be undertaken by forensic scientists but most of that now is provided by the private sector, which has a responsibility to its shareholders rather than to its customers. That is a subtle but vital point to make when considering who the end-user of the service should be.

Materials can be widely dispersed, being kept by both forces and forensic science providers—commercial organisations. DNA databases are back in the Home Office. The Biometrics Commissioner has responsibility for the National DNA Database and the IDENT 1 fingerprint database. The forensic regulator has published his codes of practice and ethics, which provide the standards that will apply to all remaining commercial forensic science suppliers. There is a European initiative to harmonise forensic science across Europe, which is based on the ISO accreditation and will include the police internal forensic services.

The College of Policing is currently developing competence assessments for police service forensic personnel, so it is to be hoped that this initiative will be successful. However, it hardly replaces the full-scale forensic science laboratories that I remember: police were able to be assured of superb quality from scientists trained exclusively to provide a bespoke service to Home Office police forces. I ask my noble friend the Minister: who now will do the research previously undertaken by the Forensic Science Service? Does he think that commercial pressures will stop suppliers sharing findings? For how long does he expect commercial suppliers to remain viable if the police continue to in-source services?

The report states baldly that,

“without a research and development capability, this country will be relegated from its world class status in forensic science innovation and perhaps even more importantly, there will be serious lapses in the quality of forensic interpretation potentially leading to lengthier less successful police investigations and miscarriages of justice”.

So there is a stark choice: invest in research and development or accept that standards may slip.

The House of Commons Science and Technology Committee produced a report in 2011 on the FSS closure, followed up by another report in 2013, to which the Stevens report refers. It had serious concerns about a number of aspects of the service. There was lack of an obvious national forensic science strategy. It was concerned that the market was not robust enough to absorb the forensic science work being outsourced to it. There were threats to research and development, the maintenance of forensic archives, continuity of evidence, impartiality of forensic interpretation and the quality and independence of that evidence. In its most recent report, it stated that some police forensic science laboratories had failed to achieve accreditation to the agreed ISO standard, and that there was a lack of transparency of police expenditure on their in-house forensic science, making it very difficult to see whether any savings had been made. Its conclusion as interpreted by the Stevens report was that,

“in the absence of a strategy for forensic science, and given the present ‘pattern of short-sighted decision–making that led to the demise of the FSS and the creation of an unstable market for the remaining commercial providers’, the present state of affairs jeopardises public confidence in the criminal justice system”.

In short, there is instability in the market, contracts being too large and over a short term. Financial penalties for late delivery of services impact on the employment of forensic scientists, leading to a reluctance to give full-time contracts. There is also a tendency to take on younger, less experienced and therefore cheaper staff. No ISO accreditation is required by the CPS in the Code for Crown Prosecutors in assessing the quality of evidence put before it. There is no standard across all laboratories. Different suppliers are being asked to undertake tests on different aspects of the same case, and this fragmentation is a true recipe for failure. I could go on.

In conclusion I quote Professor Angela Gallop, one of the 40 distinguished independent members of the commission:

“far less work is being commissioned, partly anyway and partly because forces are doing increasing amounts of forensics in their own in-house units”,

which,

“don’t have to be accredited to the same (very expensive) quality standards as external suppliers of these services. In addition, a procurement system has been introduced which has led to huge volumes of work being shifted between one supplier and another”.

In the future, she suggests that the consequences of the current state of affairs will be more cases which cannot be solved and many more miscarriages of justice. This is a serious matter, which I hope the Minister will address urgently.

16:52

[Lord Condon (CB)]

My Lords, I declare my registered interests in policing. For certain aspects of the Stevens report, I was one of the 40 commissioners, although today I shall speak for myself rather than for the commission as a whole.

I thank the noble Lord, Lord Harris of Haringey, for arranging this debate. I agree with almost everything he said in his eloquent opening speech about the Stevens report. This is a serious piece of work, and I hope party politics will not get in the way of giving it the serious consideration it deserves. The most important part of the report is the attempt to restate the role and the purpose of policing. In all aspects of life, form should follow function. One should think about what one is trying to do before one thinks about how one is going to organise oneself to do it.

Policing can succeed and enjoy public confidence with or without elected police and crime commissioners. Policing can also succeed and enjoy public confidence within a national police structure, within a regional structure or with the status quo of over 40 local forces. Neither of these is the big issue. However, policing will not succeed and it will lose public confidence if the role and purpose of policing in the 21st century does not accord and resonate with the history and strengths of policing, and more importantly, with public expectation. That is the big issue and is what I would like to concentrate on.

The independent commission is right that policing should be about more than crime-fighting and should be about a wider agenda to promote safer communities. Preventing and detecting crime is, of course, at the very core of modern policing, and always will be, but it is also vital to promote and maintain order and safety. The noble Lord, Lord Harris of Haringey, and the report have quoted Police Scotland’s policing purpose. It is worth restating that it says,

“the main purpose of policing is to improve the safety and well-being of persons, localities and communities in Scotland”.

It builds on what many of us have been saying for 20 or 30 years. I have been retired now for more than 14 years, but during my time as commissioner I described the role of the Metropolitan Police as:

“Working for a safer London”.

If this is the core role of policing, and it is restated and accepted, it should shape and influence future developments in accountability, organisation, leadership and so much more.

In 1989, I was appointed a young chief constable of Kent, based in headquarters in Maidstone. The week that I arrived all bright-eyed and bushy-tailed, the local newspaper had, on its front page, a picture and a large article about the new neighbourhood bobby policing Maidstone town centre. I featured in a small article on about page 8—a one-inch column. It was a valuable lesson for me. Members of the public might have a passing interest in who their chief constable is—or nowadays who is their elected police and crime commissioner—but what really matters to them is whether they have local neighbourhood bobbies with an ongoing responsibility for them, whether they get reassuring, visible police patrolling and whether they get a prompt and courteous response when they have an emergency. As the noble Lord, Lord Harris of Haringey, said, local neighbourhood policing is the vital, fundamental building block of good policing. It must be preserved to ensure public confidence and support. A remote and reactive model of policing, whether driven by philosophy or just out of budgetary need, will lose public support. Crime will rise and public order will be harder to maintain.

Reported crime has been falling since 1995, for which I would like to claim a little credit, having been commissioner from 1993 to 2000. The fall in crime has been based on a partnership model of policing: partnership between police and local communities, between police and local political structures, and between police and local business. It is a truism that whichever party were in power at the moment would have to make draconian cuts to police budgets. However, unless there is a real focus on preserving neighbourhood policing, unwelcome and unintended consequences will follow. They are already bubbling up and starting to happen.

As I said, I was chief constable of Kent and have lived in that county for the past 30 years. Earlier this week, the current chief constable reported its latest crime figures, coinciding with the first year of the elected police and crime commissioner. For the 12 months to the end of October 2013, reported crime was up nearly 10%. Burglary, the crime which worries people the most—having their home or business premises broken into—was up over 25% in one year, which is unprecedented. These rises coincide with budget cuts of £50 million, a reduction of 500 police officers and a reactive form of policing being put in place. Anecdotally, I understand that more than half our police services are now beginning to experience rises in crime coming through in a similar way. You can get away with budget cuts; you can get away with huge cuts in policing; and you can get away with reactive policing for a while—but not for long. It is beginning now to come home to roost.

What, then, should be done, and what does the Independent Police Commission contribute to the debate? First, all parties should accept that the role of policing is broader than detecting crime: it embraces community safety and order. Secondly, neighbourhood policing should be protected and preserved at the heart of policing. Thirdly, one of the most vital partnerships—as others have said—is between local policing and local politics. Whatever organisational or accountability structures are put in place for policing, they must not inhibit police and local politicians sharing information, ideas, policies and the way forward on preventing crime and promoting community safety. Fourthly, as the noble Baroness, Lady Henig, has said, economies of scale, smarter procurement and innovation must start to mitigate the worst excesses of the budget cuts.

It is not impossible for the current elected police and crime commissioners to deliver those reforms. I am not doctrinaire about that; but the early signs are certainly not encouraging. My own view is that Northern Ireland and Scotland probably provide better examples of local policing enshrined within a national framework and I think a gradual evolution within “Police England” and “Police Wales” will probably be the way forward. Economies of scale, smarter procurement, career planning and development of leaders from within and outside the service would all be more effectively achieved within a national model that enshrines local policing—as would dealing with organised crime, terrorism and international policing.

However, I understand the party politics of this; that is probably too big a move to make. At the very least, police and crime commissioners must be relocated in a more collegiate, more productive structure that ensures they work more closely with the real aspects of local politics, local communities and local business to deliver safer communities. The Independent Police Commission is a valuable contribution to the debate. I hope that all parties will respond to these big issues and ideas with the due consideration that the report deserves and I look forward to further debate.

16:59

[Lord Wasserman (Con)]

My Lords, I, too, thank the noble Lord, Lord Harris of Haringey, for initiating today’s debate on the much-heralded and long-awaited Stevens report.

I also congratulate the noble Lord, Lord Stevens of Kirkwhelpington, on managing to persuade 38 distinguished individuals, including 11 Members of your Lordships’ House, to put their names to a single document. Given what I know about some of the members of his commission, that was no mean achievement, but then I have known the noble Lord for a very long time and have always had the highest regard for his extraordinary leadership skills.

The noble Lord is, however, much more than a great leader. He is also a man of integrity and that, too, is evident in his report. Instead of the usual bromides about Britain having the best police service in the world, this report paints a worrying picture of a police service with serious problems. These include:

“organisational failures and scandals that have badly damaged public confidence in the integrity of the police”,

a system for dealing with competence and misconduct that, the commission says,

“suffers from both a lack of clarity and a lack of transparency to the public”,

and a laid-back attitude to diversity that has led to a situation in which,

“37% of local police forces do not have any women officers of ACPO rank”,

and an even larger proportion of forces—the exact proportion, interestingly, is not specified in the report—does not include any black and minority ethnic officers in their top management teams.

Sadly, the report does not tell us how to solve these problems, despite the fact that it concludes by stating that its recommendations,

“seek to set out a programme of radical reform”.

That must have come as a great disappointment to the Labour Party, which no doubt expected, when it established the commission, that it would be getting a clear, coherent and comprehensive policing policy that it could slot easily into its next manifesto.

Instead, what the report gives us is an extraordinarily interesting and well researched document full of fascinating historical insights and illuminating discussions of constitutional, organisational and other matters. I was particularly taken by the discussion of the challenges and dilemmas in police governance; by the review of the academic studies on the relationship between the size of a police force and its effectiveness; and by the reports of the latest changes in the structures of police forces in the Netherlands, other European countries and elsewhere.

I am sure that anyone who takes the trouble to read this document carefully will share my admiration for its erudition, historical perspective, theoretical underpinnings and thoroughness. This should come as no surprise, given that the document is based not only on the testimony of expert witnesses—including five former Labour Home Secretaries—public hearings, attitude surveys involving members of the public, police officers, PCCs and others, but on 31 position papers produced by 47 academics from 29 different universities in the UK and abroad.

Of course, the noble Lord, Lord Stevens, did not produce this document as an academic exercise. As he says of the commission’s recommendations in his closing remarks:

“We hope they will offer a clear steer as to what changes are needed to ensure that the police service is able to meet the demands of the twenty first century”.

I very much regret that on this count the report falls short. Despite the efforts of 47 eminent scholars, or perhaps because of them, the report is strong on options but weak on practical solutions.

For example, the key issue of the structure of the police service of England and Wales has been a matter of contention for as long as there have been police forces in this country. The 1962 Royal Commission on the Police was unable to agree on it. The Stevens commission has done no better. It has no hesitation in saying that the present structure of 43 forces will not do because it is,

“no longer cost effective or equipped to meet the challenges of organised and cross-border crime”.

However, when it comes to suggesting a better solution, the commission leaves us with three familiar options: locally negotiated mergers and collaboration agreements, regionalisation or a national police force. As to which of these is to be preferred, we are told that the best way forward is for detailed proposals to be produced for each of these three options but not limited to these three, and that a wide-ranging consultation should be undertaken with a view to swift implementation. In short, it is the familiar academic proposal: further work needs to be done.

The same approach is taken to the contentious question of the governance of police forces. As noble Lords have pointed out, the commission is adamant that the PCC model is systemically flawed as a method of democratic governance, despite the fact that:

“In a democracy, it is right that the strategic priorities of the police are established by elected politicians not by unelected chief constables”.

Interestingly, as the noble Lord, Lord Harris, pointed out, one of the six reasons listed for rejecting the PCC model is that the present crop of PCCs are overwhelmingly white, male and middle-aged—that is, far too close in ethnic, gender and age composition to the present House of Commons. What does the commission recommend instead of PCCs? Except for ruling out police authorities, it cannot decide. Once again, we are offered three options and told that further work is required.

On diversity, the commission is again clear that the present situation is totally unacceptable, but it has no suggestion for a way forward other than to urge that:

“Greater use should be made of the powers of the 2006 and 2010 equalities legislation”.

Finally, I was particularly disappointed by the commission’s discussion of the present arrangements for providing forces with scientific and technological support—particularly forensic science, which was mentioned by my noble friend—and ICT. I declare an interest as the Home Office official responsible for these services between 1983 and 1995.

On forensic science, the commission is in two minds. On the one hand, it believes that the previous Conservative Government’s policy of,

“opening up forensic sciences to the market has achieved some notable successes in previous intractable cases, reduced turnaround times and eliminated backlogs and resulted in a reduction in pricing of services”.

Notwithstanding these benefits, the commission is unhappy about the present state of forensic science provision, largely because there is no integrated national strategy, as my noble friend has pointed out. What, though, does it recommend? Only this: something needs to be done. That is all it says.

As for the procurement of cost-effective IT, an issue with which the police service has been grappling unsuccessfully since the invention of the computer, the commission says that it is,

“disheartened and dismayed by the recurring criticisms of the police service’s inability to rationalise its procurement of information technology”.

It goes on to say that it,

“cannot emphasise strongly enough the urgent need to”,

attend to and solve these persistent problems. As for a solution, however, the commission comes up with a classic ACPO approach to intractable problems: ask the Home Office to develop a national IT procurement strategy. In other words, this problem is far too difficult for chief constables to solve, even though IT is an operational tool and therefore their responsibility. So let us hand it to the Home Office and watch it fail to solve it.

I am sorry to have ended on a rather negative note. As I have said, there is plenty of interesting material in the Stevens report, and on the whole it is a very good read. Sadly, however, it raises more questions than it solves. For those of us who are impatient to tackle the problems that it identifies, this is disappointing.

17:13

[Viscount Simon (Lab)]

My Lords, I declare that I have been an associate of many police areas for many years and that some are in the register.

British Policing has at its heart the principle of policing by consent and, most importantly, the independent office of constable. Officers are held to account as individuals, answerable to the law. Any fundamental changes to policing must ensure that this independence is maintained and that the public understands that British policing is so much better than fighting crime in isolation. The report suggests that the social purpose of the police should be clearly defined. This is to be welcomed.

Closely linked to this social purpose is the concept of neighbourhood policing, which we have heard from many noble Lords. Neighbourhood policing is about social cohesion, prevention and public confidence. It is a resource-intensive model that, if managed correctly in the long term, brings with it real benefits and cost savings. Prevention is so much better than cure, whether it be cases of anti-social behaviour, domestic violence or burglary. Motorways and airfields should of course be considered as local neighbourhoods, due to their construction, and need the resources accordingly to prevent crime from taking place.

As cuts to budgets to partner agencies take hold, it is of great importance that the police are not just left picking up the pieces of the consequences of a reduction in other areas. The strengthening of statutory provisions in local safety partnerships would assist in this regard.

The public want policing to remain public and to be held to account. The mission creep in private service provision in policing needs to be very carefully examined and considered. It should not be driven purely by a financial consideration. Somewhat outside the consideration of the report but highly relevant to the future of policing, I wonder how we are going to be able to attract the right sort of people to become officers when they will initially earn less than PCSOs and they will have only a five-year contract. Does this send out the right signal?

Policing is a highly respected profession. Any enhancement to provide chartered status or the membership of a professional body must ensure that the officers and staff in policing understand the benefits to them of such bodies. The status needs to be something that officers desire, rather than have imposed upon them. It must include realistic and achievable professional standards. The criteria must in no way interfere with the independence of the office of constable. This area will need careful consideration. An officer must be able to make an arrest based on their sound judgment and discretion, not the need to complete a development requirement.

The royal commission of 1962 examined the number of forces in the country, and there have been numerous suggestions about the correct number ever since. Crime and social mobility have changed beyond all recognition in the digital age, and the police forces need to be structured to meet this challenge in the 21st century.

With collaborations being forged among many forces due to budgetary constraints, the accountability envisaged by the introduction of police and crime commissioners has become blurred. There needs to be examination and debate to come to an agreement on revising the current 43-force structure, which provides local focus with national responsibility. At the same time, we need to look at revising PCCs. The provision of IT and procurement of equipment have long been approached in a piecemeal fashion, as has been mentioned. We need a single strategy to which all forces adhere. The benefits of commonality of systems, remote technologies and purchasing power bring with them efficiencies and improvements of capability, and the savings can be ploughed back into the front line.

17:16

[Baroness Jones of Moulsecoomb (GP)]

My Lords, I, too, add my thanks to the noble Lord, Lord Harris, for introducing the debate. The report is incredibly useful. Although it is in a sense an academic exercise, it is also a valuable contribution to our discussion of policing today. It also contains some solutions. I pick out, for example, the concept of chartered police officers. That is a very good idea. I fear that the Government’s idea of a code of conduct does not go far enough. A code of ethics will not do as much as a system to charter officers to ensure that if they commit misconduct of any sort, they can be struck off.

The issue of databases is also interesting. There is a technological view of it, but there are much bigger problems with databases. For example, the Met itself has no idea how many databases it has and does not know what is in them. I recently paid £10 and got my police file. It was the most appalling mishmash of trivia that you have ever seen. I have a copy here, if anybody would like to read it. For example, it cites the Metro newspaper, which states:

“London Deputy Mayor Jenny Jones is also encouraging. ‘If you’ve never been’”—

to Critical Mass—

“‘then come along’”.

I will not bore you with the others, which are moderately amusing at times. Here is one which is from a tweet of mine:

“Open-source research indicates that Green Party Member Jenny Jones has tweeted that she a Green Party Mayor candidate is attending the Critical Mass vigil”.

If that is the sort of thing that the police are keeping on their database, we are wasting a lot of police resources. We ought to find out a little more about those databases and what is in them.

There is also the question: why are they keeping a database on an elected person? That is inappropriate, irrespective of the inappropriateness of the information that they are keeping.

I thought before it was introduced that the system of PCCs was badly flawed; I argued against it in many places, but it has happened. Unfortunately, it is too soon to call it a failed experiment. It is failing in many places, partly because of the model of a very strong executive and very weak scrutiny. That just does not work. The PCC is often failing to hold the police to account, and then we have panels that cannot hold the PCC to account. From a democratic and accountability point of view, this has been the most appalling mishmash. Honestly, it is too soon to say that it has failed completely, and it would be appropriate to find a better system before we scrap it altogether.

There is also the suggestion of melding the HMIC and the IPCC into an independent police standards commission. That is an interesting idea, but the fact is, of course, that the IPCC has done some valuable work. What it might be appropriate to do is perhaps to fund it properly for a couple of years and see what it can achieve. It has recently been given more funding, which means that it can employ more inspectors. It also perhaps ought to employ fewer ex-police officers. If it were funded properly, it could probably do its job properly. That is one recommendation that perhaps lacks a little sharpness.

Although this was, in a sense, an academic exercise, policing is not academic; it is a reality. As we debate today, there are real policing problems around SOAS and the University of London, where students are protesting, and where a lot of messages, tweets and e-mails are going out saying that the police are being brutal. This is happening here on our streets in London now, and we, I think, are failing the Met by not giving it very clear instructions about how to behave in circumstances like these. It is extremely worrying that this is happening at the moment. I would probably normally be up there and not here. I would be up there trying to talk to the Met and to students to find out what is going on, and if anything can be done to make the situation better.

The report is interesting to read. It has lots of valuable stuff in it, and one or two of the things, I think, could be done immediately. It might be a gesture of real solidarity across the Chamber if some of these suggestions were taken up.

17:21

[Baroness Berridge (Con)]

My Lords, I am grateful to the noble Lord for obtaining today’s debate, and many of my comments on the roles and responsibilities of the police are informed by my experience at the moment on the Parliamentary Police Service scheme. I am thoroughly enjoying this insight into the amazing work that our police do, and I have serious respect for teams like Team A at Peckham, who take a risk every time they answer a 999 call.

I was warned that I would hear a lot about the Winsor Review from the police, but I did not. I have heard much about kit. A Met police kit is like Marmite. They either love it—“Great kit!”—or hate it—“Rubbish kit”. I commend the recommendations concerning procurement, to which I will return, along with Policing Generation Y: Governance and Diversity in the Police.

First, I will speak about the report itself. I was curious about this commission, which said it was independent but had no statutory or parliamentary basis; nor was it conducted under the auspices of the All-Party Policing Group, which the noble Lord so ably chairs. I tried to read the results with an open mind. As I read, I thought my main concern would be the lack of female involvement in the report. Perhaps 11 women out of 39 commissioners is considered enough, but I thought it was disappointing. As only four out of the 26 witnesses who gave evidence to this inquiry were women, I wondered if it was truly representative. Liberty, I note, was helpful, as it brought 50% of the women who gave evidence to the commission.

What holes this report below the plumb line, in my view, is that it fails to live up to the basic tenet that the police are the public, and the public are the police. I looked carefully at the appendices to see who had inputted, and most of the written submissions were from the police themselves. There is much academic input, as the noble Lords have noted. Surveys of police personnel totalled more than 20,000 responses. Along with all these inquiries, the best evidence is always live witnesses. None were members of the public, victims or representatives of victims’ groups. Again, they were police, politicians or NGOs. The main vehicle used by the commission to obtain evidence from the public was a telephone survey by YouGov of only 2,000 people—less than 10% of the number of the police in their survey.

This mistake is easily made. On the Joint Committee on Human Rights, on which I serve, at the eleventh hour we realised that, to prepare a report on unaccompanied migrant children, we needed to hear from unaccompanied migrant children. I recognise fully the academic expertise in this report, but, with so much evidence from the police and a few NGOs and so little from the public, this imbalance causes me to treat any conclusions with a considerable degree of caution.

The report states:

“For most people it is likely that their own ward, town or village is the more meaningful unit when considering local policing than whole force areas”.

This comment brings into focus an issue not covered by the commission: what is this “meaningful unit” of policing for Generation Y, who live socially networked lives and are not primarily geographically connected, and where crimes committed via their phone or through Facebook are perhaps more likely than crimes in their neighbourhood? The report contains no serious engagement with technology as a means to report crime, which is what younger generations are going to require. Reporting a crime via an app to British Transport Police is much safer than calling if an incident is taking place in the train carriage in which you are sitting.

More helpfully, the report considers the lack of ethnic diversity in the police service. As this is such a key issue, I would have welcomed much more comment and analysis on it, and more input from black and minority ethnic officers, who responded in very low numbers to the survey. If the recommendation for further involvement of the Equality and Human Rights Commission would help matters, it should of course be taken up. Reflecting the people whom you police should be specifically included in any new Peelian principles, as it is essential nowadays to policing by consent. There is urgency to this issue, as I wonder for how much longer all-white surveillance teams, which I have seen, will not stick out like a sore thumb. The commission does not deal with the lack of ethnic diversity on the board of the College of Policing, which contains no black person, or the lack of independent members. This is a serious concern if, as the commission suggests, the college is to take on some form of registration or regulatory role.

The commission seeks to resurrect the issue of the governance of the police. On page 87 of the report, it indicates its preferred option of,

“an indirectly elected Policing Board”.

It would comprise the leaders of local authorities. The police and crime commissioners have not yet served a full term; it is just not sufficient time to judge whether the new model works. The proposed police board, with only the leaders of local authorities on it, is going back in time to the days when only local politicians and magistrates were involved in governance. That did not work and independent members were added to authorities. Leaders of local authorities are no less susceptible to the “recipe for conflict” cited by the commission as a reason to reject one of the models; namely, an elected chair and the indirectly elected board.

There will probably be deep political divisions between those local authority leaders, especially if there is any future merging of the 43 police areas. The policing board in the report would set the overall budget, which risks the same kind of shutdown that the USA sees when the parties fall out. The main argument raised against the PCCs is that the size of constituency is a problem. That argument is not substantiated in the report. As the introduction by the previous Government of the London mayoral office has shown, such an office can cut through the local government boroughs that can hamper a vision for an area. I see no reason why the PCCs cannot do just that.

Finally, I return to kit. It is obvious that money can be saved by national procurement of equipment, but it must be practical and it must be tested. Is the Met Police uniform really suitable for modern-day policing? Carrying kit on belts causes back problems for officers in foot chases, and if you are buying two pieces of technology to bolt together, you should check that they work when they are bolted together—which is a complaint of the traffic police. One of the basic tools is the CAD system—Computer Aided Dispatch—which feeds the information to screens in the car from the 999 call at the centre. I am informed that this is an old British Airways baggage handling system. I think that that says it all.

I have commended what I can of this report, but may it serve as a lesson to all in your Lordships’ House that inquiries and commissions should seek directly the views of the public if they are to have any long-term validity.

17:29

[The Earl of Lytton (CB)]

My Lords, I too welcome the opportunity to debate this report. I am grateful to the noble Lord, Lord Harris of Haringey, for that and to the noble Lord, Lord Stevens of Kirkwhelpington, for his work and for the work of his commission members as far as it goes.

We can all agree that good policing is of vital importance to all of us. My starting point is the historic understanding that policing would not be subject to political interference but would be self-governing. This meant that the police were also self-co-ordinating and self-managing in policy and operational terms.

The Association of Chief Police Officers—ACPO—effectively moved into that role as the embodiment of senior ranks, guardians of its professionalism and integrity and of police management. That embodiment remains pivotal. It advises the Home Office, represents Britain abroad in Interpol and Europol and co-ordinates the 43 police forces across England and Wales. In this role it issues guidance, directions and advice which carry great authority and are used in legal proceedings. It seems to me still to have a controlling if no longer a monopoly influence in the College of Policing and thereby a major say in policy, while retaining operational matters to itself. Its members and directors are senior police officers.

Given this unique and authoritative pan-police oversight, why do we continue to see instances of widespread and critical failings, manipulation of crime figures, falsification of evidence and perversions of the course of justice that are routinely reported and have attracted the scrutiny of two if not three of the major Select Committees in the other place? For all the inquiries, codes of practice, reports, debates and judicial investigations over many years, why is ACPO membership apparently unable to manage policing and why has police-on-police investigation persisted for so long?

ACPO Ltd, as I believe it is properly called, with its trading subsidiaries and affiliates, involves serving officers. They include areas of procurement, and I will pause there, road safety, vehicle crime, data on individuals—I will pause there, too—security systems, security accreditation and many others. I know of about 20 but I believe that there are far more. Many are commercial enterprises for gain. They derive from paid public office but where does the money go?

Recently, the Association of Police and Crime Commissioners, whose members pay about £4.2 million into ACPO Ltd and have been asked to stump up more, commissioned General Sir Nick Parker to advise on value for money for that sum. He was not asked to look at the wider issues or allied commercial operations of ACPO Ltd, which in 2009 generated over £9 million from the sale of data alone. Neither does this ICP report look into that. But there are many question marks. For instance, ACPO Ltd Criminal Records Office merchandises data on individuals derived from police national computer records. Its website curiously stipulates that payments for search services go through the Hampshire police and crime commissioner’s bank account. I am not clear whether parallel arrangements affect other areas of activity or how they affect PCC independence but I am curious.

The application of the harassment Act seems to be another area where, despite ACPO guidance, forces give an impression that they do as they please, and there are similar queries in many other areas of ACPO and police activity. The legality of some ACPO guidance has been queried by the courts. It is not therefore just a question of individual professionalism; I believe it is one of corporate integrity that we need to concentrate on. In all this there are huge potential conflicts of interest—commercially, professionally and in operational self-governance at the most senior level. I do not believe that the measures suggested in this report will overcome these. Furthermore, I believe that trustworthy and diligent officers are afraid to speak out because there is an utterly inadequate whistleblower facility. Such a situation clearly cannot continue. Political courage and resolve are needed. I therefore have several questions for the Minister, starting with some on transparency.

First, how can we ensure that senior officers are seen to be and remain free from bias? Secondly, should they be involved at all with parallel commercial activity, especially in the areas of procurement, accreditation and selling data? Thirdly, is there a case for a mandatory register of officer interests via an independent registrar with a power to insist on divestment in appropriate circumstances? Fourthly, how many ACPO Ltd operations, subsidiaries and affiliates are there, what do they do and what happens to the money they generate? Can we have a list of them and details of their accounts placed in the Library?

Fifthly, how many directives, guidance notes and advisory documents are issued by ACPO to police forces and to others, how are they used, what peer reviews occur and what is their status in legal proceedings? Can we have a list of the current ones in the Library, please? Sixthly, what are the principles for the gathering, storage, use and merchandising of personal data by the police and how many databases are actually in use, centrally or by individual force, or indeed by ACPO Ltd, its subsidiaries and affiliates? Who is being allowed access, on payment or otherwise, to this information? What further steps to ensure proper oversight do the Government intend to put in place?

Finally, on the other point that I have raised, can the Minister tell us whether a fully independent ombudsman or whistleblower commissioner cannot be set up so as to be a safe, confidential and effective conduit for concerns? In the round, does the Minister not agree that it is high time for a thorough, fully independent and rapid investigation into these matters, perhaps by a senior criminal judge unconstrained by the terms of reference? If so, it seems to me that before we go much further with the recommendations of this report, there is some more fundamental work to be done so as to restore confidence in a vital national institution.

17:37

[Lord Rosser (Lab)]

Like other speakers, I am grateful to my noble friend Lord Harris of Haringey for securing this debate. Although it was us who asked the noble Lord, Lord Stevens of Kirkwhelpington, to set up the commission on the future of policing in England and Wales some two years ago, because we believed a positive vision of policing for the 21st century was needed, it has been an independent commission, and the report and recommendations are those of the commission and not of any other individuals or organisations.

We are extremely appreciative of all the hard work over a two-year period that the noble Lord, Lord Stevens, and his colleagues have undertaken, and also wish to thank all those many people who so willingly gave their time and the benefit of their expertise and knowledge, whether through surveys, public meetings, written submissions and papers or evidence-gathering sessions.

I have also listened with interest to the key points of the welcome contributions to the debate—contributions, of course, of differing enthusiasm for the commission’s recommendations. The report contains 37 recommendations. Some of them propose further work, some include options. We have already said that we will consult widely on the recommendations made before we set out details for our manifesto, recognising the need to ensure that measures are fully funded. We expect, though, to implement the vast majority of these recommendations.

In its report, the commission referred to the dramatic changes there have been in British society since the Royal Commission on the Police reported just over 50 years ago in 1962, and the inevitable impact that such major economic, social and political changes have on policing. The commission also set out the challenges facing policing. The social transformations, new forms of criminal activity and changing patterns of crime, anti-social behaviour, damaged public confidence in the integrity of the police as a result of individual high-profile cases where policing has gone wrong, and the impact of budget cuts are among those challenges.

The commission also draws attention to some of the government reforms that have directly affected the police. It regarded some, such as changes to police officers’ pay and conditions, and the creation of the College of Policing, as important and necessary. It was less enthusiastic about others, such as elected police and crime commissioners. The commission concluded, however, that the Government have created a stand-off with the police service that has left officer morale at rock bottom.

On structures, the commission concluded that few believed that 43 separate forces were either cost-effective or adequately equipped to meet today’s challenges, while recognising that there was no consensus on a better alternative. Among the commission’s other fundamental concerns was the risk of outsourcing to the private sector key aspects of policing in an ad hoc and unprincipled manner, and the danger of the police service retreating to a discredited model of reactive policing, with neighbourhood policing responsive to the concerns of local communities being threatened.

The commission concluded that the Government had made the wrong calls in areas where they have acted over police purpose and governance, while not addressing key issues, such as police standards, misconduct and structures, where reform was required. The commission has set out its vision of how to deliver fair and effective policing, taking into account the fact that there is unlikely to be more money to spend on the police service. This is a vision of a police service with a social purpose that combines catching offenders with work to prevent crime, and the promotion and maintaining of order with the local policing area as the core unit and building block of fair and effective policing.

It is clear from the commission’s findings that British policing cannot continue on its current course and that significant reforms are needed. The shadow Home Secretary has already indicated our position on a number of key points in the commission’s report, which I intend to reiterate.

Policing should be rooted in local communities, and we endorse the commission’s emphasis on neighbourhood policing and the wider social justice purpose of policing. We agree too with the importance of local accountability, building stronger partnerships and greater democratic accountability at a more local level. As with all public services, policing is most effective when it reflects the views and voices of those that it needs to serve.

On force governance the commission has set out options to replace the current model of police and crime commissioners. The question is not whether to reform, but how to reform, and that is an issue that will be an important part of our consultations. We also believe in the importance of effective partnerships; at a time when all public services face financial pressures, working in partnership and collaboration matters more than ever.

The commission has set out options for reform on structures and partnerships between forces. Our preference is for a voluntary and collaborative approach involving local communities, and we want to see more work done on savings that can be made to plough back into policing. We will not support a national force, as that would be too large, too centralised and the wrong approach.

On standards and professionalism there is a need to deal quickly and effectively with problems when they arise to ensure that confidence in the police and policing is not undermined. The present system does not do this. The body in charge of misconduct is not strong enough; the remedies are not clear; too often in serious cases the police are perceived as investigating themselves; and the whole system takes too long.

We welcome the commission’s proposals to value and develop the professionalism of officers and staff, and agree that the College of Policing should be strengthened and extended. We welcome the measures to deal swiftly with problems, to ensure that police officers found guilty of serious misconduct can be struck off, as professionals are in other fields. We welcome much stronger powers of investigation and inspection. We have argued for some time that the IPCC should be replaced by a stronger body. The commission’s proposals for bringing together the work done by the Independent Police Complaints Commission and HMIC also provide a valuable way to deal with the gaps and the duplication in the current system, and better to focus resources on standards.

We welcome the recognition that there should be limits on private contracts in the interests of public confidence. Private companies should not be patrolling public streets. We welcome too the emphasis that the commission has placed on new technology, addressing growing cybercrime and making the police more efficient. In helping to ensure a safe and decent society, our police are of crucial importance. Having seen some of the realities of police work at first hand, I certainly have great respect for police officers, including those who have to deal with situations that very few of us would wish to have to confront. While the evidence that the commission gathered revealed a number of problems and challenges that confront the police service it also, as the commission said, highlighted success stories of which the police service can be proud such as counterterrorism and the policing of the Olympics.

The need now is to deliver a positive vision for policing for the future with policies based on evidence, and to deliver reforms, which will be most effective if they can be built on a broad consensus. That is what we believe the Stevens commission has delivered, and that is what we will seek to take forward.

17:45

[Earl Attlee (Con)]

My Lords, I congratulate the noble Lord, Lord Harris, on securing this timely debate as it gives me an opportunity to update your Lordships on progress. I pay tribute to the noble Lord’s work, even if I do not always agree with his views.

Our police are among the best in the world. They maintain law and order, often by putting themselves in harm’s way, but maintain a strong sense of fairness and duty. This is my first major speech on policing, either in government or in opposition. I want to put on record my sincere appreciation for the work of the police, especially at a junior level at the sharp end. Your Lordships will be aware that I have some experience of disciplined, uniformed service as a volunteer in our Army Reserve. However, it is important to understand that we keep the two services separate and that they are very different. There is no organisational connection between the two as there is in other countries. As the noble Lord, Lord Harris, observed, our police are purely civil.

Police organisations are generally always operational, and every day that a PC goes on duty he does not know what will happen. I wish at this point to offer my condolences to the families of the officers who lost their loved ones in Glasgow last Friday: Police Constable Tony Collins, Police Constable Kirsty Nelis, and Captain David Traill. In addition, our thoughts are with the officer who was shot in West Yorkshire yesterday.

Policing is a vital public service. The noble Lord, Lord Stevens, himself a distinguished former Commissioner of the Metropolitan Police, has spent two years looking into policing. I welcome his views and I join the noble Lord, Lord Harris, in praising him. However, I would not go as far as to call it a royal commission. I can well understand the gentle tease that came from my noble friend Lord Wasserman.

The Government are undertaking the most radical reforms in the history of policing. We inherited a system of policing that was out of date in modern society. It was out of touch with the public it served and was out of shape. The tough fiscal climate demanded better ways of working. My noble friend Lord Wasserman touched on several problems with BME and female representation, as did my noble friend Lady Berridge. To put that right we scrapped targets, restoring officers’ ability to use their professional judgment on how to fight crime. We gave people a real say over policing by introducing directly elected police and crime commissioners. We empowered local communities to hold policing to account through crime maps via the police.uk website. A more independent Inspectorate of Constabulary shines a stronger light on police performance. We are improving policing skills and professionalism through the College of Policing and we are reforming pay and conditions. We have established the National Crime Agency, which builds on and improves on SOCA, which the party opposite created to lead the fight against serious and organised crime. The noble Lord, Lord Harris, referred to some of the emerging challenges for policing.

We have delivered this while having to reduce Home Office police funding by 20% over four years. Our reforms are working. Recorded crime has fallen more than 10% and the independent crime survey shows crime has more than halved since 1995. However, as the Economist noted in July, there is less agreement about why crime has fallen. The report benefited from the input of several prominent criminologists, and I think that the House will be disappointed that we did not get their take on why this is happening—because it is happening all around the developed economies in the world—and what it means for our policing.

There is strong evidence that effective, targeted policing can reduce crime locally. We are tackling the underlying drivers of crime—for example, by reshaping our approach to alcohol, tackling illicit and harmful drug use, and legislating to give the police, councils and others more effective powers to nip anti-social behaviour in the bud.

Our reforms are not complete. The next phase will transform front-line policing to ensure it delivers more effectively. We have set out a vision of digital policing by 2016. This goes beyond the Stevens recommendations of mobile access to police systems—many forces already have this potential. We are harnessing technology to enable officers to spend more time out in communities, providing a better service to the public. Thirty forces have signed up to be digital pathfinders; they aim to become fully digital by testing and developing the required capabilities.

We are improving how policing works with other parts of the criminal justice system. A Strategy & Action Plan to Reform the Criminal Justice System, published in June, sets out how this will happen, including through improved use of technology, streamlining processes and ensuring a joined-up approach. For example, pilots are under way to develop and test digital case files which will mean that information on cases can flow seamlessly between CJS partners.

The report rightly makes much of the need for integrity in policing. I welcome its recognition that our reforms of police pay and conditions are “necessary and overdue”. The report endorses our aspiration to enhance the status of policing as a profession, and welcomes the creation of the College of Policing. The college will introduce a national register of officers struck off from the police; it is consulting on a draft code of ethics that will be issued in the new year which will make clear the standards of behaviour expected of officers, and make them more worthy of the public’s trust. The college is consulting on membership, but it is important to understand that this is a professional body for the police, and not an inspectorate or complaints body. I am grateful to the noble Baroness, Lady Henig, for her support for the college’s CPD role.

The noble Baroness, Lady Jones of Moulsecoomb, suggested that the code of ethics did not go far enough. The code is based on standards of professional behaviour which are binding on the police, as are the police regulations. The code will be embedded in forces and present throughout officers’ careers.

There is plenty in the report about what is wrong with policing, and about management. However, I was very surprised that there is very little about leadership. This is an unfortunate omission. Through direct entry, we seek to attract the best people into policing from diverse backgrounds, and the college has a key role in providing leadership across policing. My noble friend Lord Wasserman also explored what was missing from the report—which was quite a lot. He said that it was a very good read; I agree with that sentiment. My noble friend Lady Berridge had something to say on that as well.

On outsourcing, I can assure the noble Viscount, Lord Simon, and others that the Government have made it clear that there is no intention for private companies to carry out activities that require warranted powers, except to the extent already legislated for by the previous Government. On procurement, we already require the police to buy vehicles, body armour, and off-the-shelf IT through national agreements. Better procurement has saved more than £100 million to date. I also point out that it is much easier for adjacent PCCs to co-operate on procurement than it was under the old police authority model. We are already seeing examples of this.

There are, however, some important points of divergence between the Government and the report. We do not believe that the police need a statutory social purpose. It is precisely by cutting crime that the police make a wider positive social impact—not the other way around. Neighbourhood policing is not under threat, as was suggested by the noble Lord, Lord Harris. The Government have no policy against neighbourhood policing; that is a matter for the PCC and the chief constable. The proportion of officers in front-line functions has increased under this Government, from 88.9% in March 2010 to 90.6% in March 2013, as observed by my noble friend Lady Browning. We slashed red tape so that officers can spend more time in neighbourhoods rather than behind their desks.

An effective PCC will work closely with many stakeholders: the police are only part of his remit. I am sure that a competent PCC would not allow his police force to retreat into becoming a purely reactive force. As the noble Lord, Lord Harris, implied, it would be a recipe for disaster in the short term, and in the longer term it could create problems at the ballot box.

My noble friend Lady Browning told us about the danger of bureaucracy in the police sector and the benefits of outcomes, and how a good PCC will set outcomes, not targets. The noble Lord, Lord Harris, when he was talking about social purposes, pointed out that the code of ethics is clear that officers must engage with their communities and understand their priorities.

We disagree that PCCs should be abolished, and so does the Labour PCC for Greater Manchester, Tony Lloyd, who is an experienced parliamentarian. Last week he told the Home Affairs Select Committee that the Stevens report did not take account of the kind of things that PCCs are doing now that would not have been done under the old police authority model. Many noble Lords have claimed that the report is evidence based, and the noble Baroness, Lady Henig, said that the evidence was compelling. But it is not clear to me how that can be in respect of PCCs, given that they have been in place for only about a year.

My noble friend Lady Browning suggested that the report was premature. However, we agree that local democratic accountability is important and needs to be defended and extended. This does not square with the recommendation to replace the simplicity and visibility of directly elected PCCs with a bureaucratic smorgasbord which splits accountability between lower-tier local authorities and a new force-level policing board, each with overlapping responsibilities. This takes power away from the people and puts it back in the hands of committees. Furthermore, as you take bureaucracy down even more to a local level, you run the risk of getting into operational matters.

We face tough and immediate challenges that cannot be delayed. We learnt lessons from where others had failed, and we put a statutory duty on PCCs and chief constables to collaborate in the interests of efficiency and effectiveness. It is working. For example, according to HMIC, Warwickshire and West Mercia’s strategic alliance will allow them to achieve 75% and 94% of their respective spending review savings by 2014-15. We are introducing a police innovation fund worth £50 million a year to stimulate further collaboration from 2014-15, with a £20 million precursor fund available in 2013-14.

Standards and integrity are vital to maintaining public trust in policing, but collapsing two separate organisations with distinct missions—the IPCC and HMIC—into one super-regulator is not the answer. A new name plaque will not tackle the underlying issues. This is why the Government legislated to make the inspectorate more independent and strengthened the IPCC. It is also why the Home Secretary announced a package of measures in February to improve police integrity, committing to transfer resources to the IPCC to enable it to deal with all serious and sensitive cases. The IPCC will begin to take on additional cases from next year, which will put an end to the police investigating the police in such cases. I hope that that will please the noble Earl, Lord Lytton.

I will try to answer as many questions as possible, but where I do not, I will write to the noble Lord, Lord Harris, and to all other noble Lords who have contributed to the debate. Some noble Lords have suggested that there is a fall in confidence in the police, but even at the height of the Andrew Mitchell affair, 82% of respondents to a survey said that they were very likely or fairly likely to believe officers speaking either on television or on the streets while on duty. But we are not complacent. The noble Lord, Lord Condon, referred to the Kent crime figures. However, it was the Kent PCC who called in HMIC to examine Kent’s crime statistics. HMIC’s findings led to a review of Kent’s crime recording practice, which led to the rise in local recorded crime levels that the noble Lord referred to. Thanks to the PCC and HMIC, Kent is now judged to have a much improved adherence to crime recording guidelines.

My noble friend Lady Harris of Richmond made an important contribution about forensic science. The lack of a single strategy on forensic science does not prevent providers and Government working together to make improvements. For example, recent successes include electronic transmission of fingerprints, the Forensic Science Regulator code of practice and the use of mobile devices to check fingerprints out on the streets.

My noble friend Lord Wasserman talked about BME and female representation. The Government want the police to be more representative of the community they serve. Direct entry into the police brings the opportunity of a new route into the police, which may have the potential to improve the numbers of underrepresented groups in the higher ranks. My noble friend will know that the College of Policing is responsible for the direct entry schemes that will start next year.

The noble Lord, Lord Condon, suggested that we need more partnership working in policing. The Police and Social Responsibility Act 2011 requires PCCs and community safety partnerships to co-operate. PCCs are already working with community safety partnerships to make communities safer. That is one of their roles other than policing.

The noble Baroness, Lady Jones, talked about police databases. While I cannot comment on the particular databases that the noble Baroness mentioned, I can say that the Government would expect the police to use databases to fight crime, not to collect trivia. As for the police national computer, I can reassure the House that it is illegal to perform speculative searches or to pass information to those who do not need to see it or know about it.

The noble Viscount, Lord Simon, asked whether we would attract the right police recruits, in view of what he suggested was low pay, and the five-year contracts. Police officers will continue to be better paid than most comparable workers, and chief constables have discretion on starting salaries to ensure that officers can always be paid more than PCSOs. There is no plan, and no proposal, to introduce fixed-term contracts for officers below chief officer ranks, and FTAs will apply only to chief constables and deputy chief constables.

My noble friends Lady Harris of Richmond and Lord Wasserman talked about the Forensic Science Service. The noble Baroness asked me what proposals the Government had to replace loss of experience in the FSS. Private sector forensic suppliers are now carrying out the work formerly done by the FSS. The Government’s priorities are clear: to ensure that the police have the services they need to solve crime, and to provide value for public money. Employment of scientific staff therefore has to reflect the size, shape and make-up of the forensic market that the police and the criminal justice system require.

My noble friend Lady Harris asked who would now do the research previously undertaken by the FSS. The UK’s criminal justice system will continue to be fully supported by the necessary technology, with research and development driven by commercial providers in response to the needs of the CJS. I understand that more than £3 million has been spent on research by the largest providers. She also asked whether the Government thought that commercial pressures would stop suppliers sharing research findings. As in other scientific fields, forensic knowledge is built up through publication of research findings. There may be occasions when suppliers will wish to preserve confidentiality or to obtain patents on new technology for commercial reasons, but this is also true of the FSS. The accreditation of laboratories was also mentioned; I intend to discuss this with the appropriate Minister at the Home Office.

The noble Earl, Lord Lytton, talked about whistleblowing. The code of ethics makes it clear that officers are required to report and challenge unacceptable behaviour in their colleagues. It emphasises that they will be supported by the force when they do so. He also asked a number of important questions about ACPO and some commercial activities of ACPO-controlled organisations. Since the move of national business areas to the College of Policing, ACPO does not—or should not—issue any directives, guidance notes or advisory documents. An exception to this is the ACPO central FOI unit, but it offers guidance to forces merely on FOI responses, not on operational matters.

The best way of dealing with some of the other issues that the noble Earl raised would be in a comprehensive letter. However, officers of chief officer rank are under the same ethical obligations as other officers. The noble Earl also asked about ACPO control of the college and ACPO business areas, but he will have to look forward to my letter.

I have just received further advice which will enable me to be more forthcoming. Business area leads will work co-operatively with the college in the interests of the police and the public. Guidance will be published and taken forward by the college. ACPO no longer has responsibility for such guidelines. The three ACPO members of the board of directors of the college will be distinguished, experienced officers and will not act in the capacity of ACPO officers.

In conclusion, I welcome the opportunity that this report has provided to reflect on the priorities around police reform. There is more in the report than I have been able to address, but I have no doubt that the debate around how to reform one of our most important public services will continue. When the Government embarked on their reform programme three and a half years ago, there was much disagreement about the need for reform. This report now shows us why reform was required.

18:06

[Lord Harris of Haringey]

My Lords, I am grateful to all noble Lords who have contributed to this interesting and important debate. We should congratulate the noble Earl, Lord Attlee, and welcome him to the world of policing. I am sure that we will hear many more contributions from him on this subject. I am sure that the whole House would want to add its voice to the condolences he expressed for not only the police officers killed in the Glasgow helicopter crash but all the others who died as a consequence and, of course, we express our sympathy for the officer who was shot in a separate incident.

Perhaps I may make one or two comments in response to the debate. From time to time, there was an implication that the commission was not genuinely independent. Having spent four years as chair of the Metropolitan Police Authority trying to keep under control or to restrain the noble Lord, Lord Stevens of Kirkwhelpington, I have to say that anyone who thinks that he will not be independent, and would not have been independent under all these circumstances, is living under some misapprehension. I also note with interest that although members of the Conservative Party were invited to participate in the commission, none were prepared to do so.

I also note that the commission went out of its way to consult the public about some of the issues that it raised. My noble friend Lady Henig and the noble Baroness, Lady Harris of Richmond, were responsible for taking a sort of roadshow around the country, listening to voices. In that context, I think that the Labour Party is planning a roadshow of at least 50 meetings around the country to look at some of these recommendations, which demonstrates the commitment that there needs to be to consulting the public about making major changes in their police service.

I was interested that there was such a preoccupation about structures, and government structures in particular, in the debate. Perhaps it was my fault for even mentioning the subject in my speech, although most of it was about other matters. I was also interested in the suggestion made by the noble Earl, Lord Attlee, that it was a bad idea to merge public bodies such as Her Majesty’s inspectorate and the Independent Police Complaints Commission. I remember many happy hours in your Lordships’ Chamber debating what is now the Public Bodies Act, which seemed to consist largely of merging various public bodies. That argument by the Government needs to be looked at again, although the wider issues of whether this merger should go ahead would be part of the consultation.

A number of your Lordships suggested that it was premature to abolish police and crime commissioners because the jury is still out. I hope that the jury will return fairly soon. I understand that the Government are contemplating bringing forward legislation in the next Session of Parliament to extend the powers of police and crime commissioners. If that is the case, perhaps the same argument should apply and we should wait a little longer to see whether this experiment should be extended.

However, the key issue in the report and in this debate for me is what the police do, the style of policing and the need for a focus on the neighbourhood. That is the message which comes across throughout this full, extensive and, in my view, independent report, and which we all need to take forward from today’s debate.

Motion agreed.

Banking: Parliamentary Commission on Banking Standards

Thursday 5th December 2013 Lords Chamber

Motion to Take Note

18:10

Moved by

[The Archbishop of Canterbury]

That this House takes note of the Reports of the Parliamentary Commission on Banking Standards (1st Report, Session 2012–13, HL Paper 98), Banking Reform: towards the right structure (2nd Report, Session 2012–13, HL Paper 126), Proprietary Trading (3rd Report, Session 2012–13, HL Paper 138), “An accident waiting to happen”: The failure of HBOS (4th Report, Session 2012–13, HL Paper 144) and Changing Banking for Good (1st Report, Session 2013–14, HL Paper 27).

[The Archbishop of Canterbury]

My Lords, your Lordships are asked to take note of the work of the Parliamentary Commission on Banking Standards. I speak not only on my behalf but on that of some of the commissioners who, for various reasons, cannot be here. I should add that it is coincidental and owing to constraints of the diary that this debate falls so neatly between Report and the Third Reading next week of the Financial Services (Banking Reform) Bill. I am particularly looking forward to the maiden speech of the noble Lord, Lord Carrington of Fulham. I am sure his contribution will be significant given his vast experience in another place, especially on the Treasury Select Committee.

In 2008, the Chancellor of the Exchequer found himself faced late one night with the choice of commitment of large sums of money—hundreds of billions of pounds—or of the collapse of almost everything in our society that makes money real, as the banks ran into a collective wall. In the years since, scandal after scandal has become apparent. Out of these vast events arose what was described as,

“a profound loss of trust born of profound lapses in banking standards”,

and thus the formation of the Parliamentary Commission on Banking Standards. The breadth of the task laid at the commission’s feet is hard to overstate. As one can read on the first page of each of the five reports published by the commission, it was appointed,

“to consider and report on professional standards and culture of the UK banking sector, taking account of regulatory and competition investigations into the LIBOR rate-setting process, lessons to be learned about corporate governance, transparency and conflicts of interest, and their implications for regulation and for Government policy and to make recommendations for legislative and other action”.

As further incidents came to light and Bills came forward, the commission was tasked with investigating the incidents and with pre-legislative scrutiny of the Bills. It was initially said that it would be all over by Christmas—last Christmas. I hope we shall hit it this year. The work was extensive. It involved many hundreds of hours of oral evidence and thousands of questions asked, with a majority answered. Seven volumes of our final report, Changing Banking for Good, are dedicated entirely to the written and oral evidence received.

Neither the quantity nor the quality of the material produced could have been achieved had it not been for a commission made up of such outstanding colleagues, with a great deal of experience, who worked so determinedly together. Their dedication and insight has been immense. I pay special mention to the Member for Chichester, under whose chairmanship we were led with great expertise and forthrightness, and a certain amount of sheer nerve and chutzpah in the way that the commission went forward. I also put on record the enormous debt of gratitude that I and my colleagues at both ends of the Palace owe to the staff that supported the work of the commission. They came from government and the private sector and included counsel. They worked night and day, in a new form of inquiry. We are also much in debt to the work already done by Sir John Vickers and his Independent Commission on Banking, whose recommendations on structural reform were the foundation of our own work.

Our first report provided the pre-legislative scrutiny for the Financial Services (Banking Reform) Bill. We made recommendations to strengthen the proposed legislation, as well as suggesting further necessary measures to enhance the stability of the banking system.

In our second report, Banking Reform: Towards the Right Structure, we considered the Government’s response to our first report and, somewhat unusually, proposed amendments further to improve the Bill in a number of key areas, many of which have now been accepted. Our third and fourth reports focused on specific examples from the banking system that were especially concerning to us.

In the report entitled Proprietary Trading, we examined the effect of one particular banking activity on the culture and standards in banks. We welcome the breadth of the review into proprietary trading that the government amendments announced today appear to allow for. We hope that nothing will delay the timetable that is set out within the amendments, so that the PRA and independent reviews of proprietary trading can be completed most effectively and any necessary action taken as quickly as possible. I will return to that point in a few moments.

The next report, ‘An Accident Waiting to Happen’: The Failure of HBOS, is a case study of bank failure—and one of remarkable quality. The work on this was led exclusively by the noble Lord, Lord Turnbull, whose vast experience and forensic skills were stretched considerably as the paper mounted up, but whose work is foundational to understanding this crisis. While not making specific recommendations, it serves as a stark reminder of the many aspects of poor banking standards and culture that pervaded the industry in the run-up to, during and following the great crisis of 2007-08.

Our fifth and final report, Changing Banking for Good, outlines the radical reform required to improve standards across the banking industry and presented Government, the regulators and the industry with a package of recommendations which, taken together, will raise standards and drive positive cultural change, ultimately changing banking for good.

Although we have made progress on structural and regulatory aspects of banking reform, through an enormous amount of work by your Lordships in this House, if we think that by changing the law we have solved the problems revealed by the crisis, we are profoundly mistaken. In this light, I wish to focus on those parts of our work that cannot be implemented through legislation or regulation but require cultural change within our banks.

As any vicar will tell you, a sermon should have three main points. I hope that your Lordships do not feel that you are being preached at today, but I wish to ask three questions which must be answered if we are to cut to the heart of how the rotten culture was found to be in the banking industry and how it can be changed for good.

The first question is the most essential: what is our vision for banking? We—not only the commission but legislators, regulators, bankers and society at large—have been tasked to find a once-in-a-generation leap of imagination that does not simply attempt to repair what was destroyed in 2008 but to replace it with something that is of substantial and lasting value. A vision for banking that is sustainable and of value needs to offer the possibility of a flourishing society at every level of the economy, through investment, lending and understanding the communities in which the banks work—a vision that enables all banks to respond better to their customers and to the well-being of society. Without good banking, savings stagnate in fetid pools of hoarding, and good ideas and entrepreneurial vigour wither without the water of capital and liquidity. Such is the state into which we have been growing for many years, which is one—although only one—contributory factor to inequality, social immobility and areas of the country being condemned to generations of poverty and deprivation.

However, secondly, when we asked witnesses, “What is the social purpose of banking?”, worryingly, it seemed to be a question that often stumped them and which they had never asked themselves. Activity without social purpose is ultimately anarchy. The work of the commission, in my view, fundamentally has been about enabling the financial services industry to retrieve its basic purpose of supporting the common good and social solidarity. Banking is ultimately a utility function. It is of course one that is especially important to our economy, but there is a danger in treating the industry entirely differently from other utilities. It is necessary that a culture of service and social purpose is renewed in our banking industry. Banks must assert their roles in both national and local economies for without their investment in and service to local communities everywhere, there will be no durable and universal recovery.

Finally, we must ask: what ultimately will drive cultural change? Taken together, the commission’s recommendations are an effort to encourage positive cultural change. Proprietary trading, in the opinion of many of us—and it is subject to review—should be banned. Remuneration should be reasonable and proportionate. Regulation should be effective and accountable. The implementation of the ring-fence is a clear and welcome effort to ensure that distinctive and possibly irreconcilable cultures are kept separate. The ring-fence will, we hope, make the development of good culture more possible—and with the right safeguards, we hope also that it will be more durable than the walls of Jericho, so that not even the trumpets of Joshua’s army could find a way through.

However, it is clear that law and regulation cannot cause people to be good: making people good by law has been—to put it mildly—tricky since the days of Moses. Read the Epistle to the Romans to see why. Culture is set by leadership, training and implementation. In a recent report, the City of London emphasised remuneration and shareholder activism. Such recommendations illustrate the problem. Good culture is good through virtue, not out of hope of reward alone, although of course that must play a part. Shareholder activism also has had little or no impact historically, with the average share traded five times a year.

For a culture to become dominant, it was clear to us that it must be internalised by employees at all levels. A set of values governed by a deeply-held belief in what is right and wrong is foundational to long-lasting cultural change. Such beliefs are caught and also taught. If no one inside a bank believes that some of the practices we have heard about, some as recently as last week, are wrong, or if they believe it has no adequate way of expressing their concerns—the commission, by the way, has recommended improvements to facilitate whistleblowing—then cultural change will never take place, and poor standards will continue to fester.

Introducing informal mechanisms to catch poor standards early on was one of the commission’s recommendations—it can be found in paragraph 786 of our final report—but in situations like this, once the principle of the recommendation has been accepted, the responsibility for bringing it about must be on banks themselves. That is why the commission recommended that, as well as the essential reforms to regulation and law, the industry must professionalise the sector in a similar way to the medical and legal professions. This recommendation has been much overlooked, but provides a convincing long-term answer—complementary, not an alternative, to the other things in the report—as to how culture can be shaped and styled, and virtue measured, understood and valued.

The banks have started on this work and it is especially clear that the chief executives of the major British banks are working very hard in this area. The struggle to change the culture has begun. It will be a long one. In our view, we are talking of years—decades, a generation perhaps—to embed a completely different culture to replace the one that seeped slowly away over the years after big bang. On the outcome of this struggle hangs to a considerable extent the flourishing of our society and the re-establishment of the reputation of our most successful industry.

For all these reasons, Parliament must hold regulators and market participants to account, not only for their adherence to written laws and regulations but, perhaps more importantly, for their commitment to the common good and to a culture of virtue, so that, possessing extraordinary power and influence, they may enable extraordinary good and development.

I wholeheartedly commend the work of the Parliamentary Commission on Banking Standards to the House. I hope that its work will not be in vain but will continue to be drawn upon as a new system is built in place of its failed and discredited predecessor. I beg to move.

18:26

[Lord Brooke of Sutton Mandeville (Con)]

My Lords, it is a privilege to be the first participant in this important debate to congratulate the most reverend Primate the Archbishop of Canterbury on having secured it, and for the manner in which he introduced it. His qualifications for it are enviable. Having read his mini-biography in wonderment at where he found the time to achieve so much, I hope he will forgive my language if I say that I think he is playing a blinder. I thank him, too, for having arranged the packaged provision of relevant papers in the Printed Paper Office.

My own participation in this debate is for three reasons. The oldest of these is that when, long ago, I spent two years at Harvard Business School acquiring an MBA, my highest marks were in a course titled “Business Responsibilities in American Society”, which I supposed played some part in determining my subsequent career. My second reason is that for 24 years I was the third longest serving Member of Parliament for the City of London since 1283. Those years included the paradigm shift of Big Bang, from personal contact to largely screen and telephone business. Although the dramatis personae of that era are not an interest to declare, Sir Nicholas Goodison, the chairman of the Stock Exchange who negotiated and navigated Big Bang so well, was and is my oldest friend. My third reason is the debate on banking standards during Report stage of the Financial Services (Banking Reform) Bill on 26 November 2013, not least the most reverend Primate’s comments.

I must allude to a longstanding friendship with the honourable gentleman the Member for Chichester in the other place, who chaired the Parliamentary Commission on Banking Standards—henceforth referred to as the PCBS—and who has been a mentor to me on this, as he was earlier on the development of the euro. I say “mentor” because during the four years that I was a Treasury Minister under my noble friend Lord Lawson of Blaby, I was the only one of eight Ministers in the department in that period who had never worked in the City of London. Thus my responsibilities were concentrated on what Sir Douglas Wass once defined to me as the housekeeping end of the Treasury—a more fascinating portfolio than it sounds.

After leaving government, I was briefly a director of an investment bank but my comments hereafter reflect the views of the City of London Corporation. When the issues of this debate were discussed on Report for the banking reform Bill, your Lordships’ House heard, as we have heard again today, informed talk of standards, ethics and culture—not, I have to say, unknown at the Harvard Business School. One institution that spans this arena is the City Values corporate forum, a collaborative project supported by the Lord Mayor and the City Corporation. It draws on learning from the professions, academia and, happily on this particular occasion, clergy-based as well as secular sources. A report recently published by the forum provides a guide to help chairmen and boards to calibrate their approach to the oversight of values. Its goal is the achievement of ethical behaviour in the financial and business services sector.

We learnt from the PCBS that some banks tried to encapsulate values in their businesses by creating human resources handbooks running to in excess of 1,000 pages. I share the PCBS’s scepticism about mechanistic expressions of values. If we had consulted the Delphic oracle, I suspect that it would have found a discreet way of conveying a conclusion based on the criticism faced by the Financial Services Authority for just such a modus operandi.

The forum’s preference was for half a dozen building blocks that cumulatively would help institutions to build and maintain values. As an example, one building block would seek to cause a board to develop ways of measuring values, behaviour and culture and to deploy internal audit to renew and enforce them. The board would receive regular misdemeanour reports. This process would lead in due course to the board agreeing its values with its customers and employees as well. Finally, there would be an annual values report to the board for wider publication.

All this will need to go further than discussion in your Lordships’ House but I hope that the process that I have described, and other initiatives like it, will stimulate the debate. Existing mechanisms can also be deployed more prominently. For example, the rights and duties of shareholders also have an important part to play in influencing board behaviour. As other noble Lords have pointed out in numerous debates on governance in this House, they are frequently underused controls. The All-Party Parliamentary Corporate Governance Group, of which I am a member, now has four or five years of informed debate in this area literally under its breakfast belt. The rights and duties of shareholders are frequently underused controls.

In conclusion, I shall borrow some words from the forum’s report to which I referred earlier:

“Governing values well is a prerequisite for a truly sustainable business … The need for the board of any financial services business to govern values is now central to its agenda—not an ‘optional extra’”.

I owe to the Harvard Business School the wise observation that if you do not know where you are trying to get to, any road will get you there. From 18 years of running an international business outside the financial sector before I entered Mrs Thatcher’s first administration as its absolutely most junior member, I can confirm the virtue of that corporate satnav.

The participation in this debate is nicely balanced around the Chamber. In particular, I wish my noble friend Lord Carrington of Fulham well in his maiden speech, to which I look forward

18:33

[Lord Brennan (Lab)]

My Lords, the most reverend Primate has spoken with great force and clarity about matters of considerable moment to our society in a speech that will no doubt inspire the noble Lord, Lord Carrington, in his maiden speech.

We owe a deep sense of gratitude here in Parliament, here from the Government and outside from the public for the work of this Parliamentary Commission on Banking Standards, first, for its impartiality—the 10 members, nine of them politicians, could not be accused by any fair observer of having put party interest above public interest in the work that has been done here. The fact that the most reverend Primate has been described throughout the reports as “unaffiliated” is politically accurate but a graceless way of describing a Minister of religion. No doubt in future some other term can be found for that. Impartiality is exceptionally important. A great commission of this kind should be seen and respected at the end of its work, as this one is, because it represents the best standards of parliamentary behaviour.

The second reason for gratitude is the extent of the investigation, which is remarkable. There were many witnesses, yards of documents, innumerable meetings, specialist advisers and expert staff, all working together in a most effective way.

Thirdly, there is the speed of the commission’s deliberations, which is commendable. To examine the banking system of our nation after a disaster in July of one year and then by June of the following to have delivered five comprehensive reports is a real achievement.

Lastly, the quality of the commission’s analysis and conclusions is convincing. For all those reasons, gratitude, yes, but let us look at the process that produced its conclusion. First, there is the parliamentary power given to it to send for persons, papers and records: “You will come to Parliament to explain”. Secondly, there is the quality of inquiry of those who came to Parliament to explain. Fortunately, it was thought unnecessary to take evidence on oath, but the very threat that you might have to is an extremely good instigator of honesty by witnesses before the commission. Lastly, there was the use of specialist advisers; I understand that there were about 20 of them. That provides an administrative and process base of high quality. Most important is the fact that this was an evidence-based inquiry, it was in public, society knew what was going on and the conclusions have been regularly debated.

Such an inquiry has a continuum over 10 or 11 months, where the participants have a quality of intellectual dynamism lacking in those who subsequently, in Parliament, in government or in the public criticise or debate the contents of their conclusions. That work fully vindicates the view of the Commons Public Administration Select Committee when in 2008 it called for parliamentary commissions of inquiry in these terms:

“Proper parliamentary scrutiny should include the ability to undertake inquiries into significant matters of public concern. Parliament has, in the past, conducting investigations of this kind—and, as the great forum of the nation, should be expected to do so”—

not often, but when it does, to speak as part of the great forum of the nation. Indeed, only a few months ago the same committee asked for a parliamentary inquiry to be commissioned into the Civil Service.

The importance of that is not to be underestimated. Select Committees serve a purpose, which is basically to keep up with the regular, day-to-day activities of Parliament and the Executive. Joint Committees—there are five permanent ones—have specific objectives. Ad hoc Select Committees, such as the one that I sat on about the Chinook helicopter inquiry, are almost quasi-judicial. None of them performs the function that this commission has performed. Parliament challenged its membership through this commission to meet the concerns about the banking world. The commission has met that challenge. By its title, it has confirmed that the challenge is not just for Parliament; it is for banking and the community.

Einstein said:

“Not everything that counts can be counted. Not everything that can be counted counts”.

That elementary proposition should be the opening remarks in every inaugural lecture at the beginning of an MBA course at any university in the world. We should start with education. A couple of years ago the Yale Business School demolished its traditional mathematics-led, behaviour-ignorant course in business administration. It changed the title to “Honesty, The Value of Labour, Profit: Service to the Community”. Applications to the Yale Business School doubled in the first year. If you prescribe for greed, you will incentivise greed. This kind of course changes that at the beginning. Afterwards it is for bankers themselves to meet that challenge—the cultural challenge.

This commission has been a model of its kind, for the following reasons. First, it has been generally accepted by the public. Secondly, a great many of its recommendations have been accepted by the Government. Thirdly, it has given Parliament confidence in its own processes. Lastly, it provides a basis, as the most reverend Primate has reminded us, for a continuing challenge and for cultural change for the future. Changing banking for good is a challenge for us, not a conclusion for Parliament.

18:42

[Lord Razzall]

My Lords, like all noble Lords I very much welcome this debate introduced by the most reverend Primate and indeed look forward to the contribution of the noble Lord, Lord Carrington, with whom I last had an involvement when canvassing for the noble Lord, Lord Liddle, now not in his place, in the famous by-election in Fulham in the early 1980s. I am sure they look forward to renewing their rivalry over the Benches.

As the various reports from the most reverend Primate have indicated, it is clear that 2008 was the culmination of a series of problems within the banking industry. The 2008 crisis exposed problems not just with the regulatory regime but also, as he said, with the culture of the industry. Banks had become unable to manage risk properly, had lost sight of their responsibilities to customers and were seriously over-leveraged. In addition, they had not guarded against other long-term problems in the economy, particularly the housing bubble.

The result is a significant loss of confidence and trust among the public in the banking industry and huge harm being caused to the UK economy. As somebody memorably said, recently we moved from a culture of inky-fingered bankers to a culture of sticky-fingered bankers.

It is interesting that those banks which received bailout money from the taxpayer are often those which have the highest level of customer dissatisfaction. A recent survey by Which? found an overall customer satisfaction rate with RBS of only 50%—and that was before the recent allegations against it—and that Lloyds had a satisfaction rating of 56%. The highest-rated bank, First Direct, had a rating of 85% satisfaction in services provided. A recent YouGov survey asked people which three aspects of British banking, from a list of eight,

“have damaged your view of the UK banking industry the most”,

and found that the top two concerns were excessive bonuses and the LIBOR scandal. Notwithstanding this, the financial rewards handed to the City’s highest paid bankers rose by a third last year, with more than 2,700 of them paid more than €1 million in 2012.

The Government have addressed these issues in a number of ways. The first is through the banking reform Bill, which will ring-fence the retail banking services of banks away from the high-risk trading that they may also conduct and to which the most reverend Primate referred—he would go further and ban that entirely, but that is not what the legislation says. In addition, in response to a recommendation by the commission, the Government have amended the Bill to allow regulators completely to separate the retail aspects of a particular bank from the rest of the business where that bank seeks to breach or get around the ring-fence. This is known in the jargon as electrification of the ring-fence.

On the regulatory system, the Government have sought to learn the lessons of the financial crisis. They have listened to the banking commission in setting up a new regulatory system via the Financial Services Act 2012. I shall not bore noble Lords with the detail of this, but there are three separate bodies aimed at fixing the regulatory problems: the Financial Policy Committee, the Prudential Regulation Authority and the Financial Conduct Authority. The Act also creates clear channels of communication and decision-making in the event of another financial crisis. This is because—and I think that we are all agreed on it—in 2008 there was concern that the powers available to regulators, the Bank of England and the Treasury were not clearly defined, making it hard for any one body to react quickly to events. In addition, the Act ensures that the Treasury is ultimately to act as the “point” in event of a financial crisis and can ensure that others act.

As the most reverend Primate has indicated, trust is the most fundamental issue, which cannot be dealt with by legislation. I make no apology for relying on a lot of the evidence that was given to the commission. The commission indicated:

“The loss of trust in banking has been enormously damaging; there is now a massive opportunity to reform banking standards to strengthen the value of banking in the future and to reinforce the UK’s dominant position within the global financial services industry”.

It further stated:

“It is essential that the risks posed by having a large financial centre do not mean that taxpayers or the wider economy are held to ransom. That is why it is right for the UK to take measures … which not only protect the UK’s position as a global financial sector, but also protect the UK public and economy from the associated risks”.

We have to remember that the overwhelming majority of people working in banks undoubtedly wish to serve their customers well and are as angry as the wider public about the activities of a minority of their colleagues.

The report elsewhere states:

“The mis-selling of IRHP and PPI demonstrate what can happen when banks exploit information asymmetries between them and their customers. However, providing too much small print to customers, effectively drowning them with information, may be as detrimental as not providing enough information to them”.

Peter Vicary-Smith gave the following example to the commission:

“To open an HSBC packaged account, the consumer is expected to read 165 pages of information. No one is going to do that. As long as banks ... provide so much gobbledegook that the real things you need to know are hidden, we will continue to have these problems”.

Many people said that it had been more than 25 years since Tom Wolfe had used the term “master of the universe” to describe a New York bond trader, but that it had never been more apt as a description of bankers than in the past decade. I have often relied in comment on this subject on the wise words of the noble Lord, Lord Turner, who is not in his place. He told the commission that:

“One of the most dismal features of the banking industry to emerge from our evidence was the striking limitation on the sense of personal responsibility and accountability of the leaders within the industry for the widespread failings and abuses over which they presided. Ignorance was offered as the main excuse. It was not always accidental. Those who should have been exercising supervisory or leadership roles benefited from an accountability firewall between themselves and individual misconduct, and demonstrated poor, perhaps deliberately poor, understanding of the front line. Senior executives were aware that they would not be punished for what they could not see and promptly donned the blindfolds. Where they could not claim ignorance, they fell back on the claim that everyone was party to a decision, so that no individual could be held squarely to blame—the Murder on the Orient Express defence. It is imperative that in future senior executives in banks have an incentive to know what is happening on their watch—not an incentive to remain ignorant in case the regulator comes calling”.

I agree with the noble Lord.

18:50

[Lord Carrington of Fulham (Con)]

My Lords, I rise with some trepidation to give my maiden speech, particularly in this debate introduced so ably by the most reverend Primate the Archbishop of Canterbury. First, I wish to declare my interest as a non-executive director and deputy chairman of a bank, as declared in the register of interests, but I shall return to that later. No, the reason for my trepidation is that it is a bit cheeky to intervene in a debate on a detailed and comprehensive report which I had no part in preparing. My only justification is that, when not being a politician, and indeed sometimes when trying unsuccessfully to be a politician, I earned my living as a banking practitioner.

First, I would like to thank my sponsors, my noble friends Lord Trefgarne and Lord Patten, each of whom has been hugely kind to me both now and over many years. Since I took my place in your Lordships’ House, they have given me invaluable advice, some of which I have taken. My mistakes and blunders, however, are my own, although I am delighted to give them the credit for anything I might have got right.

I would also like to thank the staff who look after your Lordships’ House so well. Black Rod and his staff and the Clerk of the Parliaments and his staff have been hugely friendly and willing to answer even the silliest of questions with good humour and patience.

As some of your Lordships may know, I spent some years in the other place. As has been said many times before, the contrast between the Chamber down the Corridor and here could not be greater and is almost universally in your Lordships’ favour. Noble Lords on all sides of your Lordships’ House, who I knew as sparring partners and controversialists before they came to the Elysian fields, have been mellowed by the transformation and have treated me with friendship and kindness. Your Lordships will understand that I found this at first a confusing contrast with past attitudes but a huge and welcome relief.

One of the other joys in this place is the Chamber itself. Although the Chamber in the other place is a delight, the Luftwaffe removed much of its history. Your Lordships are fortunate to have a Chamber where it is still possible to see the ghosts of our great predecessors—perhaps Lord Beaconsfield sitting impassively, watching events cynically through his monocle, or the great third Marquis of Salisbury making one of his many speeches in favour of social reform with his back turned firmly towards the Woolsack, the better to address the Press Gallery.

As I mentioned earlier, I am deputy chairman of Gatehouse Bank. It is a small and very specialised institution. It is a Sharia-compliant bank, providing services that are often called Islamic banking. Its client base is Muslims who wish to live their lives and conduct their business affairs in accordance with the precepts of their religion. We expect our staff, a mix of Muslims and non-Muslims, to act in a highly ethical way. We are also forbidden by the Sharia from entering into some of the more complex hedging instruments which caused such devastation to conventional banks.

Banking has gone through traumas. One of the puzzles is what went wrong and why. We understand the trajectory that has brought us where we are. We will be able to see how we get back on to a better path. The excellent report of the Parliamentary Commission on Banking Standards highlights many problems and provides many remedies. I want to look at only two.

The first is the role that regulation played in the banking crisis. The regulators did not, of course, cause the banking crisis but neither did they prevent it. I am a regulated person and have some first-hand experience of the excellence, as well as the limitations, of the old FSA. Part of the problem is that they took the understandable approach of developing a detailed rule book, which led to what my honourable friend Andrew Tyrie, the Member of Parliament for Chichester, has referred to as the box-ticking culture.

The problem with a rule book is that, if an action is not specifically forbidden by the rules, it is assumed to be allowed. Banks employ very clever people, often recruited from the regulator itself, who did and do ensure that the banks’ unacceptable risk-taking rarely breaks the rules. So I am delighted that the new regulator, the PRA, is taking the view that it has rules but that it also has opinions and will rely on what it calls a “judgement-based, forward-looking supervision”—which I think and hope means that if, in the opinion of the PRA, something a bank is doing is unacceptable, even though it is not forbidden, it must stop. This is the way the old Bank of England banking supervision regime used to work when I first started my career in the City. It may be the only way to regulate banks, which are ever changing and innovating. Unless a regulator can say, “What you are doing may not be illegal, but I will not allow you to do it”, another banking disaster will sooner or later occur.

The second issue I want to comment on is the culture of the banks. The culture of payment by results and of large bonuses dependent on doing deals leads to all sorts of unintended consequences such as short-termism and disguised risk-taking. Other than for staff who took short-term risks, such as money market and foreign exchange traders, it was only in the late 1980s that bonuses in banks became substantial multiples of base salary. I accept that deferring bonuses is a way of curbing these disasters in waiting, but in reality the motivation of employees to take unacceptable risks will be removed only if the long-term risk-takers are paid through salary rather than bonus.

This is an excellent report, but we are on a long path to resolve the issues in banking. Ultimately, it will require international agreement, which will be hard to achieve. My last thought is that, whatever we do here in the UK, we must ensure that London—and the UK generally—retains its place as one of the three global banking centres. Our country’s tax receipts and hundreds of thousands of jobs depend upon it, so whatever changes we propose in the future must make London the centre most trusted in the financial sector and not give less scrupulous financial centres an opportunity to take away jobs from the UK.

18:58

[The Lord Bishop of Birmingham]

My Lords, I welcome warmly the noble Lord, Lord Carrington, to your Lordships’ House and congratulate him on a most succinct but wise and constructive maiden speech. His knowledge of finance and banking is exemplary. We have already heard from my friend the most reverend Primate of the noble Lord’s service in the other place, notably as chair of the Treasury Committee. He also brings a wealth of experience in banking. The particular bank mentioned, Gatehouse, of which he is deputy chairman, has this remarkable attention to Islamic finance. As someone who serves in Birmingham, that is of course well known and much appreciated.

Your Lordships may also like to know that the noble Lord, Lord Carrington, is a trustee of the St John’s Notting Hill restoration trust. That is something that he did not find time to mention in his maiden speech, but about which I hope that we will hear more in the future. It is a beautiful Victorian building which, at the same time, has a new community hub associated with it, bringing together a reimagination of ministry and parish outreach to ordinary people. On these Benches and across the House, we wish the noble Lord, Lord Carrington, great success in that project and a most enjoyable time as he serves here in this place.

I welcome the enormous contribution of the Parliamentary Commission on Banking Standards, and recognise the structural and technical details contained in our extensive debates over the past few months. I want to focus on the imperative of driving change in our culture, which many noble Lords mentioned, including the most reverend Primate—as the noble Lord, Lord Brooke, said, he played a blinder. I am sure that although he had the privilege of visiting Birmingham last night, it was not a peaky blinder—if your Lordships are aware of that television programme and early 20th-century behaviour.

The debates that we have had are about the balance of regulation and freedom. They have included a realistic approach to our position in global capitalism, and its benefits and dangers—the benefits and dangers, too, to our national economy—and to the remarkable achievement of the banking industry over the years. At the same time, there is an underlying desire to see enterprise, which develops wealth, continue. Those who know the parables of Jesus know that wealth for the ambitious and successful farmer was in no way criticised; what was criticised, and ultimately judged fatally, was the farmer’s use of the abundant wealth that he had created and his selfishness in keeping it for his own use.

The reports before us have serious recommendations about increased responsibility, greater and clearer accountability, more competition in the industry, better business judgment and a vision for the long term. Coming from a business city such as Birmingham, outside London, I would like to reflect for a moment on the perception of our progress so far in these areas. What we have done and are doing here will be judged by whether it makes a difference to the tens of thousands of employees of the industry, and to the hundreds of thousands of clients and customers who are necessarily dependent on its success.

What about increasing responsibility? I have noticed that in each of these areas we are encouraged to see the responses to the detail of the commission, as well as that of the Government to its recommendations, in a constructive and positive way. The Deutsche Bank chief executive, who was at a conference the other day of all the risk managers for the global company, said that his bank will combine a culture of performance with a culture of responsibility. This is a great ambition for a commercial operation, and one that the chief executive says will do good for the world.

Increasing responsibility is being taken at corporate level, and much of the detail of our work has been on that. It is also being taken at the individual level. For example, regionally in the Royal Bank of Scotland, local directors are responding to their chief executive’s advice that to know their community as well as their business and retail clients, is good for business, but also that it is the right thing to do in exercising power and success. Greater accountability is part of our debate, and we have heard about the regulations and regulators. The Ecumenical Council for Corporate Responsibility’s report, The Banks and Society, which was published and ignored in March 2011, is now on the agenda of regional and perhaps national bank leaders, along with its main recommendations—particularly the desire for transparency in the business activity of a bank in a region that is trying to develop the economy as whole. That kind of approach and permission from the centre will be much welcomed.

More competition can be seen in the regional banks that may be emerging. From my own interest in the Church Commissioners, I know that the proposed Williams & Glyn’s Bank, which is emerging from the 300 RBS branches, may have an opportunity to demonstrate how to be a good bank in the terms that we have already heard about, but at the same time that it will be freed from some of the responsibilities of the bigger banks and respond to people’s needs locally. The background to that bank’s ambitions touch on most of the areas that we have been dealing with in these debates, whether that is to do with remuneration, a reluctance to indulge in—or even a ban on—proprietary trading, the participation of all the staff, appropriate levels of leverage, and whether, simply, as all the banks seem to say, that it is important to treat your customers well.

Would we get better business judgment? We heard again recently of another series of bad debts, and of the difficulties one of the major banks had in dealing with them. However, to follow, for example, the recent discussion led by Andrew Whittaker of Lloyds Bank, the approach of proper risk management is something that people, both locally and nationally, expect to operate at a very high level of skill and attention. In a healthy and successful business one would expect certain things—the nuances of avoiding looking the wrong way at the wrong time, self-deception that gets going when we have a lot of power and adventure, opportunity taken without due diligence, misplaced assumptions about the future, lack of contingency, and so on—to be part of the bread and butter of how the governance is operating.

In conclusion, I will touch upon that discussion in the reports about longer-term vision. As the noble Lord, Lord Carrington, said, we not only hope that we will have a vigorous and world-beating industry here, we expect in the regions and localities that the powerful engine of the economy will also attend to bringing more of the poorer and less powerful people into the economy. It can do that by attending to credit unions and to the needs of people by removing and managing unmanageable debt, and by the ability to go into all the communities and schools and enable young people from the very start to know that money is a very good and wonderful thing if it is managed responsibly for their own good and for the good of their community.

I hope that the areas of expectation that are woven through these reports will build up, as noble Lords have said, that elusive and most precious gift of a renewed trust in one of our most fundamental industries, for the good of community and of society. I hope that people will begin not only to say, proudly, that that industry is a good mega-engine driver for the economy, contributing to rather than drawing from taxpayers’ money, but also that their participation, as an ordinary citizen or a micro, small or medium-sized enterprise—which is how most of the people in this country begin to participate in the economy—will be one of the long-term fruits of all your Lordships’ work. I trust that we ourselves will continue to remain accountable for making sure that banks exist to enable the economy to work and not to be the economy itself.

19:08

[Lord Sharkey (LD)]

My Lords, I start by warmly congratulating the noble Lord, Lord Carrington of Fulham, on his excellent and insightful maiden speech. He set a formidably high hurdle for those of us who follow him. I also congratulate the most reverend Primate the Archbishop of Canterbury on securing this debate. I congratulate him and his fellow commission members on the reports that they have produced and the use to which they have put them. I know that the commission no longer exists, but listening to its members in the House in the debates on the banking reform Bill, is surely conclusive proof that there is life after death.

I know that it is conventional to praise the work of our committees—sometimes before going on to qualify that praise—but I will make it plain from the start that I have an unreserved and unqualified admiration for the work of the commission and the reports that it has produced. I am struck by the force of its analytical inquiry. I am struck by the force of its criticisms and by the essential simplicity of its recommendations. I am struck, too, by the clarity and simplicity of the language in which all this was expressed.

The commission’s reports deal with all aspects of the banking crisis and many of its recommendations have been adopted by the Government. The focus and debate has, quite rightly, been on legislation to produce better regulation. Although banking culture formed a prominent part of the commission’s report, it played, perhaps, a less prominent part in our debate. It is the issue of banking culture on which I wish to focus my remarks.

The commission was clear that there was, and indeed is, a problem with the culture in banking. It is worth quoting paragraph 754 from volume 2, which states:

“Poor standards in banking are not the consequence of absent or deficient company value statements. Nor are they the result of the inadequate deployment of the latest management jargon to promulgate concepts of shared values. They are, at least in part, a reflection of the flagrant disregard for the numerous sensible codes that already existed. Corporate statements of values can play a useful role in communicating reformist intent and supplementing our more fundamental measures to address problems of standards and culture. But they should not be confused with solutions to those problems”.

In other words, fine talk will not solve real problems—and the problems are very real.

It is a sad reflection that there is no need to rehearse the consequences of the banks’ corrupt culture in any great detail; it is all too appallingly familiar. Nevertheless, we should not forget the scale of the problem with the ethics and behaviours of the banks. There was the mis-selling to SMEs of products that were completely inappropriate; there were the LIBOR and the EURIBOR scandals; there were the HSBC money-laundering scandals; and there is now the possibility of another huge scandal if the allegations about RBS’s treatment of small businesses prove true. All these were bad enough, but much worse was the PPI mis-selling scandal, because it was the clearest example of a deliberate exploitation by the banks of their customers.

John Lanchester wrote in the London Review of Books recently:

“PPI was about banks breaking trust by exploiting their customers, not accidentally, but as a matter of deliberate and sustained policy. They sold policies which they knew did not serve the ends they were supposed to serve and in doing so treated their customers purely as an extractive resource”.

There is a common thread running through this criminal, or near-criminal behaviour. It is a kind of contempt that the banks have had for their own customers. It is clear that the banks have not behaved in the interests of their customers—nor, for that matter, in the interests of the rest of us. The banks are almost unique in doing this, and they are certainly unique in getting away with it. Many huge and complex commercial concerns exist, but they do not systematically loot their customers.

My own long experience as an adviser to the senior management of very large, complex, commercial companies suggests a reason for this. One factor common to all the multinationals I have worked with was a fundamental belief in competition—a word that has so far not played much of a role in our debate. Competition in the service of customers was the key. That belief was not just a form of words, or just the shared view of senior management. It was the belief that defined the company at every level and in everything it did. It formed a strong cultural bond, where the obvious question to ask about anything was: is this really in the interests of our customers? No one in our banks asked this question about the introduction of PPI.

What makes the belief in serving the interests of customers a culture, and not just jargon, is competition. In all normal enterprises, large and small, what keeps companies focused on their customers is competition. If you do not serve the interests of your customers, your competitors certainly will—or at least they will if you operate in a competitive marketplace.

I have heard it argued that our large banks really did want to compete with each other. If that was ever true, it is certainly not true now. They do not compete and they probably will not because they do not need to do it to make money, and they make more money for themselves by not competing. Why do they not need to compete? It is because they effectively form a cartel. The EU Commissioner for Competition said yesterday:

“What is shocking about the LIBOR and EURIBOR scandals is not only the manipulation of the benchmarks, which is being tackled by financial regulators worldwide, but also the collusion between banks which are supposed to be competing with each other”.

He added:

“If you take the opportunity to see the conversations between these cartel traders, you will be appalled”.

A cartel means no competition, and no competition means no need to serve the customer, who does not have many real choices anyway.

It is now a bit easier to switch banks, but where do you go? Which bank is better than the other, which is different, and which has senior management that will put your interests firmly before its own? As long as there is a banking cartel there will be no competition, and as long as there is no competition there will be no reliable driver of sustained cultural change. As long as banks are too big to fail, as long as they are too big to manage, and as long as there are too few of them to be competitive, the chances of real and sustained cultural change are very low.

Of course we will see, as we are beginning to see, banks trying to say plausible things about customer focus. We will see new codes of conduct, new mission statements and reassuring advertising. But the sad fact is that without real competition, the banks have no real and sustained incentive to change, and the consumer has no real choice and no real chance. There is only one way to fix this, and that is to break up the banks. They are too big to fail, so let us make them smaller. They are too big to manage, so to make them easier to manage, let us make them smaller. There are not enough banks to really compete, so let us make more by breaking them up.

I realise that we have had to give priority to fixing the obvious regulatory failures, and we are well on the way do doing this. Now we should turn our attention to failures in culture and in competition. Unless we do this, I fear that in 10 years’ time our successors will be looking at yet another series of banking scandals, and at yet another PCBS report on our failures in both culture and competition.

19:17

[Lord Turnbull (CB)]

My Lords, I join noble Lords in welcoming the noble Lord, Lord Carrington, to this House. I suspect that the smaller, innovative banks like Gatehouse are going to make a disproportionate contribution to the improvement of banking services in this country, so his knowledge and wisdom in that area will be valuable to us.

The final report of the PCBS opened with the following summary:

“Banks in the UK have failed in many respects. They have failed taxpayers, who have had to bail out a number of banks including some major institutions with a cash outlay peaking at £133 billion. They have failed many retail customers with widespread product mis-selling … They have failed their own shareholders, by delivering poor long-term returns and destroying shareholder value. They have failed in their basic function to finance economic growth, with businesses unable to obtain the loans that they need at an acceptable price”.

That is a harsh verdict that poses a number of questions. Is it a fair verdict or is it just banker-bashing, providing politicians with a smokescreen for their own failures? Were other players also to blame? Are the remedies appropriate? Has something gone wrong with bank culture and can something be done about it? Lastly, will we kill the golden goose and drive away banks and/or bankers?

On the first question, it is certainly the case that the banks were not uniquely to blame for the financial crash. Top of my list of contributors is a major intellectual failure. The model of the financial world that was taught in our universities and business schools, and championed by Alan Greenspan among others, presumed that capital markets functioned efficiently. In fact, almost all of those assumptions proved to be wrong. Financial markets were riddled with serious flaws, such as major externalities, misaligned incentives, irrational herd instincts and asymmetry of information.

Secondly, there was the connivance of western Governments, particularly in the US and the UK, who actively promoted access to credit for their citizens as a way of promoting the appearance of rising living standards. Thirdly, there was the widespread use of inflation targeting of price indices based on a narrow basket of consumer goods while ignoring asset prices and underlying credit conditions. The list goes on—there were all the players that should have provided checks and balances but did not, such as regulators, auditors and rating agencies—but it is clear that the banks played a powerful role as an accelerator and transmitter of these forces, taking greater and greater risks.

Initially, the response to the financial crisis was largely a structural one. The first phase was to restructure the regulators. A twin-peak structure was put in place in the first Financial Services Act 2012. In my view this is not necessarily the only, or perhaps not even the best, model, but it has been done and we should get on with it and make it work, rather than continuing to debate the alternatives.

The other part of the structural response was through the Independent Commission on Banking led by Sir John Vickers, set up in June 2010, which reported its conclusions in September 2011. The ICB set itself four objectives. The first was to make banks more resilient and better able to absorb losses, through higher capital and lower leverage. The second was to make it easier and less costly to sort out banks that get into trouble by dividing them into ring-fenced entities carrying out the core functions of taking deposits, supplying overdrafts and operating the payments system, with other, riskier investment banking activities being kept in a different entity, though still within a banking group.

The third objective was to curtail incentives for excessive risk-taking. In particular, the ICB wanted to cut back the implicit guarantee that arises if banks, and those investing in them, come to believe that banks are too big to fail or too complex to be allowed to fail. Finally, it wanted to strengthen competition and consumer choice by creating a more diverse, less concentrated banking market and by making switching easier.

By mid-2012 the debate was still dominated by these structural issues. Some people argued that if incentives and structures were improved, if the implicit guarantee was curtailed and if the banks were properly capitalised, behaviours would improve. If that view was ever true, though, it was blown away by a series of revelations about conduct in the summer of 2012. The straw that broke the camel’s back was LIBOR fixing. At this point the patience of politicians snapped and we moved on to a different agenda, one concerned not just with structure but with behaviour, standards and culture. The PCBS was created to investigate this.

I should at this point record my thanks to my colleagues on the commission and to the clerks and advisers who supported us. Not only did we pioneer some new approaches to committee evidence-gathering, such as the use of counsel, but we demonstrated how much can be achieved within the discipline of unanimity. Even as the commission began its work, reports of misconduct multiplied. They came more or less weekly.

There was widespread mis-selling to consumers and SMEs of retail products such as PPI and interest rate swaps, there was mis-selling of complex mortgage securities in the wholesale market and there were poorly supervised rogue trading, aggressive tax planning, money laundering and sanctions busting. This time even the survivors of the crash, such as JP Morgan, HSBC and Standard Chartered, were implicated. The list of abuses grows even to this day, with rumours that there may have been fixing in foreign exchange markets and claims that RBS has exploited some of its SME customers.

The PCBS has produced five reports but its findings on conduct can be summarized briefly. First, there was a lack of personal accountability. The approved persons regime was found wanting, as it served only to control entry into senior posts—although, as the Reverend Flowers’s case indicates, at times it did not even achieve that. It was ineffective in influencing conduct and in enforcing standards. In this crisis only one senior banker has been fined, and no action has been taken against any CEO.

Secondly, there was remuneration that was widely perceived as excessive and incentivising poor behaviour. Thirdly, there was an erosion of professional standards and a decline in the status of chartered bankers. Fourthly, there was a loss of customer focus.

Anthony Salz, once of Freshfields and then of Rothschild, was asked by Barclays to review its business practices. He found a,

“culture that tended to favour transactions over relationships, the short term over sustainability, and financial over other business purposes … remuneration systems that tended to reward revenue generation rather than serving the interests of customers and clients”,

and a bank acting,

“within the letter of the law but not within its spirit”.

In a few words, he pretty much captures it, and the same could be said of most other banks.

The commission’s recommendations provide an extensive agenda to rectify this, including a senior managers regime to replace the APR, which will define responsibilities and hence create a chain of accountability. That will make it easier to identify who is responsible and therefore to sanction or disqualify poorly performing executives. It seeks to eliminate the Macavity defence of “I didn’t know” or “I wasn’t there”. Below senior management, banks will be required to identify all staff whose actions are capable of damaging the bank, its shareholders or customers and to attest that they will operate to proper standards.

A new body has been created by the banks, led by Sir Richard Lambert, to promote codes of professional standards. A new criminal offence of reckless conduct is to be applied where a bank has failed and required state assistance. There would be a tougher remuneration code requiring a larger proportion of pay to be deferred and for longer, plus a power for the regulator to claw back remuneration that has already vested where a bank fails and requires state support.

I return to some of the questions I posed at the start. Is this unfair targeting of banks and bankers? I would argue that it is not. Even now, banks accept that their conduct was not acceptable and that they have forfeited the trust of their customers. Banks are also exceptional in a number of other ways. They provide a public service through the payments system, which cannot be allowed to be interrupted. They are highly interconnected: a failure of one bank can damage other banks either directly or by undermining the trust on which the whole system is based. They can fail with astonishing speed. Even after the structural changes have been made, they will still enjoy some degree of implicit guarantee. In addition, their funding structure is different. Compared with most industrial and commercial companies, equity forms a tiny part of their balance sheet. Almost of necessity, they are highly geared organisations.

Will banks, and hence London as a financial centre, be forced by tighter regulation and higher capital requirements to contract or divest themselves of certain lines of business? To a degree, yes they will, and we should accept that. Our largest banks became too big to manage. Cutting RBS down to size so that it concentrates on serving UK firms and households is to be welcomed. It is essential that leverage is brought down. The UK is a middle-sized economy with a global-sized banking sector. In 1990 the combined balance sheet of UK clearing banks was 75% of GDP. In 2010 that had risen to 450%. Even by 2012, it was still at 350%. That exposes us as a nation to certain risks that we have to be prepared to face.

A lot of proprietary trading is better conducted in the hedge fund sector where the proprietors have more at stake and the implicit guarantee does not operate. Will banks or bankers move out of London, as many around the dining tables of the City tell us? Where would they go—into the hands of the US Department of Justice, the land of the orange jumpsuit and the perp walk, or into the bureaucratic clutches of the European Commission and the European Parliament? We should have the confidence to see a better regulated London as a source of strength, not weakness.

Finally, we must ask whether it is all going to work. In our debates, some noble Lords have described the ring-fence structure, even as strengthened by the commission, as an experiment. To a degree, it is, but so, too, would be fuller structural separation. The option of staying with the status quo simply is not available. Will the report achieve the objective of its title, Changing Banking for Good? We need a regime that works not just now, when banks have been chastened, but when animal spirits have revived and memories of the crash have dimmed. If it is to succeed we need to address both parts of the agenda, structure and culture, as they are closely linked.

The Government said they strongly endorsed,

“the principal findings of the report”—

and intended—

“to implement its main recommendations”.

The initial proposals in the Financial Services (Banking Reform) Bill fell short of that claim. Some recommendations were accepted but only weakly implemented, while others were ignored altogether. However, I can report that through the process of Committee and Report, a number of important amendments have been agreed, and significant assurances have been secured on the nature of reviews and on how the regulators will operate the new regimes. I hope that by Third Reading next week we can resolve the remaining issues.

Ultimately, however, the question of behaviour is for the banks themselves. Will they get back to a greater emphasis on relationships rather than transactions, and to serving their customers rather than seeing customers as the people from whom they make money? Opinion is clearly shifting for the good, but will this be temporary or will it be a change that lasts? Only they can answer this.

19:30

[Lord Eatwell (Lab)]

My Lords, the Parliamentary Commission on Banking Standards’s reports form a landmark, dissecting the structure of banking in this country and hence exposing the serious systemic weaknesses both within the banking industry itself and in government policies toward banking. The reports display a constructive blend of financial and institutional analysis. They also display a healthy disdain for the common fallacies which have been propagated by the banking industry in an attempt to limit change, such as the fallacy that higher capital requirements will reduce lending, as if greater capital were simply hidden away in the cellar rather than lent out for profitable return. The Government’s response has been generally welcoming, though a little timid.

The commission was established following the revelations of LIBOR manipulation. Its primary goal was to examine the culture of the banking industry, but its work soon broadened to included systemic risk. This was not simply because banking culture is itself a source of systemic risk to the UK, but also because the work of the Independent Commission on Banking, bold when published, was revealed by longer-term examination to be less powerful than originally thought—hence the PCBS proposals to electrify the ring-fence, and the commission’s numerous dark hints that ring-fencing is not going to work at all.

This is not, however, the occasion to stage a re-run of banking Bill debates. Instead I hope the House will forgive me for recalling that at the time of the establishment of the Parliamentary Commission on Banking Standards, I argued that it would not have the time or the resources to do the job needed—namely, a wide-ranging inquiry into UK financial services and their role, or lack of it, in rebalancing the real economy. I was right. While the commission has exceeded expectations, there is an enormous amount still to do if we are to have a financial system that does not just provide stable finance, but provides the high-quality, long-term financial support that modern industry needs.

My agenda of future work for a reincarnated commission covers three areas: the size and composition of the financial services industry, the changing nature of systemic risk, and the development of high-quality finance to support innovative, competitive industry. I shall discuss size and composition first. In a speech in mid-October, the Governor of the Bank of England, Mark Carney, suggested that UK banking assets would rise from about four times UK GDP today to nine times UK GDP by 2050. In other words, he predicted Britain would become Iceland circa 2007. In defence of his relaxed anticipation of this ominous prospect he argued that,

“a vibrant financial sector brings substantial benefits”,

not only to the UK, but to the world, saying:

“The UK’s financial sector can be both a global good and a national asset—if it is resilient”.

The governor is calling for greater international financial integration, and it is easy to understand why. The City of London is absolutely brilliant at taking funds from around the world, repackaging them into new risk-return structures and selling them back to the rest of the world. It is the world’s finest offshore financial centre. But is a financial sector nine times bigger than GDP such a good idea, even with all the measures of the recent Financial Services Act and the new banking Bill in place? Is the ring-fence sufficient to limit national risk exposure to those inside the ring-fence, while all the risks outside fall on private sector shoulders? We should remember that Lehman Brothers would have been outside the ring-fence. Perhaps it is in the wrong place and should be between, on the one hand, domestic operations and, on the other hand, international operations, thus at least in part insulating the British economy from international financial instability. These issues should be the first items on the agenda of the new incarnation of the commission—whether the governor has got it right.

The second item on the agenda of the new commission should be the changing nature of systemic risk. The key warning of this came last May, when Ben Bernanke hinted at a tapering of US quantitative easing. The result was a massive slump—even chaos—in international bond markets around the world, particularly in emerging markets, and severe difficulties in some foreign exchange markets. In the press, this was attributed to the reversal of flows of what was called a “wall of money” that had originally migrated to emerging markets in the search for yield, given the near-zero interest rates in advanced countries. That portrayal of the problem was wrong, because flows of funds to emerging markets have fallen year on year since 2008—there is no wall of money. What is important is that their form has changed. The capital flow from global banks to emerging markets has slowed to a trickle. In its place, emerging market banks have increased their issuance of bonds. Even more dramatically, non-bank investment in emerging market bonds has soared. Today, in emerging market funding, the global banks have given way to asset managers and other buy-side investors who have global reach. Most of this new bond issuance has been in US dollars, so that emerging market corporates have become much more sensitive to US interest rates and to fluctuations in exchange rates vis-à-vis the US dollar. This increased sensitivity in the changed structure of the market is clear in emerging markets.

Exactly the same transformation of funding flows is taking place here at home. Industrial and commercial firms starved of funding by the banks are turning to the bond market. Asset management firms and insurance companies are responding by increasing their flow of funds into corporate bond markets—which are far more sensitive to prospective interest rate changes than traditional bank lending. A new vicious cycle is being created in which the prospect of interest rate rises leads to falling bond prices, which leads to a flow of managed funds out of the corporate bond market, which leads to declining investment and growth, which in turn undermines future bond yields so that asset managers cut back the flow of funds. That is the vicious cycle.

These distress dynamics have some unfamiliar elements. We normally invoke either leverage or maturity mismatch when explaining crises, and the usual protagonists in the crisis narrative are banks or other financial intermediaries. By contrast, in the newly emerging scenario, asset managers are at the heart. Those are usually the people we characterise as benign, long-term investors, routinely excluded from the list of “systemic” market participants. However, the distinction between leveraged institutions and long-only investors matters less if they share the same tendency to procyclicality. Today, asset managers increasingly base their trading on the same measures of risk used by the banks, so the behaviour of asset management firms will tend to exhibit the same type of procyclical risk-taking that the banks are known for. None of those issues is dealt with in current legislation; they must be dealt with by the new commission.

The third item on my extensive agenda for the reincarnated commission is how the financial services industry serves the need to rebalance the real economy. For the harsh truth is that despite the fact that banking balance sheets around the world are today 15 times greater, relative to GDP, than they were 30 years ago, trend world growth in the real economy is certainly no faster than it was then; and in the West it is significantly slower. No wonder the noble Lord, Lord Turner, labelled much of financial services as “socially useless”.

Most notably, private sector investment in research and development is slowing down. Indeed, if there were not substantial public sector R&D spending, investment in crucial drivers of future growth would be falling. Here, the public sector is really sustaining the R&D agenda. In 2012 alone, state development banks financed $109 billion-worth of investment in renewable energy, energy efficiency, and electrical transmission and distribution, while private sector investment was less than a third of that. In the US, it is government funding in high-growth areas such as the life sciences that is absolutely essential. Where would British life sciences be without the long-term funding provided by the Wellcome Trust?

The private sector problem is lack of the right sort of funding. Even venture capital, designed in theory to provide high-risk finance for innovative companies, snubbed by risk-averse banks, has become itself increasingly risk-averse. The sector is focused on early exit, usually through IPOs in three to five years—while innovation takes 15 to 20 years.

If we are to steer the economy from the consumer-driven mini-recovery that we have at the moment to a productive investment-driven economy, where is the long-term finance to come from? We need the reincarnated commission to refocus reform of the financial sector on quality of financing, not solely on stability or quantity. Reform of the financial sector should be joined up with innovation policy so that productive, not speculative, investment is nurtured in companies of all sizes.

My report card for the commission therefore reads as follows: “Has done an unexpectedly good job; indeed, a brilliant job, and should be congratulated; but has the potential to contribute even more, if only there were a Government that would give it the mandate to fulfil its potential”.

19:43

[The Commercial Secretary to the Treasury (Lord Deighton)]

My Lords, this has been a very constructive and timely debate. I felt that I was getting one of my exams marked there, for a minute; that was the feedback I used to get 38 years ago. It is the right time to be talking about this, given where we are with the Financial Services (Banking Reform) Bill, which has been extensively amended in response to the recommendations of the Parliamentary Commission on Banking Standards. Of course, as a number of noble Lords pointed out, we are moving toward the end of that Bill’s progress through the House. That marks the final stage of the Government’s programme of legislative action to reform banking.

We are all aware of the serious problems that have come to light in recent years. I thought that the noble Lord, Lord Turnbull, gave us the best exposition of all the individual incidents and the questions that we should be asking. We are absolutely right this evening to be focusing on the culture within banking.

Step 1, from the Government’s point of view, was to fix the regulatory system. As well as giving the Bank of England responsibility for financial stability, therefore, the Financial Services Act established the Financial Conduct Authority as a tough new conduct regulator, focused on making sure that conduct issues get the serious attention they need and deserve.

I welcome the insightful comments in the maiden speech of my noble friend Lord Carrington. He enumerated far more concisely than I could the merits of the new judgment-led approach that the regulators will apply to supervision, and the disappointing failure of what we describe as the tick-box approach. I am in tune with that analysis. I was also quite taken by my noble friend’s discussion of Islamic banking, which is values-based. There are probably some lessons for the rest of the banking sector there.

The Government supported the establishment of the PCBS under the chairmanship of the honourable Member for Chichester, Andrew Tyrie, and the work of that commission has played an absolutely vital role in shaping the future approach to conduct and standards in the UK’s financial services sector. Of course, its pre-legislative scrutiny of the draft banking reform Bill, which has been referred to, also led to a strengthening of the ring-fence, with its electrification.

The commission’s impressive final report, Changing Banking for Good, which was published in June, made some key recommendations, ranging across individual accountability, corporate governance, competition and long-term financial stability. In July the Government published our response to those recommendations. We endorsed the main findings of the commission’s report and committed to implementing its principal recommendations, using the Bill where legislation was the right way forward. I would like to think that the Government have delivered on that commitment. The debates we had in this House were extremely helpful to the Government—and, I hope, refined some of the commissioners’ thinking—and we have ended up in what I think is a very good place. I hope that next week, at the next stage, it will all come to fruition.

We tabled amendments to establish the new senior managers regime, which is the critical control system to ensure that the culture is right, and are going to implement the commission’s recommendation to introduce what is in effect a licensing regime to cover more junior banking staff. For the first time, regulators will be able to make conduct rules applying to all employees of a bank, and these changes form the basis of a much more robust focus on conduct and standards within these banks, both by giving the regulators new and important powers with regard to senior managers, such as time-limited and conditional approvals, and by placing firm obligations on banks themselves to take responsibility for the conduct of more junior staff. The Government have put in place a new offence of criminal recklessness in the management of a bank so that in future those who bring down their bank by making thoroughly unreasonable decisions can go to jail for their actions.

All these changes have improved the Bill significantly, and I thank all noble Lords who have contributed to the debates so far. I particularly express my gratitude to the former members of the commission for their continued constructive engagement throughout, which has enabled the Government to realise their vision comprehensively.

Of course, to a man with a hammer everything looks like a nail, and there is sometimes a risk that to a parliamentarian every problem looks like it needs legislation, but this debate is a timely reminder that legislation is just one weapon in our armoury towards building the highest standards within the industry. As the most reverend Primate said, you cannot solve problems by changing law, and you cannot make people good through law. I absolutely agree with that.

The commission’s recommendations about the regulation of individuals in banks rely heavily on rules that the regulators will make underneath the legislative provisions, and the way in which those rules are applied. We have to work all this through to see how it works in practice.

The Bank of England and the FCA published their responses to the commission’s report in October, and set out their positions on each of the recommendations. They continue to make progress. I hope that the regulators will take note of the points that have been raised this evening—I know many of them are here witnessing this—as they go ahead to implement the commission’s recommendations through their rules. They will be launching public consultations on these rules next year. I urge all those who have spoken this evening to reiterate their views to the regulators through this process.

I return to the issue of creating culture change. One of the most reverend Primate’s questions was, “What will drive this cultural change?”. Regulatory rules are a necessary but not a sufficient condition for creating a profound change in the culture of banking. It is clearly an area where banks themselves must take significant responsibility. They have committed to the establishment of a professional standards body, which represents some progress; but I also hope that the industry’s leaders will take notice of this debate and continue to work to rebuild the fundamental trust which the public need to have in them if this is going to improve over time. That trust will only grow through a relatively long healing process.

Perhaps I may take a couple of minutes to refer to my own experience and what I learnt in the business. I was in the banking business for 27 years. What attracted me to it in the first place resonates with the comments of the noble Lord, Lord Eatwell, about the quality of finance and those of the most reverend Primate about what banks are for and what contribution they make to local and national economies. The thing that made me want to go into banking was the opportunity to work with so many different businesses; to work with so many other different kind of financial institutions; to work with different countries around the world; and to use finance to make things happen, to build things and to see development. For me, it was the best possible opportunity to make an enormous difference to so many businesses around the world.

I never lost the sense of magic that the position you get at the centre of things gives you. My career divided into two halves. In the first half, my responsibility was to manage and build a group of clients and, frankly, to maximise the market share for my firm from those clients by winning as much business from them as we possibly could. I learnt one very simple thing: the most important rule for success was to put the customer’s interests first. There was nothing worse than an unhappy client. My most profitable long-term client relationships were with those people whom I had initially advised not to do transactions. We have heard a lot of discussion about taking care of the customer and putting the customer first. My own experience tells me not only is this the right thing to do, it is also in the bank’s long-term financial interest to behave in precisely that way too. The essence of effective leadership of a bank is to bring those things together.

In the second half of my career, when I was in much more of a leadership role, I spent an enormous amount of time building and managing the systems of controls and compensation to try to align that kind of long-term profit maximisation with taking care of clients and doing the right thing in a regulatory environment. I understand the enormous challenges of sitting near the top of these big organisations; wanting to do the right thing, yet never quite being sure whether there was a so-called rogue trader out there and whether you had the capacity to spot them and deal with them early enough.

A number of noble Lords have pointed to the importance of competition as a way of keeping everybody honest on a number of respects. I absolutely support competition as a healthy and stimulating part of this dialogue.

My final comment about the culture of banks is that it comes from the top—the tone is set at the top. You absolutely need systems, controls and management structures to ensure that it is effectively deployed throughout the organisation, but, for me, culture is ultimately about leadership. It is about leadership of the financial institutions, in the regulators and in government. That triumvirate needs to continue to display the right kind of leadership if we are effectively to change backing for good, as the commission has recommended.

Finally, I thank noble Lords who have spoken this evening, and thank the most reverend Primate for presenting us with this important opportunity to discuss these matters.

19:54

[The Archbishop of Canterbury]

My Lords, I add my thanks to all noble Lords who have contributed this evening. A number of striking comments and speeches have been made, notable among them that of the noble Lord, Lord Carrington, with his description of a Sharia-compliant bank and the impact that that can have and his deployment of his experience both in the other place and in the banking industry over many years.

The debate has ranged far and wide. I want to draw on two characters. One is Dracula. We have the threat of reincarnation—or, if one is into “Doctor Who”, regeneration—of the Parliamentary Banking Standards Commission. I saw the blood drain from the face of the noble Lord, Lord Turnbull, as I sat from this distance. I hope that we can find some stake and clove of garlic that can put it into its grave and that someone else will have the pleasure of reincarnating it at some point.

The speech of the noble Lord, Lord Eatwell, clearly reminded us that financial services are immensely connected and that what you squash down in one place pops up in another—to put it less elegantly than he did—often with great force, little regulation and usually much danger. His exceptional speech should be noted and thought about. I fear that there will be need for continual monitoring of what happens over the next few years.

I have a couple of comments. I shall be brief, because we are at the end of our time and it has been a long day. The comments made by the noble Lord, Lord Sharkey, about size were also strong reminders of the difficulties that we face. One of the most memorable comments in evidence for me was from a former head of UBS, clearly deeply affected personally by the pain of what he had gone through. He was one of those bankers who came who had borne the whole weight of it on his shoulders and suffered greatly as a result. There was no lack of responsibility from him. When asked if, in the depths of the night, he looked back and thought that he might have done differently, he said that you can have a big simple bank or a small complicated bank; you cannot have a big complicated bank. He said that if he had his time again, he would have kept it simple.

When I listened to the noble Lords, Lord Sharkey and Lord Eatwell, I was reminded of the extraordinary statistic anticipating the banking industry at nine times GDP. I was reminded of the need for banks to be kept to a size where they do not threaten everything else. They are not the only goose laying golden eggs in our economy. We cannot be a “monocrop economy”, as Martin Wolf described us in a notable article in the Financial Times in January 2009.

I cannot go through all the other points raised, but I heard with gratitude the comments about education. Competition is obviously essential, but, as the Minister said a few moments ago, competition must be to be the best supplier of the customer, not the most profitable bank going. You may get the second through the first, but if you aim solely for the second, you will never get the first.

Finally, the quality of finance—to which the noble Lord, Lord Eatwell, referred directly and indirectly—is that which sustains our communities and enables the talent of our nation to flourish, grow and develop jobs. He used a phrase, “financial services”, that has been used many times in the debate. All these industries, banking and the others, are there to serve, not to rule. They are, as I was taught as a child by my grandmother, when talking about fire, good servants and very bad masters.

Motion agreed.

House adjourned at 8 pm.